Energy subcommittee examines federal energy tax policy

The U.S. House Subcommittee on Energy held a hearing this week on the federal energy tax policy and its effect on markets, prices, and consumers.

Several witnesses expressed support for allowing market forces to steer the energy economy and less involvement from government. Others testified that the societal benefits of renewable energy technologies outweigh the costs of energy tax policies.

Robert Murphy, senior economist at the Institute for Energy Research, testified that government involvement in the economy is often ineffective.

“Economists generally agree that decentralized markets, operating through private property and the profit-and-loss test, allocate resources better than top-down central planning. … Adding artificial privileges to particular groups is a self-defeating and inefficient process, because it distorts consumer and producer behavior and invites “rent seeking” from groups trying to shield themselves from unfavorable tax treatment,” Murphy said. “When policymakers try to steer markets through the tax code, it makes Americans poorer because resources are no longer being channeled into their most important uses.”

Director of Energy Research and Analysis for the Union of Concerned Scientists Steve Clemmer conveyed his support federal tax credits.

“Federal tax credits are a powerful, cost-effective tool for driving significant levels of renewable energy development,” Clemmer said. “In turn, the deployment of wind, solar, and other renewable resources is attracting investments from manufacturers, creating new jobs, and producing revenue streams for land owners and local communities, all while providing clean energy that reduces air pollution and helps stabilize our climate.”

Joseph E. Aldy, associate professor of public policy at the Harvard University School of Government, proposed pricing pollution in the tax code.

“This would represent a significant improvement over a status quo in which we spend money on tax expenditures that do not increase social welfare and impose real opportunity costs on society by requiring higher taxes elsewhere in the economy,” Aldy said. “Evidence-based reform of energy tax policy could increase returns to the American taxpayer and make the whole of American society better off.”

Chairman Fred Upton (R-MI) said that even while specialized energy tax treatments have played a major role in helping the United States achieve its energy goals, they may not be the most appropriate justifications for today’s policies.

“As we look to modernize our energy policies, we’re going to put consumers first,” he said. “Consumers should be driving energy markets from the bottom up, rather than having the federal government driving it from the top down.”