Obama’s Green Energy Fiasco

An opinion column by Charles Lane in the Washington Post:

The Washington Post In blackjack, doubling down is a high-risk, high-reward move. If you think you can win, based on the first two cards dealt, you bet 100 percent more — but you also pay for the privilege by agreeing to take one, and only one, additional card.

Doubling down is also the semi-official metaphor of President Obama’s energy strategy, as we know from his speech in Cleveland last week: “My plan would end the government subsidies to oil companies that have rarely been more profitable — let’s double down on a clean-energy industry that has never been more promising.”

Blackjack pros like doubling down; it’s a chance to profit from newly acquired relevant information. Whether that logic applies to the U.S. government’s energy bets, however, is a different story. What we’ve learned so far suggests that the president should fold his cards.

U.S. energy subsidies — spending, tax breaks, loan guarantees — increased from $17.9 billion in fiscal 2007 to $37.2 billion in fiscal 2010, according to the Energy Department. Yet fossil fuels’ overwhelming market advantages have produced a litany of clean-energy failures, from electric cars to Solyndra.

The subsidies ostensibly address several issues — dependence on foreign oil, job creation, international economic competitiveness and environmental degradation — but without clear priorities, much less rigorous cost-benefit analysis. Unintended consequences and political influence abound.

The best-laid plans are vulnerable to unforeseen market developments — such as the boom in oil and natural gas “fracking” over the past decade, which Obama has now embraced.

To the extent that it’s coherent at all, the federal energy “portfolio” represents a return to industrial policy — governmental selection of economic winners — which was fashionable in the 1970s and 1980s, before it collapsed under the weight of its intellectual and practical contradictions.

As such, current clean-energy programs are no likelier to pay off than President Jimmy Carter’s Synthetic Fuels Corp., which blew $9 billion, or President George W. Bush’s $1.2 billion program for hydrogen vehicles.

This isn’t just my opinion or the finding of some right-wing think tank. Rather, all of the above comes from a new paper by three certifiably centrist Brookings Institution scholars, Adele Morris, Pietro S. Nivola and Charles L. Schultze; Schultze was a senior economic adviser to Presidents Kennedy, Johnson and Carter.

The researchers pick apart clean-energy subsidies rationale by rationale.

Like his predecessors of both parties, Obama argues that the subsidies can help reduce dependence on foreign oil. But even with 100 percent self-sufficiency, we would be vulnerable to price shocks in the global market for this fungible commodity. Many technologies favored by current policy — wind, solar, geothermal — replace coal and natural gas, in which the United States is already self-sufficient.

Obama also cites the need to compete with other countries in developing the energy industries “of the future.” The Brookings scholars argue that higher living standards depend on growing productivity, not the global market share of U.S. industries. Their authority for this is Nobel Prize economist Paul Krugman’s 1994 essay in Foreign Affairs, “Competitiveness: A Dangerous Obsession.”

Having China or someone else develop clean-energy technology might be to U.S. advantage; let them pay the inevitable start-up costs; then we can adapt the discoveries to our own needs.

Heck, if we want to reduce the most emissions at the least cost, it might be wise to import the means of doing so.

As for job creation, clean-energy subsidies shift demand for labor; they don’t increase it. “I’m not aware of a single peer-reviewed economic study that shows these programs create jobs in the long run, and on a net basis,” Morris told me. Solyndra and its 1,861 vanished jobs proves her point. Fracking probably created more permanent positions.

Reducing carbon emissions and other environmental goals represent the best rationale for government intervention in the energy market. Market prices for fossil fuels do not capture all costs of consuming them. Also, the private sector underinvests in basic research that might, someday, lead to new commercially viable energy sources.

Higher gas taxes or a tax on carbon could efficiently limit pollution, if those steps weren’t politically toxic. Basic research funding is, indeed, part of Obama’s strategy, but it should be more focused and insulated from politics, the Brookings scholars argue.

If government does double down on clean energy, it’s the federal budget that will end up busted.