In the past few years, huge sums of money have been spent promoting advanced vehicle technologies, including grants for battery manufacturing and electric vehicle charging, consumer tax credits for advanced vehicle purchases, and low interest loans for manufacturing advanced vehicle technologies. But, continuing to spend borrowed money to wean the country off of oil while at the same time doing everything possible to ensure $2/gallon gasoline is like turning up your thermostat in the winter while opening all the windows. Why throw money at new technology and then do everything possible to ensure that technology is hamstrung in the market? The point is not that subsidies have no value in promoting technology, nor is it that high fuel prices are necessarily a good thing. The point is that you can't have it both ways, and once again our lack of a clear national energy policy will likely lead to further billions being spent to jump-start solutions that will be at a disadvantage in the market.

In an ideal world, our nation’s energy markets would be unbiased—no one would get subsidies or tax breaks, and prices on air pollution would make sure that health and environmental costs were not externalized onto the public.

But that is not the world we live in today. Giveaways for oil and other fossil fuels, estimated to be on the order of $4 billion per year or more, distort the economics of how we power our homes, businesses and cars, often in ways that are not beneficial to the American public.

Today, many technologies that could improve the way the country uses and produces energy are languishing on the shelves because of a lack of investment: Things like car batteries charged-in garages that could help balance the electricity grid; smart metering that could improve efficiency for electricity consumption; and new information- intensive transmission systems that could tap into the enormous wind potential in the central United States.

Taking these technologies off the shelf and putting them to use would lead to substantial improvements in air quality, bringing better health and economic benefits for the American public. Innovation in products and systems like these would also bring tremendous opportunities in the private sector. But not without the right market signals—currently, a variety of subsidies for old technologies crowd out the market.

Subsidies and tax breaks to polluting industries send the wrong message to those interested in innovating cleaner, more efficient ways of using energy. Companies might be willing to take a gamble on a new technology, but are currently sidelined knowing that billions of taxpayer dollars are being funneled into tax breaks for conventional fuels—why put your money on the line when your government is stacking the deck against you?

These kinds of market distortions are counterproductive for the American public and getting rid of them would make a good first step to evening the energy playing field.

But more is needed to even the playing field beyond rescinding subsidies and tax breaks. A best case scenario would also feature a price on carbon. Without this economy-wide adjustment, clean energy will not be able to fully compete with polluting sources. The costs of reducing our carbon pollution are borne by the global population and in large part future generations, but not by the oil and coal industries responsible for pumping out greenhouse gases. This is the biggest fossil fuel subsidy of all—one that obscures the benefits of cleaner fuels and the true price of dirty ones.

In the absence of a carbon price, subsidies should be shifted from fossil fuels—which actively harm the environment—toward cleaner fuels. While subsidies for clean technology are a second best alternative, they do help reduce the price differential between fuels that pollute and those that don’t.

Even if politicians are not ready to place a price on carbon or engage in new spending to fund specific clean energy or efficiency technologies, there is no reason to further hamper clean innovation by putting billions behind big oil and coal. Simply keeping those funds in the Treasury and using them to offset spending cuts or tax increases would have important environmental and economic benefits, in addition to helping to improve the country’s fiscal situation.

Eighteen months from now, as Members of Congress look back on the events that shaped the 2012 election results, many may find themselves examining a few fateful weeks in April when they began the political march off the plank and into the tank with Big Oil.

On April 15, the House of Representatives voted for a draconian budget that slashed investments in clean energy and other critical national priorities while continuing more than $40 billion in taxpayer handouts for oil companies. This was the third time in three months that the House voted to continue handouts for oil companies. That same day, Members of Congress began to unveil their 1^st quarter fundraising numbers. In just three months, the Big Five Oil companies contributed over a quarter million dollars—$285,000—to members of Congress, candidates, and Republican groups. 85 percent of that total—$243,000—was given to members voting to continue subsidies to Big Oil.

Ten days later, oil companies began to announce the obscene profits they recorded on the backs of Americans paying high prices at the pump. ExxonMobil announced nearly $11 billion in profits; BP announced $5.5 billion profits; and ConocoPhillips announced $3 billion in profits—all in the first three months of 2011. Yet, well before gas prices hit their current average of nearly $4.00 per gallon, oil companies were already enjoying record profits. Last year, even as BP was recording a loss due to the disastrous Gulf oil spill, the big five oil companies recorded more than $75 billion in profits. Over the past decade, these oil companies enjoyed over $900 billion in profits.

In the polarized and fractured landscape of our national politics, there aren’t many issues remaining that receive more than 70 percent public support, but recent polling indicates that ending subsidies for oil companies is one of them. Most importantly, it’s one that Americans strongly support.

A February Wall Street Journal/NBC News poll found that 74% of Americans support ending subsidies for oil companies, with nearly 50% strongly supporting this approach. A March poll by Greenberg Quinlan & Rosner Research (GQRR) found that nearly 70% of Americans supported ending government subsidies even when presented with the opposition’s unproven claim that it will raise gas prices further. Republicans supported ending the taxpayer handouts by a 2-1 margin.

As Americans continue to suffer under the weight of high gas prices, the political implications will be severe for whomever the public blames for their pain. The GQRR poll found that 52% of Americans blame oil companies for high gas prices—more than three times as many as blame the President.

And as ire over gas prices grows, so will frustration with Members of Congress who remain close to Big Oil. So while Speaker Boehner and others may be confused about where they stand on the issue, the choice is clear: end the Big Oil handouts now or see what the voters think in eighteen months.

Many U.S. energy-intensive manufacturing plants in sectors such as cement and paper are less efficient than similar facilities in other developed and developing countries, using more energy per ton of product produced. New financial incentives to implement industrial efficiency measures would boost these internationally competitive industries, enabling them to modernize and compete more effectively in the global marketplace while also lowering their carbon emissions per unit of production. Incentive programs should encourage big-hitting and cross-cutting opportunities such as combined heat and power, as well as smaller opportunities that boost efficiency in electricity and direct energy use.

