In a recent speech at Argonne National Laboratory, President Obama reiterated his desire for an Energy Security Trust. Under the president's proposal, the trust would divert billions of dollars of revenues generated from oil and gas production on federal lands to subsidize alternative fuel technologies.
The administration's plan has three fatal flaws. First, it neglects expanding oil and gas production on federal lands and off America's coasts. Second, it would duplicate already-tried-and-failed attempts to subsidize energy technologies. Third, it ignores that competition in the marketplace is most effective in driving technological innovation.
A White House infographic on the Energy Security Trust obscures the fact that money to pay for the trust fund will be diverted from other federal priorities. The statement that "revenue from profitable oil and gas companies" would pay for the trust suggests that oil companies are paying for it with new funds. This is hardly the case.
Not only would creating an Energy Security Trust to fund alternative vehicle technologies be duplicative; it would likely be inefficient and wasteful. Subsidies funnel taxpayer money to technologies that would have either become market viable on their own or would not survive without the government's help.
Oil's dominance as a transportation fuel is not because a government program is lacking or because more taxpayer investments are needed to jumpstart a transformation in the fuel industry. At present, even with the dramatic spikes in prices, oil is the most efficient and economic source of transportation fuel.
Americans spent $481 billion on gasoline in 2011. Globally, the transportation fuels market is a multitrillion-dollar one. If any alternative fuel technology captured a mere slice of that market, it would capture billions of dollars in profit annually. The market demand for transportation fuel is incentive enough to spur competition in the industry.
Nicholas Loris is the Herbert and Joyce Morgan Fellow at the Heritage Foundation.