IMF’s Disingenuous Attempt to Tax Energy Use

The International Monetary Fund (IMF) released its estimate of global fossil fuel subsidies for 2015 at $5.3 trillion—almost ten times higher than the International Energy Agency’s (IEA) calculation of $548 billion for 2013.[i] The difference is not the change of a 2-year span, but the methodology. The IEA uses a “price-gap” methodology, which is the difference between end-use prices and supply costs that include shipping costs, margins, and value-added taxes. In other words, the agency calculates subsidies that the governments pay their own citizens to enable them to buy energy more cheaply than the market price.

The IMF, on the other hand, includes in its methodology externality costs that purportedly measure damages from emissions of carbon dioxide and local pollutants (e.g. sulfur dioxide and particular matter), traffic congestion, and accidents; plus a consumption tax that is assessed on both the supply cost and the externality cost.[ii] These externality costs are not actual costs to the consumer or the government but costs that some analysts believe will pay for their theoretical projections of perceived damage of using fossil fuels. Thus, the IMF subsidies are made artificially higher than what is actually paid for the fossil fuels. The fundamental problem with such an approach is that the average person thinks “subsidy” refers to actual government funds or other advantages given to a particular producer; the fact that firms are allowed to emit greenhouse gases is not what most people have in mind by the term “subsidy.”

Comparison of Country Subsidies

Under the IMF methodology, China is alleged to have incurred a $2.3 trillion subsidy for its fossil fuel use as it is the world’s largest energy consumer and the world’s largest coal consumer.[iii] This IMF subsidy estimate that includes externality costs is 110 times higher than the IEA calculated fossil fuel subsidy of $21 billion for China for 2013.

IMF estimates 2015 fossil fuel subsidies for the United States at $699 billion, Russia at $355 billion, the European Union at $330 billion, India at $277 billion, and Japan at $157 billion.[iv] The comparative values under the IEA methodology are $0 for the United States, $46.5 billion for Russia, $0 for the European Union, $47 billion for India, and $0 for Japan.[v] In other words, IMF’s fossil fuel subsidies for the United States, the European Union, and Japan are composed entirely of externality costs and consumption taxes—not actual financial payments from consumers or governments.

Fossil-Fuel-Subsidies-Comparison

Source: IEA, http://www.worldenergyoutlook.org/resources/energysubsidies/ and RTCC http://www.rtcc.org/2015/05/18/fossil-fuel-subsidies-to-hit-5-3-trillion-in-2015-says-imf

IMF Assessment of Fossil Fuel Subsidies

The IMF defines fossil fuel energy subsidies as the difference between what consumers pay for the energy versus its costs that include external costs imposed from fossil fuel consumption on the environment plus a country’s value added or sales tax rate. IMF adds theoretical external costs for global warming; air pollution; and the effects on traffic congestion, traffic accidents, and road damage. Some of these supposed external costs, it should be noted, would exist even if all transportation were powered by solar powered vehicles. (For example, even if all cars were electric, there would still be congestion, accidents, and road damage.) To ascribe all such external costs to fossil energy reflects more the makeup of existing transportation energy sources than it does any objective assessment.

The distributions of the various components of the $5.3 trillion that IMF estimates for 2015 is given in the chart below. Note that local pollution costs represent over half the total and global warming represents less than a quarter of the total, while the actual financial costs represent just 6 percent of the total.

Screen Shot 2015-05-22 at 9.41.11 AM

Source: IMF, http://blog-imfdirect.imf.org/2015/05/18/act-local-solve-global-the-5-3-trillion-energy-subsidy-problem/

According to IMF fossil fuel subsidies are found in both advanced and developing countries. Developing Asia accounts for about half of the total, while advanced economies account for about a quarter. (See chart below.) IMF’s subsidy estimate for 2015 is more than double its previous estimate of $1.9 trillion for 2011.  Over half of the increase is due to its “refined” calculation of externality costs.[vi] While the IMF has calculated a huge increase in the value of fossil fuel subsidies in a 4-year time span, the IEA’s calculation of fossil fuel subsidies dropped 4 percent between 2012 and 2013.

