In an effort to increase the use of natural gas as a transportation fuel, Rep. John Sullivan (R-OK) introduced a bill in April of this year titled “The New Alternative Transportation to Give Americans Solutions Act,” or NAT GAS Act.[i] The bill provides tax breaks to subsidize the manufacture of natural gas vehicles, fueling stations, and infrastructure. As we have learned from automobile fuel economy mandates and the banning of incandescent light bulbs, when the government centrally plans economic activity it fails to take into account the full impact of its proposals and, more times than not, consumers suffer higher costs.
The NAT GAS Act is flawed for a number of reasons. For starters, it is expensive. Even though “an official budget estimate has yet to be conducted”[ii] champions of the bill put the cost of the subsidies to the taxpayer at $5 billion over five years. That would put 140,000 commercial natural gas trucks and the necessary fueling stations into operation. However, add in the cost of the passenger vehicle subsidy at an assumed sales rate of one million natural gas cars and 100,000 small natural gas trucks each year, and the price tag would be $13.8 billion per year, without counting the bigger subsidies for large trucks and filling stations.[iii]
But the problems with the NAT GAS Act are far larger than a few billion dollars. The entire point of the NAT GAS Act is to get people to do something that they would not do with their own money. After all, there are natural gas cars currently available and it’s possible to retrofit large trucks to run on natural gas right now without the government stepping in. But people aren’t doing so in the numbers the promoters of the NAT GAS Act would like because it’s cost prohibitive.
The problem is that using government intervention to change people’s behavior all too often has negative consequences. We must also consider what could have been manufactured or created if not these subsidized vehicles. In other words, we must take into account the unintended consequences of subsidies, which French economist and philosopher Frédéric Bastiat[iv] discusses in his famous essay ‘That which is seen, and that which is not seen’:
‘a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause – it is seen. The others unfold in succession – they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee.’[v]
In the case of the NAT GAS Act, what we would see is more natural gas vehicles (NGVs) and less money in government coffers, but the story doesn’t end there. The reason why we don’t see more natural gas vehicles now is that people currently don’t value them enough to buy more of them. If they did, producers and consumers wouldn’t need government incentives.
What will be seen and is not considered is that the NAT GAS will create an increased demand for natural gas and raise the price. Considering natural gas’s variety of uses, ordinary people will be hit with these higher prices everywhere they turn. Around fifty percent of US homes use it as their primary fuel for heating. “Natural gas is also used in homes to fuel stoves, water heaters, clothes dryers, and other household appliances.”[vi] Natural gas provides about 24% of the United States’ electricity.[vii] If the price of natural gas goes up, so does the cost of everything it goes into. As such, this bill can be seen as an indirect tax on consumers of natural gas, considering 39 million Americans cook dinner with natural gas every night[viii]. Like most regulation, it would hurt the people who can least afford it and would affect those low or fixed income consumers the most.
When government officials impose legislation at the whim of special interests or just because they would rather see more people driving natural gas vehicles, it creates a chain reaction, the cost of which is not always immediately visible. These costs however, are no less relevant and must be foreseen. In this economic climate the last thing we should be doing is making it harder for families to get by and incentivizing others to be less productive. Instead, we should consider treating all energy sectors the same under the tax code and let real competition and value creation take place, as opposed to continuing to pervert incentives and harm consumers.
[iii] Two Approaches to Fuel Choice, Robert Zubrin
[vi] How Natural Gas Is Used, Economic Information Administration
[vii] Electric Power Annual, Economic Information Administration
[viii] American Petroleum Institute