There Is No Equivalence Between Solyndra and Keystone XL

Governments picking winners and losers in the economy is a lousy idea.

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Members of Congress seem hell-bent on trying to establish moral equivalence between failed solar panel producer Solyndra and the Keystone  XL pipeline extension. But even by D.C. standards, this is ridiculous. The Solyndra fiasco was a glaring example of the government playing fast and loose with more than half a billion taxpayer dollars. It has become the poster child of why governments should not try to anoint technologies and is just the latest in a long string of green energy boondoggles embraced by the politically correct here and abroad. Alternatively, the proposed pipeline extension is a project capitalized by the private sector. It expands capacity for a proven and reliable energy source (oil) and the increased supply would create downward pressure on prices for consumers.

Hence any comparison between the two isn't apples to oranges; it is apples to, say, Toyotas. The American people understand the difference between the two approaches:  fully 78 percent of Americans believe the pipeline project would create "a significant amount of jobs."  They are also justifiably peeved about Solyndra. About 65 percent of independents favor the White House turning over all documents concerning Solyndra  and approximately 60 percent do not support taxpayer dollars going toward alternative energy darlings. President Obama also seems to recognize his vulnerability on this issue. Case in point: His campaign launched their first paid ad from a defensive posture concerning Solyndra. Not exactly a position of strength from an incumbent president.

[Check out the U.S. News energy blog.]

Let's review the facts: Solyndra failed to get approval for loan guarantees under the Bush administration. It was the first to get approval once President Obama was elected and actually was the first recipient of Department of Energy loan guarantees since the 1980s. The Obama administration pushed through approval for Solyndra in only two months, purposefully truncating both the legal and market analyses required by established protocols. E-mail traffic between the administration and Solyndra reveals obviously unhealthy political drivers of decision-making and timing. Not to mention that a fair number of those pushing the deal were Obama fundraisers. The market viability of the project was so flimsy that the company ended up canceling a proposed IPO, laying off more than 1,000 workers, and filing for bankruptcy. Even half a billion dollars of guaranteed loans couldn't keep this lead balloon in the air.

The Keystone XL project requires no taxpayer funding or risk. In fact, the $7 billion cost will be appropriately shouldered by private sector investment. The project will allow an increase in throughput of approximately 700,000-900,000 barrels per day of Canadian crude oil while lowering transportation costs by an estimated $500 million annually. While estimates of price effects vary, increased supply and lower transportation costs are a winning combination for those concerned about fuel prices. Tens of thousands of jobs will be created directly and we will reduce our reliance on hostile sources of energy. It has such strong potential economic benefits that the Chinese are gleeful at the possibility that they will get a shot at this project. Of course, if that outcome occurs it will have negative environmental consequences because China does not have the same strict regulatory regime that exists here and because the method of shipping is less reliable and safe.

[Read Pete Sepp: Why Do Obama, Dems Continue to Punish Job-Creating Energy Industry?]

House Speaker John Boehner noted recently that the tensions between Democrats and Republicans have virtually reached the point of no return because they no longer even share the same language. One might observe that, while Republicans clearly are more accurate in their understanding of economic principles, both parties tend to have selective amnesia on definitions of terms.

A perfect example is how the term "investment" has been completely misused by President Obama and members of both political parties to justify any expenditure of taxpayer dollars that they personally deem worthy. Economists call this type of government spending "industrial policy" and history is replete with examples of its profound failure. It fails because government has neither the requisite knowledge nor the incentives to correctly predict which products or services are worth scarce resources. They don't have the knowledge because it is dispersed throughout the world economy. They don't have the incentive to make the right call because they are not risking their own money. Whether it is solar energy, high speed rail, or natural gas subsidies, the policy approach is flawed and has serious negative consequences. As energy policy expert Chris Horner so aptly puts it,  "My general position on subsidies is if it works, they don't need them; and if it doesn't, they don't deserve them".

No amount of spinning can change the basic facts of the matter. Governments picking winners and losers in the economy is a lousy idea. And, as the recent debate over the STOCK Act has illustrated, those advocating such intervention have political agendas and are too often lining their own pockets at the expense of the taxpayer. Most egregiously, it tilts the playing field and substitutes the whims of politicians for the wisdom of the market.

  • See political cartoons on energy policy.
  • Read the U.S. News debate on fracking.
  • Read Mort Zuckerman on America's Energy Future