Get with the Plan

In The National Review, T. Boone Pickens again makes the case for The NAT Gas Act of 2011. I slept through the first few paragraphs (the piece began with a constitutional argument).

There isn’t a whole lot of new information in here, its more of a response to the ongoing attacks on the legislation. He reminds us that Americans get all antsy when gas prices go up, but when prices drop again we are lulled back into indifference.

Near the end:

Congress is considering a bill named the NAT GAS Act (H.R. 1380). It provides targeted tax credits (“lay and collect Taxes”) for companies to replace their current fleets burning imported diesel with vehicles running on domestic natural gas. Keep in mind, a tax credit means someone gets to keep more of the money he’s earned, rather than give it to the government to spend on who knows what. It is not a government grant. And this tax credit, unlike many others, has a sunset provision of five years.

Why do we need a tax credit at all? Because there is almost no manufacturing capability for natural-gas vehicles in the United States. Rather than support manufacturers in China and India, this credit would help jump-start that industry here, adding jobs up and down the supply chain.

There are people and companies — and think tanks they fund — that oppose the NAT GAS Act for a variety of reasons, most of them self-serving. There is no greater believer in free markets than I, but if you think OPEC is a free market, I have a bridge in Brooklyn to sell you. Absent a plan of their own, critics of my plan are for the status quo, which is to continue sending billions of dollars to OPEC nations, many of which, in return, are helping to fund terrorism.

As a member of a think tank opposed to the Pickens Plan (though its unclear how our reasons are self-serving), I think that a couple of points should be made. It is true that this is a tax credit, allowing people to keep more of their hard owned money. However, we can only get that tax credit back if we purchase a natural gas vehicle. This is right-wing economic engineering. Perhaps we should ask Newt Gingrich’s opinion on it.

Second, while OPEC’s control over the international oil market does not constitute a completely free-market, this doesn’t strengthen the argument for the Pickens Plan. On the contrary,  it weakens it.

Assume that OPEC is currently capable of (or engaged in) restricting petroleum production such that the price is artificially higher than it would be. This creates an even larger incentive for vehicle manufacturers to consider the feasibility of using natural gas as a fuel rather than petroleum, to capture some of the profit headed towards OPEC. That they haven’t done this likely indicates that they don’t believe consumers will switch over at this point in time, given the costs of converting vehicles on the road, building infrastructure, etc. This market could assuredly start up on its own. Being that it hasn’t, aside from certain niches like city buses, it seems as if the Picken’s Plan has failed the market test.

It’s true, the status quo isn’t perfect, though nothing is. But two wrong’s don’t make a right. Doubling down on natural gas subsidies will further distort the use of resources in our transportation sector, and lock in infrastructure that likely shouldn’t be built in the present. As far as a 5 year sunset, look at some of our other energy subsidies. Did they sunset after 5 years? Have we even been able to get rid of any of them? No.