While many of these opportunities are ultimately zero or low-cost, efficiency measures are often beat-out for limited capital resources by other internal projects that are more related to core business functions. In other cases, companies may not be aware of the latest energy saving techniques or may not have sufficient staff to properly manage implementation. In these instances, access to financing might be coupled with capacity support to help in identifying and implementing the efficiency improvements. As indicated by the popularity of the American Recovery and Reinvestment Act of 2009 (ARRA) grants for industrial efficiency—over $9 billion in proposals were received for the Department of Energy’s $206 million solicitation for manufacturing energy efficiency, waste recovery, and combined heat and power—there is a high demand for incentives that can be accessed quickly and without high transaction costs. Additional financial incentives that are well-targeted to overcome the real-world barriers to industrial efficiency investments should be included in federal legislation supporting clean energy solutions.

(These comments were submitted by Pete Sepp, Executive Vice President, National Taxpayers Union.)

American energy policy has suffered terribly from decades of attempting to manipulate markets, pick winners, punish losers, inflict taxes on some, and shower government spending on others. Having witnessed these failures, in March the National Taxpayers Union organized an open letter to Congress from nearly 30 citizen groups and think tanks who contended:

“Instead of promoting a reliable and affordable energy industry, the subsidy-first energy policy that has prevailed the past three decades has created whole industries dependent on government and focused as much on ensuring their share of taxpayer largesse as they are on developing energy. This is no longer acceptable.”

Unfortunately, sometimes policymakers can appropriate the term “subsidy” for decidedly inappropriate purposes. Take, for instance, moves from President Obama and Senate Finance Committee Chair Max Baucus to end what they’ve called “subsidies” for oil and gas companies. First in their sights: the Tax Code’s Section 199 manufacturers’ deduction, a write-off for businesses that create jobs, and “dual capacity” rules, which allow companies to take a credit against their U.S. tax bills for levies they pay to foreign governments.

These provisions, available to a wide variety of industries, are not “subsidies” – they take the edge off a terrible U.S. corporate tax system, with its high rates and a “worldwide income” approach that can result in double-taxation of companies with overseas operations. If Congress and the White House would confront comprehensive tax reform (e.g., lower rates and a “territorial” income concept most other countries practice) both Section 199 and dual capacity would be unnecessary. Instead, President Obama and his allies would get rid of both provisions, but only for U.S. oil and gas companies. This would actually set tax policy backward, by making the laws more complex, more discriminatory, and less competitive internationally. The latter is especially difficult for our own firms, which already face hostility to domestic drilling from their own government along with disadvantages from other countries’ state-owned outfits.

Socking this sector with higher taxes will spread pain throughout our economy. That suffering would impact the 9 million jobs directly or indirectly supported by the industry, millions of retirees who count on good returns from energy stocks, and of course consumers, who would be paying higher prices at the pump as well as for many goods and services that depend on affordable fuel.

Many energy subsidies live up to their name. In a joint report last year, the National Taxpayers Union and U.S. Public Interest Research Group recommended (among other items) eliminating the ultra-deepwater gas and petroleum research program to reduce the deficit. Furthermore, if future tax reform efforts focus on broadening the base while lowering rates for everyone, it might make sense to revisit section 199 and dual capacity. But until Washington undertakes both these tasks with intellectual honesty, Americans should beware of tax-hike schemes masquerading as “subsidy reductions.”

(These comments were submitted by Kate Offringa, President and CEO of CNAIMA, the Council of the North American Insulation Manufacturers Association.)

“Energy independence” may not command quite the attention it did a year ago during the Gulf oil spill, but it remains a profoundly important public policy priority. The Gulf spill brought the vulnerabilities of America’s dependence on fossil fuels into sharp and discomfiting focus.

Now, political upheaval throughout North Africa and the Middle East is driving the price of gas above $4 per gallon. The successful attack on Osama Bin Laden could spark some additional short term volatility in the oil market. With prices at the pump expected to spike even higher as we approach Memorial Day, consumers are feeling the crunch of America’s energy instability in the one place it counts most: our pocketbooks.

The tsunami and subsequent nuclear tragedy in Japan, moreover, exposed the fragility of a power source many considered clean and relatively risk-free. Concerns about the safety of existing or planned nuclear power plants are again at the forefront.

In response to the pressing questions raised by these disparate events, we’ve heard leaders in Congress advocate a number of ideas – from vastly renewed drilling to increased incentives for such alternative energy solutions as solar, wind farms, and biofuels.

Regrettably, little attention is being paid to what the average American can do right now to help promote energy savings. Now more than ever, we should be looking not only at how to produce more safe energy, but how to make the best possible use of the energy we already produce. Enhanced energy efficiency has the capability to lessen our demand on foreign energy, reduce emissions, cut energy bills, and mitigate our need to build new power sources. And it has the capability to do this right now. Indeed, every year, inadequate levels of insulation in homes and businesses cause America to lose 30 times the amount of energy we lost during the Gulf oil spill.

There are a number of steps Congress can be taking in the short term to enhance efficient use of energy resources, as well as empower the average consumer to help improve their own efficiency. The 25(C) and 45(L) existing and new home energy efficiency tax credits will expire at the end of this year. Congress could act immediately to improve and renew these credits to enable homeowners and builders to get credit for improvements in home energy efficiency. Further, a proposal currently circulating in Congress would give homeowners credit on their mortgages and appraisals for making energy efficiency improvements.

For commercial buildings, ongoing work at the Department of Energy could change the way available 179(D) tax deductions for energy efficiency gains are calculated. This would make the 179(D) program more useful and attractive to commercial building owners. As President Obama has suggested, Congress should also continue to explore the possibility of transitioning this program to a tax credit program, like the residential efficiency credits, which would vastly increase its usability and ensure real efficiency gains are being achieved in the commercial building space.

These measures may seem like small steps, but U.S. homes account for more than 21 percent of our national energy consumption and commercial buildings add another 18 percent, meaning even small efficiency improvements can result in big reductions in energy usage. The debate about the future of U.S. energy policy may not be solved next month or next year, but while Congress continues to plan for the nation’s future energy demands, congressional leaders have a chance to reduce consumer costs and help balance energy demands by taking steps to ensure we’re making the best use possible of the energy we have right now.

For decades, the oil and gas industry has benefited from a long list of financial boons totaling billions of dollars each year. In an economy where we have to make tough choices about continuing important programs – whether its paying down the debt, protecting social security or providing for a national defense – we simply can’t keep letting Big Oil, possibly the biggest player in our economy, off the hook. They should have to pay taxes just like we do.

