In commenting on an LA Times article on the unfolding Solyndra storing, comparing it with another “green energy” loan guarantee in which the project, unlike the Solyndra guarantee, has no great likelihood of going bankrupt, Tyler Cowen Alex Tabarrok makes a prudent remark:
In the Solyndra case just about everything went wrong, including bankruptcy and possible malfeasance. Caithness Energy and GE Energy Financial Services are unlikely to go bankrupt and malfeasance is not at issue. As a result, this loan guarantee and the hundreds of millions of dollars in other subsidies that made this project possible are unlikely to create an uproar. Nevertheless, the real scandal is not what happens when everything goes wrong but how these programs work when everything goes right.
What’s the problem? Taxpayer dollars (or, worse, borrowed money) are being used to finance a project which the Obama Administration thought was likely to be funded anyway and for which the greatest consequence of federal support will be to increase the return on equity, enriching its owners while not actually accomplishing a great deal otherwise.
Actually Alex Tabarrok, not Tyler.
Thanks. Will correct.
The interesting part to me was the value of the environmental benefit: “Carbon reductions would have to be valued at nearly $130 per ton CO2 for the climate benefits to equal the subsidies (more than 6 times the primary estimate used by the government in evaluating rules).”
I think those numbers reflect accepted analysis that a carbon tax of $15 per ton, increased predictibly 3-5% per year, would achieve desired policy reductions in CO2. Current Congressional proposals use this figure, or $20 per ton for a cap and trade program that would create similar results but protect desired constitituencies (poor people; public sewage plants; vulnerable industries) or otherwise improve public outcomes (at the cost of efficiency).
I’m not tied to the ROI analysis on these projects, when there are non-fiscal benefits being promoted, but there really were no environmental benefits from this project, which was in solar _production._ Money would better be spent on R&D to make solar more efficient.
Bill Black has a pretty good take on this.
http://neweconomicperspectives.blogspot.com/2011/09/solyndra-loans-as-liars-loans.html#more
” The administration did not stress that it was essential that the loan be approved only after it passed a rigorous underwriting process. The administration responded to the efforts of its professionals to protect the government from loss by abusing the regulators and pressuring them to approve the loans without completing the underwriting. The administration thought it was fine to make a liar’s loan to Solyndra.
The administration exposed the government to a gratuitous risk of loss of hundreds of millions of dollars in order to achieve an overarching priority – they wanted a presidential photo op. If that isn’t a scandal, if Nocera thinks it is merely business as usual, then our failure to hold Dick Fuld, President Obama, and a host of other elites to a higher standard of accountability is the scandal that will generate repeated scandal.”
Steve
Megan McArdle has a few good posts on this issue, including comments from an investor, codenamed circleglider in the post and in the comment section:
http://www.theatlantic.com/business/archive/2011/09/the-scale-of-solyndra/245787/
Also, notice that Bruce Krastings has identified what appears to be an additinal loan of $3 million to Solantra (at 0.89% interest) disbursed in mid-July, just six weeks before bankruptcy.
Not a lot of money, but the timeline of events keeps getting more crowded than I originally thought.
I think you know my views: shameful, fiduciarily indefensible and probably criminal.
This bit from my link echoed Drew:
“Green technology occupies a special niche here in Silicon Valley. Yes, some VCs invest in green deals. But most don’t. This is because these deals are not viewed as being able to stand on their own merits – for any of them to succeed, market distortions are required, typically in the form of government subsidies, tax credits, mandates, regulations or funding guarantees. This means that green deals are basically political deals – whether or not your deal works depends entirely upon what happens in Sacramento or Washington.”
The liberal bloggers I read tend to know that subsidies are not the best way to handle green tech. They and a handful of moderate Republicans would much rather have a simple carbon tax so that the market picks the alternative.
Unfortunately the choice is not between a carbon tax and subsidies, it’s between subsidies and head-in-the-sand-when-it-comes-to-externalities.
This general idea extends to most economic issues unfortunately.
“Unfortunately the choice is not between a carbon tax and subsidies, it’s between subsidies and head-in-the-sand-when-it-comes-to-externalities.”
I’m not sure that’s a correct look at tradeoffs either. It (I think) implies that there is a head in the sand view on global warming. I think that’s false. The data intergity and models have had a horrible 12 months. Best I can glean, even if AGW has any merit, its a minor fraction of what has been advertised. And as I’ve always quipped, as we become Polly Purebred, the Chinese etc are laughing all the way to manufacturing dominance………while their CO2 output dwarfs our reduction efforts. It a fools errand.
