Biden’s ‘Build Back Better’ will raise energy prices
Attempts to justify the high costs of President Biden’s Build Back Better plan have engendered a string of creative economic arguments advocating for so-called investments by the government to drive a transition to renewable energy.
“The stakes here are incredibly high,” claimed Princeton School of Engineering professor Jesse Jenkins. “Passing the Build Back Better Act would lower energy costs and secure both the United States’s climate goals and its global competitiveness in some of the most important industries of the 21st century, from wind and solar power to electric vehicles, clean hydrogen to carbon capture and storage. Failure would cost Americans dearly.”
That claim again, in brief: BBB would lower energy costs. Failing to pass the bill will “cost Americans dearly.” Of course, this claim was quickly critiqued, eliciting a multilayered Twitter thread that backtracked on the idea that the bill would lower energy costs. The updated contention explained that it would only “lower costs for American households and businesses.”
But that revised claim requires the reader to believe in government largesse as the essential driver of economic well-being. In keeping with that theme, several arguments throughout the thread promoted government “investments” in hydrogen, carbon capture, battery storage, and electric vehicle manufacturing, as well as massive increases in already generous federal subsidies for wind and solar development.
The government spending argument was then capped off with the clichéd threat that, without this multitrillion-dollar spending bill, “the United States will further cede leadership in fast-growing clean energy industries to China, Europe, and others.”
When pushed on the issue, Jenkins backtracked again, arguing that BBB would “lower total expenditures on energy costs by households and businesses.” But he acknowledged that those lower costs were possible only because “costs are shifted (via tax credits, rebates, and grants) to the federal tax base, which is much more progressive.” That clarification is little more than an equivocation, or a creative accounting trick.
First, the BBB plan is not, as Jenkins claims, based on progressivity. A key provision of the BBB plan would dramatically increase the state and local tax deduction. That SALT deduction tends to favor wealthy blue-state residents and sticks middle-class taxpayers in lower-tax red states with the bill.
Additionally, BBB expands generous subsidies for wind and solar energy and electric vehicles that largely benefit wealthy coastal elites. According to University of Chicago research, most of the $18 billion in federal income tax credits spent to date on weatherization of U.S. households, residential solar, and electric cars has been spent this way.
In short, BBB uses a shifting foundation for energy policy: political patronage and transfers of wealth from lower- and middle-income taxpayers in red states to upper middle-class and wealthy blue state residents. This approach is also anything but progressive and likely would be reversed after the next election.
Second, Jenkins’ argument ignores the growing reliability costs associated with mandating a transition away from reliable, affordable sources of energy, such as fossil fuels and nuclear, to weather-dependent sources. Instabilities inherent in the variable nature of wind and solar, as well as ongoing generous federal subsidies for them, impose a host of costs on the wider electric grid.
For example, green subsidies allow electricity producers that use renewable sources to sell their electricity for less than the cost of producing it, while also ignoring the costs associated with their unreliable nature. These subsidies destabilize the economics of reliable energy sources, making electricity production less secure. And when blackouts occur, they will hit rural working-class residents and lower-income, inner-city residents the hardest.
Our health and well-being, as well as our national economic competitiveness, rely on a properly functioning and reliable electric grid. Given this, it’s clear that subsidizing unreliable energy sources fundamentally undercuts the nation’s ability to operate. This reality was made painfully clear during the February 2021 blackouts that shut down Texas and now routinely blackout California during the summer.
Third, Jenkins admitted BBB won’t lower energy costs; it will simply transfer rising energy costs from one line item in a budget to another — but as we’ve noted above, special tax favors for wealthy elites means these policies hit lower- and middle-income taxpayers the hardest.
It’s revealing that the most effective advocates for the green energy aspects of Biden’s Build Back Better plan have to start out with a broad, but ultimately unsupportable, claim that it will lower energy costs. Digging into the plan just a little deeper reveals that it will not achieve that goal, and it certainly does not comport with progressive notions about economics. While it is currently stalled, the BBB will, if passed, enrich a select portion of the well-to-do green political set, and it will do so at the expense of everyone it was supposed to help.
This article originally appeared in The Hill. It was written by Isaac Orr and Jason Hayes, of the Mackinac Center for Public Policy:
Jason Hayes is director of environmental policy at the Mackinac Center in Midland, Mich. Follow him on Twitter @jasonthayes.
Isaac Orr is a policy fellow at the Center of the American Experiment in Minnesota. Follow him on Twitter @TheFrackingGuy.