The Obama Administration’s recently released “Economic Report of the President” devoted an entire chapter to “Transforming the Energy Sector and Addressing Climate Change” [.pdf]. Whenever the government promises to transform an entire sector of the economy, we know to watch out. Upon a simple reading it is obvious that the president’s fancy economic rhetoric doesn’t justify the $60 billion in “stimulus” funds and the proposed new mandates on the private sector. Even the report’s own analysis shows that the likely damages from climate change are comparable to the economic damages of more government regulation.

The Official Economic Argument for Intervention

Frequently when governments want to increase their power, money, and influence they justify their schemes with a scientific appeal. Standard economic theory provides just such a justification in the form of “market failure,” where the Invisible Hand breaks down because of “externalities.” Most people are familiar with the alleged negative externality of greenhouse gas emissions—which then justify either carbon taxes or cap-and-trade—but the president’s report introduces us to a new market failure, this time from a positive externality:

A market-based approach to reducing greenhouse gases [i.e. cap-and-trade] will provide incentives for research and development (R&D) into new clean energy technologies as firms search for ever cheaper ways to address the negative externality associated with their emissions. However…there is a separate externality in the area of R&D. Because it is difficult for the person or firm doing research to capture all of the returns, the private market supplies too little R&D—particularly for more basic forms of R&D…In this case, government R&D policies can complement the use of a market-based approach to reducing greenhouse gas emissions and yield large benefits to society. A policy that broadly incentivizes energy R&D is more likely to maximize social returns than a narrow one targeted at a specific technology because it allows the market, rather than the government, to pick winners. Likewise, funding efforts in support of basic R&D are less likely to crowd out private investment because differences between private and social returns to innovation are largest for basic R&D. (Economic Report, p. 243, bold added)

Rhetoric versus Reality

Given the textbook justification for government spending, we would now expect the Obama Administration to tout its expenditures on, say, math and science Ph.D. students, or a superconducting supercollider. As the report itself stresses, the economic rationale for such investments is that the social returns spill out across many sectors, so that individual companies would not be expected to spend the optimal level when we consider the costs and benefits to society as a whole. Since the report says the stimulus package provided “$60 billion in direct spending and $30 billion in tax credits” to “jump-start” the transition to a “clean energy economy,” there is a whole lot of ‘splainin’ that the administration must do.

Yet look at the programs the president’s report touts as fulfilling the requirements of “basic R&D,” without the government “picking winners”:

In its 2011 proposed budget, the Administration has stated a commitment to fund R&D as part of its comprehensive approach to transform the way we use and produce energy while addressing climate change. The Recovery Act investments begun in 2009 are a first step in this clean energy transformation. They fall into eight categories that are briefly described here.

Energy Efficiency. The Recovery Act promotes energy efficiency through investments that reduce energy consumption in many sectors of the economy. For instance, the Act appropriates $5 billion to the Weatherization Assistance Program to pay up to $6,500 per dwelling unit for energy efficiency retrofits in low-income homes…

Renewable Generation. The Recovery Act investments in renewable energy generation also are leading to the installation of wind turbines, solar panels, and other renewable energy sources…

Traditional Transit and High-Speed Rail. Grants from the Recovery Act also will help upgrade the reliability and service of public transit and conventional intercity railroad systems. For example, $8 billion is going to improve existing, or build new, high-speed rail in 100- to 600-mile intercity corridors…

Clean Energy Equipment Manufacturing. The Recovery Act investments are increasing the Nation’s capacity to manufacture wind turbines, solar panels, electric vehicles, batteries, and other clean energy components domestically. As the United States transitions away from fossil fuels, demand for advanced energy products will grow, and these investments in clean energy will help American manufacturers participate in supplying the needed goods. (pp. 243-245)

In the quotation above, we have omitted some of the items—such as research on batteries—that could plausibly be classified as “basic R&D.” But as the list above shows, much of the spending programs are the furthest things from basic R&D, and are quite obviously examples of the government shoveling money to favored constituencies. Engineers already know how to weatherize homes and build traditional transit systems; there is no “market failure” here from spillover benefits from R&D spending.

The Costs of Inaction?

