But what if there were a policy that preserved most of the macroeconomic benefits of free trade but distributed the benefits more fairly? As it turns out, there is one — although you are unlikely to hear about it from either the gas industry or its customers.
I’m talking about a tax on natural gas, imposed at the wellhead, that would effectively raise the price from current levels to those closer to the world price. The effect on chemical companies and power companies and other end users would be roughly the same as allowing unrestricted exports to drive up the price. But instead of the energy industry capturing all the windfall, much of it could be captured instead by the government.
Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.
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The proceeds from this tax could be rebated to consumers to offset the impact of higher electric prices. Or they could be used to compensate workers in the coal industry for job losses suffered as a result of new air pollution regulations and conversion of coal-burning plants to gas. Or they could be used simply to lower the government’s operating deficit or lessen the need for painful spending cuts or tax increases.
Such a tax would have to have some flexibility built into it, moving up or down with gas prices on the U.S. and global markets. And it would have to be modest enough to still provide a healthy profit for natural gas companies to compensate them for the risk involved in investing huge sums to build the infrastructure required for exports. The potential windfall is so large, however, that even after making these allowances, there could be $10 billion or more left over each year for the rest of us.
There is nothing particularly radical about this idea. There was once a windfall tax on oil company profits that was roughly structured this way. And almost every big energy exporting country accomplishes the same policy objective, either through royalty schemes or state ownership of energy companies. We could have a long philosophical debate about why oil and gas should be treated differently than software and soybeans, but the reality is that that’s the way it is done everywhere else. It’s also been true here, where special rules and restrictions and incentives have long been applied.
So put me down in favor of exporting all the natural gas the rest of the world wants to buy, just as long as the American taxpayers get cut into the deal. Otherwise, we’re better off keeping our God-given bounty for ourselves and reaping the economic benefits that come from cheaper energy.
For previous columns, go to washingtonpost.com/business.
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