The controversy over the failed solar company Solyndra which received $535 million in federal aid before it went bankrupt earlier this year has reignited the debate on how much, if at all, Washington should be subsidizing clean-energy research and development. Critics of federal clean-energy aid were given new ammunition this past weekend, as a pair of articles in the New York Times and the Washington Post made the case that much of the public's money was essentially being wasted.
The Times story, by Eric Lipton and Clifford Krauss, examined the "gold rush of subsidies" now available to developers of large-scale clean-energy projects, thanks in part to stimulus spending by the Obama Administration. The article revolved around the California Valley Solar Ranch, a 250-megawatt utility project being built by NRG Energy on more than 4,000 acres of dry, sun-drenched land in San Luis Obispo County, northwest of Los Angeles. The ranch's 1 million solar panels will provide enough power for 100,000 homes, but at the cost of $1.6 billion nearly all of which, according to the Times, will be paid for by government subsidies.
The Post piece, by Steven Mufson, noted that from 1961 to 2008 the federal government spent $172 billion on basic research and development of advanced energy and suggested that we hadn't gotten anywhere near our money's worth. Experimental nuclear plants, synthetic fuels, hydrogen-powered cars on the long list of government bets on new energy technology, Mufson found few clean winners. As former Obama economic adviser and Clinton-era Treasury Secretary Larry Summers put it in an e-mail to other White House staff about possible loans for Solyndra, the federal government seems to be "a crappy VC."
All this, plus the lingering fallout from Solyndra a poster child for the Obama Administration's green-investment plans before its spectacular failure in September would seem to put the final nails in the coffin for government green investment.
Or does it? First, it's important to note that subsidies for clean energy still lag far behind the public money that goes toward oil, coal and natural gas projects. According to the International Energy Agency, fossil fuels received $409 billion in subsidies globally in 2010, compared with $66 billion for renewable power. Of course, fossil fuels supply far more energy than renewable sources about 80% of global energy consumption and thus give a better return on investment, on a megawatt-by-megawatt basis. But coal and oil have been around for over a century, making them the very definition of mature industries and therefore, one would think, less in need of sustained government assistance.
Furthermore, the price tag on green-energy subsidies may be overstated. NRG Energy pushed back on the Times story, arguing that much of the government money it was receiving for the California project was in the form of loans that would need to be repaid not as part of a simple Washington giveaway. And as Michael Levi of the Council on Foreign Relations noted, that $172 billion of government spending on clean-energy research cited in the Post is just pennies compared with the $30 trillion spent on primary fuels and electricity infrastructure from 1970 to 2009. (Actually less than pennies: 0.5%.) "It's not hard to imagine ways that government spending could have paid off at least this much, whether through technologies that made cars more efficient, natural gas extraction more feasible or nuclear power safer," he writes. "Government would need to be spectacularly ineffective to not have generated a positive return on its investment."
Indeed, as the staff of the energy-policy think tank Breakthrough Institute point out, it's easy to see the benefits of government spending on advanced energy even on projects deemed to be total failures. President Jimmy Carter launched the synthetic-fuels campaign in the 1970s as an effort to wean the U.S. from foreign oil; the government would spend billions figuring out how to create liquid fuel from coal, only to watch synfuels fail after the price of oil collapsed in the 1980s. The effort became a byword for government fallacy on energy, yet the research helped lead to coal gasification and carbon-capture and -storage technology that's being used today.
Finally, it's not as if the private sector necessarily has a better track record than the government when it comes to energy investments. Silicon Valley venture capitalists like to boast about their willingness to fail multiple times on the way to their one big success, and while VC funds don't have to make their investment records as public as, say, the Department of Energy's budget, a little trip to the Web 1.0 graveyard hi, Pets.com! would show more than a few colossal mistakes. If it's accepted that private sector investors need to fail in order to succeed especially with something as huge and complex as energy why shouldn't the government be able to take the same risks? Look at defense spending, in which the government has thrown billions at turkeys like the V-22 Osprey its costly, crash-prone tilt-rotor aircraft without much pressure to cut back on the military budget.
Of course, that argument doesn't hold much water with conservatives, who believe that the government has a role in ensuring national defense and should freely spend lots and lots of money to do so but not necessarily in promoting clean energy. "I do not think it is the federal government's business to be picking winners and losers in frankly any of our energy sources," GOP presidential candidate Rick Perry said at a recent campaign stop.
That's easy to say, though in practice even Republican politicians tend to favor government spending on energy when the fruits are flowing to their constituents. But let's have some real talk: if we want to avoid extremely dangerous climate change and if we want to finally kick our dependency on foreign oil and reduce pollution at home we need to make pretty major changes to our energy system. And I mean changes in the trillions-of-dollars range.
That simply will not happen without significant public investment, anymore than the U.S. could have won World War II by relying only on investments from the private sector. As we develop our renewable-energy infrastructure, there will be mistakes like Solyndra along the way probably lots more and there will be politically motivated waste as well, just as in every other form of public and private spending. We have to do it anyway. Anything else will leave us with a status-quo energy system and we know the status quo is a recipe for an environmental, political and economic disaster.