The industry is quibbling over semantic arguments about whether a tax break is a subsidy, or whether they are being singled out. In fact, the President has not singled the oil industry out. Many of the President’s proposed changes are economy-wide, and those that aren’t pertain to oil and gas industry activities that simply don’t apply to other industries. In fact, it’s the petroleum industry that has singled itself out by building a network of tax loopholes, and then gaming them in a way that allows benefits that few, if any, other industries could even imagine. And whether the funds come in a check after taxes, or as a break on taxes, the result is the same. More money in the oil industry’s pockets and less funds in the Treasury.

The incentives, whether tax based or otherwise, are not the problem. The issue is how they are targeted. We should be leveraging the power of the dollar to help stimulate new industry that will pay us back double or triple in the future. Oil and gas are the energy forms of the past, and their costs go well beyond the hundreds of billions in taxes they have evaded. Their costs, oil pollution and climate change, will continue to be racked up for decades.

We have offered relatively little to clean energy compared to the breaks we have continuously shoveled over to the oil industry. And where there have been clean energy benefits, most have gone to ethanol, leaving wind and solar, as well as advanced biofuels – some of our best hopes for the future – to fend for themselves on a playing field that is steeply tilted against them.

We can’t legislate an energy transition, but we can certainly make sure we are not inadvertently preventing ourselves from achieving it because of outdated and ludicrous benefits we are continuing to hand out to the companies that need it least. The oil industry brings society more problems than solutions. It’s time to move into the 21^st century.

The long held stance of the Republican Party—and conservatives—is that government should not pick winners and losers. Yet, that is exactly what we’ve done for decades with expensive subsidies and tax preferences to the fossil fuel industry. Voting to end these wasteful government expenditures should be a no-brainer for conservatives in Congress. In one fell swoop, Congress can end the practice of picking winners, it can provide a meaningful reduction in the federal budget deficit, and it can level the playing field for all energy industries (that is, promote competition…another hallmark of conservatism).

Government subsidies and tax preferences are appropriate for short term support of nascent technologies or research that will potentially help society as a whole. The fossil fuel industry has no problem attracting private capital. Burning oil and coal as a solution to man’s needs date from medieval times.

(These comments were submitted by former Rep. Bob Beauprez, R-Colo. Click here for more information about Beauprez.)

I really dislike the tax code. If I had my druthers, the entire code would be scrapped, and we'd start all over with a much flatter, simpler system devoid of all the incentives and disincentives that warp business decisions and restrain the growth and expansion that would otherwise occur in a true free-market economy. That's why I was a co-sponsor of The Fair Tax, a consumption based plan, when I was a member of Congress. Unfortunately, complete reform of the tax code seems a distant dream as Congress deals with the more immediately obvious issues at hand.

So, we are left with an endless tug-and-pull of what is penalized (taxed) and what gets rewarded (subsidized) in the tax code. As public opinion and political winds shift from time to time, the assignment of "winner" or "loser" status within the tax code often changes, too. Yesterday's favored son can become tomorrow's pariah.

Regarding the current hot topic of the tax treatment of the energy industry, it is important to first distinguish between tax credits and direct subsidies. Credits and deductions are used to incentivize a whole host of actions that the government deems desirable. For example, home ownership is perceived as a good thing, so interest paid on a mortgage enjoys favored status as deductible within the code. The fossil fuel industry is heavily front-end loaded with expenses. As a result, and because domestic energy production is desirable, Congress has provided various credits and deductions for certain capital investments. However, public perception aside, the oil and gas industry receives no direct subsidy payments from the federal government. None.

While the tax code encourages investment in oil and gas, it also collects plenty in taxes. Contrary to popular mythology, the oil and gas industry pays a much heftier percentage of net income in taxes (41.1%) than the average of all other S&P Industrials (26.5%). Yes, the energy companies are profitable, but their profit margins are right in line with manufacturing, aerospace, and food industries, while computer, pharmaceutical, and the beverage companies have triple the net income margins of traditional energy.

Juxtaposed to oil and gas, green energy has benefited from layers of direct subsidies of hundreds of millions of dollars in federal and state government grants. Further, a host of generous consumer tax code incentives encourage consumers to purchase products utilizing technologies like hybrid vehicles, solar panels, wind turbines, and government approved "energy efficient" windows and appliances. These are basically government subsidized transfer payments to make the favored green industry more cost competitive. For example, a 45 cent per gallon direct subsidy is paid to blenders for adding ethanol to fuel mixes.

In addition, a plethora of government mandates require minimum percentages of renewable sources – irrespective of cost – for the generation of electricity as well as the composition of blended fuels at the pump in states and regions throughout the nation.

The current spike in energy prices is at least partially a result of the consequences of mistaken past public policy decisions. In times like these, politicians have an obsession to "do something" as evidence to the voters that they care. I hope they think before they double-down with more bad policy decisions.

I don't like subsidies and I don't like Congress or the IRS deciding what is good behavior and what is bad. But, I do understand that you get more of what gets incentivized, and less of what is penalized. And, there is a huge difference in "redistributing the wealth" through direct subsidy payments, and a tax credit that encourages investment in much needed production that creates jobs and taxable income.

If congress is serious about creating jobs and jump starting the economy, they should lower the corporate tax rate, which is the highest among the 34 OECD nations, rather than increase the tax burden on energy or any industry.

Whether we like it or not, about 85% of the energy America relies upon comes from fossil fuels. It's been that way for a long time, and it isn't likely to change anytime real soon. Further, economies expand and create jobs when there is access to plentiful, affordable supplies of energy.

Capital is fungible, and energy production is the prototypical global industry. Plenty of nations around the world are providing a far more welcoming business environment for energy production that the U.S. already with a less onerous tax code and far less regulatory burden.

If increasing our domestic supply is really a national objective, then this might not be the best time to send exactly the opposite message to the people that provide the capital to drill the wells.

Policymakers in Washington are, once again, talking about raising taxes on U.S. producers of oil and natural gas - tax increases that have been proposed for the last three years, and have been soundly rejected.

Contrary to popular belief, these tax proposals do not target "Big Oil," but instead go after 18,000 American independent oil and natural gas producers, who on average employ only 12 workers. American production activities are dominated by these independent producers who drill 95 percent of the nation's natural gas and oil wells, accounting for 67% of total U.S. natural gas and oil production. America's independents are dedicated to finding and producing America's energy resources, creating jobs, generating revenues and supplying reliable and affordable energy all across the United States.