Screen Shot 2015-05-22 at 9.42.19 AM

Source: IMF, http://blog-imfdirect.imf.org/2015/05/18/act-local-solve-global-the-5-3-trillion-energy-subsidy-problem/

Conclusion

The IEA calculates fossil fuel consumption subsidies because many governments, mostly in developing countries, pay part of the cost of the country’s consumption of fossil fuels. For example, in China and India, the governments pay $11.8 billion and $36.6 billion, respectively, of the actual financial cost of the oil consumed in the country. In other words, the population in those countries pay less than the world’s market price for oil because the government offsets part of the expenditure. IEA believes the citizens of these countries should have to pay the actual costs of the fossil fuel energy that they consume.

The IMF, on the other hand, not only calculates the difference between the actual supply cost and the end-use price borne by the country’s population but also adds artificial costs for carbon emissions, air pollution, and traffic congestion, making the fossil fuel “subsidies” more than 10 times greater than actual financial cost. IMF’s intent is to make fossil fuels appear to cost so much that people will stop using them rather than pay the exorbitant costs that it calculates. Unfortunately, if the world stopped using fossil fuels, its citizens would be put back in the dark ages with little of the comforts we know today—the damages would be well in excess of $5.3 trillion and millions of people would likely starve to death.

Since the IMF is made up and funded by governments, including the United States, which are seeking to raise funds to spend from carbon pricing or trading schemes, it is easy to understand why it has adopted this methodology, which any fair observer realizes distorts the meaning of the word “subsidy” to confuse the average person. If the IMF can allege a cost is being occurred each time someone uses the energy that make our lives better, it might be able to justify a new enormous source of cash to spend on more government. From the looks of the IMF’s $5.3 trillion assessment, it is off to an audacious start to its campaign to tax energy use.

*This post originally appeared on the Institute for Energy Research.


[i] Institute for Energy Research, Developing Countries Subsidize Fossil Fuel Use, Artificially Lowering Prices, December 8, 2014, http://instituteforenergyresearch.org/analysis/developing-countries-subsidize-fossil-fuel-use-artificially-lower-prices-2/

[ii] IMF Working Paper, How Large Are Global Energy Subsidies?, May 2015, http://www.imf.org/external/pubs/ft/wp/2015/wp15105.pdf

[iii] Institute for Energy Research, China: World’s Largest Energy Consumer and Greenhouse Gas Emitter, May 20, 2015, http://instituteforenergyresearch.org/analysis/china-worlds-largest-energy-consumer-and-greenhouse-gas-emitter/

[iv] Responding to climate change, Fossil fuel subsidies to hit $5.3 trillion in 2015, says IMF study, May 19, 2015, http://www.rtcc.org/2015/05/18/fossil-fuel-subsidies-to-hit-5-3-trillion-in-2015-says-imf#sthash.PoXX2Ctz.dpuf

[v] International Energy Agency, Energy Subsidies, http://www.worldenergyoutlook.org/resources/energysubsidies/

[vi] IMF, The $5.3 Trillion Energy Subsidy Problem, May 18, 2015, http://blog-imfdirect.imf.org/2015/05/18/act-local-solve-global-the-5-3-trillion-energy-subsidy-problem/

WSJ Op-Ed: RFS Drives Up Costs at The Pump & On The Plate

This week, food industry leaders Mike Brown and Rob Green penned an op-ed in The Wall Street Journal encapsulating the numerous, costly flaws of the Renewable Fuel Standard (RFS).  Mr. Brown, president of the National Chicken Council, and Mr. Green, executive director of the National Council of Chain Restaurants, explain how this broken mandate is forcing American taxpayers to fork it over at the pump and for the food on their plate. Below is an excerpt from the piece:

Consider: Between 1973 and 2007, corn prices averaged $2.39 a bushel, according to the U.S. Agriculture Department. The average price of corn jumped more than 110% between 2008 and 2014, to $5.04 a bushel. Even though corn prices have recently declined thanks to fabulous weather that produced two consecutive bumper crops, prices are still more than 59% higher than the historical average. Prices could surge even higher if the U.S. experiences anything less than ideal weather.

