I hate to break it to you, but the market is anything but "free". Americans already pay for $17 billion in subsidies to oil companies each year. Add in environmental damage, illness, and the cost of protecting oil fields in the Middle East, and the average taxpayer shells out approximately $2,700 for Big Oil. If it weren’t so sad, it would be comical that we really pay about $13 for each gallon of gas.
I don’t want to distort the market anymore than the next guy. Incentives are definitely a dangerous business. We needn’t look any further than the current energy market to see that. I’m saying it’s time to fix the market—level the playing field again, so to speak.
Still, you can wait for the market to fix itself, if you like. When the Arab oil embargo hit in 1973, it became obvious that we need to wean ourselves off foreign oil. With the Persian Gulf War and the current conflict in Iraq, it has become imperative. Yet, in 1973 imports were 35% of our oil use; today, they are 60%. How’s that Invisible Hand working so far?
Don’t get me wrong. The market unequivocally allocates money better than the government—when it incentivizes the right behavior. Let’s take the current policy, for instance. The White House has dedicated about $240 million per year to alternative fuels. Meanwhile, energy companies spend approximately $18 billion a year improving their technology for coal and oil. The only way to fix this gross imbalance is through the proper incentives.
Government incentives that work are nothing new. Congress commissioned the first telegraph line, helped build canals and railroads across the country, and financed the creation of the Internet. You’re right, what a waste of taxpayer dollars.
It’s easier to say we can invest in green technology without taxes, but it’s also dishonest. Unlike agricultural and oil subsidies (a.k.a. corporate welfare), successful incentives would penalize those who pollute the air and endanger our country by making us dependent on the Middle East—as any good economist would say, eliminating market failure by correcting for negative externalities. Just as the patent system serves as an incentive for pharmaceutical companies to dedicate billions of dollars each year to create life-saving drugs, the proper incentives would encourage energy companies to dedicate their money to create planet-saving fuels. To satisfy Democrats, a carbon or gasoline tax could raise enough money to pursue a portfolio of options. To satisfy Republicans, the tax hike could be offset with tax reductions for corporations or an across-the-board marginal income tax reduction. In fact, some conservation methods—net metering, feebates, and fuel efficiency standards, to name a few—cost you zero tax dollars.
It’s a false choice to say that we can’t encourage conservation without hurting the economy. As Bobby Kennedy, Jr., says, "There is gold in going green." The possibilities are endless. Physicist Amory Lovins estimates that we can eliminate all oil and create a million new jobs by 2050 with a one-time investment of $180 billion. Kennedy says that national investments in hydrogen fuels could make America the "Saudi Arabia of wind." With a level playing field, John Woolard brags his solar energy firm could "power the entire United States on less than one percent of our total land."
The stakes have never been higher. A recent report by former World Bank Chief Economist Sir Nicholas Stern predicts that failure to act now could create a decline in global GDP by up to twenty percent. Earlier this year, a national security report said continued warming could trigger "civil strife, genocide, and the growth of terrorism."
Looking to the market for solutions is the American way, but jeopardizing our future is not. The proper incentives can restore the free market and unleash a brighter future for all.