4 Lessons the Government Didn’t Learn After Solyndra Scandal

COMMENTARY Energy Economics

4 Lessons the Government Didn’t Learn After Solyndra Scandal

Mar 9th, 2016 3 min read
COMMENTARY BY
Katie Tubb

Research Fellow, Center for Energy, Climate, and Environment

Katie Tubb is a research fellow for energy and environmental issues at The Heritage Foundation.

The lessons of Solyndra have clearly not been learned. The Department of Energy’s loan programs have been fraught with failures and corporate welfare, which have cost taxpayers millions.

The need for oversight of the programs became particularly apparent last August, when the Department of Energy’s inspector general released a long awaited report on the infamous Solyndra loan guarantee just days after President Barack Obama promised $1 billion in loans under the same program.

The problem is not just in the apparent abuse of taxpayer dollars, but more broadly that the government has continued to play venture capitalist and prop up failing companies.

Heritage Foundation’s Nick Loris explained many of the problems with these programs at a recent House Energy and Oversight Subcommittees hearing on the Department of Energy’s loan programs.

Here are four problematic themes Loris identified in every Department of Energy project:

1. Backs Obvious Failures

There are obvious failures that could not survive even with generous Department of Energy support. This was clearly the case in the inspector general’s report on the Solyndra failure and Department of Energy’s lack of due diligence that cost taxpayers $535 million.

2. Leads to Unnecessary Taxpayer Risk or Corporate Welfare

Whether a company ultimately succeeds or fails says nothing about the success of the loan program. The Department of Energy puts taxpayers at undue risk when a loan recipient fails. It engages in corporate welfare when it subsidizes a company that clearly would have succeeded anyway and in some cases is backed by large financiers like Google, Exelon, and Goldman Sachs.

3. Diverts Private Capital

When subsidies enter the financing equation, limited venture capital is diverted to projects with higher political rates of return than economic ones. For example, more than $1 billion of private investments were made in failed loan recipient Fisker, but most of this funding came only after the Department of Energy’s loan guarantee.

This private capital was no longer available for other projects that did not receive the Department of Energy’s stamp of approval but might have been more promising.

4. Encourages Business Models That Rely on Government Handouts

Many of the loan recipients received multiple federal and state subsidies. In fact, the Department of Energy’s loan programs and other subsidies are counterproductive, as they encourage companies and industries to build business models on taxpayer handouts rather than promising ideas.

Rep. Randy Weber, R-Texas, brought to light to the Department of Energy’s tendency to talk out of both sides of its mouth when he asked:

Is the purpose of the loan program to provide financing to technologically advanced, risky projects that could otherwise not receive financing, or is the purpose of the loan program to provide financing for safe projects which have what’s been labeled as having zero risk of defaulting? How can that be? Is that not a contradiction?

It cannot be both ways: Either the program puts taxpayers at undue risk, or it is entirely unnecessary.

The very nature of a government loan program picks winners and losers simply because a federal loan implicitly communicates that the full faith and credit of the government is behind a project (and, alternatively, that it is not behind others).

Choosing which projects to invest in and which mix of technologies to fund (coal, renewable, nuclear, energy efficiency) is inherently a political process in today’s world, where an “all of the above” energy policy means different things to different politicians.

As I’ve has argued before:

By playing investment banker, the federal government is quite literally redistributing capital based on political prestige instead of commercial viability in hopes of helping politically favored companies succeed.

Congress is wise to exercise its constitutional authority to vigilantly oversee the Department of Energy and other agencies. It should move to completely protect taxpayers and set the stage for energy innovation by removing the Department of Energy’s loan program altogether.

This piece originally appeared in The Daily Signal