Search anytime by typing below

Thanks for joining the AEA efforts to help combat rising energy prices. We don’t want to bug you that often, so let us know what energy issues interest you, and we’ll keep your inbox happy.

*Please fill in all items

Key Vote NO on H.R. 3684

September 30, 2021 by Leave a Comment

The American Energy Alliance urges all members to vote NO on H.R. 3684, the infrastructure bill as amended by the Senate.

This legislation is poor policy and a bad use of taxpayer resources. The subsidies for electric vehicles and charging are not the responsibility of the federal government. The tens of billions of dollars for unneeded and impractical passenger rail will only fuel more wasteful white elephants to accompany California’s ongoing high-speed rail fiasco. The tens of billions of dollars more to mass transit systems whose ridership have collapsed is yet more waste. The tens of billions in subsidies for electricity transmission is simply not needed. The amendment also layers on billions in questionable spending in pursuit of central planning of energy.

But beyond the bad policy in the infrastructure bill itself, the legislation is inextricably linked to the multi-trillion dollar inflationary budget that the administration hopes to see passed through reconciliation. The energy taxes, mandates and distortionary subsidies in the reconciliation bill would be a disaster for the American economy. Its provisions will drive up the cost of energy and goods throughout the country, turbo-charging already persistently high inflation and exacerbating the challenges posed by federal deficits. Because of the linkage of the two pieces of legislation, a vote for the bipartisan infrastructure bill makes passage of the inflation bill more likely. AEA therefore urges members not to collude in raising energy prices for Americans.

The AEA urges all members to support free markets and affordable energy by voting NO on  H.R. 3684.  AEA will include this vote in its American Energy Scorecard.

Filed Under: Blog, Scorecard Tagged With: , , , , , ,

The Unregulated Podcast #51: Tom and Mike Discuss Europe’s Energy Crisis

September 29, 2021 by Leave a Comment

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss Europe’s looming energy crisis.

Links:

Filed Under: Podcast Tagged With: , , , , , ,

Key Vote NO on Nomination of Tracy Stone-Manning

September 29, 2021 by Leave a Comment

The American Energy Alliance urges all Senators to oppose the nomination of Tracy Stone-Manning for director of the Bureau of Land Management.

Stone-Manning has a demonstrated history of environmental radicalism that is disqualifying for the role of BLM director. Her involvement in violent, criminal activism alone should be disqualifying. But beyond that incident Stone-Manning has established a clear track record of hostility towards the statutory multiple use of federal lands as mandated by Congress. Her implacable opposition to multiple use means that she cannot be trusted with the role of BLM director, a position that is tasked with managing the very multiple use of federal lands which she opposes. 

The AEA urges all members to support free markets and affordable energy by voting NO on the nomination of Stone-Manning for BLM director.  AEA will include this vote in its American Energy Scorecard.

Filed Under: Blog, Scorecard Tagged With: , , ,

The Unregulated Podcast #50: Tom and Mike Provide an Update on Reconciliation

September 23, 2021 by Leave a Comment

On the latest episode of The Plugged-In Podcast Tom Pyle and Mike McKenna give an insider update on the Congressional proceedings surrounding Democrats’ reconciliation bill.

Links:

Filed Under: Podcast Tagged With: , , , , ,

How the Reconciliation Process is Being Used to Pay Back Big Green, Inc.

September 22, 2021 by Leave a Comment

Democrats in Congress use partisan reconciliation process to pay back their cronies with billions in federal handouts


WASHINGTON DC (September 22, 2021) – The American Energy Alliance (AEA), the country’s premier pro-consumer, pro-taxpayer, and free-market energy organization, voiced public opposition to the numerous, disastrous energy policies being discussed before Congress – particularly within the U.S. House of Representatives – in upcoming budget reconciliation and infrastructure bill negotiations. Instead of working to reduce skyrocketing prices as American families suffer the worst inflation in years, Democrats are working to funnel billions of dollars to their donors and special interests. Their current plans include subsidies for electric vehicles (EVs) and charging stations, direct payments to favored electricity generators, carbon taxes, wind and solar tax extenders, the creation of a federal “climate” jobs program, and countless other bad ideas.

In response, AEA President Thomas Pyle issued the following statement:

“Bribing utilities to generate electricity from intermittent renewable energy sources isn’t just a terrible idea, it’s reckless and dangerous. Just ask Californians, Texans, New Yorkers, or Europeans for that matter, who have suffered or lost loved ones from unnecessary power blackouts. When the federal government picks winners and losers, it’s always the special interests that win and the taxpayers who lose. It’s also a system that is inviting fraudulent behavior.

