Green Energy: Subsidies for Affluent Liberal Yuppies

A new paper from researchers at the University of California, Berkeley, on the “The Distributional Effects of U.S. Clean Energy Tax Credits.” “Distributional effects” is just a way of saying “from whom is government taking money, and to whom is it giving it.” The bottom line:

Since 2006, U.S. households have received more than $18 billion in federal income tax credits for weatherizing their homes, installing solar panels, buying hybrid and electric vehicles, and other “clean energy” investments. We use tax return data to examine the socioeconomic characteristics of program recipients. We find that these tax expenditures have gone predominantly to higher-income Americans. The bottom three income quintiles have received about 10% of all credits, while the top quintile has received about 60%. The most extreme is the program aimed at electric vehicles, where we find that the top income quintile has received about 90% of all credits. By comparing to previous work on the distributional consequences of pricing greenhouse gas emissions, we conclude that tax credits are likely to be much less attractive on distributional grounds than market mechanisms to reduce GHGs.

One example, the Chevy Volt: According to autoblog (writing in 2011):

In order for the Chevy Volt to really be a success, the car needs to be affordable for the masses.

But for now, the car is mostly the province of the wealthy. General Motors, which makes the Volt, said Monday that the average income of Volt buyers is a whopping $175,000 a year. That rarefied space is usually reserved for buyers of German luxury cars.

“The Volt appeals to an affluent, progressive demographic,” says Bill Visnic, senior editor for Edmunds.com “It’s rare. It’s hard to get one. ... It’s the same reason that people buy the really rare exotic cars: Because other people can’t have one.”

Median family income in 2011 was $50,502.

So the liberal Yuppies have it really good. They get to feel very self-righteous, and do so largely with the money of people at whom they look down their noses.

Green Energy Fiasco

From the Heritage Foundation, a list of “green energy” companies that have gone under.

1. Abound Solar

Government’s Bad Bet: $ 790.3 million

2. Solyndra

Government’s Bad Bet: $570 million

3. A123 Systems

Government’s Bad Bet: $377.1 million

4. Ener1 (EnerDel, subsidiary)

Government’s Bad Bet: $182.8 million

5. Range Fuels

Government’s Bad Bet: $162.3 million

6. Azure Dynamics

Government’s Bad Bet: $119.1 million

7. Energy Conversion Devices (subsidiary, United Solar Ovanic)

Government’s Bad Bet: $110.3 million

8. Evergreen Solar, Inc.

Government’s Bad Bet: $84.9 million

9. Beacon Power

Government’s Bad Bet: $77.4 million

10. Raser Technologies

Government’s Bad Bet: $33 million

11. Nordic Windpower

Government’s Bad Bet: $24.6 million

12. SpectraWatt

Government’s Bad Bet: $20.5 million

13. Konarka Technologies

Government’s Bad Bet: $13.6 million (Heritage’s calculations), $20 million according to Konarka’s website

14. Satcon Technology Corporation

Government’s Bad Bet: $17 million

15. Olsen’s Crop Service and Olsen’s Mills Acquisition Co.

Government’s Bad Bet: $10.8 million

16. Stirling Energy Systems, Inc.

Government’s Bad Bet: $10.5 million

17. Thompson River Power, LLC

Government’s Bad Bet: $6.5 million

18. Cardinal Fasteners and Specialty Co., Inc.

Government’s Bad Bet: $480,000

19. Mountain Plaza, Inc.

Government’s Bad Bet: $424,000

20. ReVolt Technology

Government’s Bad Bet: $10 million

Now, a bit about details:

These numbers do not reflect the amount of government funding the company necessarily received or used—these are amounts the government was willing to risk. These figures do offer estimations of assistance provided by local, state and/or federal governments. This assistance could have been promised to the companies in a variety of ways, including tax credits, loans, loan guarantees, grants, and other forms of financial incentives and support. The numbers below are the best calculations possible given the incomplete, at times even inconsistent, information from the government and other sources.

Additionally, during bankruptcy proceedings, these companies could very well be purchased by another company and be brought back to life. However, their tombstone in the Green Graveyard will remain as a reminder of the darker days.

The problem here is not that green energy is forever and always a losing proposition. It’s that when politicians get to spend other people’s money, they lack the normal market incentives to spend it wisely.

It goes to things that sound good. It goes to political cronies. It goes to promote an ideological agenda.

If a given project can’t hack it in the market, that’s a signal that it’s not economically viable. Throwing taxpayer money at it isn’t going to make it viable.

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.