A call for an end to the Department of Energy’s Loan Guarantee Program

by James Wilson, Policy Research Director, DownsizeDC.org

One place to start cutting [spending] is corporate welfare, such as the loan guarantee programs of the Department of Energy.

Regrettably, they have been preserved in the Continuing Resolution that extends funding of the federal government to November 19. Please eliminate these programs by then.

Whether the loan guarantee is for nuclear power plants or “green” companies, such programs are fundamentally unfair…

* They help finance companies that couldn’t find enough private investors, which is just another form of protectionism
* If the company succeeds, the company enjoys the profits
* If it fails, we taxpayers eat the losses

Moreover, such programs court corruption. The Solyndra Congressional and FBI investigations underscore this. The people wonder…

* Were the loan guarantees influenced by lobbying and campaign contributions?
* Didn’t the scheme’s pitchmen have every incentive to paint a rosy scenario?
* Were there undisclosed pitfalls (a.k.a., fraud)?

But the biggest problem with this kind of corporate welfare is that bureaucrats have neither the knowledge to choose the “right” beneficiaries, nor are they held accountable when things go wrong. As the New York Times (http://nyti.ms/qJHvWf) reports…

* Unlike rival solar energy companies, Solyndra’s didn’t use silicon in their modules
* When the loan guarantee was issued, silicon prices were high, giving Solyndra a market advantage
* But when silicon prices fell sharply, Solyndra was at such a disadvantage, it had to sell below cost and eventually declare bankruptcy

Was this just bad luck? No. Industry experts were EXPECTING silicon prices to fall. Administration officials, however, seemed unaware.

That’s the difference between the State and the Voluntary Sector: Industry experts are PAID to know what’s going on in the industry. Being wrong can get them fired. Likewise, investors have money on the line when they invest in a company. Federal officials, however, aren’t putting their own money on the line; they’re putting taxpayer money on the line. When things go wrong, they are rarely fired.

Solyndra is only one example…

* According to Bloomberg, Solar Millennium AG of Germany got $2.1 billion in U.S. loan guarantees to build power plants that used sunlight and mirrors to create thermal energy. In August, Solar Millennium walked away from those guarantees, in favor of cheaper photovoltaic power. (http://bloom.bg/ojM5JO)* David Krikorian reports that an Ohio company named USEC wants a $2 billion loan guarantee to produce and sell enriched uranium to nuclear power plants. Its request has several political cheerleaders, even though USEC’s competitors have lower costs, and USEC is losing both money and private partners  (http://bit.ly/qQMbj9)

Demand is high for low-cost, clean energy. A free market will provide more of it as technologies develop. The government should play no role. Favoring one company over another, one energy source over another, or one technology over another is a bad idea, morally and practically.

Abolish corporate welfare. Get rid of subsidies, loans, and loan guarantees. Instead, abolish the tax and regulatory hurdles that make energy development less competitive and more expensive than it needs to be.

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