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“No New Energy Subsidies: Oppose NAT GAS Act!” (free market voices rise up against tax-code politicking)

Call it the iron law of political economy: Government goes to those who show up.

The good news is that limited-government groups are showing up. And they are not pro-industry (such as the natural gas industry) but pro-consumers, pro-taxpayers, and pro-marketplace. The bad news is that too many business leaders–and think T. Boone Pickens in this instance–are using their resources to politicize industry.

Elements of the gas industry want to use special government favor to increase demand and thus prices of their product. A quick summary of the New Alternative Transportation to Give Americans Solutions Act was given by the Leftie group DeSmogBlog:

As stated in an earlier article, “The bill is 24-pages long and rewards [natural gas vehicles] with tax [subsidies] to help ‘drive’ consumption. The bigger the vehicle, the more tax credits given.” The bill’s main purpose is to build up a massive fueling and vehicle infrastructure for the natural gas industry, which currently does not exist in the United States.

The NAT GAS bill was written by and for natural gas insiders, chief among them energy magnate T. Boone Pickens, Chesapeake Energy CEO Aubrey McClendon, and Clean Energy Fuels CEO Andrew Littlefair — referred to in an earlier post as the “self-enriching trifecta.” The bill currently possesses 183 bipartisan co-sponsors and until finally getting a hearing Friday, had sat in the Congressional coffers since early April.

The Left smells a rat at such corporate welfare, and so does the free-market Right. Regarding the latter, Calvin Beiser makes the case well in his post,  Natural Gas a Natural Winner? Let the (Transportation) Market Decide!

Another post has gone over the self-help opportunities of the domestic gas industry in addressing the (low) price for its product. The principled entrepreneurial approach revolves around increasing demand through the market means, not the political means. (For other criticisms of the 18-wheeler mandate and, more generally, “The Strange Case of T. Boone Pickens,” see here.)

The letter below is particularly directed to Senate Majority Leader Harry Reid (D-Nev.) now that the legislation has ripened for consideration.

November 21, 2011

Dear Member of Congress:

In May, this coalition sent a letter opposing the New Alternative Transportation to Give Americans Solutions (NAT GAS) Act (H.R.1380), which creates and expands a host of tax credits to subsidize the use of vehicles that run on natural gas.

Despite an unprecedented number of representatives removing their support for the bill, it seems that a Senate companion (S. 1863) for this subsidy has recently emerged.  We write to renew our opposition and urge you not to support new efforts for Washington to pick winners and losers in the energy markets.  If we’ve learned anything from the Solyndra debacle it’s that politicians do a terrible job trying to prop up their favored energy industries.  

The NAT GAS Act would subsidize every aspect of the natural gas-fueled vehicle industry, from production to purchase and the infrastructure needed to fuel such vehicles. It would also extend the tax credit for natural gas used as a transportation fuel, even though natural gas is currently significantly less expensive than diesel or gasoline. Tax incentives like these allow government to decide which energy sources thrive or fail—and thereby distort the market. America’s experience with a number of similar energy subsidies dating back to the 1970s has shown that businesses benefiting from these incentives become reliant on government handouts in order to stay in business, causing the price of the subsidy to rise over time and leaving taxpayers to support industries for decades.

We respectfully requested that all members of the House and the Senate follow some basic guidelines when considering new energy legislation in the 112th Congress: 

Evenly applying lower taxation across the board

By targeting tax subsidies toward one type of transportation fuel—natural gas—the NAT GAS Act does not evenly apply lower taxation across the board. It does the exact opposite. America’s tax code is already overburdened with too many carve-outs for special interests that raise compliance costs, distort economic decision making and give advantages to the politically well connected.

The last thing Congress should be doing is making the tax code more complex.

Americans sent a strong message to Members of Congress in the 2010 mid-term elections: It’s time to stop wasteful government subsidies and end the destructive nature of special interest politics. Co-sponsoring this misguided legislation is a sign that you have not heard the message and are not serious about eliminating expensive, counterproductive energy subsidies.

Sincerely,

Thomas J. Pyle: President, American Energy Alliance

Tim Phillips: President, Americans for Prosperity

Dave Ridenour: Americans for the Preservation of Liberty

Tom Schatz: President, Council for Citizens Against Government Waste

Chris Chocola: President, The Club for Growth

Matthew J. Brouillette: President & CEO, Commonwealth Foundation

Myron Ebell: Director, Freedom Action

Michael A. Needham: Chief Executive Officer, Heritage Action for America

Seton Motley: President, Less Government

Amy Ridenour: President, National Center for Public Policy Research

Jim Martin: Chairman,  Plus Association

Ryan Alexander: President, Taxpayers for Common Sense

Morton C. Blackwell: Chairman, The Weyrich Lunch

14 comments

1 Ed Reid { 11.22.11 at 7:56 am }

It is a very good thing that there is no precedent for such legislation, such as incentives for electric vehicles and charging stations or for ethanol as a gasoline additive/replacement. (sarc off)

2 Mike Giberson { 11.22.11 at 10:19 am }

Ed, I’m shocked that you would mock such important public policy initiatives and the very important business leaders and public policy makers who are trying so hard to … oh, nevermind.

I don’t see how there is much in this bill for Morgan Stanley or General Electric, so I’m not too worried it will pass.

3 Kermit { 11.22.11 at 11:06 am }

I well remember my youth in SW Louisiana when butane as fuel for tractors and pickup trucks was all the rage among rice farmers. The tractors fueled as such were no good for more than pulling a cart to take harvested rice from a combine. As the price of butane rose, and natural gas distribution began to reach rural areas, this practice, ceased to exist.

