Senate should reject lobbyist sales pitches for alternative energy subsidies

Lobbyists for the companies hoping to cash in on the many alternative energy subsidies in the Inflation Reduction Act (IRA) are crying foul now that the recently-passed House budget reconciliation bill pares back several of the biggest handouts. But none of their defenses of these market-distorting giveaways holds water. Deliberations have now begun in the Senate over its version of the bill, and Senators should at least retain – or better yet strengthen – the House limits placed on these ill-advised provisions. Here is a rundown of the main arguments the lobbyists have been pushing and why they are unconvincing.

These IRA subsidies are creating jobs – IRA proponents like to focus on the EV factories, wind facilities, battery storage centers, and other projects under construction and count up the jobs, but that is just one side of the jobs story. These projects are moving ahead only because of hyper-generous subsidies, which means that resources and jobs must be siphoned away from the rest of the economy to pay for it all. According to several estimates, the price tag could reach a trillion dollars or more. The final tally is difficult to predict as several IRA provisions are currently uncapped, such as the production tax credits for wind and solar energy. However much is spent, these dollars would have been more wisely invested if left to market forces rather than the preferences of the IRA.

In addition, these market interventions would very likely lead to more expensive energy for businesses and homeowners. After all, if an energy source is competitively priced, it wouldn’t need the Green New Deal-style subsidies in the IRA. So, the resulting costlier energy under the IRA would further suppress economic activity and job growth. Also, it is important to remember that most of the subsidized alternative energy jobs come at the expense of conventional energy jobs and are not in addition to them.

At best, the avalanche of subsidies in the IRA can create a temporary sugar high but would be a long term drag on the economy and on job creation.  

These are infant industries that need initial assistance – Every industry was an infant industry at some point, and every conventional energy source started out as an alternative energy source. Consider the ubiquitous cell phones that were infant industry just a few decades ago – and they were up against Ma Bell! Or consider Colonel Drake who drilled America’s first oil well in 1859 without any assistance from the Department of Energy, since the agency didn’t exist until 1977. History shows that the only infant industries in need of special help are those that lack merit.

Further, many of the alternative energy sources favored in the IRA no longer deserve to call themselves infants. For wind and solar, the IRA extended the tax credits in place since 1999, and the giveaways for others such as biofuels are even older than that. Indeed, it is hard to think of a single subsidized infant energy source that ever grew up and moved out of the house. Good ideas win out in the marketplace, and bad ones come to Washington for endless handouts.

Without the subsidies, we will fall behind China – Like the infant industry argument, industry fearmongering that subsidies are needed to keep pace with China and other global competitors has been with us for a long time. There have been plenty of subsidized alternative energy boondoggles over the years – including some downright laughable ones like President Obama’s wishful thinking about making fuel from algae – and nearly every one of them came with dire warnings that China or some other competitor would eat our lunch if the feds failed to provide enough support.

None of these gloomy predictions ever materialized. If anything, it was America that ate the rest of the world’s lunch on energy, and we did it with an unsubsidized, free-market breakthrough: fracking.

In truth, the only thing that is going to happen if Beijing outspends Washington on wind or solar or green hydrogen or the rest is that they will have wasted more money than us.  

The environment will suffer if we don’t transition to green energy – None of the alternatives subsidized under the IRA make economic sense, and it is far from clear that they make environmental sense either. Every choice involves tradeoffs, and that includes energy sources and technologies. So, for example, electric vehicles do not have tailpipe emissions like gasoline powered cars and trucks do, but they require greater energy and resource inputs to manufacture, and the electricity needed to power them has negative environmental effects as well. Similarly, wind and solar electric generation don’t require smokestacks like coal or natural gas-fired power plants, but they are far more land intensive. And the buildout of offshore wind farms raises further questions about the effects on migrating whales.  

Given the exorbitant price tag of the IRA subsidies, any environmental benefits are being purchased at a sky-high price which will be paid by future generations. Ironically, the IRA is much more likely to do net harm to those future generations because it contributes to the mountain of debt our government is handing them, which will make it harder to deal with any and all challenges the future holds. In this regard, the free-spending IRA is especially counterproductive notwithstanding the assertions that it helps avert future climate-related damage.

Many of these alternative energy lobbyists are very well paid, but apparently not well enough to come up with anything new or that can’t be readily discredited by decades of energy policy history. The Senate would do well to ignore these tired arguments for alternative energy subsidies and build upon work in the House to crack down hard on them in the budget reconciliation process.