The resulting increases in feed costs have also affected the American production of beef, pork and chicken, which had increased consistently over the past 30 years but has now leveled off due to the higher cost of feed. As a result, a 2012 study by Pricewaterhouse Coopers estimates that the RFS costs chain restaurants $3.2 billion every year in increased food commodity costs.

Then there are restaurants. Wholesale food prices have outpaced the consumer price index by more than a full percentage point since the implementation of the RFS. In many instances, especially in the restaurant sector, small business owners are not able to pass on higher retail prices to consumers because of market competition—a concept that the corn-ethanol industry is unfamiliar with thanks to a government quota.

As if this were not enough, ethanol production has contributed to global food scarcity and hunger. No country exports more corn than the U.S., but about 40% is ending up in gas tanks, not on the world market. So much corn has been blended into gasoline that the higher percentage levels routinely render boat engines, motorcycles, chain saws and older automobiles inoperable.

Click here to read the rest of the op-ed.

The Hidden Threat to America’s Energy Boom

In December, the Obama administration released revised Draft Guidance to examine the impacts of climate change under the National Environmental Policy Act (NEPA). NEPA requires that federal agencies look at the environmental impact of their major actions. The administration’s new greenhouse gas guidance would make an already costly and time-consuming process even more onerous without providing any new and actionable information.

No Pass 600 AEA (1)

This administration’s proposal is the latest move by the administration to make it more difficult to spend federal dollars on any infrastructure projects—including the expenditure of funds for permitting of projects—and the guidance is designed to make it more difficult to produce natural gas, oil, and coal in the United States – if those activities lead to an increase in carbon dioxide.

For example, this guidance would make it more difficult to produce, use, and export natural gas. America is the number one natural gas producer in the world, with production surging 55 percent since September 2005. We have so much natural gas that we can now export a lot of it to our allies and still keep prices affordable here at home. A study commissioned by the U.S. Energy Department found that the U.S. can expect “to gain net economic benefits from allowing LNG exports” and that “scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports.”

Our ability to realize these economic benefits depends on securing timely approval of new LNG projects. Yet this new guidance adds more red tape to an already burdensome process. As the Center for Liquefied Natural Gas notes in public comments, the draft guidance would “undermine regulatory certainty by adding significant costs and delays to LNG export projects while potentially leaving the process vulnerable to unnecessary litigation.”

It is conceivable (and not clear from the guidance) that a project could be held up because opponents of all hydrocarbon use would argue that a project requiring a permit insufficiently assessed the impact of the project on global carbon dioxide emissions from direct and indirect sources. An export facility, it could be alleged, not only produces carbon dioxide or allows carbon dioxide-producing natural gas to flow through it, but also then may allow economic expansion because it provides affordable energy to enable a steel mill to operate, which might produce more steel; but also, more carbon dioxide. The list of “what ifs” becomes infinite in the hands of creative and clever lawyers, whose intent it is to slow construction of facilities that might expand the use of hydrocarbons in the U.S. or the world.

The Institute for Energy Research has exposed the numerous flaws with the administration’s draft guidance. In March, IER called for the guidance to be withdrawn, noting it “is internally inconsistent, fails to require information about climate change itself, is inconsistent with NEPA, is inconsistent with current NEPA regulations, is inconsistent with case law, and uses the arbitrary and capricious social cost of carbon.”

For example, the draft guidance requires that if cost and benefits of a proposed actions are calculated, then the social cost of carbon (SCC) should be used to “monetize” the climate change impacts. As we have explained a number of times, the social cost of carbon is wholly arbitrary. As MIT economist Robert Pindyck wrote in a peer-reviewed publication, the Integrated Assessment Models (IAMs) used to estimate the SCC…

have crucial flaws that make them close to useless as tools for policy analysis: certain inputs (e.g. the discount rate) are arbitrary, but have huge effects on the SCC estimates the models produce; the models’ descriptions of the impact of climate change are completely ad hoc, with no theoretical or empirical foundation; and the models can tell us nothing about the most important driver of the SCC, the possibility of a catastrophic climate outcome. IAM-based analyses of climate policy create a perception of knowledge and precision, but that perception is illusory and misleading. [emphasis added]

Pindyck continued:

When it comes to the damage function, however, we know almost nothing, so developers of IAMs [Integrated Assessment Models] can do little more than make up functional forms and corresponding parameter values. And that is pretty much what they have done.