After sketching some of the major components of the $90 billion in total government assistance for “clean energy” in the stimulus package, the president’s report goes on to describe the administration’s plans to push for a government cap on greenhouse gas emissions, as well as new mandates on energy efficiency and renewable electricity generation.

In order to stifle voter skepticism over the costs of these proposed interventions into the energy sector, proponents will usually say, “Sure the costs are high, but the costs of inaction are much higher. We can’t afford to not act when it comes to global warming.”

In this context, the reader might be surprised to examine the report’s charts which show that the actual scientific literature—even the “consensus” as codified by the Intergovernmental Panel on Climate Change’s latest report—shows that the case for alarmism is dubious:

[T]he projected losses for the most likely range of temperature changes are relatively modest. For example, at the Intergovernmental Panel on Climate Change’s most likely temperature increase of 3˚C for a doubling of CO₂ concentration (concentrations in 2100 are likely to be higher), the projected decline is 1.5 percent of GDP. (Box 9-2, page 242, emphasis added)

That is worth repeating: The Administration’s own report, in a chapter devoted to the need to “transform the energy sector,” admits that doing absolutely nothing would “most likely” lead to a “relatively modest” impact. This is consistent with the CBO’s modeling which showed that a “pessimistic” estimate of the damages from inaction are lower than the high-end estimate of the economic cost of the Waxman-Markey cap-and-trade bill by the year 2050.

Of course, it’s always possible that unchecked greenhouse gas emissions will lead to disaster. After letting the cat out of the bag regarding the “most likely” impacts from letting the market and nature run their course, the president’s report tells us:

The projected relationship between temperature changes and consumption losses is nonlinear—that is, the projected losses grow more rapidly as temperature increases. For example, while the projected loss for the first 3˚C is 1.5 percent, the loss at 6˚C is five times higher. And the estimated loss associated with an increase of 9˚C is about 20 percent [of consumption’s share of GDP]…Overall, it is evident that policy based on the most likely outcomes may not adequately protect society because such estimates fail to reflect the harms at higher temperatures. (ibid, bold added)

Those are scary numbers, it’s true. But how likely is it that human activities will cause the world to increase 9˚C, when the total warming since the start of the Industrial Revolution has been about 0.7˚C? As this graph from the IPCC’s latest report shows—across three different emission scenarios and five different modeling teams—the probability of such a rapid warming is virtually zero. Once the government gets permission to transform entire sectors of the economy because of the dangers posed by extremely unlikely outcomes, the sky’s the limit.

Conclusion

The proposals to transform the energy sector are so audacious that they can’t even be justified according to the government’s own rhetoric. A simple reading of the president’s own economic report reveals that the billions in handouts violate their own alleged rationale, and the government’s own numbers show that the likely threat of climate change is less damaging than the Waxman-Markey cap-and-trade plan.

Where is the Grant Money Going?

The Investigative Reporting Workshop now calculates the total grant awards for green energy to be almost $2.2 billion, of which over 79 percent has gone or is going abroad.[iv] The vast majority (over 85 percent) of this stimulus money, which reimburses companies for 30 percent of their investment in renewables, is for wind power projects ($1.88 billion). Of the remainder, about $300 million is distributed among geothermal (41 percent), solar (26 percent), biomass (24 percent), and other renewable projects (8 percent).[v]

The largest grant made under the program so far was awarded to a bankrupt Australian company that built the Texas Gulf wind farm using 118 turbines made by a Japanese company that does not build wind turbines in the U.S.  That grant of $178 million went to Babcock & Brown on December 29, 2009.

Spanish companies have collected the most money ($708.3 million), with Portuguese, German, and British companies also profiting from direct payments. Eurus Energy America, the U.S. subsidiary of a Japanese firm, received $91 million in stimulus money for its Bull Creek wind farm in Texas. Five U.S. companies received a combined $290.7 million, with First Wind and NextEra (a subsidiary of Florida Power & Light) receiving the largest shares, $115 million and $99.9 million, respectively.[vi] While the recipient of the direct grant money may be clear, where the component parts were and are being manufactured is harder to decipher.

