Untangling the Spin: Senator Burr’s NAT GAS Act Speech
Yesterday, Senator Richard Burr (R-NC) gave a passionate defense of the long-stalled New Alternatives to Give Americans Solutions (NAT GAS) Act, which Heritage Action opposes (see key vote alert). While we appreciate Senator Burr’s straightforward defense of the Burr-Menendez-Reid amendment, we believe the stakes are too high to allow his speech to go unanswered.
Senator Burr believes the amendment is a “game changer.” Before beginning his defense, he warned:
I say to my colleagues and to their staff and to the American people, if for some reason you believe that in the next 18 months in America we’re going to have massive tax reform, lower rates, no deductions, no credits, no subsidies, then I want to you do me a favor: turn off your TV. Leave the gallery because I’ll never convince you that this is the right move.
Comprehensive, pro-growth tax reform is most certainly achievable after the presidential election; however, adding another special interest handout will only make it more difficult to achieve.
Senator Burr continued:
Let me just say now if you’re still with me, if you haven’t turned off the tube or left the gallery, the single-most important reason that we should do this is our national security. Our national security is vital to this country.
The appeal is guttural: let’s use our abundant supply of natural gas to stick it to the oil companies, especially foreign oil companies. For decades – from Carter’s Synfuels and Bush’s ethanol to Obama’s hybrids – we have heard politicians in Washington make the same tired claim. Each and every time the endeavors have failed, leaving taxpayers holding the bag. To his credit, Senator Burr tried to head off this argument:
And it funds the roughly $3.4 billion with a user fee on the exact people that are benefited by it. Those natural gas users. You see, the American taxpayer has no skin in this game.
In effect, Senator Burr and his colleagues are trying to replicate the federal Highway Trust Fund, which has required $35 billion in general fund transfers (i.e., taxpayer bailouts) over the past several years. In fact, Heritage’s David Kreutzer and Nick Loris characterize the bill’s math as “financial fairy dust.” They calculate that the new tax will return “less than a fourth of the subsidy cost” for heavy-duty tractor-trailers, and “the same holds true for light- and medium-duty trucks.”
While that math should worry taxpayers, Senator Burr pressed on:
We’re not re-creating the solar or wind subsidies or credits. We’re not re-creating an ethanol subsidy for gasoline that Americans have just had a huge distaste for. We’re talking not a technology of the future and investing in it, we’re taking a technology that’s here today and saying let’s create the incentive for this to explode.
If there is a difference between natural gas vehicles (NGVs) and the other failed technologies, it is that the private sector is already investing rapidly in NGVs and related infrastructure.
Last summer, Ford rolled out hundreds of taxis, powered by compressed natural gas. Ryder, UPS and AT&T announced plans to purchase fleet vehicles powered by natural gas. And just last week, Dodge, Ford and GM announced they would offer bi-fuel (natural gas and gasoline) versions of their most popular pickups. Senator Burr acknowledged this development in his speech and then cautioned:
… you have got to have an infrastructure across the country that enables that to be a feasible business decision for a company. What’s part of the NAT GAS bill, it creates a credit, a subsidy so that that infrastructure that’s needed is out there.
But that too is already happening. Last summer, Chesapeake Energy Corp. announced it would form a $1 billion fund to invest in companies that are active in developing the infrastructure necessary to boost the use of NGVs. They are now working with GE to do just that. Honda is also eyeing natural gas pumps.
Fox Business Network contributor Phil Flynn summed it up nicely: “Market forces will create the infrastructure. And you want to know why? Because people are going to want a vehicle where you can get gasoline for $2 a gallon and not have to pay maybe $5 or $6 a gallon.”
Senator Burr is a smart man and well aware the industry is expanding rapidly without the NAT GAS Act:
Some have said that there is no need to do this. It’s happening all by itself. I agree. Another point of agreement. It is happening every day in communities across this country. And ten years from now, we might look back on it and we might have made a little progress.
Interestingly, one of the top boosters of the NAT GAS Act disagrees with Senator Burr’s “little progress” assessment. Last month, T. Boone Pickens told CNN that heavy-duty trucks are “moving now from diesel to natural gas and it will probably take you about five years” to complete the transition. Mr. Pickens believes substantial progress is possible without the NAT GAS Act.
Senator Burr then makes us a promise:
The bill is a five-year bill and it sunsets. It goes away.
Let’s be honest though, subsidies rarely go away once established. Senators need only to look at the lobbying on the Stabenow Amendment to remember that eternal truth. And even if the subsidies do expire after five years, the taxes will remain an additional three years. That is “ridiculous,” as Senator Burr would say. Perhaps the most pressing question is why, if the bill is so beneficial and a win-win-win for everyone, would Senator Burr want it to expire?
It does not make sense, but then Senator Burr went on to argue against the law of supply and demand:
In fact, this bill is the only thing that will keep natural gas prices at historically low costs.
Increasing demand does not lead to lower prices unless we are talking about demand increasing the economies of scale. With natural gas at near record lows, that argument does not apply. Senator Burr’s real concern is that the lack of demand will cause companies to decrease the production or increase exports, causing the price of natural gas to increase.
When Chesapeake Energy announced its infrastructure investment, CEO Aubrey McClendon said, “We want to be as innovative with our demand initiative as we have been with our supply initiatives.” They “overwhelmed the traditional demand categories.” In other words, supply of natural gas is outstripping demand and investing heavily in natural gas infrastructure will increase domestic demand and allow them to increase the price of natural gas (and thus their profits).
Toward the very end of his impassioned defense, Senator Burr asked, “what if I’m wrong?” He went on:
It’s real simple. The user fee goes away. But we tried something. There’s no downside.
Unfortunately, Senator Burr is wrong. If the NAT GAS Act becomes law, the now-growing NGV industry will shift its business model to include five years of subsidies and eight years of taxes. As Heritage’s Nick Loris explains:
Subsidies take away the incentive to innovate and lower costs. They promote business models geared more toward gaining favor with politicians than delivering a product that is competitive and valued in the market. The result is that subsidized industries quickly become dependent on government. At that point, long-term competitiveness becomes secondary to near-term survival, which is generally conditioned on more handouts. It sets a precedent for other industries to clamor for handouts as well, further distorting the market.
America does not need another industry that is scared to innovate and wholly dependent upon government. Look no further than the companies that built their business model around stimulus-era subsidies. They are now fighting with the Department of Energy for their very survival.
Finally, Senator Burr tried to take on the most straightforward claim against the bill:
You know, somebody said this bill picks winners and losers. Well, I’ve got to admit it does. The winners are the American people and the losers are everybody internationally that produces oil.
A great sound bite to be sure, but earlier Senator Burr acknowledged this was all about “shifting as much as we technologically can from gasoline and diesel and home heating oil over to natural gas.” He is arguing picking winners and losers is okay if you pick the right winners (natural gas) and the right losers (gasoline, diesel and home heating oil). It is nothing more than selective subsidization.
Senator Burr’s forty-minute floor speech was the most detailed defense of the NAT GAS Act to date, but it fell far short. For any principled conservative – or any lawmaker concerned about harming a growing industry or putting taxpayers at risk – the decision is easy: “NO” on the Burr-Menendez-Reid Amendment.