In fact, a recent I H S Global Insight study showed that independent oil and natural gas producers operating onshore in the U.S. accounted for nearly four million American jobs in 2010, a number that represents more than three percent of the total U.S. workforce. Very few industries have the potential to create as many better than average paying jobs as quickly and effectively as we do.

The study also projects that onshore independents will return more than $930 billion to state, local and federal governments in the form of taxes, rents and royalties over the next 10 years - all driven by a forecast that predicts an ever-expanding role for U.S. independents in developing more onshore wells, and delivering greater volumes of reliable and affordable oil and natural gas to American consumers.

However, these positive forecasts cannot be realized if the government raises taxes on these producers, which will consequently reduce capital investments. Historically, independent producers have reinvested as much as 150 percent of their American cash flow back into new American production. Drilling costs are a key component of capital expenditure budgets for independent producers.

Without the ability to expense these ordinary and necessary business costs, an independent would have to reduce its drilling budget by 20 to 35 percent almost immediately.

Increasing taxes on independent producers, who supply the vast majority of oil and natural gas in America, will reduce capital investment in the industry, and it will result in fewer jobs, less revenue to federal and state treasuries, hurt American retirees, whose mutual funds, pension plans and Individual Retirement Accounts are invested in publicly traded oil and gas companies, and harm American energy security.

Federal incentives of various types for energy sources have been in place for nearly 100 years, and they've played a useful role in helping develop our nation's abundant resources and propel America's economy to world leadership.

Going forward, we at the American Wind Energy Association would like to see the following principles applied to federal energy incentives:

First, knowing we have spent nearly 100 years subsidizing fossil fuels and conventional energy, current energy incentives should be consistent with current national energy goals. If goals include security, diversity, clean, and homegrown energy, incentives should be directed primarily toward technologies that have the ability to deliver on those goals today and in the future. Clear use of incentives helps new industries develop supply chains and bring down their costs through volume production. Currently, this is not the case--subsidies for the fossil fuels industries, which have been in place for decades, are still far larger than those for renewable energy.

Second, any use of incentives should be consistent over time, to provide the stability and certainty that manufacturers need to invest in new factories and create well-paying jobs. Again, this is not the case--the tax incentive for wind power has been allowed to expire three times in the past decade, each time bringing the industry to a screeching halt and causing companies to lay off skilled employees and shelve investment and expansion plans.

The implications of these principles are clear: incentives for wind, which have been in place for a far shorter time than those for other energy industries, should not be the first to be withdrawn. The U.S. should mirror national energy goals with national energy incentives. While the wind industry has delivered great progress of cost reduction and performance improvements over a short time, it is important for the industry's future and its long-term growth potential that its incentives not be allowed to expire at the end of 2012, halting the scaling up of the U.S. wind component manufacturing that is occurring and that will continue to bring down costs.

Wind power is clean, affordable and homegrown, and a proven source of new American manufacturing jobs. But it needs a level playing field in order to compete effectively with the far larger heritage energy industries.

Since the Nixon Administration, Washington has attempted to dictate where Americans should get their energy. Lawmakers’ efforts to control the domestic energy industry from the Capitol stands in direct contradiction to the market system where millions of American consumers make their own decision on what energy source makes the most sense for his or her self, family, and business. Instead of allowing companies to compete for customers, Washington tries to control who wins and who loses by giving away billions of taxpayer dollars to politically favored industries.

The skyrocketing price of energy is proof positive that this approach has failed. While lawmakers and bureaucrats insist on their ability to control prices and produce jobs, Americans are paying over $4 a gallon at the pump and watching businesses flee overseas. Unwilling to face the music, President Obama and his anti-energy allies are attempting to deflect the blame for rising prices by blaming oil and gas companies.

The President and his allies would like you to believe that oil and gas companies not only make huge profits, but also receive lavish cash handouts from the U.S. government. The fact is the industry loses over 40 percent of its net revenue to income taxes. Those taxes are in addition to the rents, royalties, and other fees paid to the U.S. government – a combined $86 million dollars every single day of the year. After all of their bills are paid, these companies have a profit margin that ranks 44^th against other industries.

The President is not trying to end cash subsidies for the oil and gas industry – they don’t exist. Instead, he’s going after the tax-deductible business expenditures that the IRS allows companies to subtract from their taxable income. One can argue the merits of these deductions, but this practice is common across U.S. industries. The President wants it stripped exclusively from the oil and gas industry. If this discriminatory policy is successful, oil and gas companies’ taxes will naturally rise. More importantly, the proposals will do nothing to lower gasoline prices.

In contrast, the energy sources that President Obama favors receive cold, hard, taxpayer cash simply by virtue of their operation. They are directly subsidized by American taxpayers through grants, tax credits, and loan guarantees. Further, they also benefit from laws that force citizens to use their product. Setting aside the fact that the contribution of actual energy from these sources is negligible, these industries would barely exist absent the Washington handouts. It goes without saying that such a dependence on Washington creates further incentives for ‘green’ energy companies to concentrate their focus on lobbying for increased funding and guaranteed market share from Washington and not necessarily what is best for the consumer.

If lawmakers and the administration are truly interested in American energy policies that reward the most productive, efficient, technologically-advanced companies and punishes those who cannot keep up, then they should put an end to all energy subsidies and apply the same tax rules to all energy companies. Then, allow for competition among these companies so that the only survivors are not those who hold the most sway in Washington, but rather those who best satisfy consumers.

The question posed by the National Journal makes a serious mistake. The government does not “dole out dollars” to oil and natural gas companies, because this industry receives no subsidies. The U.S. tax code allows all businesses to deduct certain costs of doing business and calculate taxes only on net income. These cost recovery mechanisms, known as “tax expenditures,” should not be confused with “subsidies” or direct government spending.

The tax changes proposed by some lawmakers would eliminate regular business tax deductions, but only for U.S. oil and natural gas companies. Eliminating them would be a tax hike targeted directly at an industry that delivers more than $86 million a day to the federal government in taxes, royalties, rental payments and bonus bids. The government does not support our industry, our industry supports our government.

Raising taxes on oil and natural gas companies—or even just the five biggest companies—won’t reduce gas prices and can’t be justified by false claims about industry “subsidies.”

