April 26 2011
Natural Gas Cars: Let the Market Decide
With gas prices unbearably high and driving season approaching, Americans are easy prey for those who promise to ease their pains at the pump. This makes it high season for politicians and their cronies seeking taxpayer-financed support of alternative fuels. While President Obama favors electric cars, preferably run on solar and wind energy, other interest groups are eagerly pursuing handouts for vehicles fueled by natural gas.
Americans should be wary of any special interest group claiming that a helping of taxpayer money will pave the way to a better energy future, regardless of what source is on the table that day.
Today, oil dominates in the US transportation sector. Ninety-four percent of all transportation is fueled by oil, whereas natural gas and renewable sources are responsible for only three percent each. Fifty-one percent of all oil consumed in the United States is imported from nations such as Canada, Mexico, Saudi Arabia, Venezuela, and others, leading many to worry about US foreign oil dependence.
A long list of Presidents, going all the way back to President Nixon, has promised to liberate the American people from foreign oil dependence. President Obama follows in their footsteps. Leaving aside the question of whether oil self-sufficiency is as desirable a goal as politicians make it out to be, thus far none of them succeeded in meeting that goal. Nonetheless, the pursuit of oil independence, in conjunction with promises of lower carbon emissions and lower costs, have justified taxpayer-financed support for favored industries, which have consistently failed to live up to their hype.
The ethanol trifecta is the prime example of energy policy gone wrong. Three decades of federal subsidies, trade protection, and, most recently, mandated ethanol blending, have still failed to produce a measurable impact on our foreign oil dependence. Worse yet, America's ethanol policy costs taxpayers about 6 billion in direct subsidies every year, while also imposing indirect costs from converting gas stations and car engines to handle the ethanol, by damaging engines and fuel lines, and because ethanol-blended gasoline allows us to drive fewer miles than pure gasoline, forcing Americans to burn more fuel than necessary to go the same distance as before. Far from reducing our CO2 emissions, ethanol production has been found to actually increase emissions.
The natural gas industry is now making the all-too familiar claim that natural gas is the abundant, domestic fuel of the future, which will reduce our dependence on foreign oil, lower prices at the pump, and reduce CO2 emissions. All that's needed to enter this new era of Fahrvergnügen (driving enjoyment) is for the government to provide generous incentives for the production, purchase, and use of natural gas vehicles, as well as funding for further research and development.
Legislation now before Congress seeks to advance the natural gas wish list (The Natural Gas Act of 2011) by providing special tax breaks for the industry. In particular, the act would extend the existing 50 cent a gallon alternative fuel tax credit through 2016; it would make all new dedicated natural gas vehicles (bi- fuel included) eligible for a credit equal to 80 percent of costs up to a $64,000 cap; it would also create a new production tax credit tax of up to $4,000 per vehicle, while making manufacturers eligible for a total of $200 million in tax credits.
Supporters of the bill claim that these incentives should be a no-brainer for Americans. As one industry cheerleader, who owns a Honda Civic GX fueled by natural gas, proclaimed, "I fuel it in my garage at night and it's less than a $1 a gallon and you're getting ready to pay $4 a gallon."
If running cars on natural gas is such a great deal, why then is the technology in such dire need of generous taxpayer handouts? In order to find out whether natural gas is the silver bullet to our transportation needs, we have to allow the market to do what it does best: direct scarce resources towards their most highly valued uses. If natural gas vehicles are indeed as economically competitive as supporters claim, vehicle manufacturers and consumers will make the switch without taxpayer support.
Instead of spending money on legislative battles, those with genuine confidence in the viability of natural gas as transportation fuel would invest in commercializing the technology directly. Sadly, when government tries to determine winners in energy, politics-not economics- distributes profits, and American taxpayers end up the losers.