Today, I participated in a telephone press conference on the Department of Energy Loan Programs Office and a proposed Clean Energy Deployment Administration. They are similar, in that they both are tasked with using taxpayer money to subsidize financing for “clean” energy sources. Each is intended to function like a green bank.

My colleagues on the call were: Ryan Alexander, President of Taxpayers for Common Sense; Henry Sokolski, Executive Director of the Nonproliferation Policy Education Center; Andrew Moylan, Vice President for Government Affairs at the National Taxpayers Union; and Jack Spencer, Research Fellow at the Heritage Foundation.

Here’s the attendant press release, with a link to audio from the press conference; here’s a coalition letter we (and others) signed to urge the Congress to shelve the proposed Clean Energy Deployment Administration, which is under consideration in the Senate Energy and Natural Resources Committee. Below are my introductory remarks.

I’m going to explain very briefly the false impetus behind the Clean Energy Deployment Administration, a.k.a. the green bank, and then I’m going to explain how the historical record suggests that a green bank is certain to fail.

Proponents argue that a green bank is warranted to close the so-called “commercialization gap.” According to this line of thinking, venture capitalists fund high risk/low cost projects, while institutional capital funds low risk/high cost projects. Alas, clean energy is high risk/high cost, so it is spurned by both venture capitalists and institutional capital.

Yesterday, I spent a couple hours searching electronic databases for economics journals, and I couldn’t find any information on the term “commercialization gap.” Indeed, it seems to be economic-theory-sounding jargon conjured by green energy venture capitalists in order to justify subsidies. A “high risk/high cost” investment like utility-scale clean energy doesn’t suffer from some “commercialization gap.” Rather, it is simply a “bad investment.”

Even if there were a “commercialization gap,” the markets are meeting it, by all accounts. According to Bloomberg New Energy Finance, global investment in green energy has grown 25 % annually over the last five years. In light of this explosive growth, I don’t see a “gap.”

*****

So I don’t think there’s a real impetus for this green bank. Yet I also maintain that this green bank is doomed to failure, were it to be created.

For starters, the government has been running a green bank—the Department of Energy’s Loan Programs Office—for years, and it’s done a pretty awful job, according to the federal watchdogs.

In a 2007 report, the Government Accountability Office questioned, “whether this program and its financial risks will be well managed.” A year later, another GAO report said that the “Department of Energy [DOE] is not well positioned to manage the Loan Guarantee Program effectively and maintain accountability.” In the summer of 2010, the GAO faulted the DOE for being too rash. In particular, it noted that the DOE had issued 50 % of conditional loan guarantees before full reviews were conducted. Last March, 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, 15 loan guarantees (out of 18 total) lacked “pivotal” information regarding risk ratings.

Political meddling is the fundamental reason that a green bank is doomed to fail. While it would be nice to think that this financial institution would be run by disinterested civil servants, the record suggests that political considerations are all too often a factor.

For example, ABC News and iWatch News have reported on the uncomfortable correlation between an applicant’s success in getting a loan guarantees and campaign contributions to President Barack Obama.

These sort of political handouts invite Congressional shakedowns. Last February during a Senate Energy and Natural Resource Committee hearing, Minnesota Sen. Al Franken basically told the director of the DOE’s Loan Program to give favorable treatment to a Minnesota based window manufacturer.

Most recently, there was the Chrysler buyback, which was facilitated by a direct loan from the DOE’s Advanced Technology Vehicle Manufacturer program, which is run out of the Loan Programs Office.

Needless to say, political considerations are conducive to bad investments.

In sum, we as a nation are deep in the red. If these loans are too risky for banks, then they should be too risky for American taxpayers.

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.

Yesterday on this site I explained why a “Do Nothing Congress on Ethanol Would Do a Lot of Good.” I also mentioned that today, a coalition of free market groups would be publishing an open letter advising Congress to let the clock run out on tax favoritism and trade protection for corn ethanol.

The groups issuing the joint letter are the Competitive Enterprise Institute (CEI), Freedom Action, the American Conservative Union, Freedom Works, National Center for Public Policy Research, and National Taxpayers Union.

CEI’s press release appears below. It includes commentary by yours truly on Obama Agriculture Secretary Tom Vilsack’s announcement of new biofuel initiatives at a press conference this morning, a link to the coalition letter, and a link to video excerpts of a speech in 2006 by then Gov. Tom Vilsack. The video illustrates the famous French adage, plus ca change, plus c’est la meme chose (loosely translated, ”The more things change, the more special-interest politics stays the same”).
 

CEI’s press release follows:

Contact:
Nicole Ciandella, 202.331.2773
 
Tax-Subsidized Ethanol Boondoggle Set to Expire
Coalition Urges Congress to End Tax Breaks Tariff Protection for Ethanol

 

Special tax credits and tariff protection for ethanol are set to expire at the year’s end. To counter the corn ethanol lobby, which urges Congress to reauthorize these special-interest giveaways plus enact new mandates and subsidies, a coalition of free-market groups advises Congress to “do nothing” and let the clock run out on the tax credit and tariff.

The domestic ethanol industry currently enjoys a 45¢ per gallon “Volumetric Ethanol Tax Credit” (VEETC), which costs taxpayers $5-6 billion annually, and a 54¢ per gallon protective tariff, which prevents lower-cost Brazilian ethanol from competing in U.S. markets.

“Congress has a rare opportunity to avoid $25-30 billion in new deficit spending, ease consumers’ pain at the pump, and scale back political manipulation of energy markets by literally doing nothing,” the coalition told Congress in a letter today.

The groups issuing the joint letter are the Competitive Enterprise Institute, Freedom Action, American Conservative Union, Freedom Works, National Taxpayers Union, and National Center for Public Policy Research.

The coalition released its letter today because Agriculture Secretary Tom Vilsack held a press conference this morning announcing new Obama Administration biofuel initiatives.

Vilsack said the VEETC should be extended on a “short-term, fiscally responsible” basis, but would not define what that means. Similarly, he said the tariff should “eventually” expire, but would not propose a timetable for phasing it out.

“In 2006, when Secy. Vilsack was Governor of Iowa, he said the exact same things – that the tariff and tax credit eventually had to end,” said Marlo Lewis, Senior Fellow at the Competitive Enterprise Institute. “Gov. Vilsack didn’t say then when the phase out should start – and Secy. Vilsack is still not saying.” A video excerpt of Gov. Vilsack’s 2006 remarks on ethanol is available on Youtube.

“For fiscal, humanitarian, and environmental reasons, the ethanol tariff and tax credit must go,” said Lewis.

Read the full coalition letter here.