And justifying these tax hikes based on industry earnings is a red herring. Raising taxes on oil and natural gas was bad policy two years ago, it was bad policy a year ago, and it is bad policy today. Encouraging greater U.S. production of our domestic oil and natural gas resources will bring jobs, energy security, and increased revenues to the government.

The president has encouraged Brazil to develop their resources and has called on the Saudis to increase their production—it’s time to focus on American energy resources. Supporters of higher energy taxes have a vision of our future that is out of touch with our energy realities.

Oil and natural gas provide most of today’s energy, and by the government’s own estimates, will provide most of tomorrow’s energy as well.

We understand the need for clean sources of energy. That’s why our industry has invested more in low-and-zero emission technology than the federal government. In fact, one in every five dollars invested in renewable technology comes from the oil and natural gas industry.

Raising taxes on the oil and natural gas industry will do little to advance the development of renewable energy, but it could do a lot to hold back the economic growth that the American economy needs now.

(These comments were co-written by Mark Cohen, Vice President for Research at Resources for the Future, and Alan Krupnick, Director of RFF's Center for Energy Economics and Policy.)

We should end subsidies wherever they are found and can’t be strongly justified, but do so only for the right reasons. Calling for the end to subsidies because of high profits to oil companies is the wrong reason - these companies are simply benefitting from high world oil prices that they did not create and will see their profits tumble when oil prices fall. Moreover, higher oil prices will spur investment in both finding new sources of oil as well as alternative energy sources.

The reason subsidies are generally bad is that they cost taxpayers money and distort energy markets, giving artificial advantages to some companies or some forms of energy at the expense of others. The government generally does a bad job of picking winners and losers – with subsidies often going to those with the best political connections. Moreover, even if justified, government subsidies often outlast their value and continue as entitlements instead of incentives.

Currently, almost all forms of energy are subsidized in one way or another. In addition to breaks for oil and gas producers, energy investments in wind and solar power, nuclear power, ethanol and other biofuels, and energy efficiency investments all receive special government favors. While small subsidies might be justified on energy security grounds and the need to realize economies of scale from new technologies (such as the recently phased out subsidy for hybrids) is legitimate, many subsidies are either too large or cannot be rigorously justified – the subsidy to ethanol being one of the more obvious.

Overall, our goal for energy policy should be to level the playing field – to let each technology and fuel compete on equal footing in the market place. While government involvement in energy markets to correct market failures – such as damages from greenhouse gases – is justified, even in these cases, a tax on those creating damages is preferable to a subsidy for those not creating damage. Taxes and subsidies are similar in that they can both create an appropriate price differential between two technologies or fuels. However, subsidies create several problems. First, they increase the deficit while taxes reduce it. In addition, subsidies create incentives that can easily be counter-productive and lead to unintended consequences with undesirable behavior. For example, our simulations with the National Energy Modeling System (modified by RFF) show that subsidies to hybrids or electrics, while increasing their numbers, have no effect on overall fuel economy! Since fuel economy standards are binding, subsidizing hybrids or electric cars will only slow progress on the fuel economy of gasoline vehicles. (See http://www.rff.org/assessingtheoptions.)

Each existing subsidy should be subjected to rigorous examination to justify its existence. Beyond that, it’s long past the time for Congress to end its fixation against taxation and towards subsidies.

(These comments were submitted by Matt Garrington, Deputy Director of the Checks and Balances Project.)

Last week, the top five oil companies announced their first quarter profits, which numbered in the billions. Meanwhile, President Obama and leaders in Congress are trying to reign in government spending by ending $4 billion per year in taxpayer-funded subsidies to Big Oil.

The Checks and Balances Project, an industry and government watchdog effort, conducted an analysis of the money oil and gas corporations spent in 2010 on campaign contributions and Congressional lobbyists. The numbers tell the story that oil companies’ armies of lobbyists and contributing power give them a louder voice than American families.

These profit reports show that Big Oil is making big bucks from high gas prices at the pump. The oil and gas industry spent $63 million lobbying Congress and $2 million in campaign contributions last year so politicians would continue to hand out $4 billion every year in taxpayer-funded subsidies.

According to Public Campaign, the Political Action Committees for BP, Chevron, ConocoPhillips and ExxonMobil donated $285,500 to elected officials and political parties in the first quarter of 2011.

Public pressure is starting to sway GOP members of Congress. Speaker John Boehner, Reps. Denny Rehberg (R-MT-At Large), Sam Graves (R-MO-5), Mick Mulvaney (R-SC_5), and Paul Ryan (R-WI-5) are all on record, stating the need to end oil and gas subsidies. This is a noticeable change of heart, especially because the House of Representatives voted to protect Big Oil’s multi-billion government subsidies as recently as March, in spite of polling that shows Americans want them eliminated.

But not everyone is willing to turn his back on corporate sponsorship. Oil and gas money recipients, including House Natural Resources Committee Chairman Doc Hastings (R-WA-04) and Subcommittee Chairman Doug Lamborn (R-CO-05), recently voted against ending “royalty relief” for offshore drilling companies. Hastings and Lamborn are also leading the charge to open up even more Western lands for drilling despite the fact that Big Oil and Gas has failed to develop 57 percent of public lands leased for drilling.

The fact is that if Congress is serious about addressing spending, they should take another look at throwing billions in subsidies to corporations reporting billions in profits.

In a real market, three rules apply:

1) Own what you sell. (Otherwise it’s fencing.)

2) Pay for what you take. (Don’t shop lift.)

3) Choose what you buy. (The alternative is communism.)

Energy markets violate all three principles. They aren’t real markets. (Don’t take my word for it. Both Jack Welch and Jeff Immelt have deplored the lack of real markets in energy.) Massey coal dumps its acid mining wastes into streams it doesn’t own. BP isn’t legally liable and thus doesn't pay for for the livelihoods and sales it ruined for oysterman in the Gulf. The people of Bangla Desh have never agreed to have their rice paddies flooded by rising sea levels -- they don't choose what they get.

