Government Dole for Grumpy Trolls? Time to End Energy Subsidies

Posted on Wed 11/30/2011 by


By Nicolas Loris

The Grumpy Troll Restaurant and Brewpub is one of over 22,000 companies that received $16,000 cash grants from the federal government to install solar panels on their roofs as part of the 1603 Treasury grant program, a 2009 stimulus bill provision that provides cash grants to help foot the bill of renewable energy projects, mostly wind and solar but also biomass, landfill gas, fuel cells and geothermal heat projects.

The 1603 program was set to expire at the end of 2010 but was extended another year. The government has doled out over $9.6 billion for this program so far.

You can’t blame companies for taking the cash, but the question is: Why do we have this federal government program in the first place? These taxpayer-funded subsidies are helping foot the bill for projects that either should not have happened or, if they were good investments, wouldn’t need the government’s help. The cash grants are not creating jobs, they’re not reducing our dependence on foreign oil, and they’re not affecting climate change.

The 1603 program is set to expire at the end of the year, and it should. Congress should hold subsidy-addicted renewable energy companies to a 2012 New Year’s resolution: stop taking cash from the taxpayers.

The Treasury Department continually updates a spreadsheet with the names of the companies receiving the cash grants and for what project. Although many of the names are obscure, some of the recipients will ring a bell: Coca Cola, Hertz Rent-a-Car, IKEA, Hewlett-Packard, State Farm, and Prudential. These are companies that clearly don’t need taxpayers’ help, and if these investments in renewable projects are profitable ones, then they can make those investments on their own.

While the larger companies are the most glaringly obvious examples of why the 1603 program is unnecessary, the same holds true for smaller businesses as well. If the folks at Bill and Ted’s Excellent AD Ventures, Inc., (a cash grant recipient) believes they’ll see a return on their investment if they install solar panels on the company’s rooftop, then they should pursue that avenue.

But 1603 supports some American businesses at the expense of others. Taxpayer-funded cash grants simply shift labor and capital away from one sector of the economy and towards the renewable sector that’s politically preferred. So government spending will “create” jobs and support American business in the sense that we’ll build some windmills and solar panels. (Not to mention it looks good when a Member of Congress can point to that plant and tell his constituents he or she created those jobs.) But the government is taking from one (by taxing or borrowing) and giving to another. When the government gives money to build a windmill, those resources cannot simultaneously be used to build other products.

As George Mason University economist Russell Roberts says, “It’s like taking a bucket of water from the deep end of a pool and dumping it into the shallow end. Funny thing—the water in the shallow end doesn’t get any deeper.” But it’s actually worse than that because the government will inevitably spill some of that water. So on balance, you pour less water back into the pool. Or in this real-world case, fewer jobs are created.

Furthermore, the program isn’t doing a whole lot to reduce dependence on foreign oil. Most of the projects are for wind and solar electricity production, and only about 1 percent of America’s electricity was generated from petroleum in 2009. You know what could have helped with that? The permit approval for a Canadian pipeline that would bring in 700,000–830,000 barrels of oil to the United States per day. But instead, the President punted that decision until after the 2012 election.

Another reason policymakers support the 1603 program is that is has the dubious goal of reducing greenhouse gas emissions. Not only is this an ineffective way to mitigate global climate change; it ignores disagreement among the scientific community regarding the magnitude of anthropogenic global warming. In fact, Representatives Edward Markey (D–CA) and Henry Waxman (D–CA), architects of the cap-and-trade legislation that failed to become law, hosted a briefing called “The End of Climate Change Skepticism.” One of three star witnesses, University of California-Berkeley astrophysicist Richard Muller said, “The amount that’s due to humans is still open, and there are fairly big uncertainties about that.”

Then there’s the second round of e-mails released in the Intergovernmental Panel on Climate Change (IPCC) “climategate” scandal. Although the accused will say that the e-mails are taken out of context, the Competitive Enterprise Institute’s Myron Ebell organized some of the more telling ones into the following categories that leave little room for speculation:

  • They know the climate models are junk but say the opposite in the IPCC reports,
  • Intentional cherry-picking of data,
  • Cherry-picking of authors to get the right spin in the IPCC reports,
  • Subordinating science to a political agenda,
  • Intentional cover-up, and
  • Candid comments not reflected in public statements.

They’re all worth checking out.

When a well-known sports player retires or a college player is planning to leave early to go professional, fans will always chant, “One more year!” The same is true with subsidy-addicted energy companies: They will plead to Congress for one more year. But this program had its run; it’s time to let it go.

Nicolas Loris is a Policy Analyst at The Heritage Foundation .  Roe Institute for Economic Policy Studies. Loris researches and writes about 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 .