At one point, it was believed that wind turbines were too big to import. However, cities on the West Coast and in Texas have modified their ports to accommodate wind turbines and/or their component parts. By examining Customs records, the Investigative Reporting Workshop found that wind turbine components were coming into the U.S. from China, Germany, Spain, and Brazil. Although not a comprehensive review of all imports, the Workshop investigation found numerous instances of large foreign-made components being used in the wind farms awarded grants from stimulus funds.[vii]

How Does AWEA React to the News?

Last month, the American Wind Energy Association (AWEA) reported that the U.S. installed almost 10,000 megawatts of wind turbines in 2009, a record, making total wind capacity in the U.S. about 35,000 megawatts. AWEA also reported that manufacturing jobs in wind energy had gone down.[viii] This contradiction in their goals made them call for a Renewable Electricity Standard, a policy contemplated by the administration and Congress that would mandate a certain portion of electricity be generated by renewable technologies in the future. Of course not mentioned was the fact that at least 28 states and the District of Columbia already have renewable electricity standards, which certainly provided an impetus for the 9,922 megawatts erected in 2009.

As for AWEA’s rebuttal to the Investigative Reporting Workshop’s news that over 79 percent of the grants awarded from the stimulus funds were going overseas: The association pointed out that the wind farms were built in the U.S. But the fact that they are built in the U.S. does not mean that the turbines were manufactured here, nor does it mean that U.S. companies built them.

While AWEA acknowledges that not all the wind turbine components are manufactured in the U.S.,[ix] they indicate that: “jobs in construction, transportation, civil and electrical engineering, and operations and maintenance are American and cannot be outsourced.”[x] The Investigative Reporting Workshop dealt with this by using a study of the Renewable Energy Policy Project, a think-tank that advocates renewable energy technology research. The study showed that, for every 1 megawatt of wind energy that is developed, 4.3 jobs are created: 0.6 in operation and maintenance of the wind farms; 0.7 for the installation of new turbines; and 3 in manufacturing.[xi] That makes manufacturing by far the largest benefactor of jobs from the various stages of wind construction and operation. Using this estimate and the capacity of wind farms built by foreign manufacturers, the Investigative Reporting Workshop calculated that as many as 6,838 manufacturing jobs may have been created overseas.[xii]

Conclusion

The question that remains is what the stimulus funds were supposed to be used to fund. Many in Congress believe they were to be used to create jobs within the U.S. and to spur our economic recovery. If this is what the American public also intended, then creating an expensive generating product with stimulus funds that largely find their way overseas is using taxpayer money wrongly.

[i] http://www.instituteforenergyresearch.org/2009/11/06/stimulus-funds-for-green-energy-projects-going-offshore-along-with-other-u-s-manufacturing/

[ii] http://investigativereportingworkshop.org/investigations/wind-energy-funds-going-overseas/story/renewable-energy-money-still-going-abroad/

[iii] http://abcnews.go.com/WN/wind-power-equal-job-power/story?id=9759949&page=1

[iv] http://investigativereportingworkshop.org/investigations/wind-energy-funds-going-overseas/story/renewable-energy-money-still-going-abroad/

[v] Ibid.

[vi] Ibid.

[vii] Ibid.

[viii] http://www.awea.org/newsroom/releases/01-26-10_AWEA_Q4_and_Year-End_Report_Release.html

[ix] http://www.awea.org/newsroom/releases/02-11-10_RS_Response_to_ABC.html

[x] Ibid.

[xi] Renewable Energy Policy Project, Wind Turbine Development: Location of Manufacturing Activity, Page 4, http://repp.org/wind_turbine_dev.htm.

[xii] http://investigativereportingworkshop.org/investigations/wind-energy-funds-going-overseas/story/renewable-energy-money-still-going-abroad/

Green Stimulus Money Going Overseas

Since September 1, 84 percent of the $1.05 billion in clean energy grants has gone to foreign wind companies. Foreign countries benefiting from stimulus funds for wind technology are Spain (57%), Germany (12.6%), Japan (9.5%), and Portugal (5%).[i] Companies began applying for grants at the end of July and awards were announced by the two joint administrators of the program, the Energy and Treasury Departments, beginning on Sept. 1. In the first round of the grants, 77% went to foreign wind developers, followed by 84% in the second round. Of the 11 wind farms that received grants, 695 of the 982 installed turbines were manufactured by a foreign company.[ii]

