Energy Subsidies for "Fat Cats" (Part One)

Among the many failures of the political class, our disjointed, haphazard and inefficient “energy policy” goes high on the list. I hesitate to use the phrase “energy policy,” because there seems to be no concerted effort to steer the U.S. energy sector in a coherent direction (“policy” is non-existent). Decisions about energy policy are dominated by short-term calculations of politicians who are primarily motivated by the next re-election campaign.

The policy mess reflects the influence of bizarre alliances. On the one hand, liberal politicians grandstand publicly about the perils of “climate change” (pandering to environmentalists), while protecting the coal industry against cleaner forms of energy (pandering to unions). On the other hand, conservative politicians trumpet the virtues of smaller government and free markets, while protecting irrational energy subsidies for local constituents (pandering to corporate welfare recipients).

A good example is the one-two punch of import duties on foreign-produced ethanol, and tax credits for U.S.-produced ethanol (see here). Do we want lower-cost ethanol and more ethanol consumption (arguably good for the environment but bad for U.S. farmers)? Or do we want higher-cost ethanol and less ethanol consumption (arguably bad for the environment but good for U.S. farmers)?

Meanwhile, President Obama has fostered a perception that he can ride around on unicorn shooting “green jobs” out of his orifices. (You pick the orifice; credit to Paul Begala for the imagery.) In truth, renewable energy development has slowed dramatically in the past two years. President Obama’s “green jobs” economy is a pipe dream. And, ironically, the “fat cats” on Wall Street are the primary beneficiaries of tax policy intended to subsidize the development of renewable energy production.

This will be a four-part blog post. In part two, I’ll provide a layman’s overview of the energy sector, from “traditional” fossil fuels to alternative energy sources. In part three, I’ll explain the anatomy of a deal. In part four, I'll describe why the “fat cats” on Wall Street are receiving a tax windfall to finance renewable energy development.

What do you get when incoherent energy policy meets bad tax policy? Energy (tax) subsidies for "fat cats." More to come.