These market distortions aren’t trivial – they are the biggest part of the profits nominally posted by coal and oil. Congressman Joe Barton says outright Exxon-Mobil couldn’t survive without subsidies – it can’t make it in the market on its own. (Neither could buggy whip manufacturers.) The public health costs of burning coal in the United States are almost certain larger than the entire economic value of the coal mining and burning industry. Sulfur emissions alone cost us over $100 billion every year. The single largest subsidy we give to the oil industry doesn’t even end up with its shareholders. We allow Saudi Arabia, Venezuela and Nigeria to pretend that the royalties they charge US oil companies operating on their territory are actually income taxes – and then the US Treasury rebates about one-third of those royalties, so that American taxpayers are actually subsidizing not only big oil, but the Saudis as well.

In most states, a businessman who wants to put solar cells on his warehouse can’t sell the power he generates – the local utility has a government monopoly to protect it from low price competition from its own customers. The only states where new nuclear power plants are being built are states where ratepayers, not shareholders, must take the entire risk that the power company fails to complete the project, or never needs the power it might have generated. When Florida stripped its power companies of that privilege, (construction work in progress it’s called) Florida power companies cancelled their nukes.

When one industrial sector – oil and coal – doesn’t pay the same taxes that other businesses shell out, it’s a give-away. The oil industry has historically argued that it deserved this bail-out, because it was in a business much riskier than, say, pouring steel or making cars. But if we look back at the last 40 years the big oil companies are all still around, in one form or another – the oil business, for the big guys, is a lot less risky than steel or autos. (Many of those companies went bankrupt.)

If oil and coal paid for everything they take, including the landscapes they foul; if they had to own anything they used, including our lungs; and if we got to choose what we buy from them, including a stable climate, then we would have real energy markets.

We’re a long way from that moment, and oil and coal are not going to help us get there. So the most sensible thing to do is keep subsidizing good things we don’t have enough of – like renewable energy and clean air and water – and start collecting the same taxes everyone else pays from the dirty industries who are giving us too much we don’t want – foreign oil dependence, air pollution, dirty water, and climate disruption.

Can you imagine the shouts of protest if we sent BP and Peabody coal even a fraction of the bill for the fires in Texas, the tornadoes in the southeast, and floods in the Mississippi Valley? People who don’t pay their bills shouldn’t ask for handouts.

The United States must hurry the future in developing alternatives to oil use in transportation, and tax incentives are one tool to do so. The biofuels industry needs sustained, consistent federal commitment to achieve the national goal of reducing overreliance on foreign oil. Tax incentives can help attract investment that is vital to maintaining progress in research, development and deployment in advanced biofuels.

Continued reliance on foreign petroleum threatens our economic, energy and national security. And energy security is imperative for new jobs and economic growth. Uncertainty over future energy supplies and prices will undermine businesses’ confidence in making the investments needed for growth and job creation. High oil prices will also undermine the buying confidence of consumers forced to spend more of their paychecks at the pump, fueling a downward spiral of business confidence in growth.

Despite the arguments by others in this discussion, the free market left by itself is unlikely to direct investment to innovative new technologies without a consistent, forward-looking federal policy as a guide. A recent study in the journal Environmental Science & Technology shows that it could take 131 years for alternatives to fully displace oil if we rely solely on the free market. Global oil could run out years before alternatives are fully developed.

Let’s not confuse the issue with ridiculous distinctions between subsidies and tax credits, as some here are doing. The Congressional Budget Office study cited by biofuel opponents inflates the costs to taxpayers of producing and using biofuels while ignoring the costs of continued reliance on imported oil. For biofuels, this study counts both direct outlays by the government and foregone revenue to arrive at a $6 billion “subsidy.” Meanwhile, the study fails to notice in the very same tax tables the direct government outlays of billions of dollars that support oil exploration, including the deepwater drilling in the Gulf of Mexico that just one year ago produced the biggest environmental catastrophe in U.S. history.

Maintaining our huge addiction to oil is also an expensive proposition for taxpayers and a risky proposition for our environment. And one-sided arguments against biofuels guarantee the status quo of continued reliance on fossil fuels.

At a recent town hall meeting, President Obama again lambasted energy companies for their obscene profits and suggested it’s time for these industry giants to pay their “fair share” in taxes by removing unwarranted “handouts.” Epitomizing the rhetoric on the issue, comedic politico Jon Stewart compared Obama’s call for higher taxes on the oil and gas industry to a person on a diet claiming only to be “adding calories to their excluded food intake.” If you’re confused, you’re not alone.

Government “handouts,” also known as subsidies, incentives, or protections, occur when Uncle Sam collects taxpayer dollars and redistributes them according to political agendas or the national interest. When it comes to energy handouts, the vast majority are targeted at renewables such as wind, solar, and biofuels. Tax breaks and direct subsidies are used not only to promote research and development of these technologies, but they’re also used to hold down prices so these energy sources can compete with fossil fuels. The federal government is currently paying out $11.3 billion annually in renewable subsidies, though only about eight percent of domestic energy is produced by these sources.

Incentives are another tool used by government to encourage domestic energy production, but these can hardly be described as handouts. For example the Section 199 manufacturing deduction allows companies to retain earnings for reinvestment by charging them a reduced tax rate. This both encourages industrial investment and relieves companies from the burden of the world’s highest corporate tax rate. Eliminating this particular incentive would have a dramatic impact on the job market, encouraging manufacturers to outsource their work to countries with lower tax rates.

The President has proposed removing the Section 199 incentive for oil and gas companies. Should this happen, more production would be shifted to countries with lower tax rates and thousands of U.S. jobs would be lost. It would also effectively raise the tax rate on some large energy companies from 32.9 to 35 percent, and those higher costs would likely be passed on to consumers in the form of higher gasoline prices.

The final tools that are often included when discussing government “handouts” are protections.

America benefits when domestic companies successfully compete abroad against foreign competitors. Unfortunately, the U.S. tax code hampers these efforts by taxing U.S. companies on income earned abroad, money which already incurs foreign taxes. Because the U.S. is the only country to impose such a stringent double tax, more than 25 years ago Congress enacted “dual capacity” protections to address this problem and ensure American competitiveness. Here again, the Administration has proposed removing protection against the “double whammy,” but only for oil and gas companies.

Unlike tax dollars currently being spent on renewable energy, governments receive a positive cash flow from investment in fossil fuels. While the industry receives about $2.8 billion annually in subsidies and preferences, federal and state governments collected $1.1 trillion in excise and sales tax on petroleum products and $388 billion in corporate income taxes between 1981 and 2008.

