Inside Dirt On Clean Energy Schemes: They Don’t Work

If Julie Gillard isn’t paying attention to what’s happening in Washington DC right now, she should be. The first major scandal of the Obama administration looks similar to one of the centrepieces of her carbon price package.

Solyndra was the jewel in the crown of Barack Obama’s green energy program. This California-based solar cell manufacturer received a $US535 million loan guarantee from the US government in 2009. Part of the administration’s stimulus package, the guarantee was supposed to help spark the green revolution.

When Obama visited the company in May 2010, he announced Solyndra would demonstrate that ”the promise of clean energy isn’t just an article of faith” and would lead the way ”towards a brighter and more prosperous future”.

It wasn’t just the federal government: Solyndra was the biggest beneficiary of California governor Arnold Schwarzenegger’s energy subsidies. It was one of the most well-funded start-ups in history.

But last month Solyndra declared it was bankrupt. A year and a half after Obama waxed lyrical about the oodles of green jobs the company would create, 1100 people are out of work. There’s a criminal investigation under way. Executives have been put in front of a congressional hearing, where they have refused to answer questions for fear of self-incrimination.

Solyndra is Obama’s Enron. Not only a political mess (one of the company’s private investors is a major Democrat donor), but it’s a huge policy mess, too.

So why should Gillard care? Because the program that financed Solyndra does much the same thing as her proposed Clean Energy Finance Corporation.

The corporation is part of the deal to get Greens support for the carbon package. It will have a piggy bank of $10 billion to invest in ”clean energy proposals and technologies”.

Solyndra burnt through half a billion dollars of taxpayer money in two years. The reason for its failure is obvious: if the market thought Solyndra was good value, then the company wouldn’t have needed the federal loan guarantee in the first place.

Companies collapse all the time. But who could think a company that can only attract investment if the government promises to bail it out is the portent of a bright, green future?

The phrase ”picking winners” is deeply misleading. Governments generally subsidise firms that the market has already decided are losers. Sure, it’s possible to imagine a committee of career bureaucrats might stumble onto a great opportunity that investors have missed. But you wouldn’t want to put money on it. Well, perhaps somebody else’s money.

Like Obama in 2010, Gillard in 2011 is stamping her approval on a few trendy, subsidised companies.

The government’s Clean Energy Future advertising blitz is stuffed full of fawning interviews with wind and solar energy companies. It boasts about the new jobs they’ll create. But these jobs rely on government grants, or the carbon price, or mandatory renewable energy targets. They wouldn’t survive on their own. The market has already bet against them. Soon there will be $10 billion more to fund dozens of antipodean Solyndras.

And that money puts the lie to the claim that Gillard’s climate package is a ”market-based” solution to global warming. Not even the government believes so. Otherwise it would have eliminated the masses of climate programs that already exist. (According to the Commonwealth Auditor-General, there are 550 across the country.) Instead, they’d leave the tax to do the work of directing investment. They definitely wouldn’t be offering up even more subsidies.

Tony Abbott should study Solyndra, too. Conservative parties aren’t shy about spending money on energy boondoggles. Even as they happily dance on Solyndra’s grave, Republicans support loan guarantees for nuclear power plants.

And the Coalition’s direct action plan will do its fair share of winner picking. In fact, that’s its whole point. Their Emissions Reduction Fund will spend $1 billion per year on projects that an Abbott government reckons might reduce emissions.

When Obama announced his green stimulus plan in 2008, a coalition including the ACTU, the Australian Conservation Foundation, the Property Council and the Climate Institute urged the government to ape the American program. Renewable energy outfits are fashionable, after all.

But doling out other people’s money to businesses that only bureaucrats think are exciting is begging for trouble. Most people thought governments had gotten over this sort of speculative activity. Clearly that’s not the case. But the collapse of Solyndra should remind us why governments gave up, for a short while, trying to pick winners.