“There is no need for the federal government to pay for electric vehicle infrastructure. Subsidizing half a million charging stations and handing out tax credits to purchase electric vehicles to people who don’t need them is a waste of taxpayer resources. If electric vehicles are the future, then why is the government trying to force them into the marketplace, and why are the automobile manufacturers insisting on the subsidies?

“I have been sounding the alarm for years that someday the Democrats would attempt to bury a carbon tax into a huge spending bill. And that day is upon us. These carbon tax proposals will unquestionably drive up energy and gasoline prices further, and isn’t that the whole point? Natural gas, oil, and coal make up 79% of our energy mix. Tax them and you tax everything else in the economy. And don’t be fooled by the happy talk of rebates. The drag on the economy due to carbon taxes will not be offset by sprinkling around some of the cash that is collected. Meanwhile, the Biden Administration continues to beg nations like Russia to produce more oil in an attempt to lower the price of gasoline.

“With the midterm elections on the horizon, the Democratic party is more than happy to pay off their special interest green groups with these billion-dollar schemes while they stick it to the poor, seniors, and citizens living on fixed incomes in the process. We can only hope that their seemingly inexhaustible greed will cause these massive spending bills to topple under their own weight.”


AEA opposes these disastrous energy policies being discussed before Congress and will score votes with respect to any legislation voted upon. AEA’s American Energy Scorecard scores both votes cast, and legislative bill sponsorships related to energy and the environment.

Additional Resources:

For media inquiries please contact:
[email protected]

Filed Under: Press Releases Tagged With: , , , , , ,

Biden and House Reconciliation Bill Writers are in La-La Land

September 21, 2021 by 1 Comment

President Biden’s climate policies and the House Democrats’ reconciliation bill will decimate U.S. energy industries along with millions of associated jobs while saddling consumers with skyrocketing prices and electricity blackouts. One only has to look at California and Europe to see that the goals of Biden’s climate policies and the reconciliation bill will eventually end up with the energy disaster Europe and California are experiencing. And, it will cost businesses and taxpayers $3.5 trillion to attempt such foolishness. Clearly, China and India do not intend to participate in the folly as John Kerry has failed miserably to convince them to partake in committing to net zero carbon economies by 2050 on his mission to obtain pledges before the COP26 meeting in November.

The Reconciliation Bill’s Punitive Energy Regime

The proposed reconciliation bill’s Clean Energy Performance Plan (CEPP) is a punitive program that would require electric utilities to buy or generate additional amounts of renewable energy each year or face steep fines. Companies that reach their quotas would be paid federal indulgences. The program is effectively a national renewable portfolio mandate couched in terms of budgetary fines and subsidies that enable it to be part of the reconciliation bill and pass with a simple majority vote in the Senate. The program would cause reliable fossil fuel plants to be shut down prematurely and electric consumers would bear the brunt of the costs to replace those plants with unreliable and intermittent wind and solar units of which China is the world’s predominant supplier. The result will be high-paying jobs lost, skyrocketing costs and rolling blackouts. It would emulate throughout the United States the power crises that have arisen in California and Europe.

Senator Joe Manchin, a Democrat from West Virginia, lambasted the CEPP, noting that the industry is already moving to “cleaner” fuels. “It makes no sense to me at all for us to take billions of dollars and pay utilities for what they’re going to do as the market transitions.”

In the transition to a net zero carbon electricity sector, U.S. supplies of domestic resources of fossil fuels would be curtailed as well by the proposed bill as producers would be faced with increasing fees, new taxes on their fuels and fewer federal lands available for development. Offshore oil and gas production in the Atlantic, Pacific and Eastern Gulf of Mexico would be prohibited as would production on federal lands in the Arctic National Wildlife Refuge (ANWR) in northern Alaska. Taking away ANWR oil production will hurt the Alaskan economy and put the Trans Alaskan Pipeline System at a problematic level of operation given its reduced oil flows from current allowable drilling operations. The fees, new taxes (such as the natural gas tax on methane), and reduced access to oil and gas resources on federal lands will increase oil and gas prices for consumers. President Biden and other Democrat politicians have made promises to only “tax the rich,” but gasoline prices have already risen a dollar a gallon since Biden has taken office while natural gas prices have doubled.

