Boone-Doggle

• February 28, 2012

The natural gas industry doesn't need subsidies.

Something about energy policy causes Republicans and even many conservatives to abandon every free-market principle they claim to believe and embrace corporate welfare. The latest example comes courtesy of our sometime intellectual ally, Texas billionaire Boone Pickens, who is pushing the Nat Gas Act.
Mr. Pickens wants to pour subsidies on the production and purchase of vehicles that use natural gas as a transportation fuel. With conventional gasoline prices approaching $4 a gallon in many markets, this is the hottest energy fad in Washington and has had as many as 180 House co-sponsors, including, at last count, 72 Republicans.
The Pickens plan got a big lift when Senate Majority Leader Harry Reid introduced a version of the bill with fellow Democrat Robert Menendez of New Jersey and North Carolina Republican Richard Burr, a rare case of bipartisan agreement.

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"Natural gas is cheap, clean, abundant, and it's ours," Mr. Pickens says, and he's right. Breakthroughs in drilling technologies, such as hydraulic fracturing in shale, have increased America's recoverable reserves of natural gas at a low cost. Natural gas prices have remained low and stable this year even as oil prices have fluctuated and topped $100 a barrel. Natural gas is already supplanting coal plants for electricity in many places and is likely to keep doing so unless environmentalists kill the fracking industry.
But natural gas isn't widespread as a transportation fuel, and Mr. Pickens wants to dun taxpayers to change that. The Nat Gas Act would provide tax credits between $7,500 and $65,000 per vehicle to convert 150,000 U.S. light trucks and heavy 18-wheelers to natural gas engines from those powered by diesel oil. The bill would also provide a tax credit to the manufacturers of natural gas vehicles.
There's more. The 50 cent a gallon alternative fuel credit for purchasing natural gas at the pump would be extended for five years through 2016. On top of that, service stations would get a tax credit of up to $100,000 to buy the pumps and other equipment to provide natural gas.

 Associated Press

Texas billionaire T. Boone Pickens

Proponents put the cost at about $5 billion over five years, but many energy experts believe it would be multiples higher. Eight million trucks are on the road today, and if each got a $15,000 average tax credit, the price tag grows to over $100 billion.
The natural gas shale revolution is a blessing for the U.S., but its very abundance and low cost mean that it could be a commercially viable substitute for oil without taxpayer handouts. At current prices, a gallon of transportation fuel from natural gas costs about one-third to one-half less a gallon of gas from oil. That's a big nonsubsidized cost advantage.
Mr. Pickens claims that the subsidies are merely to finance the transition to natural gas vehicles, and that they will be temporary. But there were no subsidies for Henry Ford to build the Model T, and no tax incentives for gas stations in every town in America.
As for "energy independence," taxpayer subsidies have a miserable record of reducing reliance on foreign oil. In the 1970s the feds spent some $2 billion on synthetic fuels, which were a commercial bust. Ethanol was sold as a path to energy "security," but 30 years and more than $40 billion later it still can't compete without governmental support. The two-decade federal nourishment of solar, wind and other non-hydro renewables has cost tens of billions of dollars, yet they still provide just 3.6% of U.S. electricity.
The history of energy subsidies is that they become an industrial and political addiction that is difficult to stop, no matter the results, and may even inhibit innovation and profitability by providing a crutch.
We are also told that government must subsidize natural gas because the OPEC cartel blocks a free market in oil. But OPEC is not the only price-setter in oil markets, and in any case the point of a cartel is to hold the market price artificially high, which should help natural gas and renewables. If the world is running out of oil (doubtful), and prices will rise over time (maybe), this should only make natural gas more promising without federal help.
Equally dubious is the claim that natural gas subsidies would merely "level the playing field" because oil also gets tax breaks. We'd prefer no breaks for any industry, but the modest benefits for oil include tax write-offs that every manufacturer gets. In any case the Nat Gas Act would provide subsidies many times greater per unit of BTU.

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The big transportation debate of the moment is whether the future belongs to natural gas vehicles, battery-operated cars or hybrids, or whether new sources of oil will keep gasoline, diesel and the internal-combustion engine paramount. Who knows?
But we do know who doesn't know: Congress. Best to let millions of investors and consumers—otherwise known as a market—decide these fates rather than blowing $5 billion, or $100 billion, and creating another industry that depends on political intervention for its survival. One reason the U.S. has trillion-dollar deficits is because too many Republicans too often forget that they were elected to end subsidies and earmarks, not to create new ones.

A version of this article appeared Feb. 28, 2012, on page A16 in some U.S. editions of The Wall Street Journal, with the headline: Boone-Doggle.