Hostile Takeover: Resisting Centralized Government's Stranglehold on America (20 page)

In the end, Solyndra proved to be a scandal that epitomizes the absurdity of government efforts to supplant markets in resource allocation. Despite the Obama administration’s rhetoric and rosy scenarios, the plan ultimately led to layoffs and FBI investigations. Markets may make the same mistakes, with entrepreneurs backing the wrong horse, but the dollars at risk are private, and investors soon learn which investments are profitable and which are not. In cases like Solyndra, the dollars at risk are taxpayer dollars, and the venture is directed by a coterie of lobbyists and government officials in collusion to allocate government largesse.

SPUTNIK MOMENT

S
INCE
S
OLYNDRA COLLAPSED, OTHER BAD GOVERNMENT INVESTMENTS
have been revealed, and the crony capitalists behind taxpayer losses exposed. The latest failed government plan is Ener1, a producer of lithium-ion batteries for electric cars that went bankrupt on January 26, 2012. Just a year earlier, Vice President Joe Biden visited the production facility in Indiana, and was particularly bullish on the Obama administration’s ability to set a better course for the U.S. economy and a clear path to green job creation. He told attendees that the government was “not just creating new jobs, but sparking whole new industries that will ensure our competitiveness for decades to come—industries like electric vehicle manufacturing. . . . Ener1, Inc. was awarded a $118.5 million grant from the Department of Energy—part of a $2.4 billion Recovery Act investment nationwide—to expand its production of advanced batteries for hybrid and electric vehicles.” Biden predicted job creation “from 336 workers at its Indianapolis manufacturing and assembly facilities, to over a thousand by the start of 2013.”
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Vice President Biden was certain about the future of electric vehicle manufacturing. How could he have been so wrong? In early March 2012, GM announced that it would be halting production of the Chevrolet Volt
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despite receiving heavy state and federal subsidies for the vehicle, upwards of $3 billion.
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Despite an aggressive sales pitch by the Obama administration and
Government Motors
, consumers were not interested in buying the electric car. In 2011, the Volt barely reached 75 percent of its projected 10,000 sales and was on track to only meet 15 percent of its target sales in 2012.
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This, despite a big order from General Electric, which committed to purchase a total of 12,000 of the electric vehicles by 2015. “By electrifying our own fleet, we will accelerate the adoption curve, drive scale, and move electric vehicles from anticipation to action,” said GE CEO Jeff Immelt.
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The initial halt in production will result in the layoff of roughly 1,300 employees at one of GM’s Detroit area factories.
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The political penchant for choosing winners and losers, and getting it dead wrong, is hardly exclusive to one political party. Another example is Raser Technologies in Utah. Home-state Republican senator Orrin Hatch, a longtime supporter of Raser, had attempted to secure seven earmarks—worth over $20 million—for the company’s automotive wing.
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None of these earmarks went through, however, and the plant moved on to bigger and better things when it was approved for a $33 million Treasury grant in 2010 to build a geothermal plant.
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Hatch was present at the groundbreaking ceremony for the plant, which Raser later renamed after the senator.

The plant was approved despite being built on ground that was known to have less geothermal energy than would ordinarily be necessary to run steam turbines, and despite the fact that Raser was massively in debt before it ever broke ground on the plant. Raser received the loan via a “blind application process” that did not take the company’s finances into consideration, and Raser even used a portion of the grant money to pay its debts.
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Predictably, the geothermal plant failed and Raser went bankrupt, but not before wasting millions in taxpayers’ money.

BAPTISTS AND BOOTLEGGERS

C
ONTRARY TO THE SILLY PREDICTIONS OF
J
IMMY
C
ARTER, DOMESTIC
exploration could provide significant amounts of new oil and natural gas. In fact, proven reserves of domestic natural gas and oil have increased significantly.
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New technologies and new discoveries in Pennsylvania, Texas, Oklahoma, and elsewhere have provided the potential for the United States to become a much larger player in global energy markets, with access to reliable and affordable energy here at home. In fact, one study found our federal lands alone, hold enough energy to fuel 65 million cars for 60 years and heat 60 million households for 160 years.
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Yet we have been a net importer of energy since the 1950s and in January 2012 imported on average 11,050,000 barrels a day.
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Access to energy requires a large and vibrant global market, as well as the ability to utilize domestic energy resources. Yet regulations continue to restrict domestic exploration and the Obama EPA has unleashed an outbreak of new regulations—from greenhouse gas rules to new rules on cross-state pollution—that will cost consumers billions in higher energy costs while impeding efforts to access domestic energy resources.

Indeed, the decline of domestic production tracks well with the rise of radical environmentalism. The first Earth Day in 1970 marks the beginning of a steady decline in domestic production. Today, domestic production is at levels similar to those of 1950, despite the fact that population has increased by 104 percent, the economy has expanded by 553 percent, and the Department of Energy has been around for over 30 years.
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,
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Some of this shift is due to cheaper offshore alternatives; however, the domestic regulatory environment has made it almost impossible to access our nation’s abundant energy resources.

The energy sector is plagued by an array of subsidies, taxes, spending programs, government-created monopolies, trade barriers, and mandates. Federal mandates have shuttered smaller refineries and made many areas of the country more vulnerable to price shocks following rapid shifts in supply or demand. Mandates that require specific fuels, such as the heavily lobbied ethanol program, are extremely destructive, with impacts felt not only in the energy sector but also in agriculture as cropland is shifted from the production of food to energy.

