I trek across Iowa at least three or four times per year, and one sight has come to define the state for me: miles upon miles of (largely government-incentivized) wind turbines. Iowa’s wind power accounts for 20% of the state’s total energy output, putting them in third place behind Texas and California in capitalizing on what some see as the wave of the future: renewable energy.
The federal government (and the Obama administration in particular) certainly seem more than willing to encourage these “green energy” projects. More than $12 billion in subsidies will be spent on green energy in 2013, almost three-quarters of the total amount set aside for energy projects. That number doesn’t encompass billions of dollars in loans given out to corporations across the industry – all told, the Department of Energy estimates it has spent $34.5 billion on various loan programs. All that funding has produced just 60,000 jobs. For those of you keeping score at home, the federal government essentially spent $522,727 for each of those new jobs. In theory, most of that money will be repaid, but given that several of the biggest loan recipients have already gone bankrupt (we’re looking at you, Solyndra), the federal government probably shouldn’t hold its breath on that one.
Still, as long as energy progress is made, it’ll be money well-spent, right? After all, we’re saving the planet. Unfortunately, as a recent study shows, green energy may not be all it’s cracked up to be. Solar power costs two to three times more per kilowatt hour than electricity generated by coal and natural gas. Wind energy technology in particular suffers from a continuity problem – the wind doesn’t blow all the time, necessitating backup by fossil-fuel generators. Turning those generators on and off can eat up massive amounts of energy, canceling many of the benefits of wind power. Electric cars suffer from market inefficiency as well – their high prices and limited driving range (the Chevy Volt can travel gas-free for just 38 miles) mean that a large number of customers just aren’t interested.
Government subsidies aren’t keeping these industries alive – they’re slowly killing them instead. By distorting market forces and offering false incentives for a not-so-good product, these subsidies encourage inefficiency and render companies less-able to support themselves when the well runs dry. Wind energy subsidies, in particular, have resulted in developers “seiz[ing] this limited opportunity to build out the less energetic sites.” Instead of focusing their resources on developing wind power in places where it might be more profitable (but more difficult) to do so, wind companies have taken the money and run, building in less-expensive places with less potential for production. Now, though, those companies are dependent on the government dollars to survive, because the sites do not produce enough to be profitable on their own. Other subsidies, especially those for electric car companies, have gone to corporations with a less-profitable business model, squeezing out organizations that may have produced a more-workable product for a lower cost. Several of these competitors have filed complaints against the Obama administration on these grounds.
As is usual when the government meddles in the market, the party hurt most by this cronyism is the consumer, who receives a mediocre product at a higher price. Seeing the mediocre results of the product, the consumer may be less likely to support the industry in the future – rendering the industry itself less viable in upcoming years than if it had simply been allowed to develop on its own. Let’s get Big Government out of green energy – before it kills the market entirely.