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#SubEnergy Examines Energy Tax Policy and its Impact on Markets, Prices, and Consumers

Mar 29, 2017

WASHINGTON, DC – The Subcommittee on Energy, chaired by Rep. Fred Upton (R-MI), today held a hearing examining federal energy tax policy and its effect on markets, prices, and consumers.

The federal government has several tools it can use to influence energy policy, one of which is to provide support for energy development, production, and use of fuels and energy technologies through the tax code or spending programs administered by the Department of Energy (DOE). In fact, the tax code has played a significant role in driving energy policy by providing targeted incentives for fossil fuels, nuclear power, renewable energy, and energy efficiency technologies. #SubEnergy today examined the history of energy-related tax policies and their effect on energy and electricity markets, prices, and most importantly on consumers.  

“What ultimately matters most are these policy impacts on consumers. We need to do what is best for households struggling to pay the electric or gas bill. Open, competitive markets are the surest way to keep prices down for families while taking full advantage of the technological improvements that give consumers more control over the way they use energy,” full committee Chairmen Greg Walden (R-OR) stated. “We will continue to examine how energy and electricity markets, and the policies affecting those markets, are impacting consumers. But before we reach that point, we need to have a broader understanding of where our energy policies stand right now.”

Robert Murphy, Senior Economist at the Institute for Energy Research, discussed his thoughts on the impact of tax incentives on energy markets, commenting, “Economists generally agree that decentralized markets, operating through private property and the profit-and-loss test, allocate resources better than top-down central planning. … Adding artificial privileges to particular groups is a self-defeating and inefficient process, because it distorts consumer and producer behavior and invites “rent seeking” from groups trying to shield themselves from unfavorable tax treatment. When policymakers try to steer markets through the tax code, it makes Americans poorer because resources are no longer being channeled into their most important uses.”

Devin Hartman, Electricity Policy Manager at the R Street Institute, commented on the importance of steering energy policy toward market-based principles, stating, “Well-functioning competitive energy markets are the best choice for innovation, consumers and the environment. The United States cannot affordably mandate and subsidize its way to a clean energy future. Industrial policies increasingly subvert competitive energy markets and contribute to a mounting public debt burden. It’s time to reawaken the markets. Industries and technologies should excel based on their merits, not political popularity. Congress can steer U.S. energy policy back toward market principles, where competitive forces pick winners, not government.”

“Clearly a strong argument can be made that specialized energy tax treatments have played a major role in helping the United States achieve its energy goals. However, given the lasting market and price distorting impacts that these policies place on effective price formation and bidding in competitive markets, some are questioning whether yesterday’s justifications for energy tax policies remain appropriate for today,” concluded Chairman Upton. “As we look to modernize our energy policies, we’re going to put consumers first. Consumers should be driving energy markets from the bottom up, rather than having the federal government driving it from the top down.”

A background memo, witness testimony, and an archived webcast of the hearing can be found on the Energy and Commerce Committee’s website HERE.

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