Further, there are few restrictions on how the grants can be used. According to the Investigative Reporting Workshop at American University, over $800 million were provided to wind farms that were already producing electricity. As required by law, all 11 wind farms started operating after January 1, 2009, but before the grants were awarded.[iii]

Turbine Manufacturing Dominated by Foreign Competitors

The U.S. currently has the most installed wind capacity in the world, but it is not a leader in the manufacture of turbines. The Investigative Reporting Workshop reported that of the turbines currently under construction in the U.S., 67 percent are slated to be purchased from foreign-owned turbine manufacturers.[iv] According to U.S. customs data for 2008, and the U.S. Trade Commission, the U.S. imported $2.5 billion worth of wind turbines last year—up from $365 million in 2003.

In the future, wind turbines and/or their component parts may be coming from China where lower labor costs have allowed Chinese-made products to dominate many manufactured goods in the U.S. GE, a major U.S. wind turbine producer, already owns three facilities in China that produce turbine components. GE is also planning a factory in Vietnam that will employ 500 local workers and export 10,000 tons of components to GE Energy assembly plants around the world.[v]

China is already beginning to develop its own strong hold for wind power in the U.S. A joint venture between China’s Shenyang Power Group, the U.S. Renewable Energy Group, and Cielo Wind Power LP to develop a 600 megawatt wind farm on 36,000 acres in West Texas, costing $1.5 billion, was announced on October 29, 2009.[vi] A-Power Energy Generation Systems Ltd., a provider of distributed generation systems in China and a fast-growing manufacturer of wind turbines, will supply the turbines. A-Power Energy entered the wind power industry last year.[vii] Delivery of wind turbines for the West Texas wind farm is scheduled for March 2010.[viii]

Graphic courtesy Investigative Reporting Workshop

Solar Cells Manufactured Overseas

Not only are wind turbines mostly manufactured in countries overseas, but so are photovoltaic (PV) cells. Florida Power & Light (FPL) started operating its 25 megawatt photovoltaic solar plant in southwest Florida in conjunction with a visit to the plant by President Obama on October 27. [ix] The DeSoto plant in southwest Florida is the first of a total of 110 megawatts of solar capacity that FPL will install at 3 different sites by the end of 2010. Although Obama praised FPL’s work in the solar arena, he did not tell the American public that the components of the DeSoto plant are from foreign countries. While the PV cells were provided by a firm from California, they were made in the Phillipines. The steel PV frame holding the cells was produced in Canada, and the electrical parts and boxes were made in Germany, where solar power has been given heavy subsidies by the German Government. While German manufacturers have been producing PV technology for their country’s solar expansion, they are now concerned that China will take over their market due to costs that are 30% lower.[x]

Conclusion

The Obama Administration has told the American public that it will produce jobs and stimulate the U.S. economy through green energy technology. He has also touted that stimulus funds will be used for goods made in America. Yet, the the Investigative Reporting Workshop at American University finds that this is not the case. And, more examination of green energy development in the U.S., shows Asian and European countries well established here in providing the component parts for green energy technology.

The problem is not with international trade per se. In a genuinely free market, where politicians do not pick winners or losers, the most efficient firms would capture market share, be they American or foreign. The result would be the best products at the lowest prices for American consumers.

The real problems are a government “stimulus” plan and efforts to centrally plan a “green economy.” The government can only “stimulate” by spending money that it has first taxed or borrowed from the private sector. It would be bad enough for the government to destroy jobs in American fossil fuel industry while spending money on domestic producers of “green energy.” But it is particularly absurd for the U.S. government to cripple American industry while shoveling the lion’s share of the pork into the hands of foreign beneficiaries.

[ii] Ibid.

[iii] Ibid.