A tool that is “close to useless” for policy analysis should not be required to be used by this guidance. This is especially true for something that is basically “made up.” But the administration wants to use the social cost of carbon because it give the illusion of large costs.

The social cost of carbon provides the illusion of large impacts from greenhouse gas emissions that have no discernable impact on the actual climate. As the House Natural Resources Committee explains, many federal agencies believe carbon dioxide emissions from their activities “will have small, if any, potential climate change effects.” Yet the administration now wants agencies to consider climate change effects for nearly everything they do.

The Natural Resources Committee held a hearing this week on the draft guidance. We hope Congress uses every tool at its disposal to shine a light on this power grab so Americans can continue to enjoy the benefits of domestic energy production without further interference from federal bureaucrats.

Pyle: Let’s Put An End to Wind Welfare

This week, AEA President Tom Pyle penned an op-ed in The Hill decrying the wind industry’s dependence on taxpayer-funded corporate welfare. Below is the text of the op-ed:

imgres

Does wind lobby care more about keeping word or handouts?
By Thomas Pyle

As the 2016 presidential race takes shape, here’s an idea Republican and Democratic contenders alike can get behind: let’s put an end to corporate welfare.

Unfortunately, right out of the gate, many of the candidates have chosen to pander to special interests rather than stand up for American families. At the recent Iowa Agriculture Summit, for instance, none of the Republican contenders save Ted Cruz (R-Texas) called for an immediate end to the federal ethanol mandate.

On corporate welfare, the energy space is fertile ground for reform. A good place to start is with the wind Production Tax Credit (PTC), a lucrative subsidy that has bilked taxpayers for billions over decades. The most recent one-year extension is estimated to cost taxpayers $6.4 billion.

The best solution is to simply let the PTC remain expired. But in an effort to find compromise, Reps. Kenny Marchant (R-Texas) and Mike Pompeo (R-Kan.) have introduced legislation to phase out the PTC in a series of steps over the next decade. Their bill tightens eligibility requirements for new projects, ends an inflation adjustment provision—saving taxpayers about 35 percent—and repeals the underlying statute so subsidies will stop flowing no later than the end of 2025.

Two years ago, lobbyists at the American Wind Energy Association (AWEA) claimed to support a PTC phase out. As Congress teetered on the fiscal cliff, AWEA cried uncle, conceding the industry didn’t need the PTC “to become fully cost-competitive.”

The wind lobby has since changed its tune. This week, AWEA blasted out an email calling on wind supporters to “urge opposition” because the bill “threatens to create a repeat of the cycle of job losses, factory closures, and major decreases in the amount of new wind power available to our families.”

AWEA has it backwards. By pushing for repeated one-year PTC renewals, AWEA owns the wind industry’s boom and bust cycles. The Marchant-Pompeo bill, by contrast, offers reasonable reforms that provide certainty to wind producers while protecting the long-term interests of taxpayers.

The only question is whether the wind industry will meet Congress half way.

A solution couldn’t come soon enough. As history shows, wind welfare is a bad deal for taxpayers.

Consider new data from the Energy Information Administration (EIA). In 2013, wind received almost $6 billion in federal electricity-related subsidies (including the PTC). That’s almost twice as much as coal, natural gas, and nuclear received combined. The only difference: while those three sources supply 86 percent of the electricity Americans use, wind produces just 4.5 percent despite receiving twice as much largesse.

And while all energy subsidies distort markets and harm consumers, wind subsidies have come at an especially high cost. Over the last six decades, subsidies for wind and solar alone have cost taxpayers $13.77 per million British thermal units of energy produced, compared to just 39 cents for oil, 34 cents for nuclear, 12 cents for natural gas, and 10 cents for coal.

To make matters worse, Americans actually pay for subsidized wind twice: first in their taxes, then on their utility bills. Subsidies divert resources away from projects that make the most economic sense and toward those who have the best political connections. These market distortions lead to higher energy prices for all of us.