I do not see natural gas replacing good old diesel where higher than normal horsepower is required for trucking, be it large tractor trailer rigs, farming, or pickup trucks which are used to haul/pull a load.

I do not see small gas compressors installed at homes either. The capital investment for the rod loads required in such compressors makes it nothing more than a novelty. There also is the question of road taxes places on gasoline which I would not like to be placed on my natural gas supply for my water heater, stove and furnace consumption.

4 Ed Reid { 11.22.11 at 11:22 am }

Mike,

You are far too young to be as cynical as I am. :-)

5 rbradley { 11.22.11 at 11:28 am }

Looks like the Texas Legislature and Texas taxpayer money will try to undo what defeat of the Nat Gas Act. This is today’s ClimateWire:

“‘Natural Gas Highway’ prepares to remove diesel fumes from 18-wheelers in the Southwest Nathanial Gronewold, E&E reporter
Tuesday, November 22, 2011

HOUSTON — Oil and gas companies in Texas, Oklahoma and Louisiana are quickly laying the groundwork for a major effort to convert much of the nation’s diesel-fueled heavy vehicle network to burn gas instead.

Though a similar incentive system now faces an uncertain future in Washington, earlier this year a bill to help create a natural gas trucking corridor in Texas sailed through the state Legislature. The bill diverts funds from the Texas Emissions Reduction Program (TERP) to help pay for the expensive vehicle conversions.

And last month industry officials say they completed a study that confirms the economic feasibility of its Texas Clean Transport Triangle project, which aims to install liquefied natural gas (LNG) and compressed natural gas (CNG) filling stations throughout the region connecting the Dallas-Fort Worth, Austin, San Antonio and Houston metropolitan areas.

A liquefaction facility to turn gas into a transport fuel is already up and running in Willis, Texas, just north of Houston, servicing trucks and fleets here and a filling station in Baytown. Clean Energy Fuels, the company that says it is working to build “America’s natural gas highway,” operates the Willis liquefied natural gas plant.

“It will supply the entire triangle,” said Michael Sullivan, who handles the firm’s south-central operations.

More is coming, and project boosters say that within two years they will have finished rolling out the nation’s largest clean transportation corridor, covering the triangle and extending into New Orleans, Oklahoma City and eventually the Rocky Mountain states….”

6 Ed Reid { 11.22.11 at 11:55 am }

Kermit,

Dual-fuel Diesel/LNG or Diesel/CNG engines are certainly capable of meeting the heavy duty requirements. These engines operate Diesel cycle, relying on a pilot charge of Diesel (~5%) to achieve compression ignition of the charge. Whether/when that might become an attractive alternative to Diesel is another question entirely. Burlington Northern has operated a unit coal train powered by such engines, using refrigerated liquid methane rather than CNG to assure fuel composition and permit compression optimization.

7 Kermit { 11.22.11 at 1:33 pm }

Rob,
Did the article mean to say compressed, rather than liquified?

[RLB: YES, I WOULD THINK]

8 Kermit { 11.22.11 at 4:02 pm }

Ed,
Thanks, but it would seem that the engine would need to be larger to accommodate a lower btu fuel. Natural gas engines are in fact a standard for driving natural gas compressors, but in large because it is already there.

It would seem that the capital investment for liquefaction of natural gas for refrigeration (likely a cascade type arrangement to get to the proper temperatures) and cryogenic storage and transport of the liquid would be less desirable than just installing a three stage reciprocating compressor with “tube” pressure vessels at each location as the distribution system is already in place.

Without analyzing the economics, it would seem that LNG would only work for large consumers, since it would have to be trucked to the consumer rather than via pipeline and cryogenic tank storage would be required.

9 Kermit { 11.22.11 at 4:09 pm }

An alternative for transport where high purity is not required would seem to be like nitrogen is delivered to chemical/refining facilities, by dropping a tube trailer filled with CNG at each point of distribution (your local “gas” station). Here is an example of a tube trailer http://www.weldship.com/standard-trailer.php

10 Ed Reid { 11.23.11 at 7:57 am }

Kermit,

CNG is probably the choice for light and medium duty vehicles. However, its energy density is about 40% of the energy density of LNG, so it is less than ideal for heavy duty, long haul vehicles.

LNG is also not suitable for use in vehicles which are stored indoors, since boil-off is used to keep the LNG cold.

11 Toes { 11.23.11 at 9:53 am }

The point is this domestic natural gas displaces imported crude improving TX, LA, and the nation’s economy. And Kermit, we built an LNG import terminal in SW LA which can be modified to export the nation’s natural gas at crazy profits and Chesapeake has been granted license by DOE to do just that. It seems TX legislature understands that its far better to displace imported crude and build their economy for the future.

12 Kermit { 11.24.11 at 2:33 pm }

Toes,
I’m well aware of the three LNG terminals south and southwest of Lake Charles, with Cheneire’s being the one already being converted with the first liquefaction train being built and a second one moving beyond planning stage.

13 Kermit { 11.24.11 at 2:42 pm }

Ed,

Yes boil off which LNG carriers (ships) use as additional fuel during their voyages. I have not kept abreast of LNG carrier technology, but a few decades ago, most were steam turbine powered, with the boil off used as a primary fuel for these boilers when the ships were fully loaded with LNG.

14 Robert Bradley Jr.: Natural Gas Prices Spur Truckmaker Interest (Market, not political, development) | JunkScience.com { 03.13.12 at 1:14 am }

[...] headline of March 5th said much: “Natural Gas to Power Pickups.” The piece did not mention the Nat Gas Act or other special government favors, just an effort by U.S. automakers to get natural-gas-fueled [...]

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