[iv] Ibid

[v] “Vietnam’s first turbine component plant underway”, May 13, 2009, http://www.vietnewsonline.vn/News/Business/Companies-Finance/6072/Vietnams-first-turbine-component-plant-underway.htm

[vi] www.reuters.com/article/pressRelease/idUS200008+29-Oct-2009+BW20091029

[vii] “Lone Star, Meet Red Star: China’s $1.5 Billion Wind-Power Deal in Texas”, October 30, 2009, http://blogs.wsj.com/chinarealtime/2009/10/30/lone-star-meet-red-starchina%e2%80%99s-15-billiob-wind-power-deal-in-texas/

[viii] www.reuters.com/article/pressRelease/idUS195122+29-Oct-2009+PRN20091029

[ix] http://www.instituteforenergyresearch.org/2009/10/26/highest-cost-generating-plant-comes-on-line-in-florida-to-obama-fanfare/

[x] “Solar-Power Incentives in Germany Draw Fire,” Vanessa Fuhrmans, Wall Street Journal, September 28, 2009, http://online.wsj.com/article/SB125383541153239329.html

FOR IMMEDIATE RELEASE
April 17, 2009
CONTACT:
Laura Henderson 202.621.2951
Chris Tucker 202.346.8825

The Day the Earth Stood Still: EPA Says CO2 a Threat to Human Health, Paves Way For Backdoor Tax on All Sectors of U.S. Economy

Washington, D.C.—Institute for Energy Research (IER) president Thomas J. Pyle today issued the following statement in response to the announcement by the Environmental Protection Agency (EPA) that carbon dioxide is a threat to human health and welfare, and as such: must be regulated, rationed and restricted by the federal government.

“Carbon is lighter than oxygen, more abundant than nitrogen, and forms the basis of all human, plant and animal life on earth. At least it did yesterday. Today, it’s a danger to human health and, upon meeting air, a clear and present threat to our existence. That was the pronouncement made by the EPA today, and it will be one this generation and others that follow will not soon forget.

“In defending today’s decision, EPA was quick to promise that the rationing of carbon dioxide would only have limited application. This is incorrect. EPA will start by issuing new regulations on cars. Next will come restrictions on stationary sources. After that: the wholesale regulation of anything that uses oil, natural gas, or coal. And it won’t end there. If carbon dioxide is deemed a threat, other greenhouse gases like water, vapor and methane must be too.

“While the American people will need to wait a few more months to see how today’s announcement manifests itself in their daily lives, we know one thing for sure: EPA is about to become the largest, most powerful and most distended government agency in American history. And that alone should give every American who has a job, or may want one in the future, reason for serious concern.”

More from IER on the dangers of broad EPA regulation of CO2:

• Study: Eight reasons why cap and trade harms the economy and reduces jobs
• Release: Road to Serfdom: Climate Bill Envisions Future with Less Energy, Fewer Jobs
• Blog: The Size of President Obama’s Massive Energy Tax Grows Larger

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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www.InstituteforEnergyResearch.org

FOR IMMEDIATE RELEASE
March 31, 2009
CONTACT:
Laura Henderson 202.621.2951
Chris Tucker 202.346.8825

Running of the Bull: U.S. “Green Jobs” Rhetoric Runs Smack Dab Into Hard Lessons From Spain

New Report Finds “Green Jobs” Spending Cost Spain Hundreds of Thousands of Real Jobs, Decades in Lost Opportunity

WASHINGTON, DC – As evidence continues to mount of the potential for a “green jobs”-focused recovery plan to raise energy prices here at home and cost American workers their real jobs in the process, a new study released this week in Spain found that for every “green job” created by the Spanish government over the past decade, 2.2 other jobs were killed as a result.

The report, written by Dr. Gabriel Calzada of Juan Carlos University in Madrid, comes as policy-makers in the U.S. House convene a hearing today to “examine green jobs and their role in our nation’s economic recovery.”

Institute for Energy Research (IER) president Thomas J. Pyle issued the following statement subsequent to the report’s release:

“President Obama has cited Spain as an example to be followed for how our country can achieve long-term growth if we just commit ourselves down a path of a massive, long-term subsidization of ‘green jobs.’ But if that’s really the model on which the president’s basing U.S. policy, we may be in for a longer, deeper and more severe recession than previously thought.

