Why Obama's 'Energy Security Trust' Is A Bad Idea

March 17, 2013

President Barack Obama speaks at the Department
of Energy. (Photo credit: Wikipedia)

In an event today at the Argonne National Laboratory President Obama will be talking up his proposal, first mentioned in his State of the Union address, to create something called the Energy Security Trust. This trust would be funded by royalties from oil and gas operations on federal lands and in the Gulf of Mexico.

Today those royalties are simply directed to the U.S. Treasury like all our other federal tax payments. What the president proposes is to divert some $2 billion of those oil and gas revenues into a special account over the next decade. Out of this account he proposes to subsidize research on alternative energy sources. According to a senior administration official interviewed by the New York Times, this trust fund is a central part of the president’s economic strategy.

In short, this is a terrible idea — and a backdoor to the imposition of a nationwide carbon tax — that congress should not allow to pass.

Now I have no problem with the federal government backing basic research on energy technology — the national labs have made myriad breakthroughs over the decades, many of which have been commercialized.

But there is absolutely no reason why we need a dedicated Energy Security Trust to fund the national labs, or to fund any kind of alternative energy research. If congress wants to fund research it can pass a bill to fund research. It can write funding for basic research into the (nonexistent) budget. Isn’t congressional appropriation how the federal government is supposed to pay for such stuff?

Think about it. Do you keep dozens of different bank accounts to pay your personal expenses? One account from which you pay the cable bill, another account out of which you pay college tuition, another account for car payments? No, that would be stupid. Likewise it is stupid to direct federal royalities away from the U.S. Treasury into a dedicated slush fund for alternative energy research.

Just think what would happen if the government did this kind of budgetary pigeonholing for everything that politicians thought served some kind of social good.

Maybe next President Obama will propose a special tax on soda pop to contribute to a Trust Fund that can investigate ways to promote the drinking of wheatgrass and pomegranate juice?

Or how about we levy a special tax on newspapers and magazines and direct the money into a New Media Trust Fund out of which bureaucrats can support research on new non-dead-tree methods of disseminating news?

Or how about a special surtax on Hollywood’s summer blockbuster action movies that will go into a Trust Fund that the government can dole out to documentary filmmakers or to PBS?

Or maybe we need to create a Professional Sports Gender Equity Trust that taxes the revenues of the NBA, NFL, PGA, MLB and Nascar, and redirects funds into research on ways to improve professional sports opportunities for women.

Is it really any different to take taxes received from oil and gas companies and use that money to invest in technology that competes directly with oil and gas?

All this is enough reason to be against this special energy trust fund. Then consider that the Department of Energy has in recent years built up an insanely terrible record of wasting taxpayer money by directing funds to private companies, many of which have simply gone belly up (but not before paying lavish bonuses to executives).

This excellent report last year from the House Committee on Oversight and Government Reform found that the DOE had blown through $14.5 billion investing in and guaranteeing loans for private companies like Solyndra, Beacon Power, Brightsource, Solopower, Abound Solar, Nevada Geothermal, Abengoa, First Solar. The companies that haven’t gone bankrupt yet are barely holding on.

We all know what happened at Solyndra. Another solar disaster has been BrightSource Energy, which received a $1.6 billion loan guarantee from the federal government on a solar project in the California desert. But costs of protecting and relocating desert tortoises have soared well beyond $50 million, and now it looks like the entire project will be derailed, leaving taxpayers stuck with the bill.

This was far from the government’s only alternative energy slush fund. Taxpayers, via the Advanced Technology Vehicle Manufacturing Program of 2008, have already loaned $8.3 billion to Ford, Nissan, Tesla and Fisker to develop greener cars. A company called The Vehicle Production Group even got a $50 million loan to create a wheelchair that runs on compressed natural gas. And then there was the taxpayer bailout of General Motors.

In a particularly egregious example, the DOE awarded cellulosic ethanol maker Range Fuels a $76 million grant.

It soon went bankrupt after a bait-and-switch defrauding of taxpayers that has been thoroughly reported in Forbes by contributor Robert Rapier, who makes the point that there’s nothing wrong with companies failing — the problem is that when bureaucrats pick winners and losers there is absolutely no accountability for broken promises and failed investments. We can’t have government agencies acting like venture capitalists, but with no skin in the game. That crony capitalist model has already failed — surely the president doesn’t want to continue it?

So where does this idea for an Energy Security Trust come from?

As far as I can tell, it’s from this ill-fated house bill from 2009 that sought to tax carbon dioxide emissions and direct the tax into a trust fund that would pay for alternative energy research and (bizarrely) offset payroll taxes for poor families.

It looks unlikely that President Obama will try to propose a national carbon cap-and-trade regime again. But this Energy Security Trust could well serve as the tip of a wedge that could some day lever open a new carbon tax. This is not far-fetched. Connecticut Congressman John Larson, who backed that original 2009 bill, said in this Q&A that the very purpose of the Energy Security Trust fund was to serve as a conduit for the collection of carbon taxes.

It’s a natural extension: first Obama would will say he just wants to direct a portion of the $10 billion a year in federal oil and gas royalties into this special fund. Later it will be all of the federal royalties. And then when gasoline prices go up he’ll propose that oil companies pay a special windfall profits tax into the fund. And in summertime when it’s really hot outside, so hot that it must be global warming, he’ll propose that oil and gas and coal companies start paying a carbon tax into the fund. In a few years what started as a special account for oil and gas royalties could become a vehicle for the backdoor imposition of a carbon tax.

What gets conveniently left out of the discussion is that thanks to fracking and ongoing American Oil and Gas Boom, consumers are saving $100 billion a year in energy costs from cheaper, home-made oil and gas. Cheap natural gas has contributed to a 10% decrease in national emissions of carbon dioxide in recent years and has spurred job creation in many states.

The energy industry doesn’t need the government’s help when it come to investing in energy infrastructure or research and development. In fact, the industry is investing billions of dollars a year of its own private capital to develop new methods to deploy natural gas to fuel cars and trucks.

You want an Energy Security Trust? Well we already have one. It’s this: the hard work and innovation of the tens of thousands of engineers at American oil companies who have unlocked a plentiful supply of energy that will keep the nation moving and growing for decades. And all without taxpayer handouts.


source: Forbes