The week before Thanksgiving, Steven Chu, the diminutive Nobel Prize-winning nuclear physicist now serving as President Obama’s Secretary of Energy, was grilled for nearly five hours by House Republicans about the government’s loss from a $535-million loan guarantee to Solyndra Inc., a now bankrupt California company, which had manufactured thin-film solar panels. Summoning the faux shock and outrage one might muster upon learning that there is gambling in Las Vegas, the House Republicans repeatedly scolded Mr. Chu, interrupted him frequently, and even yelled at him. This public spectacle came after the Energy Department had transferred more than 186,000 pages of documents to the committee, and it was the ninth time that the Secretary or his subordinates had been questioned by the committee or its staff.
Imposing a tax on disfavored fuels does not create any favorites among cleaner alternatives or among particular technologies. When it comes to subsidies, however, our government plays favorites.
Secretary Chu no doubt infuriated his interrogators when he quietly mentioned that he had received nearly 500 letters from members of Congress urging the Energy Department to get its subsidy dollars out the door more quickly — at least for “worthy projects in their states.” As the questioning dragged on and on, Secretary Chu lamented that “these questions are going over and over and over.”
The Energy Secretary no doubt was wishing that he had stayed in his lab in Berkeley. David Biello, Scientific American’s energy editor, tweeted: “Stop it with the Solyndra nonsense. Just stop it.”
Everyone knew a half billion taxpayer dollars had gone down the drain. The congressmen were asking Secretary Chu whether the Solyndra transaction was based more on careful technical and financial analysis or the company’s political pull. Cliff Stearns, a Florida Republican, accused the Obama administration of putting “politics above stewardship of the taxpayers’ dollars.” After the hearing several committee members bragged to their constituents about the tough questions they had asked. The public, of course, was assumed to be naïve enough to believe that no congressmen ever put politics first.
My recent book, The End of Energy: The Unmaking of American’s Environment, Security and Independence, details how four decades of energy policy gone wrong in the United States is largely explained by representatives and senators elevating short-term political and parochial regional advantages over our nation’s well-being. Members of Congress frequently have insisted on their own priorities, directing funds to “individual projects, locations, or institutions”—“earmarking” projects.
Between 2003 and 2006, congressional earmarks in Department of Energy programs for energy efficiency, renewable fuels, and electricity production tripled from $46 million to $159 million, with earmarks accounting for about 20 percent of the total 2006 budget. By 2008, congressional earmarks totaled $180 million, with an additional $46 million directed to specifically identified energy projects, including particular biofuel plants and specific green buildings.
Earmarks that year took up one-half of the total R&D budget for biomass, one-third for wind, and more than one-quarter for hydrogen projects. The American Association for the Advancement of Science complained that “earmarks eat up whatever increases there are for most energy programs and cut deeply into core R&D programs.” Many members of Congress have obviously been more concerned with rewarding well-connected constituents and contributors than advancing science or technology.
The “black liquor” scandal is the most notorious recent instance of the pitfalls of congressional efforts to pick and subsidize winners. Black liquor is a fuel by-product from the chemical production of wood pulp used in manufacturing paper, and it has been used as fuel to power paper mills since the 1930s. In 2007 Congress expanded the definition of alternative fuels eligible for a 50 cents per gallon tax credit to include a wide range of petroleum fuels containing biomass products.
Paper companies soon discovered that by adding some diesel fuel to their black liquor they could become eligible for billions in tax credits. So, instead of reducing the amount of petroleum fuel by substituting a biomass product, they added diesel fuel to the biomass simply to obtain tax credits.
If black liquor is the most scandalous beneficiary of energy subsidies, ethanol has been the most wasteful. Cars were originally manufactured to run either on gasoline or ethyl alcohol. Henry Ford’s Model T, for example, could run either on gasoline or ethanol or a mixture of the two, but because corn (ethanol’s primary feedstock) was more costly than gasoline — and because of federal taxes on alcohol, which from 1861 to 1908 were $2.08 a gallon — gasoline became the favored fuel.
In 1978 Congress enacted a 40 cents-a-gallon subsidy for ethanol used in gasoline, and, unlike many other subsidies for renewable energy that were allowed to expire in the 1980s, the ethanol benefit has consistently been extended at a level between 40 and 60 cents a gallon.
So, due to large and ongoing subsidies, we have successfully substituted ethanol for a significant amount of gasoline.
Photo: Automated robotic vehicles transport the cylinders around a factory floor at Solyndra, Oct. 2008. Jon Synyder/Wired
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