Now let’s look at something more concrete. Our economy is in the tank, for a variety of reasons. One of the key cost inputs to manufacturing competitiveness is energy costs. Further, we have what could be a vibrant energy producing, jobs producing, sector.
Our current stance? Make energy more expensive and retard our domestic efforts a/c some wombat theory. This is crazy. We might as well put a loaded revolver to our collective heads and pull the trigger.
If AGW has any merit, and I think there is essentially zero, but if it does, it is so much smaller than advertised, and so far in the future that it absolutely baffles me that we inflict real pain and suffering on US citizens today in the form of unemployment/underemployment just because of some starry eyed notions. At best its the triumph of Henny-Penny, at worst, a cynical Trojan Horse to restrict US economic potential.
@Drew – Global Warming is one. Climate Science is admittedly not great as a predictive science, but it doesn’t mean you throw out everything based on that. We still believe economists when they talk about taxes after all.
Anyway, there are some others – alternatives in the face of supply shocks, limiting the profits of hostile dictators for example.
Sam, the problem is that even assuming you get past the scientific questions about how global warming works, I don’t believe there is very reliable information from a public policy perspective on what an actual range of costs for the externalities are. Here is an informed criticism from the left on the models underlying a $21 per ton of carbon asssumption:
http://www.grist.org/article/2010-04-23-what-is-the-social-cost-of-carbon
This is not normal. Most environmental and safety regulations can look to _current_ incidence of bad effects and figure out how common they are and what the average resulting healthcare costs are. (We also have some disturbing analysis of the value of life, which I believe universally values the cost of life less than the cost of treating its various ailments and conditions) I don’t believe anybody is dying or ailing from carbon today.
I think global warming is more analagous to the Iraq War situation, unknown risks of unacceptable harms.
“Climate Science is admittedly not great as a predictive science, but it doesn’t mean you throw out everything based on that.”
I’m not sure what you mean by “throw out.” In any event, I’m old enough to remember when the cocksure “climate scientists” and all of their supporters in media warned of the coming ice age. Call me crazy, but I think a first step ought to be an explanation of how in a mere 40 years we all went from needing fur coats to needing Tommy Bahama shorts.
Lucy!!! You got some ‘splainin’ to do!!
Oh……….and global warming……..ice age…….global warming………ice age…….potato, potahto………..and the solution to each is the same: restrict economic development.
Imagine that.
I mean to discount the theory that there’s a causal relationship between warming and amount of CO2 based on inaccurate forecasting. Or simply that we can’t pump as much CO2 into the atmosphere as we want with no consequence.
Not necessarily. We could replace some much more harmful tax policies with a carbon consumption tax and reduce economic distortions. As a bonus we may even come up with clean energy alternatives. Also some Saudi Princes would end up having to indirectly pay part of the tax to reduce the dead weight loss so the entire burden is not on the U.S. taxpayer.
“I mean to discount the theory that there’s a causal relationship between warming and amount of CO2 based on inaccurate forecasting. Or simply that we can’t pump as much CO2 into the atmosphere as we want with no consequence.”
With all due respect, Sam. My thesis Prof, a Manhattan Project participant and who turned my 21 year old brain of mush into one who thinks scientifically is rolling in his grave. We take reliable data, compiled under rigorous, controlled and repeatable conditions, and test them against theories. And then you look for repeatable validation. It seems to me you are now simply advocating pure speculation, “because its possible.” When do we break out the Ouiji board?
“We could replace some much more harmful tax policies with a carbon consumption tax and reduce economic distortions.”
Really? That assumes a tax on carbon is warranted. Why? You have no proof of that. And therefore how is it not distorting?
“Also some Saudi Princes would end up having to indirectly pay part of the tax to reduce the dead weight loss so the entire burden is not on the U.S. taxpayer.”
I’ll see your Saudi Prince and raise you. You could put the bastard back in his place by using the resources you control here in N America………quit making him chuckle that he plays you like a puppet a/c some do-gooder theory……and force him to reduce the number of jets, his harem and his Bordeaux collection by half.
” In any event, I’m old enough to remember when the cocksure “climate scientists†and all of their supporters in media warned of the coming ice age. ”
That is a myth. Scientists did not claim that, rather it was a sensationalized couple of articles in the MSM. Links if you want.
Steve