Just look at Spain and Germany. Both countries impose subsidies and mandates for wind and solar. Electric rates are three times higher in those countries than in the U.S. and carbon dioxide emissions are actually rising—defeating the supposed purpose of mandating renewables.

Europe’s failed green energy experiment should serve as a cautionary tale on the false promise of corporate welfare. Wind lobbyists often claim that the PTC is only “temporary” and that renewables will soon be cost competitive with conventional fuels. They’ve been telling this tall tale since Congress first enacted the PTC in 1992.

The American people have had enough. A recent poll found that the public believes wind subsidies have passed their expiration date. By embracing the approach advanced by Marchant and Pompeo, wind lobbyists can prove they care more about keeping their word than protecting their government handouts.

Click here to see the original op-ed. 

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Squirrelly Taxes

Squirrely Taxes 600 AEA

Congress created the Highway Trust Fund (HTF) in 1956 to fund construction of the Interstate Highway System. The HTF is funded primarily though an 18.4-cent per gallon federal excise tax on gasoline. Funding for the HTF expires May 31, and with the HTF facing a budget shortfall, some in Congress have proposed raising the federal gasoline tax.

Yet more than 25 percent of HTF revenues aren’t even spent on highways. Instead, they’re diverted to subways, streetcars, buses, nature paths, and even squirrel sanctuaries. 

The bottom line? There is never a good time to raise taxes on the American people to fund a broken system in which the federal government no longer has business being involved.

Tom Friedman Confused by Germany’s Green Energy Failure

New York Times columnist Thomas Friedman published an opinion piece this week titled, “Germany, the Green Superpower.” In the piece, Friedman lauds the country’s effort to transition from coal to renewable energy sources like wind and solar—known as Energiewende—as a success:

“…what the Germans have done in converting almost 30 percent of their electric grid to solar and wind energy from near zero in about 15 years has been a great contribution to the stability of our planet and its climate. The centerpiece of the German Energiewende, or energy transformation, was an extremely generous “feed-in tariff” that made it a no-brainer for Germans to install solar power (or wind) at home and receive a predictable high price for the energy generated off their own rooftops.”

However, contrary to Friedman’s praise, Energiewende has been an utter failure.

Germany’s feed-in tariff was established in 1991 as part of the Electricity Feed-in Act. The law mandates that renewables “have priority on the grid and that investors in renewable must receive sufficient compensation to provide a return on their investment irrespective of electricity prices on the power exchange.” This means utilities are forced to buy electricity from renewable sources at above market rates— regardless of whether or not it is needed. The feed-in tariff was extended for another 20 years in 2000.

Expanding on these subsidies, German Chancellor Angela Merkel officially established the Energiewende in 2010. The plan includes policies such as emission reduction targets, new energy taxes, and continuing the feed-in tariff system.

It’s true that Germany has increased their use of renewables and now generates over 25 percent of its electricity from renewables, with wind and solar making up nearly 15 percent of total electricity production. But this transition has come at a huge cost to the German people. The Institute for Energy Research (IER) outlined some of these costs in a study, finding that:

  • Residential German electricity prices are nearly three times higher than electricity prices in the U.S.
  • As many as 800,000 Germans have had their power cut off because of an inability to pay for rising energy costs.
  • The cost to expand transmission networks to integrate renewables stands at $33.6 billion, which grid operators say accounts “for only a fraction of the cost of the energy transition.”

If Germans aren’t benefitting from Energiewende, then who is?

As the IER study points out, the feed-in tariff is a lucrative subsidy for renewable energy producers. For example, in 2009 the feed-in tariff price for photovoltaic solar was eight times more than the wholesale price of electricity.

Germans’ bloated energy bills are also subsidizing industries in other countries. In his piece, Friedman quotes Ralf Fücks, the president of the German Green Party’s political foundation, as saying, “In my view, the greatest success of the German energy transition was giving a boost to the Chinese solar panel industry.”

