Captains Of Subsidy: CEOs Plead For More Energy Cash From Washington

  • Date: 16/06/10

Now the trumpet summons us again—for a green industrial policy, according to the country’s best and brightest CEOs. Their report last week is an instructive case study in how, in the Age of Obama, the business class has managed to be both self-serving and naive.

Last Thursday, Bill Gates of Microsoft, Jeff Immelt of General Electric, John Doerr of the venture capital firm Kleiner Perkins Caufield & Byers and others nabbed headlines with a call to triple government funding for energy research to $16 billion a year from about $5 billion today. Their wish list includes a cap-and-tax program as well as a board—supposedly independent from politics—that will parcel out capital investment and lead “a coordinated effort between business and government.” By coincidence, this effort might also benefit the nonpolitical likes of GE and Kleiner Perkins, but let’s consider the merits anyway.

We’ve long supported federal funding for basic research, such as the contributions of the National Institutes of Health to drug development and biomedical progress. Defense Department programs like Darpa led to packet-switching and, ultimately, the Internet. Given that the social rate of return on such spillover innovations is often far higher than the private return, market incentives don’t always result in enough R&D.

Yet the CEO agenda here goes far beyond basic research to having government “fund, build and accelerate the commercialization of advanced energy technologies.” This is especially odd in a $5 trillion global market in which one form of energy is interchangeable for another: Unlike a breakthrough cancer drug, say, a kilowatt is a kilowatt. The vast market rewards for better, cheaper energy products ought to be incentive enough for businesses to turn new technology into something of commercial value.

Anyway, didn’t President Obama say the other day that “we are on the threshold of incredible advances”? And didn’t he then announce “the Advanced Energy Initiative—a 22% increase in clean-energy research—at the Department of Energy, to push for breakthroughs” in “zero-emission coal-fired plants, revolutionary solar and wind technologies, and clean, safe nuclear energy.”

Oh, sorry. That was President Bush, in his 2006 State of the Union. In the 2010 version, Mr. Obama said that “Last year, we made the largest investment in basic research funding in history—an investment that could lead to the world’s cheapest solar cells . . . No area is more ripe for such innovation than energy.”

Jimmy Carter liked solar cells too. In 1979, he unfurled a plan for “this nation’s first solar bank, which will help us achieve the crucial goal of 20% of our energy coming from solar power by the year 2000.” Despite the funding influx, the deadline has come and gone, and solar today accounts for less than 1% of U.S. net electric generation. One of its main uses is heating home swimming pools.

Also in 1979, Congress chartered another “coordinated” business-government effort called the Synthetic Fuels Corporation to rally new energy sources. The Synfuel brain trust famously funded the Great Plains Coal Gasification Plant in Beulah, North Dakota. This boondoggle will seem relatively less notorious when the “FutureGen” carbon capture and storage project in Mattoon, Illinois—funded and then killed by the Bush Administration, and then refloated last year by the Obama Administration—fails a fifth or sixth time.

The CEO report stipulates that the “program should tolerate failure, because it is not research if the outcomes are known in advance.” In fact, Washington has tolerated failure for the last three decades as Republicans and Democrats alike have throttled up subsidies every other year.

After the 2005 and 2007 energy bills and the 2009 stimulus that converted the Department of Energy into the largest venture capital firm in the world, and amid the R&D tax credit, the many purse-strings for windmills and plug-in cars, fuel-economy mileage rules, renewable portfolio standards for utilities in 30 states, no-interest loans and the rest of the five-year plans, what else do CEOs want?

Now that you mention it, they want “a suite of policy reforms that will stimulate market demand for these new inventions.” The old line was that a carbon price would drive such green innovation. The new logic is that we’ll never get these new inventions without one more “largest investment in basic research funding in history,” and that without cap and trade no one will buy them.

As it happens, some of these captains of industry have sunk billions of dollars into blue-sky energy investments that can’t succeed without the crutch of subsidies, mandates and carbon taxes. So now they’re asking Congress to make taxpayers pay twice—in higher energy costs under cap and tax, and to finance their investments via a $160 billion-plus program over 10 years at a time when the federal deficit as a share of GDP is already at Greek levels.

No wonder voters have come to distrust big business nearly as much as they do big government.

The Wall Street Journal, 16 June 2010

 

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