In fact, regulatory barriers inhibit the expansion of energy markets, from hydroelectric power to nuclear power. Even clean renewable energies such as wind face challenges from environmentalists. And as exploration takes natural gas companies beyond producer-friendly states such as Texas, energy companies are running into challenges from environmental groups and state and local governments that delay or actually deter energy production. Producers in Colorado, in particular, have faced significant political opposition to expanded oil shale exploration, and the Marcellus Shale formation in Pennsylvania faces both environmental and political opposition.

Duke Energy is a power company headquartered in Charlotte, North Carolina. In a move that has virtually nothing to do with providing consumers with affordable and reliable power, Duke Energy’s CEO, Jim Rogers, guaranteed a $10 million line of credit to the DNC for hosting the Democratic National Convention in Charlotte in 2012.
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Clearly, Duke’s largesse has more to do with securing an advantageous position with the power brokers in Washington than it does with serving consumers.

This is nothing new for companies like Duke, which are creatures of regulation and thrive on government policy. In fact, Duke Energy is a member of the U.S. Climate Action Partnership, a business group dedicated to promoting costly cap-and-trade programs that would impose significant new economic burdens on businesses and consumers.
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As Holman Jenkins noted about Rogers in the
Wall Street Journal
, “No executive has lobbied as noisily or consistently for a national price on carbon output.”
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Duke Energy also accepted $204 million in stimulus funds for “smart grid” projects.
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While support for cap-and-trade may appear to some as a noble effort, it is perhaps a better example of a rent-seeking phenomenon economist Bruce Yandle referred to as “Baptists and Bootleggers.” Both groups supported Prohibition, but for clearly different reasons. The bootleggers were simply using the Baptists’ opposition to alcohol to protect a government-created black market. Given Duke’s particular portfolio of fuel sources, it would benefit relative to its competitors from cap-and-trade regulation.

Rogers gambled a lot of money on cap-and-trade passing, building a huge coal gasification plant in Indiana, which he presumably expected would give Duke Energy a huge break under a carbon tax system. But only the regulatory apparatus made such a venture possible: “Without regulators around to guarantee a return on such a risky and pioneering investment, Duke likely would have sat on its hands and let rising electricity prices take care of any gap between demand and supply while waiting for the country to make up its mind about global warming.”
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Another article noted that “Duke embarked on this venture only after securing a government subsidy of $460 million.”
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Duke was open about its lobbying for cap-and-trade, and tried to play it off as an attempt to create a better version of the bill that would cost its customers less.
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In fact, Eileen Claussen, a former climate change czar and now head of the leftist Pew Center on Global Climate Change, noted, “It’s fair to say that we wouldn’t be where we are in Congress if it weren’t for [Rogers]. He helped put carbon legislation on the map.”
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The lobbying paid off, as the cap-and-trade bill passed by the House “gave Duke most of the credits it will need for 15 to 20 years for free.”
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Fortunately, the bill never made it through the Senate. While this was a victory for consumers, Duke’s shareholders are not quite as fortunate. “Not only did Rogers’ legislative gambit fail to become law, but he wasted years and significant shareholder money chasing legislative windmills,” says Tom Borelli, a free-market shareholder activist.
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Duke Energy is clearly in the camp of businesses that curry favor and seek profits through government favoritism. Again, it doesn’t really matter who’s running the government; what matters is that government is dictating the terms of exchange. As Borelli notes, “Cap-and-trade is an example of the coordinated effort of big business and big government pursuing their agendas. Obama establishes a massive government program to control energy and big business hopes to make a quick buck while Americans pay for it all in terms of higher energy prices.”
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It should be clear that Duke Energy is the bootlegger, not the Baptist, in this tragic tale. As Frank O’Donnell, president of Clean Air Watch, commented, “Duke is in favor of carbon controls as long as they are the carbon controls that Duke is comfortable with. No one is going to mistake Duke for Greenpeace.”
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Unfortunately, Duke is not an isolated case. GE just as aggressively pursued cap-and-trade legislation. GE, like Duke Energy, is a member of the U.S. Climate Action Partnership (USCAP). GE’s Ecomagination program, one of Immelt’s marquee assets, reportedly earned the company more than $85 billion in revenue from “products and solutions” through 2010.
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Immelt backtracked on his support for cap-and-trade after he received backlash from company shareholders and grassroots activists at a GE board meeting where Tom Borelli presented Immelt with poll results that showed GE’s favorability declining among conservative-leaning consumers when they were told of his lobbying for carbon caps. Not long after the shareholder meeting, Immelt backed off. “If I had one thing to do over again I would not have talked so much about green,” he said. “I’m a businessman. That’s all I care about, is jobs. . . . I’m kind of over the stage of arguing for a comprehensive energy policy. I’m back to keeping my head down and working.”
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GE remains a member of USCAP and in active pursuit of the renewable energy markets created by government regulation. As the
New York Times
noted, “G.E., for example, lobbied Congress in 2009 to help expand the subsidy programs, and it now profits from every aspect of the boom in renewable-power plant construction.”
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In fact, GE managed to secure the contract for the largest wind farm in the United States, Shepherds Flat, Oregon. The generous loan guarantee from DOE even raised eyebrows within the Obama administration. Economic adviser Larry Summers, environmental czar Carol Browner, and Vice President Biden adviser Ron Klain penned a memo to the president that raised serious concerns about the project. They were particularly concerned that the project might have moved forward even without the federal dollars, because state regulations and mandates already provided a return on the project. This led to concerns that GE was double-dipping, pulling in federal grants, state tax credits, state and federal tax benefits, and a healthy loan guarantee. Because of mandates requiring the use of renewable energy, ratepayers would be paying higher-than-market rates for the electricity generated by the wind farm.
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All this government largesse raised concerns. Of the $1.9 billion project, “the government would provide a significant subsidy (65+%), while the sponsor [GE] would provide little skin in the game (equity about 10%).”
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