Jim, if you don’t mind, I’ll tackle the other half of Chait’s column, about tax breaks for oil companies.

He’s right.

Okay, now that we’ve got over the shock, let’s examine why. It’s easy to see why legislators might lean towards subsidizing oil – it’s been (almost literally, and together with coal) the engine for the greatest increase in human welfare ever seen, a point that people like Chait are incredibly reluctant to acknowledge. Yet that’s not reason enough. He’s right to say that successful energy sources don’t need to be subsidized. In fact, I’d argue that as a matter of principle they shouldn’t be subsidized.

There’s also an international element to this. As I say in a forthcoming paper, which builds on something our very own Jonathan Adler wrote back in 2000 (so it’s safe to say we were here first!):

It is odd that governments that argue for a worldwide reduction in energy use should continue to support direct and indirect subsidies to energy producers. Such subsidies keep energy prices below market levels, stimulating excess demand and related emissions. The US and UK are not alone in this. Many foreign nations that have endorsed the Kyoto Protocol have even larger subsidies for carbon-based fuels. Such subsidy programs also serve to “tilt the playing field” so as to discourage the development of alternative energy sources by reducing research expenditures made by private energy companies. This, in turn, spawns arguments for additional energy subsidy programs to “level the playing field” for other energy sources. The end result is significant distortions in energy markets due to government interventions.
The Energy Information Administration estimates aggregate energy subsidies in the US of between $5 billion and $10 billion per year, approximately $2 billion of which is devoted to research and development programs that benefit particular energy industries. Removing price subsidies in China, India, Indonesia, Iran, Russia, Kazakhstan, South Africa and Venezuela would, according to the International Energy Agency, reduce global energy usage by an estimated 3.5 per cent and reduce global CO2 emissions by 4.6%. An international agreement aimed at ending energy subsidy with binding targets would be a significant victory for emissions reduction. Unlike Kyoto, which forces an energy starvation diet on its participants, such a treaty would be a move to combat energy obesity.

This is a true “no regrets” strategy. We should not only eliminate these subsidies but press others to do so as well. Our friends in the energy independence movement should agree with this strategy as well.