My Thoughts on State of the Union Address

This week I offered my reaction to President Obama’s remarks on energy policy in his State of the Union address:

 

Renewables: Time to Move On

By Margo Thorning

Chief Economist, American Council for Capital Formation

President Obama announced expansion of domestic oil and gas drilling which is a positive step. But then he renewed his commitment to backing renewable energy sources. There’s a time for stubbornness and a time to move on.

The Department of Energy’s EIA shows that new electric generating capacity using wind and solar power tends to be considerably more expensive than conventional, available and secure natural gas and coal resources.

And in a world of real tradeoffs, every dollar spent on expensive renewable energy is money that could have been used by households and business for purchasing consumer goods or productive new investments that make economic sense. Increasing aggregate demand is key to strong U.S. job growth; spending more than is necessary on energy is a drag on overall demand for goods and services. Indeed, there is a direct linkage between energy use and economic recovery, as in recent years each 1 percent increase in Gross Domestic Product in the U.S. has been accompanied by a 0.2 percent increase in energy use. Inexpensive energy from conventional energy sources for electricity generation and transportation fuels is critical for restoring U.S. economic growth.

High U.S. electricity prices are a real burden on U.S. consumers. USA Today recently reported “households paid a record $1,419 on average for electricity in 2010, the fifth consecutive yearly increase above the inflation rate.” This “jump has added about $300 a year to what households pay for electricity. That’s the largest sustained increase since a run-up in electricity prices during the 1970s.”

Meanwhile, subsidizing renewables costs jobs and slows economic growth, burdening taxpayers by grabbing up a massive share of tax code subsidies. In 2010, an estimated 76 percent of the $19.1 billion in federal tax incentives went to renewables and for energy efficiency, conservation and alternative technology vehicle projects while only 13 percent went to fossil fuels, according to the Congressional Research Service. Some renewable electricity enjoys negative tax rates: solar thermal’s effective tax rate is -245 percent and wind power’s is -164 percent.

Frankly, there are many more efficient ways to boost our economy, even just within the energy sector. Chief among them, of course, would be to give the thumbs-up to the Keystone XL pipeline, which is slated to bring real jobs and lasting economic impact to America (rather than China, which is more than happy to gulp down traditional energy in a fashion that is far less “clean” than here).

Doggedly pursuing bad policies isn’t leadership. It’s just a bad investment that harms the very Americans the President’s administration is trying to help.

Margo Thorning

Margo Thorning

Dr. Margo Thorning has frequently testified as an expert witness on capital formation, tax, energy and environmental policies before multiple U.S. congressional committees. She has also traveled coast to coast to present findings to state and local lawmakers, business organizations and the media on the economic impact of climate change policies on local job and economic growth.

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