“As this study makes clear, Spain has spent billions in taxpayer resources to subsidize renewable energy programs in an effort to jumpstart its ailing economy – and what they’ve gotten in return are fewer jobs, skyrocketing debt and some of the highest and most regressive energy prices in the developed world. Now, as U.S. policy-makers prepare to embark Americans upon a similar course, this report offers our first realistic glimpse into what we should expect in return for that unprecedented sacrifice of public resources and personal autonomy.”

“The study’s results,” Dr. Calzada wrote in the paper’s introduction, “demonstrate how such ‘green jobs’ policy clearly hinders Spain’s way out of the current economic crisis, even while U.S. politicians insist that rushing into such a scheme will ease their own emergence from the turmoil. … This study marks the very first time a critical analysis of the actual performance and impact has been made.”

The following represent some of the study’s key findings:

• The U.S. can expect 2.2 jobs to be destroyed for every 1 renewable job financed by the government.

• Only 1 in 10 of the jobs actually created through green investment is permanent.

• Since 2000, Spain has spent €571,138 ($753,778) to create each “green job,” including subsidies of more than €1 million ($1,319,783) per wind industry job.

• Those programs resulted in the destruction of nearly 113,000 jobs elsewhere in the economy.

• Each “green” megawatt installed destroyed 5.39 jobs in non-energy sectors of the Spanish economy.

• The total over-cost—the amount paid over the cost that would result from buying the electricity generated by the renewable power plants at market prices—between 2000 and 2008 amounts to 7,918.54 million Euros ($10 billion).

• The total subsidy spent and committed to these three renewable sources amounts to €28,671 million ($36 billion).

• Consumer energy costs in Spain would have to be increased 31 percent to repay the debt generated by the green jobs subsidies.

NOTE: According to the U.S. Energy Information Administration (EIA), Spain’s annual emissions of carbon dioxide have increased by nearly 50 percent since the nation began its aggressive push to subsidize and support “green jobs.”

More from IER on the fallacy and unintended consequences of “green jobs”:

• Study: Green Jobs: Fact or Fiction?

• Study: Seven Myths about Green Jobs

• Blog: Green Jobs That Nobody Wants

• Blog: It Takes a Lot of Government Green to Create a Green Job

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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www.InstituteforEnergyResearch.org

But it turns out the Administration’s budget did not reveal the entire truth. A top White House aide told Senate staffers that cap and trade tax would be much higher than the initially reported $646 billion. In fact, Jason Furman, the deputy director of the National Economic Council, told Senate staffers the tax would cost American taxpayers between $1.3 trillion and $1.9 trillion.

A $1.6 trillion tax raise is huge—but a tax increase of $2.3 trillion or $2.9 trillion is astonishing. To put that in perspective, that is a tax increase of $7,500 to $9,500 per American.

Let’s hope the cost of the President’s budget does not continue to escalate.

FOR IMMEDIATE RELEASE
March 11, 2009
CONTACT:
Laura Henderson (202) 621-2951

IER: There May Be No Free Lunch, But There is a Free Stimulus

Domestic energy development would create jobs and government revenue at no cost to the taxpayer

WASHINGTON, D.C. – Institute for Energy Research (IER) president Thomas J. Pyle today issued the following statement after lawmakers introduced a proposal that would provide an immediate shot in the arm to the American economy at no cost to the taxpayer:

“The best and most cost-effective way for the government to invigorate our economy is to allow businesses to responsibly develop our massive and homegrown energy resource base.  If the private sector could explore for and produce American energy for American consumers, we would gain access to millions of new jobs and billions in new revenue for the taxpayer—both of which we desperately need in this economy.

“America’s energy resources can do more than just fuel our cars and heat our homes, they can also help power the engine of our economic recovery—without requiring the government to write more checks that the Treasury can’t cash. Though this Administration has given every indication that it plans to make domestic exploration as difficult and expensive as possible, we hope that proposals such as this one will remind the Administration and taxpayers alike just how important our energy industry is to the economy.”

More from IER on the current trends in energy policy:

• Blog Posting: President Obama’s Budget Includes the Largest Tax Increase in History
• Press Release: Interior Decision Locks American Energy Resource Larger than Middle East Reserves
• Press Release: IER Debunks Offshore Energy Production Myths
• IER Study: Green Jobs: Fact or Fiction?

