Lobbying, Cronyism and Green Energy Guarantees

December 18, 2013

The federal government should immediately stop guaranteeing loans for green energy projects, say Julian Morris and Victor Nava of the Reason Foundation.

The Department of Energy's 1705 Loan Guarantee Program is a $16 billion program that is responsible for the Solyndra debacle and a number of other failed "green" enterprises. Credit rating agencies rated the majority of projects that were funded through this program as risky and "highly speculative," with 22 of the 26 projects rated as "junk" investments.

The Reason Foundation looked in detail at the program and found it riddled with crony capitalism:

  • Funds were allocated by the Department of Energy in accordance with applicants' lobbying expenditures.
  • Many recipients of loan guarantees had close ties to the individuals who were in charge of approving the guarantees.
  • Senator Harry Reid fought for these green energy loans in the Recovery Act. He received $58,000 in campaign contributions from executives of the companies running the three energy projects in his home state of Nevada that received funds through the program.

The main problem with government loan guarantees is that the loan officers lack incentives to make wise investments on behalf of the public. The government should cease pushing green energies altogether, but if it is determined to do so, there is a better way to promote the industry than through federally-guaranteed loans.

  • Awarding "prizes" for green technology could establish clear criteria -- including costs -- and would spur competition.
  • In 2009, the United Kingdom, Italy, Canada, Russia and Norway partnered with the Bill and Melinda Gates Foundation to promise $1.5 billion toward the purchase of vaccines to the first company that could develop a vaccine for a certain illness in poor countries.
  • The countries developed the prize system when traditional government subsidies for the development of the vaccine proved unsuccessful.

Source: Victor Nava and Julian Morris, "Lobbying, Cronyism and Section 1705 Loan Guarantees," Reason Foundation, December 3, 2013.

 

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