The Hype for Energy Indebtedness

Governor Ed Rendell contends that his energy policy will help the Commonwealth attain “energy independence.” Don’t believe the hype.

His plan imposes new taxes to cover the costs of corporate welfare handouts administered by political appointees. Hailed as a means of reducing consumer energy bills, the proposal would force Pennsylvanians to purchase less efficient, more expensive energy, subsidized by their taxes and produced by companies selected by Harrisburg, not consumers.

Governor Rendell’s plan is to issue bonds to fund a number of programs as part of the Energy Independence Fund. Rendell plans to spend $850 million within three years (though his proposal offers no limit on how much debt he can issue), but taxpayers will be paying off his debt for decades. Many critics have focused on raising taxes or fees to pay off these bonds, but we must consider the merits of this borrowing and spending itself.

Under this program, political appointees would be responsible for doling out hundreds of millions of dollars to businesses in the alternative energy industry. These subsidies are on top of existing mandates on energy providers to use these alternative energy technologies. Rather than allowing alternative energy producers to compete in the market, Rendell proposes that the state step in to redistribute resources and direct investments in the energy sector. But if alternative energy sources are to provide real solutions to our energy challenges, they must be allowed to develop naturally, in accordance with scientific advancement and consumer demand.

Consider, for instance, the Governor’s emphasis on ethanol as a solution to our “addiction to foreign oil.” This plan would require every gallon of gasoline sold in Pennsylvania to contain at least 10% ethanol (E10), as well as to subsidize ethanol producers. But if ethanol were as promising as Rendell contends, subsidies would be altogether unnecessary—the market would already pursue it.

Nationally, ethanol mandates have resulted in an agricultural shift, with 20% of the nation’s corn now allocated to ethanol production. This has created a ripple effect, increasing the price of corn, and leading to a sharp rise in the prices of beef, milk, and even beer. Additionally, ethanol is more costly than gasoline, despite existing subsidies, so consumers are also paying a premium at the pump. Thus, consumers will be charged three times for ethanol mandates and subsidies: at the service station, at the dinner table, and on their energy bills, thanks to the governor’s new electricity tax. But surely ethanol helps the environment, right?

Wrong. Ethanol produces far more oxygenates—the leading cause of smog—than does gasoline, and E10 actually increases emissions of hydrocarbons and other toxins. Ethanol production, moreover, is extremely energy-intensive, requiring massive amounts of traditional energy resources to produce a “green” alternative.

Some actually contend that ethanol requires more energy inputs—fertilizer, harvesting, shipping, and processing—than outputs, including the amount of oil that is used to transport ethanol (ethanol can’t be shipped by pipeline). There are serious questions about the viability of ethanol—questions politicians have conveniently ignored, preferring to burnish environmental credentials and cater to those who profit from corporate welfare for ethanol producers.

Now Rendell wants to tax Pennsylvanians to fund a new ethanol plant, and force them to purchase its product. Only in Harrisburg would higher costs and more pollution be considered a bargain, and only in Harrisburg would further subsidizing a commodity consumers are required to purchase make sense.

That, in a nutshell, is the Rendell plan: taxing those who are providing valued goods and services and turning the proceeds over to unprofitable corporations whose only claim to deserve the subsidy is having mastered the art of lobbying. The result is not clean, abundant energy, but another round of government handouts—with taxpayers yet again footing the bill.

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Jared M. Walczak, a Grove City College student, was a summer research intern with the Commonwealth Foundation (, an independent, nonprofit public policy research and educational institute based in Harrisburg.