Yesterday, I participated on a panel discussion about the Department of Energy’s Loan Guarantee Program for low carbon energy sources. I’ve long been a fierce opponent of the DOE’s green bank—see here, here, here, and here for my take.
In a nutshell, I argue that investment banking is well outside the core competency of Energy Department bureaucrats, so there is no reason to believe that they could start a successful green bank from scratch. Even if they could, political concerns would trump economic reasoning, such that loan authorizations would get funneled to the well-connected, instead of the deserving.
Regarding this last point, consider this recent report by the Center for Public Integrity and ABC News, on the remarkable correlation between the success of DOE Loan Guarantee applications and the amount of money that the applicant raised for Barack Obama’s campaign for the White House.
In addition to the panel, we also organized a coalition letter to the House Appropriations Committee, on the need to excise the DOE’s green bank from the budget. Signatories included CEI, Taxpayers for Common Sense, George Marshall Institute, National Taxpayers Union, and the Nonproliferation Policy Education Center. Click here for a copy of the letter.
As I describe elsewhere (here, here, and here), the Department of Energy’s green bank is one of the worst government programs, ever.
For starters, financing is well outside of the DOE’s core competency, so there’s no reason to expect that it could start a successful banking operation from scratch. There’s also the fact that government has a horrid record picking energy ventures in which to invest taxpayer money. As such, the odds of the green bank failing were high when it was created by the 2005 Energy Policy Act.
During the whole of the program’s existence, evidence has mounted confirming that the green bank is a bad idea. The Government Accountability Office, the top federal watchdog, has issued three separate reports raising serious doubts about the DOE’s management of the program. These suspicions were validated when the DOE first loan guarantee, for $535 million, went to a California solar power company, Solyndra, that now teeters on the brink of insolvency.
Unfortunately for taxpayers, it gets worse, because the results of a recent investigation suggest that the green bank lacks transparency. Last week, the DOE’s Office of the Inspector General published a report finding that the green bank program “could not always readily demonstrate, through systematically organized records, including contemporaneous notes, how it resolved or mitigated relevant risks prior to initiating loan guarantees.” According to the report (available here), 15 loan guarantees (out of 18 total) lacked “pivotal” information regarding risk ratings.
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I’ve been a vehement critic of the Department of Energy’s Loan Guarantee Program (see here and here). In a nutshell, I argue that the DOE has no business starting a bank from scratch. Even if it could cobble together the necessary expertise and infrastructure, the U.S. government has a long history of picking losers in the energy market (see: breeder reactors, synfuels).
My case against the DOE’s green bank has been made persuasively by the Government Accountability Office, the top federal watchdog. In 2007, 2008, and 2010, the GAO released reports concluding that the program is being not being run well.
My case was further made by the pending collapse of the first recipient of a loan guarantee. In September 2009, the DOE issued a $535 million loan guarantee to Solyndra, a company that you may recall from reports of it being a total financial disaster. It canceled an IPO after a PriceWaterhouse Cooper audit found that the company’s shaky finances “raise substantial doubt about its ability to continue as a going concern.” Evidently, Solyndra already has lost $557 million. In November, the company announced that it would shutter a plant and lay off 170 employees.
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My CEI colleague Chris Horner and I have a piece in today’s Daily Caller, on the Department of Energy’s awful green bank.
This excerpt aptly summarizes out take:
The point of a green investment bank is ostensibly to facilitate the commercialization of new, dormant or otherwise commercially unsuccessful technologies by providing easier financing than is available in the real world, where people scrutinize where they invest their money. It turns bureaucrats into bankers, but with your money, and no real-world incentives to “invest,” as the word connotes and denotes.
Critics argue that these bureaucrats are picking winners and losers. If only. In fact, they just pick from losers.
I especially like that last line, about how the green energy industry is a loser. As Chris and I have explained elsewhere, any industry, like green energy, that owes its creation to government handouts is fundamentally uncompetitive, and, therefore, will always be on the taxpayer dole.
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