At the outset of Merkel’s Energiewende policy, nuclear energy was to play the role of a “bridge” between coal and renewables. However, after the 2011 Fukushima Daiichi nuclear meltdown in Japan, Chancellor Merkel immediately shut down eight of Germany’s nuclear reactors. In the absence of nuclear power, the country has increasingly relied on coal power to back up intermittent and unreliable power from wind and solar. Ironically, this has led to an increase in carbon dioxide emissions since 2011, which contradicts the stated goal of Energiewende.

Germany's CO2 emissions

Although he fails to make the connection, Friedman implies that these policies have somehow strengthened Germany’s economy. He says, “There is an impressive weight to Germany today — derived from the quality of its governing institution, its rule of law, and the sheer power of its economy built on midsize businesses — that is unique in Europe.”

But Friedman’s whimsical view on the German economy doesn’t stand up to scrutiny. Not only are Germans paying more for electricity, but the country’s manufacturing sector is also taking a hit. Some companies are already feeling the stress of higher energy costs. As IER points out:

“In 2012, Germany’s largest steelmaker, ThyssenKrupp, was forced to sell one of its mills in the Rhineland to a Finnish competitor, which shut down the plant the next year, resulting in a loss of 400 jobs. The plant had been in operation for more than 110 years. Those affected by closure do not attribute it to ‘low wage competition from the Far East or mismanagement at ThyssenKrupp’s Essen headquarters, but rather on the misguided policies of the German government.’”

Energy-intensive manufacturing accounts for 25 percent of Germany’s economy. As the cost of electricity increases, so does the cost of manufacturing. The Federation of German Industries has warned that their manufacturers could “lose a competitive edge against rivals in the United States, where the boom in the unconventional shale gas production has led to a sharp drop in industrial energy costs.”

Unfortunately, many of the failed policies of Germany have already taken root in the United States.

In 2013 alone, U.S. taxpayers subsidized the wind industry to the tune of $5.9 billion, while the solar industry received $5.3 billion. Additionally, federal and state policies threaten to shut down 130 gigawatts of reliable power from natural gas, nuclear, and coal. That’s enough power to meet the residential electricity needs of 105 million Americans. Of course, American families are watching their electricity bills increase as a result—although not quite to the same extent as Germany’s.

Germany’s Energiewende is not making it a “Green Superpower,” as Thomas Friedman puts it. In fact, these policies are harming Germans by raising electricity rates and pushing jobs to lower-cost countries. Transitioning from affordable and reliable energy to expensive and unreliable energy is nonsensical. Simply put, the German model is one to be avoided—not emulated.

Subsidizing Renewables Won’t Alleviate Global Energy Poverty

The International Energy Agency (IEA) claims in a new study that the world will have to triple “investments” in renewable energy to stave off the most severe effects of climate change. The presumption is that governments will continue to mandate the use of less fossil fuels and that renewables will need to make up the gap—and still provide energy to billions of people around the world.

IEA should have examined a more fundamental question: why are we weaning ourselves off of fossil fuels when billions of people still lack access to energy?

To answer this question, IEA could look to its own report, which found that 1.3 billion people don’t have access to electricity and 2.6 billion people don’t have access to clean cooking facilities.

Developing countries like China and India owe much of their economic growth to increased energy use—and most of that energy has come from fossil fuels. Renewables play a minor role in their energy mix, and aren’t abundant enough to replace fossil fuels.

Increasing fossil fuel use is a tried-and-true method of alleviating poverty. Increasing “investments”—aka taxpayer subsidies—in renewables is not. In fact, it’s a recipe for higher energy prices, fewer jobs, and reduced economic growth. In other words, IEA wants us to take a reckless gamble on renewables, when a proven solution to world poverty already exists.

Rather than doling out more subsidies for costly renewable energy, IEA should look to America’s energy revolution as an example of what private innovation can accomplish in the free market. They certainly won’t find the key to alleviating world energy poverty by digging deeper into taxpayers’ pockets.

License to Kill

Lic to Kill 600 AEA

According to a study in the Wildlife Society Bulletin, wind turbines kill 573,000 birds and 888,000 bats every year. At one solar power plant in California, an estimated 3,500 birds died in just the plant’s first year of operation.