Europe’s Energy Crises

Europe entered into a transition from fossil fuels to “clean energy” and set stringent goals of greenhouse gas reductions via its commitments to the Paris Climate agreement. Europe’s troubles started after its energy consumption was reduced due to the locked downs caused by the coronavirus. As the European economies opened up from the pandemic, energy prices skyrocketed from rising demand accentuated by a cold winter and insufficient supplies. Coal and nuclear plants had been shuttered, natural gas stockpiles were low and the continent’s increasing reliance on renewable sources of energy exposed its vulnerability when the wind did not cooperate with the plan. Even with mild weather in September, natural gas and electricity prices were breaking records across the continent and in the United Kingdom. Ireland’s grid operator warned in September that there was a risk of blackouts due to lack of wind. Expectations in Italy are that power prices will increase by 40 percent in the third quarter.

Source: Bloomberg

Renewable energy brings volatility, which makes it very costly for the continent to reach its targets. For example, Germany Chancellor Angela Merkel’s energy policies have cost its citizens hundreds of billions of euros in subsidies as the country closed nuclear and coal plants and built wind and solar units in their place. German households already pay electricity prices that are three times higher than American households.

The high fuel costs in Europe have also affected its industrial sector. In the U.K., CF Industries Holdings Inc., a major fertilizer producer, shut two plants, and Norwegian ammonia manufacturer Yara International ASA curbed its European production.

China and India’s Stance

John Kerry, the U.S. Special Climate envoy, tried to get India to pledge to reduce carbon emissions to “net zero” (carbon-neutral) by 2050 at the upcoming COP26 summit in the U.K. in November. But, the Indian government does not consider the “net zero” goal its only priority. India is focused on the “key issues” of climate justice and sustainable lifestyles, stressing the inequality between the demands of developed societies from developing countries on emissions cuts. Kerry indicated that the United States would help India finance its latest target of building 450 gigawatts of renewable energy capacity by 2030. But, India, is also building coal plants that last 40 to 60 years and currently gets over 65 percent of its electricity from coal. With hundreds of millions still in abject poverty, India requires cheap and reliable power for industrialization and economic progress.

China, the world’s largest emitter of global greenhouse gases at 25 percent, is using cheap and reliable coal power to make polysilicon used to manufacture the world’s solar panels. Unlike India, it has set 2060 as its date for carbon neutrality and 2030 as its date for peak emissions. As a result, the world is allowing it to build hundreds of coal plants with over 100 gigawatts planned that will add to its current fleet of about 1000 gigawatts of coal-fired capacity.

China generated 53 percent of the world’s total coal-fired power in 2020, nine percentage points more than five years earlier. China was the only G20 nation to see a significant jump in coal-fired generation, which increased by 1.7 percent (77 terawatt-hours). That increase pushed global coal power to 53 percent from 44 percent in 2015. China’s new coal capacity in 2020 more than offset the retirements in coal capacity in the rest of the world, leading to the first increase in global coal capacity development since 2015. China supports its economy by consuming large amounts of coal, which represents 57 percent of its energy supply.

Source: IEA

Conclusion

President Biden’s climate policies and the House reconciliation bill will harm America’s energy system as it is doing in Europe while allowing China and India to continue releasing greenhouse gas emissions that will overwhelm whatever declines in emissions that Europe and the United States make. It is a foolhardy way to kill the U.S. economy that needs affordable and reliable energy to build back from the coronavirus lockdowns and to produce good jobs in America. China is clearly ignoring Europe’s and the U.S.’s demands to reduce emissions by its commitment to continue to increase emissions to 2030 and only reach net neutrality in 2060 after the Europeans and Americans have killed their economies by trying to do so by 2050. The United States, like Europe, is in the process of unilaterally disarming itself in terms of its energy and economic security. While the consequences of this course of action are not yet known, the fractures already being seen in our system are not encouraging.

