When the National Governors Association meets in Washington this weekend their top concern will be the price of gasoline which has reached $4.14 per gallon in Hawaii and $3.80 in California. Their concern is echoed by voters, a majority of which cite fuel prices as their #1 economic worry for 2008, ahead of fears of recession, the mortgage foreclosure meltdown and the prospect of more joblessness according to the Civil Society Institute. Federal Reserve Chairman Ben S. Bernanke echoed that sentiment in testimony last week when he noted that persistently high fuel prices are pressuring consumers and contributing to “sluggish” growth and a risk of recession this year.
Unfortunately it looks like Congress is determined to make the situation worse. The Renewable Energy and Energy Conservation Tax Act of 2008 is just the latest example of Washington’s three decade old approach to energy: increase taxes on successful energy sources and subsidize unsuccessful ones.
The Act will increase taxes on domestic oil and gas suppliers by $18 billion. These tax increases will reduce supplies and increase prices in the years ahead by discouraging investment in new domestic drilling. The revenue from these tax raises will the be poured into unproven alternative energy sources. Even after over 30 years of special tax breaks alternative energy still provides only a small fraction of America’s energy needs. For example, wind and solar energy account for less than 3% of America’s electricity and the overall percentage of electricity attributable to renewable sources is not expected to increase by 2030.