The Slowly Sinking Clean Energy Policy

The Obama Administration’s clean energy program is reminiscent of the Titanic after it hit the iceberg.  It is taking on water, the crew has no idea of what to do, and the band plays on.

Germany and other EU clean energy advocates are facing up to the reality that they can’t right their economies while heavily subsidizing the so called clean energies that are not commercially viable and are an economic dead weight. In spite of this, President Obama continues to push his clean energy program as the key to our economic future, job creation, and energy independence. Over a 3 year period, spending on so called clean energy technologies more than doubled–$17.9 billion in FY-2007 to $37.2 in FY-2010.

The environmental community and rent-seeker continue to support his policy but unfortunately, the analytical community has jumped ship.

The Brookings Institution, never known as a bastion of conservative thought, recently produced a report, Clean Energy: Revisiting the Challenges of Industrial Policy, that represents another blow to the President’s vision. It takes a hard look at the major reasons proponents give for subsidizing their favored energy systems. The first involves the need to remediate market failures that have not been corrected by other policies. A second set of reasons is less about correcting inefficient market outcomes than about tilting the market toward U.S. interests. The report makes clear that this Administration has not learned the lessons of passed flawed industrial policy initiatives.

The history of industrial policy in energy is a sad one.  Since the 1970s, money has been wasted with only rent-seekers benefiting at the public’s expense.  The political pressures mentioned by Brookings have resulted in crony capitalism.  Whether it is worse now is a separate issue for study. What does not need to be studied is its corrosive effect and the obvious economic damage to a struggling economy.

Instead of picking winners like the Obama Administration has tried to do, according to Brookings, “federal R&D efforts (should) invest in technologies with the lowest expected cost of abatement and the highest probability of market penetration.” What the Administration has done instead is allocate over 43% of nearly $40 billion dollars to “two sectors with some of the highest abatement costs and lowest projected market shares: solar power and electric vehicles.”

The point is also made that “ the caprice of the marketplace frustrates energy planning. So does the fact that public decisions regarding which producers to favor are all but impossible to insulate from political pressures”. One of the Brookings conclusions is that “while a case can be made that subsidizing clean energy policy might help address market failures, the case may be narrower than some assert, and turning theory into sound practice is no simple feat.” There is an abundance of empirical evidence demonstrating that Brookings was being charitable.

Technology and energy economics are the main drivers for determining when a new technology is commercially viable. People like the President who don’t care for fossil energy keep underestimating how strongly they are embedded in our economy because of economics and utility. Fracking has resulted in an abundance of natural gas that will slowly replace coal for power generation and will have a role as a transportation fuel. The current alternatives to gasoline and diesel for transportation are too costly with the current technology and no breakthroughs are on the horizon. Our future is best used by making full use of what we have and making smart R&D investments as Brookings suggests.

This article appeared on the FuelFix weblog at http://fuelfix.com/blog/2012/06/25/the-slowly-sinking-clean-energy-policy/

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