Filed Under: Blog Tagged With: , , , , , , , , , , ,

All the Energy That’s Fit to Subsidize

September 21, 2021 by Leave a Comment

This past week House Democrats passed their budget reconciliation bills in the various Committees.  So far these bills are 100 percent partisan as no Republicans in any Committee has voted for them. Next, the House Budget Committee will take the various provisions and combine them into a reconciliation bill to send to the Senate. This is moving quickly because House Democrats, along with the Administration, does not want any real oversight of the trillions of dollars they want to spend.  Here are some of the bad ideas in these bills that are related just to energy:

Ways and Means Committee:

  • Reinstates a 16.4 cents-per-gallon tax on crude oil and imported petroleum products that had expired in 1995 to fund Superfund cleanups of hazardous sites. It also would double the tax rate on sales of certain chemicals. This had also expired in 1995;
  • Provides full PTC extension through 2031, with phasedowns for projects beginning construction in 2032 and 2033 and expansion of PTC for solar projects;
  • Extends ITC for projects beginning construction after 2021 and before 2032, with phasedowns for projects beginning construction in 2032 and 2033; projects that began construction in 2020 and 2021 would remain eligible for a 26% ITC;
  • Expands Section 45Q carbon capture tax credit;
  • Creates new tax credits for a variety of renewable energy projects, including energy storage technology, electric transmission property and zero emissions facilities; 
  • Extends and modifies tax credits for electric vehicles, including elimination of manufacture numerical limitations (currently limited to 200K vehicles per manufacturer);
  • Provides direct pay option for PTC, ITC, and 45Q which would be available tax-exempt entities and state and local governments;
  • Extends income and excise tax credits for biodiesel at $1 per gallon;
  • Creates a new sustainable aviation fuel tax credit;
  • Provides a production credit for hydrogen produced at a “clean hydrogen” facility;
  • Allows a 30 percent credit for cost of qualified energy efficient property expenditures; includes solar electric, solar water heating, fuel cell, small wind, battery storage, and geothermal heat pumps for the next 10 years;
  • Expands energy efficient commercial building deduction; 
  • Extends energy efficient home credit;
  • Creates a bicycle commuting benefit; 
  • Implements an electric bicycle credit.

There is a ton of tax provisions related to energy.  One to highlight is the wind production tax credit (PTC). The PTC has been a critical subsidy for the wind industry for decades.  For example, the chart below from the American Energy industry Association demonstrates how dependent the industry wase on small amounts of new wind turbines built when the PTC had expired.  As Warren Buffett said “For example, on wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”

Nine years ago, the wind industry agreed to a six-year phase out of the wind production tax credit. At the time, the wind industry told reporters that they needed 4-6 years to achieve subsidy-free competitiveness. The reality is that the tax credits generated by the wind PTC has been very lucrative for Wall Street financiers who have created “tax equity markets” to help reduce the tax liabilities of large corporations, which is part of the reason those pushing for more taxes on corporations cite low tax obligations on them.

We keep hearing renewables are the cheapest sources of electricity generation, yet these industries continue to lobby as if they are dependent on the American taxpayer.  If it walks like a duck and talks like a duck, it’s probably a duck. The fact is, they are still dependent on the federal dole. If they weren’t, then why would they be asking for more? 

House Energy and Commerce Committee:

  • $150 billion for the Clean Electricity Performance Program 
  • $27.5 billion for nonfederal financing of zero-emission technology deployment;
  • $18 billion for home energy efficiency and appliance electrification rebates;
  • $17.5 billion to decarbonize federal buildings and vehicle fleets;
  • $13.5 billion for electrical vehicle charging infrastructure; and
  • $9 billion to improve the reliability and resiliency of the electric grid.
  • $5 billion to EPA for grants to replace school buses, garbage trucks, and other heavy-duty vehicles with zero-emission vehicles.

One thing to highlight in the Energy and Commerce section is the Clean Energy Performance Program. This requires utilities, upon pain of stiff fines, to increase their use of zero-carbon dioxide emitting sources.  As the American Energy Alliance has explained, the subsidies in this plan could lead to some renewable producers getting paid $210 a MWh for electricity worth $25 a MWh. 

House Natural Resource Committee:  

  • Increase leasing fees and royalty rates for onshore and offshore oil and gas production;
  • Require royalties to be paid for methane that is vented or flared (which in many cases is due to lack of permitted pipelines across federal lands);
  • Impose a leasing moratorium on oil and gas exploration and production in the Atlantic and Pacific coasts as well as the eastern Gulf of Mexico;
  • Repeal the authorization for drilling in the coastal plain of the Arctic National Wildlife Refuge and void nine leases the federal government has already awarded legally;
  • Increase the royalty rate on mining revenue; and
  • Withdraw more than 1 million acres around the Grand Canyon from mineral leasing.

