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Loan Guarantee Failures Only Small Part of the Energy Picture
The bankruptcy of Solyndra, followed by the failures of Amonix, Ener1, Evergreen, Beacon Power, Range Fuels, and possibly others, has led some to declare that the federal government’s loan guarantee program for energy investments is a failure. It is often pointed out that these failures will cost hundreds of millions, possibly even billions, of taxpayer dollars.
Taxpayers have a right to be angry about this, but the discussion about this handful of failing companies distracts from the bigger picture. If losing a billion dollars from bankrupt companies upsets people, then the fact that the federal government subsidized the energy market to the tune of $37 billion in 2010 alone should make people irate. These subsidies range from direct cash grants to loan guarantees, research and development, tax code manipulation and other interventions, going to all different areas of the energy sector.
This intervention into the energy market is nothing new. The government has subsidized oil and gas for most of the 20th century, nuclear since the late 1940s, biofuels and solar power since the 1970s, and other renewable energy sources since then. The intervention has been more than just subsidies. In the 1970s government implemented price controls on gasoline leading to long lines at the pumps and major shortages. Even now, government mandates that the nation use a certain amount of biofuels, which diverts huge amounts of corn into making fuel, increasing the price of food.
While energy subsidies have existed for nearly a century, recently they have rapidly increased. According to the U.S. Energy Information Administration(EIA):
The value of direct federal financial interventions and subsidies in energy markets doubled between 2007 and 2010, growing from $17.9 billion to $37.2 billion.
Much of the increase is due to increasing support for renewable energy. Supporters of government investment in renewable energy cite fears about energy dependence or the exhaustion of global fossil fuel reserves. Some critics single out the subsidies for renewable energy programs because they say that the technology is too expensive or unreliable and that we should focus on proven resources like oil, gas, and nuclear.
This debate over what type of energy to invest in misses the point: the government shouldn’t be involved in subsidizing energy at all. The complicated web of government investments in energy distorts and confuses the market by altering the price of one type of energy relative to others. This distortion is often at cross purposes to the stated goals of energy subsidization. For example, subsidization of oil lowers the price of gasoline, reducing the potential profits of alternative energy provision and discouraging companies from investing in new technologies. Instead of allowing the market to decide what mix of energy sources is best for society, the government has instead insisted that it should intervene into the energy market and make those decisions. The more money they spend, the more they distort the market, and the less it looks like what a free-market in energy would be.
It isn’t just the federal government that has manipulated the energy markets. Nearly 30 states have renewable portfolio standards (RPS) in place now. These standards force electricity providers to derive a certain percentage of their electricity from renewable energy sources by a certain deadline, imposing costs on consumers and getting questionable benefits. There is now discussion of having a similar mandate on the federal level. This would only further undermine our economic freedom to use our own resources as we see fit without government interference.
Letting the voluntary interaction of individuals decide our energy supply works best for everyone except the recipients of the subsidies. Some people may consider cost as the most important consideration, others may value environmental impact, still others reliability. If the government upholds economic freedom in the energy market it will end both the loan guarantees and the subsidies, and then will the needs of the consumers take precedence over the needs of special interests.