On December 17, 2010, President Obama signed an $858 billion legislative package.
[ President Obama signs legislative package - image credit: White House ]
The package extends a number of provisions on energy:
* Tax credits for making energy-efficient home improvements. The 30% credits in the 2009 economic stimulus bill are cut back to 10%, up to varying amounts, for insulation or energy-efficient windows or roofs. There also are credits of $50 to $150 for purchases of energy-efficient fans, water heaters and furnaces.
* Grants as under the Treasury Grant Program of the 2009 stimulus bill, offering renewable power developers such as wind and solar facilities grants of up to 30% of project costs, in lieu of tax credits they would otherwise receive. Hydropower and certain biomass projects receive half the amount available to the others.
* Transit benefits, allowing the use of up to $230 a month per employee in pre-tax dollars for the expense of commuting by train, bus or van pool.
* Support for "alternative fuel":
A 45-cent-per-gallon tax credit for ethanol through 2011. Some use of ethanol is also mandatory by law, while domestic production is further supported by tariffs; the package extends the current 54-cent-per-gallon tariff on imported ethanol and the 22.67-cent-per-gallon tariff on ethyl tertiary butyl ether.
A $1-per-gallon tax credit for biodiesel. The package also seeks money for cleaning up more than 14,000 old diesel engines every year in trucks, school buses and other applications.
Also, a 50 cents-per-gallon tax credit for companies using liquefied natural gas, liquefied coal and other alternative fuels, excluding ethanol, methanol and so-called "black liquor" produced from paper manufacturing, reports Platts.
The support for ethanol was opposed by a range of groups, including environmentalists and livestock producers. “The federal government should not waste another $6 billion on this needless subsidy,’’ a coalition that included the American Meat Institute, the National Taxpayers Union, the National Wildlife Federation and the Snack Food Association declared.
Instead of more decisively moving ahead with transport electrification, the package keeps supporting vehicles that are driven on fuel. Biofuel competes with food and forests for land and water, while taking extra fertilizers and energy, with little or no net benefit to the environment.
Such support for "alternative fuel" comes at a high price for taxpayers and for genuinely clean alternatives, for which it becomes even harder to compete. Support for liquid coal could cost taxpayers $400 million per plant, every year, on top of subsidies that coal already receives.
This focus of this package on tax, rather than on climate, has wasted another opportunity to get things right. Tax cuts and extension of tax credits can only increase budget deficits at the expense of all of us, i.e. those who work hard and are most productive, as well as those who can make little or no financial contribution at all. Tax cuts generally benefit people on high incomes and the larger, most profitable companies. Small business and people on low incomes do not benefit from tax cuts or credits, since they don't pay much tax to start with.
Because developers of solar and wind energy had little prospect of profits, the initial tax credits had to be converted to grants to get things moving. But it's even better to impose fees on products that need to be discouraged (e.g. fossil fuel), while using the revenues to each time fund genuinely clean local alternatives (e.g. transport electrification, solar and wind power, etc). Such feebates can be implemented on a budget-neutral basis, would create numerous new local job and investment opportunities, would benefit our health, would minimize government bureaucracy and waste, would optimize consumer choice and would be better in many further respects.
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Comments: 20
Most oil is used for transport, causing huge amounts of pollution, in turn causing health problems, climate change, etc. Efforts to increase fuel economy make only little difference, as the image on the left shows, as people buy more SUVs and travel more, as illustrated by the image below. To reduce the trade deficit and pollution (such as CO2 emissions) transport needs to go electric.
The trade deficit, climate change, our health, domestic job and investment opportunities, they all make rapid transport electrification imperative.
Electrification of transport can create many domestic job and investment opportunities, reduce the deficit, improve health, bring troops back from overseas, help with climate change, save the U.S. car industry, etc, etc. It's really a no brainer, except perhaps for some politicians.
Oh, does that sentence ask for a come-back...
A recent opinion piece in USAtoday describes these tax credits as a form of "wealth transfer [that] is highly regressive, robbing from the poor to help a few greenies burnish their green credentials."