These provisions continue to make it obvious that President Biden and his allies are not serious about “Made in America.” The White House has begged OPEC+ to produce more oil and at the same time makes it more difficult to produce oil and natural gas in the United States.  

There are massive mineral requirements for wind, solar, batteries and other zero-carbon dioxide emission technologies. As Mark Mills wrote in the Wall Street Journal, “The IEA finds that with a global energy transition like the one President Biden envisions, demand for key minerals such as lithium, graphite, nickel and rare-earth metals would explode, rising by 4,200%, 2,500%, 1,900% and 700%, respectively, by 2040.”  However, despite the need for massive amounts of minerals, this bill and other Administration policies is making it harder and more expensive to mine these critical minerals in the United States. Instead, the United States will be more dependent on China given that China is the world’s largest processor of copper, lithium, nickel, cobalt, and rare earths.   

Conclusion

Our energy system is changing. There is no doubt about that. For a host of reasons, only some of which are market related, we have seen large price decreases for wind, solar, and batteries over the past 10 years. But at what price? The American people should be choosing which energy sources best meet the requirements of their lives and not have legislators restricting the types of sources of energy people can use. This is especially true when House Democrats, without any votes from Republicans, are spending literally trillions of dollars with very little public oversight or input and creating a system which eerily resembles the one that has resulted in astronomical price increases in Europe for consumers.   

This reconciliation package will further drive up inflation. It is telling that even President Obama’s chief economist, Larry Summers, is warning about inflation.  

This reconciliation package will reduce our domestic production of energy while making us more dependent on foreign sources and particularly Chinese mineral imports.  

Internationally, we are seeing much higher electricity prices in Europe and yet House Democrats and the White House want us to have an electric grid and Rube Goldberg-like electrical production system more like Europe’s.

The reconciliation package is deeply flawed and will gravely injure the United States and our standing in the world, while enhancing the position of China as the leading manufacturer of the new energy equipment that would force Americans to buy.  

Filed Under: Blog Tagged With: , , , , , , , , , , , , , , , ,

Pelosi’s Plan To Pick Your Pocket Via Reconciliation

September 17, 2021 by Leave a Comment

A significant part of the reconciliation bill is the “Clean Electricity Performance Plan” that is intended to increase the amount of “clean power” produced. The provision was in part drafted by outside interests including a professor from University of California, Santa Barbara. The House is considering a target of 80 percent “clean power” by 2030, which would be a significant increase from the current 40 percent “clean energy” output from renewable and nuclear energy, but short of President Biden’s 2035 goal of net zero carbon emissions from the generating sector.

To hit the target, the bill would provide $150 billion in subsidies for “clean energy” that the bill defines as anything producing less than 0.1 metric tons of carbon dioxide equivalent, which would effectively eliminate natural gas from the mix—the fuel that was primarily responsible for the historical reductions in carbon dioxide emissions in that sector over the past 15 years. To qualify for the incentives, power producers would have to increase their supply of clean energy by 4 percent annually. If they do not, they will be fined $40 for every megawatt hour that they fall short. The grant payment will be $150 for each megawatt-hour above 1.5 percent of the previous year’s clean energy generation.

The “Clean Electricity Performance Plan” is effectively a national renewable-energy mandate because utilities would have to buy or generate a certain amount of renewable energy each year. If they do not meet their quotas, they will be fined while those that exceed targets would receive payments from the federal government that they must spend on increasing renewable energy or reducing electricity prices. The program is set up as a payment program because an outright national renewable mandate would not meet reconciliation rules. The authors of the bill claim that the Clean Electricity Payment Program “is a purely budgetary proposal (involving only spending and revenue) as opposed to a regulatory approach” and “the enforcement mechanism is simply payments and fees,” which they believe will dodge a Senate filibuster by being in the budget reconciliation package.

The program resembles the Obama EPA’s Clean Power Plan, which required states to reduce carbon dioxide emissions in the generating sector by shuttering coal plants and using more renewables. The Supreme Court blocked the EPA rule in 2016 after states argued it violated the Clean Air Act. This “budget” plan would require the two dozen or so states that do not have renewable mandates to adopt them. It would also force states to prematurely shut down fossil-fuel plants that provide reliable baseload power with consumers paying for the costs of building new plants to replace them. In many respects, it manipulates the existing system to approximate the outcomes currently being experienced in Europe where electricity prices have skyrocketed, renewables have grown in share, and carbon trading schemes have been implemented, resulting in a shortage of reliable baseload generation.

