The Corner

Cronyism: Natural-Gas Edition

In recent months, I have spent a lot of time complaining about the rampant cronyism in the green-energy sector. However, Solar companies like Solyndra aren’t the only ones to benefit from special favors from the government at the expenses of taxpayers. This morning in Reason I write about one of the latest energy boondoggles on the table. It involves the natural-gas industry and it is being pushed by big players in that industry such as T. Boone Pickens and Chesapeake Energy.

In the name of job creation, a better world, and a profitable new source of energy, the New Alternative Transportation to Give Americans Solutions Act (NATGAS Act) would provide subsidies for the manufacture and purchase of cars that run on natural gas, the conversion of commercial trucks from diesel to natural gas, the creation of natural-gas filling stations, and tax preferences to favor the use of natural gas over other energy sources.

While there would be benefits to switching to natural gas in transportation, investors have clearly signaled that they are reluctant to invest the billions of dollars necessary to create the infrastructure required to meet future demand. The act is supposed to alleviate their resistance. However, the need for subsidies alone should be a signal to taxpayers that this could end up being a terrible “investment” for them. In fact, according to experts, NATGAS could cost taxpayers somewhere from $3.8 billion annually (according to the Joint Committee on Taxation) to as much as $14 billion a year by other estimates. As I explain:

But the reluctance of investors to pour the $130 billion to $210 billion that may be needed over the next 20 years to build for the natural gas infrastructure alone stems from precisely the sort of market forces that government should respect. Natural gas prices are well below historic levels while oil prices are well above historic levels. There’s no guarantee that these prices will stay at those mismatched levels over the life of the capital expenditure needed to ramp up the market for natural-gas vehicles.

If the recent string of government-subsidized energy failures such as Solyndra teaches any lesson, it’s that government should be extremely slow to overrule investors’ reluctance to wager their own money. Just as it does with more chic “green energies,” the acknowledged need for subsidies shows that natural gas technology is not ready for prime time. Tilting the scales in its favor will introduce even more economic inefficiency into the market while putting taxpayers on the hook for yet another “sure thing” that will help America move forward into a future of cleaner and greener energy.

Rather than spending yet more time and money interfering with the energy market, it is time for policy makers to actually level the playing field in energy by getting rid of all subsidies for all forms of energy. For years, we have tried government intervention. Now we should let markets — and investor dollars — lead the way in discovering the fuels of the future.

There is more here about the bill. 

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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