Of course, this argument sounds rather disingenuous coming from the Free Enterprise Institute. Nonetheless, tax credits do little for those who pay little or no tax to start with.
The poor are better off with rebates. Feebates are even better, as feebates can impose fees on fossil fuel or polluting cars, while using revenues to fund local rebates on clean alternatives, thus helping those alternatives in two ways without posing stress on the budget. Feebates can thus be financed by polluters, rather than from taxpayers money that would otherwise be used for social welfare, health, education, etc.
The fact that feebates can be budget-neutral also makes them more acceptable for those concerned about deficits, while feebates are also more effective from an environmental perspective.
Poor people won't qualify for the full tax credit. Furthermore, it might take a long time to reap the benefit, so people without much money may have to use their credit card to bridge the gap. "If I buy in January, I have to pay it now and I won't get it back until April in 2012," Friedland said. "That's why we have been advocating for change to a rebate that is paid in 60 days rather than a tax credit."
Then there are sales taxes. In California, buyers must pay sales tax on the price of the car, even a clean car, and that tax is levied on the price before government rebates or incentives. In Los Angeles, the sales tax rate is 9.75%, so on higher-priced EVs the tax would be more than the rebate. Clearly, there still is a lot of work to be done to get things right.
I maintain that this argument sounds rather disingenuous coming from an institute claiming to be the voice of enterprise -- even more so from an institute claiming to be the voice of American Enterprise, given that the car used to illustrate the argument is made by an American company (Fisker Automotive, based in Irvine, California, with batteries from A123 Systems).
The conclusion also remains the same, i.e. feebates work best and can be financed by polluters, rather than from taxpayers money that would otherwise be used for social welfare, health, education, etc.
Biden will outline the president's new three-part plan which will "include supporting electric vehicle manufacturing and adoption in the U.S. through generous new consumer rebates, investments in R&D, and a competitive program to encourage communities to invest in electric vehicle infrastructure."
Biden is expected to propose converting the $7,500 tax credit given to buyers of electric vehicles to a $7,500 rebate to be deducted from the purchase price at the time of purchase. The current rebate doesn't apply to all buyers, and some must wait months or longer to claim the rebate on their taxes and receive the money from the IRS.
I fear that people think that biofuels don't produce CO2.
Back in 2007, I wrote about a study led by Nobel prize-winning chemist Paul Crutzen that found that commonly-grown biofuel crops raised rather than lowered greenhouse gas emissions. The findings followed a 2007 OECD report that concluded that growing biofuel crops threatens to cause food shortages and damage biodiversity, with only limited benefits in terms of global warming. Furthermore, as this Searchinger 2007 study pointed out, biofuel causes other land to be converted into cropland, resulting in net increases of greenhouse gases.
Such concerns were confirmed in more recent studies: This European study concludes that, once land use impacts are included, the extra biofuels that will come to the EU market will be on average 81% to 167% worse for the climate than fossil fuels. This study finds that rivers and streams are the source of three times as much human-caused nitrous oxide emissions as previously estimated by the IPCC.
Instead of using cropland to grow biofuel, it's better to look at pyrolysis of organic waste and growing algae in floating bags and in greenhouses. And as said, we need to better facilitate the transition to electric cars. Feebates can be implemented that would provide better outcomes in all these areas than the above tax package.
As said, and as study after study has pointed out, there's only limited prospect for biofuel (e.g. in aviation) and instead we should shift to electric vehicles, possibly complemented by hydrogen.
Meanwhile, East Asian countries, who have to import much of their energy, know that the clean economy will provide many domestic job and investment opportunities, for generations to come, so rather than sending money abroad or pouring it into moribund industries, they are investing heavily into the clean industries of the future, using the revenues from their already substantial exports, as well as the revenues of taxes on cars and gasoline, which are much higher than in the U.S.
The U.S. can and should adopt an even more effective policy by implementing local feebates, such as fees on fossil fuel that each time fund local rebates on genuinely clean energy and on electrification of transport.
Best wishes for 2011, hope to see more of your posts!