While the program allows utilities to use hydropower, nuclear, carbon capture and “clean hydrogen” as “clean technologies” toward their renewable quotas, these options are not currently feasible due to their costs (e.g. Southern Company’s Vogtle nuclear facilities in Georgia) or their commercial availability. Further, nuclear and hydropower plants cannot be built in the timeframe allowed because the budget covers a 10 year time frame. Carbon capture and clean hydrogen also will not be commercially available in that time period.

The bill authors indicate that government payments to utilities will offset the cost of renewables, i.e. that they will raise taxes to finance the new generating technologies and then give certain companies tax credits for investing in renewable energy. The idea is to subsidize the politically favored behavior of those producers that meet the mandates. The bill also gives the electric grid $9 billion for updates that include improved interconnections between the Eastern and Western portions of the grid—the two major North American grids—and the Electric Reliability Council of Texas. The bill writers believe that a modernized (but more complicated) grid is necessary to accommodate increasing contributions from renewable energy and be more reliable when faced with extreme weather events.

But, in reality, the plan would raise energy costs and make the U.S. electric grid less reliable. The more utilities rely on renewable energy, the more backup power they need from fossil fuels to keep the grid stable. California, for example, recently had to approve five new natural-gas plants to avoid rolling blackouts. Last summer, portions of the state suffered from blackouts as the state was unable to import electricity from neighboring states that were also under intense heat. California has mandated 100 percent zero-carbon electricity by 2045 and an economy-wide goal of carbon neutrality by 2045.

Between 2011 and 2020, electricity prices “rose seven times more in California than they did in the rest of the country.” Furthermore, according to the Energy Information Administration, the price of electricity in California increased by 7.5 percent last year, which was the largest price increase of any state in 2020 and almost seven times the national price increase. In 2020, the price of electricity in California rose to 18.15 cents per kilowatt-hour—70 percent more than the U.S. average price of 10.66 cents per kilowatt hour. Those prices are a regressive tax on the poor and the middle class in California—a state that has the highest poverty rate in America.

This year, Europe has endured skyrocketing electricity prices as wind is not pulling its share, natural gas is facing a shortage of supply, and coal’s prices have increased as that fuel was the only reliable source left to fill the gap and keep the lights on. Europe’s anti-carbon policies created a fossil-fuel shortage and their carbon trading scheme made using such sources artificially expensive. They have heavily subsidized renewables like wind and solar and shut down coal plants to meet their commitments under the Paris climate accord. As wind energy did not pull its weight this summer, countries had to import fossil fuels to power their electric grids. Electricity prices in the U.K. jumped to a record £354 ($490) per megawatt hour—a 700 percent increase from the 2010 to 2020 average. Germany’s electricity benchmark doubled this year—a country whose residential electricity prices were three times that of the United States pre-coronavirus.

Conclusion

If this feature of the reconciliation bill becomes law, it will force more wind and solar into the U.S. electric grid, which will have major impacts on electricity affordability, reliability, and resilience. As seen in Europe and California, electricity prices will increase for consumers, blackouts are likely to occur, and taxpayers will provide subsidies for utilities to comply with their quotas. Further, the feasibility of this working as stated is so low that it will bring back memories of Obama’s failed “clean” endeavors that cost taxpayers billions. Europe’s example of attempting to comply with its Paris climate commitments only show that President Trump was right in withdrawing from the accord, particularly as China, the world’s largest emitter, has no intentions of meeting its obligations as can be seen by the coal plants it is building.

*This article was adapted from content originally published by the Institute for Energy Research.

Filed Under: Blog Tagged With: , , , , ,

House Democrats Plan to Pay Wind Industry Nearly 10 Times Value of their Electricity

September 15, 2021 by 3 Comments

Nine years ago, the wind industry agreed to a six-year phase out of the wind production tax credit. At the time, the wind industry told reporters that they needed 4-6 years to achieve subsidy-free competitiveness. But now the wind industry, other renewable electricity generators, and their financial backers on Wall Street, are back supporting the House Democrats plan to transfer billions of dollars from hard-working taxpayers to Wall Street bankers by laundering it through renewable energy companies.