With the Energy Information Administration (EIA) predicting a 25 percent jump in U.S. demand for fossil fuels over the next two decades, huge additional tax revenues will be generated for both the federal and state governments.

(These comments were submitted by Kathleen Sgamma, Director of Government & Public Affairs for the Western Energy Alliance.)

The argument that we should increase taxes because oil and natural gas companies are earning large profits is misleading and logically flawed. Oil and natural gas companies earn large profits because they sell large volumes of product that power our economy and prosperity. However, profit margins, which provide the context to compare the size of profits, are actually quite modest compared to other industries, at 5.7%. That’s less than the average profit margin for all manufacturing of 8.5% and quite far behind the beverage and computer industries at 21.7% and 17.3% respectively.

The rest of the story also includes the tax rate paid by the industry – 41.1% compared to 26.5% for other S&P industrial companies. The President and others continue to mischaracterize the oil and gas industry’s ability to deduct standard business expenses as subsidies. All businesses, from GE and Nike on down to the mom and pop corner store, are able to deduct expenses. Taking those away would treat the oil and natural gas industry differently than all others, and put domestic producers at a severe disadvantage compared to foreign producers, further weakening our domestic supply. Raising taxes on American energy producers makes it more expensive to develop domestic energy and only adds to the problem of high prices for consumers.

Before you can decide if you want the federal government to subsidize energy sources, you need to understand the difference between a subsidy and a tax deduction.

Petroleum refiners – who manufacture gasoline, diesel and other fuels – don‘t get subsidies. They simply get the same type of tax deductions other businesses get. This is also true for companies that produce crude oil and natural gas.

Webster’s New Universal Unabridged Dictionary defines a subsidy as “a direct pecuniary aid furnished by a government to a private industrial undertaking, a charity organization or the like.”

An example of a subsidy would be the $6 billion the U.S. government pays the corn ethanol industry each year, or the $7,500 the government pays individuals who buy an electric car.

A tax deduction is something quite different. The same dictionary defines a tax deduction as “an expenditure that is deducted from taxable income.”

Every business in America is allowed to take tax deductions for business expenses. For example, a business can deduct the wages it pays its workers, because if it didn’t pay workers it couldn’t produce products or provide services to generate profits.

In addition, foreign companies competing against American businesses get tax deductions in their countries. So cutting tax deductions for American firms raises their cost of doing business and makes them less competitive with foreign firms – endangering jobs of American workers.

Think of a subsidy as a Christmas gift or birthday present from Uncle Sam – money that goes straight into your pocket.

Think of a tax deduction as something that allows you to subtract the cost of earning money from the profit you make. For example, you may run a small business that pays $1 million in wages to employees but only makes a $100,000 profit. If you had to pay taxes on the $1 million in wages, your taxes would exceed your profits and you would have to shut down and lay off your workers.

So a tax deduction ensures that a business pays taxes on profits – not on all the money it spends to generate those profits.

You don’t need a Ph.D. in economics to understand the distinction between subsidies and tax deductions. Many of those demanding an end to “oil subsidies” understand the distinction quite well. But they conflate the subsidies that go to non-fossil fuels industries and the tax deductions that go to fossil fuels producers to give the misleading impression that there is no difference between the two, and that Uncle Sam is handing out money to both.

The National Petrochemical & Refiners Association believes our members are entitled to the same tax deductions as other businesses. This ensures a level playing field and fairness for businesses and their workers, and the availability of quality products for consumers.

Government subsidies alter the economic playing field in an effort to pick winners and losers. And since they are funded by American taxpayers, they aren’t “free money.” The government simply picks the pockets of everyone who pays taxes and gives the money to chosen companies.

The “green” in all this is the color of your money flying out of your wallet.

If government makes subsidies high enough it can redirect consumer behavior to all sorts of inefficient choices. But the cost to taxpayers can be a heavy burden.

For example, last year the Congressional Budget Office reported that the cost to taxpayers of using corn ethanol to reduce gasoline consumption by one gallon is $1.78.

In another example, paying each owner of the approximately 250 million passenger vehicles in America a $7,500 subsidy to buy an electric vehicle would cost taxpayers nearly $1.9 trillion.

Government subsidies and mandates don’t create wealth or grow the economy – they simply try to redistribute wealth. Instead of making the economic pie bigger to help everyone – which is what needs to be done – they just slice up the pie differently.

Handing out subsidies to some companies without subsidizing their competitors discriminates not just against the unsubsidized companies but against their workers. Destroying good jobs that American workers hold today in hopes of creating new jobs tomorrow – many to be filled by foreign workers – is a recipe for economic disaster.

Instead of trying to control the economy with costly subsidies and mandates, Congress and the administration should let the American people and the free market determine the most effective energy sources.

Government handouts funded by American taxpayers have never been the driving force behind American innovation. Alexander Graham Bell, Thomas Edison, Henry Ford, Bill Gates, and the founders of Google, mobile phone technology, and other recent innovations didn’t depend on subsidies and mandates. They depended on the creativity, hard work, ambition and ingenuity that are the key drivers of America’s success.

Every industry in America depends on tax deductions to stay in business and avoid taxation of its costs of doing business. But industries that depend on subsidizes don’t have the consumer acceptance necessary to survive on their own.

Instead of trying to subsidize what doesn’t work, government should encourage the success and growth of what does.

Subsidies disrupt the price mechanism that efficiently allocates resources in a market economy. They subsititute the arbitrary judgment of politicians and bureaucrats for the legitimate, individually-calibrated preferences of millions of consumers. They also unfairly create winners and losers. In the energy context, they mask the true cost of uneconomical, politically-favored energy technologies by forcing us to pay a portion of their high cost as taxpayers, in addition to what we pay on our electricity bills and at the pump.

But we cannot allow advocates of shifting from economically competitive fossil fuels to expensive, politically-favored renewables to suddenly cast themselves as the opponents of subsidies, misrepresenting tax hikes as "closing loopholes." While renewables enjoy billions in genuine market-distorting subidies, the provisions that supposedly subsidize oil and gas are largely sensible features of our tax code.

The section 199 deduction, for instance, is available to all domestic manufacturing jobs and is modest relief from a corporate income tax rate that is the highest in the world. We should not selectively remove it for just one industry to satisfy a political vendetta, which would only disadvantage U.S. production more internationally. Similarly, the ability to expense intengible drilling costs is correct economics, because operating epenses should be deducted in the year they occur. That's why the bipartisan tax reform of 1986 correctly preserved IDCs.

