Following the Arab oil embargo of 1973, the federal government began to develop a national energy policy. In 1975, President Ford proposed a ten-year plan to build two hundred nuclear power plants, two hundred and fifty major coal mines, one hundred and fifty large coal-fired plants, thirty new oil refineries, and twenty synthetic fuel plants. The cost of the proposal prevented it from gaining political support.
In 1976, Jimmy Carter made energy a central part of his presidential campaign. His focus on energy culminated with the National Energy Act of 1978, which included five separate statues. Among the provisions of the act were incentives for energy conservation and the loosening of some federal regulations. Interestingly, the act also included incentives for industry to switch to coal. Today’s efforts to bankrupt coal-fired plants is another example of the shifting, inconsistent, and often contradictory nature of government policies. Yesterday, the government encouraged businesses to invest in certain technology; today the government will bankrupt those businesses that did so.
As a part of his energy policy, Carter sought to encourage the development of renewable sources of energy. The Synthetic Fuels Corporation Act, passed in 1980, established a government funded corporation for the purpose of developing synthetic fuels. As a part of the legislation creating the Synthetic Fuels Corporation, Congress mandated production targets of a half-million barrels of synthetic fuel per day by 1987, and one and a half million barrels per day by 1992. After a series of scandals, the company was closed in 1985 without coming close to meeting its production goals. But this was only the first in a long string of failures involving government and renewable energy.
In 2007, Range Fuels received a $76 million grant from the Department of Energy for the purpose of turning wood chips into ethanol. The plant closed in early 2011 without producing a single drop of ethanol. In seeking to rid the nation of “dirty” energy sources, such as coal, Obama has offered $80 billion to “green” energy companies. To date, more than thirty of these companies have failed. The most spectacular failure has been Solyndra, a maker of solar panels. The company went bankrupt in 2011, sticking taxpayers with a $535 million bill. But the real story is not the massive waste of your money. The real story is the cronyism that underlied this boondoggle.
In regard to Solyndra, the Washington Post has reported that “Obama’s green-technology program was infused with politics at every level…. Political considerations were raised repeatedly by company investors, Energy Department bureaucrats and White House officials.” The paper says that memos, company records, and internal e-mails “show that as Solyndra tottered, officials discussed the political fallout from its troubles, the ‘optics’ in Washington and the impact that the company’s failure could have on the president’s prospects for a second term.”
In one memo, a Solyndra board member described mistakes made by company founder Christian Gronet, saying that some “border on moronic.” But Gronet retained his position, the board member suggested, “only because of his close relationship with Energy Department leaders and because he had ‘star power in D.C.’” Solyndra’s lobbying firm emphasized the need of company officials to “‘socialize’ with leaders in Washington and to mobilize a lobbying effort described variously as quiet, surgical and aggressive” as the company sought additional funding from what one Solydra executive called the “Bank of Washington”—that is, taxpayers.
In short, as Solyndra stumbled towards bankruptcy, government officials were primarily concerned with the political ramifications. At the same time, company officials focused on securing more taxpayer money, rather than economizing or finding other ways to compete more effectively. In fact, when government is offering subsidies, the primary competition among companies does not occur in the marketplace, but in Washington. Companies and their lobbyists compete to win government favors at the expense of taxpayers. Solyndra is not an isolated example. The very nature of government subsidies makes them rife with cronyism.
This post is an excerpt from my book The Innovator Versus the Collective.