This is an aggressive interpretation of what is going on, but it fits the facts available. When you run the numbers, the House Democrats plan provides wind and other renewable producers with $210 of value for a megawatt hour (MWh) of wind worth $25 per MWh. The bulk of this is through massive grants to renewable producers and their financial backers in the House Democrats’ reconciliation bill. Here’s how the calculation works:

In PJM (the regional transmission organization that serves Virginia, Maryland, Washington, DC, West Virginia, New Jersey, Delaware, Ohio, and parts of Kentucky, Indiana, and Illinois), the market price for energy has been $22-27 per MWh over the last few couple years. Let’s round that to $25. [We are ignoring capacity for now, but we expect some wind resources clear the capacity market in PJM.]

To the value of the electricity, we add a payment for the wind production tax credit. To keep it simple, and not get into complicated calculations of pre-tax revenue, etc., we will use the face value of the Production Tax Credit (PTC)—$25 per MWh. 

As if doubling the average value of the electricity isn’t enough through the PTC, the House Democrats are proposing to add a grant of $150 per MWh if you’re in the sweet spot of that 2.5% of new generation that gets the subsidy. (See Sec. 224 of the Democrats’ Clean Energy Performance Program)  

To this amount, we add the value of renewable electricity credits (RECs). The price can be volatile and can vary by market, but according to researchers at Lawrence Berkeley National Laboratory in PJM, the price of RECs rose slowly in 2020 “reaching ~$10/MWh by end of the year.” So we will use $10 for the value of the RECs. 

Adding this up, under this bill, a PJM wind provider who provides 1 MWh of wind gets paid: 

  • Value of energy: $25
  • Wind Production Tax Credit: $25
  • House Democrats Grant Provision: $150
  • Renewable Electricity Credit Payment: $10

Value to Provider of 1 MWh of Wind: $210

The electricity provided from wind might be worth only $25 to the market, but under the House Democrat’s bill, the PJM wind producers and their financial backers get $210 of value. This is obscene and it encapsulates everything that’s wrong with Washington, DC. We have an inflation problem and this kind of reckless spending will only pour gasoline on those inflationary fires. Wall Street renewable energy financiers might do well posing as Greens under this plan, but as demonstrated, their real interest is in the green of the money taken from hard-working taxpayers who will be crushed under the inflationary pressure of these policies. And while it is understandable for Wall Street Bankers to want to cash in on free money by the truckload from taxpayers, it is remarkable that elected officials would go along. 

Filed Under: Blog Tagged With: , , , , , , , , , , ,

Senate Democrats’ New Plan to Tax Our Leading Energy Resources

September 9, 2021 by Leave a Comment

Senate Democrats are proposing to institute a new tax on the use of our leading energy resources—oil, natural gas, and coal—according a leaked list of reconciliation bill pay-for options.

Before getting into the specifics of what the leaked list calls “carbon pricing,” let’s reiterate how central these fuels are to our productivity and well-being.

In terms of primary energy consumption, oil, natural gas, and coal contribute 35, 34, and 10 percent of U.S. energy on a Btu basis respectively. At a combined 79 percent of our mix, fossil energy is indispensable to our prosperity, as it is throughout the world. As it so happens, the U.S. uses fossil fuels at a slightly lower clip than the world as a whole, for which the fuels make up 85 percent of the mix. 

This reconciliation bill proposal would put a carbon tax on the use of these key energy resources to raise money for our seemingly endless array of new expenditures.

According to the Democrats’ Senate Finance Committee document floating around Washington, the “major options” for doing so are as follows:

1) a per-ton tax on carbon dioxide content of leading fossil fuels (e.g., coal, oil, natural gas) upon extraction, starting at $15 per ton and escalating over time, 

2) a tax per ton of carbon dioxide emissions assessed on major industrial emitters (e.g., steel, cement, chemicals), and 

3) a per-barrel tax on crude oil. 

Each option would be paired with rebates or other direct relief for low-income taxpayers, as well as a border adjustment to ensure foreign companies also pay the tax.

At this stage the outline is sparce, but as is inherent to carbon tax implementation, every option above would result in higher energy costs for American families and businesses. A carbon tax will drive up costs for transportation, electricity, industry, commercial activity, and everything else that relies upon oil, natural gas, or coal to deliver goods or services. Again, those fuels contribute 79 percent of our energy.

To put this into everyday terms, a 15-dollar tax on oil translates loosely to a 15-cent increase in the price of gasoline per gallon.  

