How the Government Failed in Energy Policy in 2011

Solyndra, Beacon Energy, and cellulosic biofuel prove that the government should stay out of the energy industry.

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Tom Pyle is the president of the Institute for Energy Research.

Last week I wrote about how 2011 wasn't a great year for energy consumers. Electricity prices continue to climb and gasoline prices stayed high. But 2011 was also ignominious because of government failures in energy policy.

The Solyndra Bankruptcy

One of the most spectacular energy failures of the year was the implosion of Solyndra, a maker of solar panels. The federal government provided Solyndra with a half of billion dollars in loans despite warnings from career Department of Energy staff that the company would run out of money by September 2011.

[Check out 2011: The Year in Cartoons.

Everyone knows what happened—despite the loan on favorable terms, and despite mandates in many states for utilities to sell electricity from solar power, Solyndra filed for bankruptcy on September 1, 2011.

Companies frequently fail, but what made the Solyndra bankruptcy remarkable was how much the Obama administration bet on the company. The loan was the administration's first loan under a program created by the stimulus package. The administration aggressively touted Solyndra as the future. President Obama toured Solyndra's plant made his pitch that Solyndra represented a path forward. But reality proved once again that the government is good at awarding political favors, not picking actual winners in the marketplace.

The Beacon Power Bankruptcy

Less than two months after Solyndra filed for bankruptcy,another recipient of federal funding, Massachusetts-based Beacon Power, also filed for bankruptcy. Beacon Power was a company that developed energy storage systems and had received $43 million as part of the Department of Energy's loan guarantee program. Beacon also received a further $29 million in direct funding from the federal government and the State of Pennsylvania. Heading up the House Energy and Commerce Committee investigation into the Department of Energy loan guarantee program, Rep. Cliff Stearns stated that Beacon Power's Bankruptcy "is a sharp reminder that the DOE [Department of Energy] has fallen well short of delivering the stimulus jobs that were promised, and now taxpayers find themselves millions of more dollars in the hole."

[See a collection of political cartoons on energy policy.]

Government Policy Failures are Bipartisan—Cellulosic Biofuel Continues to be Too Expensive for Prime Time

The Obama administration has received well-deserved derision for wasting taxpayer dollars on failing business such as Solyndra and Beacon Energy, but Republican energy mandates haven't worked out better. In 2007, at the behest of President Bush, Congress passed a renewable fuels mandate that requires 16 billion gallons of cellulosic biofuel to be mixed with gasoline by 2022. Regular ethanol is made from the sugary parts of plants, such as corn kernels or sugar cane, but cellulosic and other advanced biofuels are made from cellulose, such as the woody parts of the plants or even plant waste.

In 2007, President Bush and Congress not only a goal of 16 billion gallons of biofuel by 2022, but also intermediate goals such as producing 500 million gallons of cellulosic ethanol in 2012. But even though cellulosic producers have a guaranteed market, their product is still far too expensive and as a result, cellulosic producers are hardly producing any cellulosic ethanol at all. In fact, in 2010 not a drop of cellulosic ethanol was blended with gasoline.

[See the 10 priciest years in history for gas.]

In order to make the cellulosic mandate more manageable, the EPA has the authority to reduce the cellulosic mandate to more realistic levels. For 2012, EPA has set the mandate at 8.65 million gallons. Even though this is 1.7 percent of the amount President Bush and Congress selected as the goal just 4 years ago, 8 million gallons is almost certainly still too much. Stephen Brown, the vice president for government affairs for the refiner Tesoro Corp., recently told the Wall Street Journal that EPA's "cellulosic number is still conjecture-based fantasy."

Because not enough cellulosic ethanol will be produced, refiners will be forced to buy credits for about $1.20 a gallon. This translates to higher gasoline prices for Americans all because President Bush and Congress mandated the production of a product that just isn't commercial viable.

Hopefully 2012 Will be Better!

We should have learned all of these lessons before. Investing is hard enough for people who are risking their own money, but when the government gets involved and "invests" taxpayer dollars for political reasons instead of economic reasons, we shouldn't be surprised to see failures. This is a bipartisan problem and it requires a bipartisan solution. But the solution is simple—let the American people decide for themselves which sources of energy makes the most sense.

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