Regulatory Reform

Lessons Learned from Solyndra

President Obama’s persistent defense of his administration’s clean energy loan guarantee “investments” serves as an ironic underscore of his chief misconception about a free-market economy. Speaking during the State of the Union address last month, Obama admitted that “some technologies don’t pan out; some companies fail.”

It was the appropriate response from the man who sees himself as the CEO of the American energy economy, yet it was his next sentence that was patently unlike the words of an actual private sector CEO: “But I will not walk away from the promise of clean energy.”

In other words, no matter how unprofitable in the present, American taxpayers are going to spend money on clean energy now, because unless compelled to do so, American private companies might miss out on an opportunity for future profits.

This economic myth enables the government-knows-best justification for Obama’s pursuit of the green energy transformation of our energy supply, but he misses two significant flaws in his vision. That some investments in new technologies don’t pan out is precisely why these sorts of investments should be left for the private sector, where the incentives are aligned to promote calculated risk, not unconstrained waste of taxpayer dollars. Perhaps even more obvious, America’s private companies will be ready to invest in clean energy when it is profitable, and they will not require compulsion to accept real profits if there is real promise in renewable energy.

President Obama’s most notorious clean energy failure, the bankruptcy of Solyndra, is a transparent illustration of these principles, and a textbook example of the inevitability of cronyism when an economy is planned based on politics. In order to capitalize on the event as a limited government teaching tool, Americans for Prosperity have been running the following advertisement. It’s worth a look:

From ALEC’s perspective, it is notable that these politically-motivated failures are not limited to the federal level, and the free market principles that warn against excessive government involvement in the energy sector hold true at the state level, as well.

Regrettably, state governments across the country are busy with tax incentives and mandates promoting renewable energy. Legislators in Virginia, West Virginia, Kentucky and Vermont hope to add their states to the already 29 others that have enacted renewable portfolio standards.

North Carolina is governed by its own self-proclaimed energy CEO in Governor Bev Purdue, who recently attempted to strong-arm Duke Energy into purchasing electricity from a proposed federally subsidized wind power project in the eastern part of the state. Duke resisted, and a spokeswoman explained to the Raleigh News & Observer that while the company was interested in purchasing clean energy, it will do so when it makes financial sense and does not require increasing rates unreasonably on consumers.

One ALEC member, Ohio Senator Kris Jordan, has introduced legislation this session to restore a free market electricity sector by repealing his state’s renewable portfolio standard. An American Tradition Institute study last year found that Ohio’s RPS is a significant drag on economic recovery by forcing utilities to use costly, inefficient resources. The study quotes Governor John Kasich declaring his support for repeal, if the policy was found to produce negative economic consequences.

As the ALEC Energy Principles state: “Energy policies should not limit the production of electricity to only politically preferable technologies. Technological advancements will occur, but we cannot predict them ahead of time.” ALEC is committed to opposing policies that merely waste money while unnecessarily involving government in decisions better left to private businesses.


In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and…

+ Regulatory Reform In Depth