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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www.InstituteforEnergyResearch.org

Administration Attempts to Sneak Biggest Tax Increase
in History into Budget

Washington, D.C – The Institute for Energy Research (IER) today responded to the fact that President Obama’s budget includes the biggest tax increase in American history. The Administration’s budget uses projected revenues from an economy-wide cap-and-trade policy—a policy not yet enacted—in an attempt to reconcile increased spending.

Below is a statement from Thomas J. Pyle, president of the Institute for Energy Research:

“Though history tells us that no nation has ever taxed itself to prosperity, President Obama plans to fix our economy by establishing the single largest tax increase in American history—a tax on affordable energy. His plan is not economic development; it’s a surefire way to send America’s businesses either to bankruptcy or overseas.

“While the fact that this Administration’s plan to balance their books relies on funds they hope to someday receive from a policy they hope to someday enact is alarming enough, it is truly appalling that they are attempting to sneak this huge stealth tax into the budget at a time when so many Americans are facing unprecedented economic constraints.”

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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www.InstituteforEnergyResearch.org

Many analysts are describing Obama’s budget as a $989 billion tax hike, but it would actually wring $1.6 trillion out of the economy over the next ten years, making it the biggest tax hike in history.  What others are missing is that in addition to the $989 billion, the budget includes $646 billion in anticipated cap-and-trade tax revenues. Just this component alone would be the second biggest tax hike in history.

In fact, one could go further and argue the cap-and-trade tax alone would be the largest single tax increase in history. Before this budget, the largest previous tax increase was the Revenue Act of 1942—the tax plan crafted to win World War II. Unlike cap-and-trade, which is a single program, the Revenue Act of 1942 contained multiple different tax increases. The 1942 plan raised $110.5 billion in one year (in 2009 dollars)[1] by increasing personal and corporate income tax, increasing “excess profits tax”, and by reducing the personal exemption. As an single tax, however, cap-and-trade is the largest tax in history.

While many lawmakers support a cap-and-trade program, most economists believe that a straightforward carbon tax would be much less subject to corruption. Cap-and-trade seems as if it’s costless, because there is no direct tax on Americans or businesses. The government is simply auctioning off permits in a voluntary market, right?

Not at all. Cap-and-trade is not a “free market solution” because the government is changing the rules and making it illegal to do something that was perfectly fine up till now. Calling something a “market solution” does not make it one. Cap-and-trade is Washington-speak for a tax hike.

The economy is on the ropes. The Dow Jones is now trading at roughly half of 2007’s peak, and Fed chairman Ben Bernanke is cautioning that the recession may well last into 2010. Unemployment and poverty levels are rising daily. Yet the Administration, which promised hope and change, has plans to burden taxpayers with the largest tax increase in American history. This may be change, but it’s certainly not what anyone had hoped for.

Update:

The White House has recent disclosed that they dramatically underestimated the size of the cap and trade tax as outlined in the budget.  The White House has told Senate staff the size of the cap and trade tax is between $1.3 trillion and $1.9 trillion.

FOR IMMEDIATE RELEASE
February 18, 2009
CONTACT:
Laura Henderson (202) 621-2951

IER: Access to Affordable Energy Essential to Any Successful Economic Recovery Plan

IER reminds President, Congress that American energy development is the “ultimate shovel-ready project”

WASHINGTON, D.C. – Institute for Energy Research (IER) president Thomas J. Pyle issued the following statement this afternoon in advance of President Obama’s primetime address to Congress:

“President Obama’s plans to reboot our economy must include the responsible development of our massive and homegrown energy resource base. If we allow the private sector to explore for and produce American energy for American consumers, we open the door to millions of new jobs, billions in new revenue for the taxpayer, and the very real prospect of breaking our dangerous dependence on Middle East oil—all things we desperately need right now.

“American energy resource development is the ultimate shovel-ready project. The energy far off our coasts and deep underneath our feet not only can fuel our cars and heat our homes, it can also help power the engine of our economic recovery—without writing more checks that the Treasury can’t cash. If the President wants to create a responsible plan to recapture American prosperity, he will recognize the importance of American energy production.”

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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www.InstituteforEnergyResearch.org