EFEPA is About Freedom

Jan 15, 2013

Yesterday, Rep. Mike Pompeo (R-KS) unveiled his Energy Freedom and Economic Prosperity Act (EFEPA) calling it "common sense" and not "particularly partisan." The EFEPA is a step in the direction of freedom. Dozens and dozens of market-distorting energy tax credits have been on the books for decade after decade - and unfortunately, that's become that status quo.

With this legislation, conservative lawmakers are putting their foot down. They are taking a stand for the free market and for consumers. These market-distorting tax credits don't help the consumer; nor do they help the taxpayer. They only help industries that should be allowed to stand or fall on their own.

When asked how confident he was that this bill would be successful, he said that "hard work and education" is what he could commit to. The more the American people recognize that this debate is about freedom, the more they will back legislation of this kind.

The Heritage Foundation's Nicolas Loris described the EFEPA:

The inclusion of these targeted tax credits takes energy policy in the wrong direction by prolonging unnecessary and damaging corporate welfare for energy companies. Representative Mike Pompeo (R-KS) is seeking to reverse course by introducing the Energy Freedom and Economic Prosperity Act (EFEPA). The legislation would benefit energy producers and consumers by eliminating economically unjustified tax credits for both conventional and renewable energy sources and technologies while lowering the corporate tax rate to encourage investment and spur economic growth.

Extending the tax credits in the fiscal cliff deal only served to perpetuate the problems of corporate welfare and corporate dependence.

Rep. Pompeo said that "the training wheels have to come off these industries some day." He refuted the argument that wind companies, for example, are startup companies. The wind industry boasts of their 70,000 employees, to which Rep. Pompeo replies that "that's one of the world's largest startups."

Loris also explains:

Rather than create a market in which the producer must innovate and lower costs to be competitive with other generating sources, companies spend more resources lobbying to receive these extensions. If a technology is profitable, however, the investments will occur with or without the subsidy.

Not only that, but politically motivated energy tax breaks have a profoundly negative impact on the market and consumers. This problem is very well illustrated by the wind industry, which Loris describes:

Take the effects of the wind production tax credit, for instance. Power producers compete against one another to sell electricity to the grid. When selling the electricity to grid operators, wind suppliers can underbid other electricity producers in times of excess supply because the wind producers will collect the $22 per megawatt hour generated from the tax credit. In fact, wind producers can actually bid negatively to supply power and still earn a profit because of the credit... In the short run, integrating an intermittent source such as wind into the power grid in place of what would be more reliable, dispatchable energy makes life difficult for power grid operators, who are constantly trying to balance supply and demand. Thus, wholesale operators must increase the amount of backup power readily available because of wind's intermittency, and these operational costs are spread among the ratepayers.

To be clear, this bill does not favor any particular industry. It ends tax credits for oil, renewable energy, nuclear, gasification technologies, and advanced coal projects.

Clearly consumers would be the winners if this bill becomes law. But what about energy providers? They'd win too. Loris adds that EFEPA would offset the net increase on energy providers by permanently lowering the corporate tax rate, which would "spur investment, create jobs, and increase gross domestic product and capital stock."

This bill would do a lot of good. Congress can get in the way though. Let's hope for once in a long time, they put the American people before special interests.