Corporate tax reform should make full expensing for all business investment (including but by no means limited to IDCs) permanent, and lower the rate across the board to a more competitive level, obviating the need for a reduced rate for manufacturing. Preferences and credits for ethanol and renewables should be removed as soon as possible, with offsetting tax cuts to prevent their repeal from being used as an occasion to raise taxes. Good tax policy across the board will encourage capital formation, investment, and innovation in all sector -- including energy -- on a level playing field.

Ethanol Tax Credit Provides Protection From Gas Prices

Over the last hundred years, the federal government has consistently promoted the development of new energy technologies and infrastructure deemed critical to the national interest.

In 2004, Congress created the Volumetric Ethanol Excise Tax Credit ("VEETC"), also known as the "blender's credit, as part of the American Jobs Creation Act. The VEETC is a federal tax credit of 45 cents on each gallon of ethanol blended with gasoline.

Ethanol is at least 59 percent cleaner than conventional gasoline. Domestic ethanol creates U.S. jobs by keeping American money in the American economy, instead of shipping it overseas. And it reduces our dependence on volatile foreign oil - oftentimes from countries that are hostile to American interests and values.

The current ethanol tax credit promotes the cost competitiveness of ethanol with gasoline, and provides long-term protection against a volatile petroleum fuel market. To date, the VEETC has been a major factor behind the spectacular increase in ethanol use and continued innovation in the industry.

As our nation struggles to recover from the worst economic recessions since the depression, budget hawks and fiscal conservatives have called for the end of energy subsidies. Specifically, Senator Coburn (R-Okla.) has called for the immediate repeal of the VEETC.

Mr. Coburn unfortunately is engaged in this debate in a rifle-shot manner as opposed to leading a comprehensive debate about federal energy policy. It is futile to have a debate about tax policy for one energy source-homegrown renewable fuels -without having that same debate about tax breaks for other competitive energy sources, including oil and gas.

The ethanol industry is fully prepared to reform and reduce the cost of current tax programs. In fact, Growth Energy proposed last year, in its Fueling Freedom plan, reforming the ethanol tax program and adopting policies to benefit consumers at the pump.

The only reason the ethanol industry needs government support today is because we are arbitrarily denied access to all but ten percent of the fuel market. By redirecting the existing ethanol tax credit toward building out a national infrastructure including Flex Fuel pumps and Flex Fuel vehicles we can create an open market where all fuels compete. Then, ethanol will continue to create jobs and displace foreign oil without any help from the government.

Growth Energy has laid out a plan that would lead to a genuinely free market - an open market that is free of government supports.

Former Secretary of Energy, James Schlesinger, once observed that “ the tool of politics...is to extract resources from the general taxpayer with minimum offense and to distribute the proceeds among ...claimants...” That describes how the energy subsidy process works. And from an unlikely source of wisdom, Groucho Marx, “politics is the art of looking for trouble, finding everywhere, diagnosing it incorrectly and applying the wrong remedies.” And, that describes our energy policy.

If Congress could be trusted to provide lower corporate tax rates and a level playing field, then a strong case could be made for eliminating all real subsidies. In the real world, lower tax rates and fewer deductions, credits, etc are not going to come about soon. The reaction to the Deficit Commission’s report makes that clear.

When a government official wants to criticize something in the tax code, it is a subsidy. When the official wants to support something, it is an investment. But, the fact is that the only money the government has is what it borrows or extracts from taxpayers.

Politicians like to substitute their judgment for the market’s and use tax dollars to reward those that they favor. Since the first Arab oil embargo, Congresses and most Administrations have promoted subsidies in various forms to find alternatives for fossil energy. First to achieve energy independence and now to promote an off oil agenda. Billions and billions of taxpayer dollars have been wasted in the pursuit of an illusion and still the nation and others rely on fossil energy because of cost, abundance, and per unit energy content.

Today’s favored alternatives are wind, solar, and biofuels, mainly ethanol. None make economic or energy sense. European governments have heavily subsidized the first two only to make their economic and employment conditions worse and electricity prices higher. We squander about $5 billion annually on ethanol and enrich producers and corn farmers without achieving either environmental benefits or significant reductions in imports.

The current attack on oil company “subsidies” is a ruse to make gasoline more scarce and to shift blame for high prices. It will fail but be costly and disruptive in the process.

The subsidy charges are bogus. Of the four mentioned most often--depletion allowance, intangible drilling costs, manufacturers tax credit and foreign income tax credit--two apply to all business. The manufacturing tax credit was designed to promote domestic job creation while the foreign tax credit is in place to prevent double taxation. The US already has the second highest corporate tax rate in the developed world.

The depletion allowance is only available to small, independent oil and gas producers, of which there are about 18,000. Major oil companies have not been able to use it since 1978. The ability to deduct intangible drilling costs like wages, the costs of drilling muds, survey work, etc. is no different than deductions of the operating expenses by any business. The ability to write these off in oil and gas exploration is recognition of large up front costs and the fact finding oil and gas also involves a lot of dry holes. The immediate write off provides a one time lower tax bill. After that, taxable revenue is higher. The government is not losing anything. Eliminating it would discriminate against oil and gas exploration and reduce domestic production.

Schemes to promote alternative energy are dangerous because they distort market forces, create rent-seeking incentives, and encourage the use of non-economic forms of energy. In a competitive global economy, we need efficiency and competitive energy markets, not the heavy hand of government tilting the playing field.

All “subsidies” are not created equal. There is a big difference between direct government expenditures, including loan guarantees, for preferred activities and organizations and tax credits or incentives that do not discriminate within a class of activities and which lead to increases in government revenue.

The current debate has been spawned by President Obama’s response to high oil and gasoline prices. His proposals do not stand up to careful scrutiny and will do nothing to lower gasoline prices.

While there is not a lot he or Congress can do directly about the instability in the Middle East and North Africa, rational fiscal and energy policies would produce long term economic and energy benefits and in the process put downward pressure on prices. More domestic production, more cost-effective regulation would stimulate more domestic gasoline production and more domestic energy investment. Putting the economy on a sounder footing would strengthen the dollar and make traditional stock market investments more attractive than oil. Both would lower oil prices.