Reject All-Of-The-Above Energy Approaches

Posted on Sat 11/06/2010 by

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By Nicolas Loris

With Congress divided, will anything actually get done in the next two years? President Obama recently suggested energy policy as an area in which bipartisan support could exist. Rather than trying to pass  a large climate change bill, Obama stressed the importance of increasing technologies and energy sources to reduce greenhouse gas emissions  – including nuclear, clean coal, electric vehicles, wind, solar, and renewable fuels. Sometimes deemed an “all of the above” energy approach, it guarantees handouts and subsidies for all energy sources to make everyone happy. In other words, all the special interests win and the consumer loses. David Friedman, son of Milton, said it like this:

Special interest politics is a simple game. A hundred people sit in a circle, each with his pocket full of pennies. A politician walks around the outside of the circle, taking a penny from each person. No one minds; who cares about a penny? When he has gotten all the way around the circle, the politician throws fifty cents down in front of one person, who is overjoyed at the unexpected windfall. The process is repeated, ending with a different person. After a hundred rounds everyone is a hundred cents poorer, fifty cents richer, and happy.

The problem is that when everyone gets a windfall, those pennies taken from the consumers add up quickly. It signals to businesses that instead of spending time and resources figuring out how to lower costs, they should spend more time and resources in Washington begging for handouts. It removes the incentive to become economically competitive.

Let’s take a look at how some of the winners selected by government officials are doing.  In September 2009 Vice President Joe Biden and Secretary of Energy Steven Chu participated in an event announcing a $535 million stimulus loan for solar-cell manufacturer Solyndra. Biden said:

This announcement today is part of the unprecedented investment this Administration is making in renewable energy and exactly what the Recovery Act is all about. … By investing in the infrastructure and technology of the future, we are not only creating jobs today, but laying the foundation for long-term growth in the 21st-century economy. (Emphasis added)

A little over a year later, what’s going on with Solyndra? The solar manufacturer is closing its first factory in Fremont, California only weeks after opening its second .  George Avalos of the Oakland Tribune writes, “The moves mean that instead of having 2,000 workers in Fremont, Solyndra will cap its work force at 1,000, which is about the current level. Solyndra also will, over the next several weeks, eliminate 155 to 175 jobs in Fremont. That includes 135 contract employees and 20 to 40 full-time workers.”  Part of the reason: “Investors are backing away from capital-intensive cleantech now and instead looking to cheaper companies.”

And then there’s this from The Hill: “The wind power industry’s main trade group said Friday that growth has slowed to its lowest level in years—data the group called proof Congress should approve a nationwide renewable power standard.”

So after receiving stimulus funds and special tax incentives, the wind industry struggles to remain cost competitive. And that’s a sign for our government to mandate that a certain percentage of our electricity come from this energy source? In effect, that’s a mandate for higher energy prices; otherwise, it wouldn’t need the mandate.

Subsidies for clean coal, oil, nuclear, and natural gas are no different. Energy industries should be freed from all government subsidies. This would allow companies to rely on innovation and efficiency, not taxpayer handouts, to remain competitive.  In such a scenario, the businesses who deserve to win  will  by means of higher profits and the consumer reaps the benfits by having the cheapest energy available.

Nicolas Loris is a Research Assistant at The Heritage Foundation’s Roe Institute for Economic Policy Studies. Loris studies energy, environment and regulation issues such as the economic impacts of climate change legislation, a free market approach to nuclear energy and the effects of environmental policy on energy prices and the economy.

Read more informative articles at Heritage – The Foundry

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