Friday, November 18, 2011

Goldwater Institute: Government subsidized energy - It’s just the same old song

The story goes like this: Policymakers identify what they believe to be untapped potential in the energy marketplace. They subsidize it in the hopes that the start-up boost can catapult it to a vibrant form of alternative energy.
This is the general approach that federal and state policymakers are taking to the prospect of a booming future for solar energy. Subsidizing the industry now, they say, will have payoffs in the future even if the industry faces some rocky times in the short-term.
But it’s an old storyline. In fact, it’s almost identical to past failed attempts by the federal government to play venture capitalist in the energy industry. A recent Washington Post article recounted the recent, but perhaps forgotten, history of government’s attempts to help create new sources of power.
Take the Synthetic Fuels Corporation, the brainchild of President Carter’s administration. It was a type of investment fund, capitalized in part with $17 billion in taxpayer money, to start up projects that would turn coal and shale into oil and gas. By the early 1980s, oil prices had fallen and the projects that the fund financed were no longer viable.
Then more recently there were the efforts to jump-start the hydrogen fuel-cell automobile and the quest to find a clearer-burning coal. Both petered out due mainly to each project’s economic infeasibility but only after billions of taxpayer dollars were spent.
Today, the main subsidies for the solar industry are regulatory (through renewable energy mandates on traditional energy providers), tax credits for purchases of solar panels, and property tax abatements for manufacturers and producers of solar energy and its related products. Yet it’s not clear that policymaker preference for solar will prove any more accurate than prior flirtations with new forms of energy.
Solar may one day provide a robust alternative to fossil fuels. But it’s probably going to require a set of market conditions that may not exist for quite some time. In the meantime, if enough venture capital investors think it’s a worthwhile gamble, let’s make sure government doesn’t get in their way. But putting taxpayer money on the line, that’s another story.
Stephen Slivinski is senior economist for the Goldwater Institute.
Learn More:
Washington Post: Before Solyndra, a long history of failed government energy projects
Marginal Revolution: What is the future of solar power?

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