Just Add Diesel: How Unintended Consequences Rob Taxpayers Blind

from the regulatory-mess dept

One of the reasons we're often skeptical of legislative/regulatory solutions to things is that they almost always have unintended consequences that do a lot more harm than good -- and quite often those unintended consequences are the exact opposite of what the regulation was supposed to do. Tim Lee points us to an excellent, if depressing, example. A few years back, the government passed a bill to encourage "greener" transportation by providing tax credits for the use of alternative fuels -- including for the use of fuel mixtures that combined alternative fuels with gasoline or diesel. As Chris Hayes explains, this resulted in America's paper companies suddenly dumping diesel into their production process solely to qualify for the tax credit.

The end result is staggering. The paper companies are wasting diesel fuel (remember, the whole point of this bill was to decrease the use of such fuels) by adding it to a process even though it's entirely unnecessary, and then claiming the tax credit. And, boy, is it worth it. The top ten paper companies are likely to take in $8 billion dollars from this tax credit. The money coming from this is so valuable that it dwarfs the actual paper business. The industry is making a lot more money throwing diesel fuel away than actually selling paper. And that is a perfect example of why even the best intentioned regulators often end up doing an awful lot of damage.

Filed Under: green energy, paper manufacturers, politics, regulations, unintended consequences


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  1. identicon
    ddbb, 6 Apr 2009 @ 12:20pm

    Why do people assume that just because someone is in government, are endowed with some kind of wisdom that allows them to regulate for everyone's benefit? Why is it a surprise that there are unintended consequences to legislation and regulation?

    It is simple:

    -There is no such thing as a free lunch.
    -Incentives matter.
    -Government consists of people. Generally, these are mediocre people at best, a situation made worse by their insulation from consequences and lack of exposure to or compentency in business or anything requiring actual results.

    Elected officials and bureaucrats can weigh political decisions that may affect directly their term in office. However, it is grossly mistaken to think they can weigh costs and benefits at large to the economy, the environment or anything else. They can restrict inputs through coercion, but they cannot dictate outcomes.

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