This would come at a time when Americans are already reeling from this summer’s price sting and, ironically, just after President Biden’s national security adviser pleaded with OPEC and Russia to put more oil onto the market. Of course, there’s nothing new about the Democratic Party bemoaning increases in the most visible consumer price in our economy while simultaneously seeking to drive it higher with coercive policies.

It should also be stressed that while some carbon tax plans are framed as revenue-neutral—for example, by pairing a carbon tax with a reduction in corporate taxes—each of these options is an explicit revenue-raiser that would contribute to new spending.

The document also contains an admission of the carbon tax’s biggest weakness from the perspective of progressive politics. Carbon taxes are what we in the policy world call regressive. They hurt those at the bottom of the household income charts the most as a percentage of their budgets, because certain energy expenses are simply unavoidable no matter how tight you pull the belt.

In an effort to counterbalance the carbon tax’s regressive nature, the document mentions “rebates.” This is a euphemism for checks sent from the government in order to offset the inevitable increase in energy expenditures. We do not know who would be included in the rebate plan or how much would be redistributed.

What we do know is that this approach to carbon tax revenue recycling is among the least efficient.

IER has published extensively on this matter, most notably with the 2018 paper The Carbon Tax: An Analysis of Six Potential Scenarios.

The paper found:

A tax swap that recycles 75% of gross revenue by returning it to taxpayers as a lump-sum rebate results in persistent economic underperformance over the entire 22-year forecast period. GDP is reduced by between as much as 1.07% and 1.67% relative to the reference case at the beginning of the forecast period, depending on the amount of tax, and gradual.

In January I covered this topic in an IER blog post, where I cited studies from both the Tax Foundation and EY.

Here’s what I wrote in January:

The Tax Foundation study finds that the rebate strategy reduces regressivity but is harmful to overall economic output and harmful to employment. A payroll tax cut strategy, meanwhile, yields output and employment boosts, while also making the tax code slightly less regressive.

The EY study, similarly, reports that both a permanent extension of select Tax Cuts and Jobs Act provisions and investment in public infrastructure would outperform household rebates as carbon tax revenue uses. In the rebate scenario the entirety of the long-run positive change in annual per-household GDP would be attributable to the removal of the existing regulatory approach. In the EY analysis (figure ES-1) the rebate itself would cause losses of 0.4 percent, but be offset by gains of 1.1 percent as a result of ditching regulations.

While it may be the case that some carbon tax revenue strategies could mitigate the tax’s regressivity, the literature does not support a lump-sum rebate strategy.

The rebate approach would put drag on our economic performance.

The document’s other admission is that we’d need to erect new trade barriers to prevent businesses from fleeing to lower-cost environments. The document calls this a border adjustment.

In July I analyzed carbon border taxes at the American Spectator, where I wrote:

Democrats will try to sell this new tax as a way to save American jobs, but as has long been understood, tariffs deliver concentrated economic benefits to the powerful incumbents who lobby for them while spreading new costs across the wider population. Far from being an economically just approach, the carbon border tax would further enrich existing companies while taxing American households.

IER economist David Kreutzer spoke on this topic recently as well. His interview with Forbes is worth listening to in full, but here’s what he had to say about carbon border taxes:

Yeah, that maybe is the most compelling sounding part of this thing. But it is, I think, the most dangerous.

It is a constant battle to keep people that want tariffs and other trade restrictions at bay. There are always special interests that want to protect whatever their industry is or whatever their product is. It’s an almost impossible task for economists to keep that as low as possible.

This carbon border adjustment would be very, very difficult to set up. I mean, you’d have to know, for instance, if you’re bringing in a car from Japan, how much of a carbon tax did they have in Japan? Did they import something from Korea where they had a different carbon tax? Did they use steel from some other country? What’s the carbon content that hasn’t been taxed and all of these products that are coming in?

There are going to be lobbyists who are going to go out and say, “Our competitors’ imports actually have more carbon than they claim.” There are going to be lawsuits. There’s going to be all sorts of rent-seeking and lobbying going on.

Once you get that in place, I think that would be the most difficult thing to unwind. It’s very, very difficult to get rid of tariffs because of what we call the special interests effect. The benefits are narrowly focused and the costs are spread out so there’s not much organized opposition to them. 

I think that the carbon border adjustment tax — that tariff — is the scariest of the proposals that they’ve put out.

The Senate Democrats’ leaked carbon tax plan bodes poorly for American energy affordability and economic productivity.

Filed Under: Blog Tagged With: , , , , , , , , ,
Previous
Next