To add insult to injury, the Obama Administration finalized a regulation that allows wind energy companies and others to obtain 30-year permits to kill eagles without prosecution by the federal government in December of 2013. This “license to kill” often allows wind and solar companies to avoid punishment for their murderous tendencies, while oil and electric generating companies are forced to pay heavy fines for accidental bird deaths.

Click here to read IER’s full analysis on wind and solar’s propensity for decimating birds and bats – and why they so often go unpunished by the federal government.

Top Reasons Congress Should Reject a Gas Tax Hike

Congress created the Highway Trust Fund (HTF) in 1956 to fund construction of the Interstate Highway System. The HTF is funded primarily though an 18.4-cent per gallon federal excise tax on gasoline. Funding for the HTF expires May 31, and with the HTF facing a budget shortfall, some in Congress have proposed raising the federal gasoline tax. Below are 6 reasons why Congress should reject any attempt to hike gasoline taxes to pay for the HTF.

  1. The federal gas tax has outlived its usefulness. Congress originally created the gas tax in 1956 to fund the Interstate Highway System, which was completed decades ago. At the time it made sense to build an interstate highway system using federal funds because the highways, by definition, ran from state to state, sea to sea, border to border. But now that the interstate highways are built, there is much less of a need for the federal government to be involved because infrastructure needs are much more local rather than interstate in nature. Therefore, the primary responsibility for infrastructure development should be left to states and the private sector.
  1. The HTF has a spending problem, not a revenue problem. More than 25 percent of HTF revenues are not spent on highways, but are diverted to subways, streetcars, buses, nature paths, and even squirrel sanctuaries. Instead of raising the gas tax, the federal government should rein in its wasteful non-highway spending. This would help close the HTF’s budget shortfall without raising taxes. Congress should not bail out the HTF on the backs of the American people.
  1. Gas tax hike negates the benefits of affordable gasoline, hurts the poor. American families are expected to save more than $550 this year due to lower gas prices. Raising the federal gas tax would eat into those benefits, with low-income families getting hit the hardest. The bottom line: there is never a good time to raise taxes on the American people to fund a broken system in which the federal government no longer has business being involved.
  1. Federal money comes with federal strings. The HTF requires states to send federal gas taxes to Washington and the federal government returns some of that revenue with strings attached. This allows the federal government to coerce states into enacting policies they may otherwise disagree with. For example, the reason that states increased the drinking age to 21-years-old was because the federal government required a 21-year old drinking age or the federal government would withhold some gas tax funding. Today, highway projects funded with federal dollars must meet federal requirements under the National Environmental Policy Act (NEPA) and the Davis-Bacon Act on prevailing wages, among others. States should not accept these strings for money that was theirs to begin with.
  1. The federal gas tax needlessly redistributes revenues. There is no need for the federal government to redistribute gasoline taxes other than as a tool to control states. States are better equipped than the federal government to meet the local needs of their residents. Gasoline taxes should stay in the state in which they were raised, and they should be used for roads, their intended purpose.
  1. Let states be laboratories of democracy. There is no need to raise the federal gas tax—states already tax gasoline. Decisions over transportation funding are best made at the local level between states and the private sector. In recent years, some states have decided to raise their gas tax while others have not. Leaving these decisions to states and private partners encourages innovation and discourages the waste and abuse we’ve seen at the federal level.

Energy Solutions Come from the Market – Not from Mandates

Last week, AEA Economist Travis Fisher wrote a Letter to the Editor in The Charlotte Observer regarding North Carolina’s renewable energy mandate. Fisher’s letter outlines the importance of freezing an energy mandate that has proven to be costly for North Carolinians. Below is an excerpt from the piece:

Renewable energy advocates claim a bill to freeze North Carolina’s 2007 energy mandate “dramatically disrupts” the state’s energy goals.

In reality, freezing the mandate is a practical solution to the real problem: political meddling.

From 2007 to 2013, U.S. production of natural gas from shale formations grew an amazing 783 percent, thanks to innovations such as the combination of horizontal drilling and hydraulic fracturing.

In contrast, a mandate on electricity from solar power and poultry waste is not a solution – it’s meddlesome and costly.

The right path forward is to repeal the energy mandate and unlock true innovation in energy.

Click here to read the rest of the letter.