Politics & Policy

Dr. Science vs. the Market

Steven Chu is a brilliant physicist but a lousy investor of your money.

It’s hard to imagine a better candidate for the role of scientific technocrat than Steven Chu. After earning undergraduate degrees in math and physics from Rochester, he got his Ph.D. from Berkeley in 1976 and then joined Bell Labs, where he did the work on atomic physics that would earn him a share of the 1997 Nobel Prize. Chu holds ten patents, has published nearly 250 scientific and technical papers, and has taught at Stanford and Berkeley. While on the faculty at Berkeley, Chu became director of the Lawrence Berkeley National Laboratory, a Department of Energy–funded research facility that has increasingly focused on renewable energy (especially during Chu’s tenure).

Chu is perhaps the best example of Barack Obama’s stated goal of relying on smart, proven experts to run his cabinet departments. And yet the Department of Energy has floundered under Chu’s administration.

President Obama has often said that “no single issue is as fundamental to our future as energy.” He promised a “steady, focused, pragmatic” approach that would encourage “the hard work needed to achieve results.”

Instead, the DOE has mostly focused on high-risk venture capitalism. The department’s Loan Guarantee Program (LGP) has allocated $30 billion to start-up green-energy firms. While investing that amount of money in unproven businesses would be tricky under any circumstance, wise investors who are spending their own money minimize risk by examining prospective deals with great care. Not the DOE. A recently published report from the Government Accountability Office (GAO) shows that the LGP failed to adhere to its own vetting process “at least once on 11 of the 13 applications GAO reviewed.”

Unsurprisingly, several of these loans have turned out to be troublesome. Solyndra has become well known as a symbol of the administration’s misdirected investments, but the DOE may actually be lucky that Solyndra got so much attention; otherwise, the bankruptcies of Beacon Power, Evergreen Solar, SpectraWatt, and Eastern Energy, or the massive layoffs by the National Renewable Energy Laboratory, Fisker Automotive, and Abound Energy — all firms that received millions or billions of dollars from the government — would be garnering more attention.

In fact, Sharyl Attkisson of CBS News reported that twelve companies, which received a total of about $6.5 billion from the DOE, are facing severe financial issues or have already declared bankruptcy. When questioned by the House Subcommittee on Energy and Power about how many DOE-financed firms might be at risk, Secretary Chu said, “I don’t recall the exact number.” He refused to have his staff prepare a list for the committee after the hearing.

While the administration is evasive on the viability of these loans, it has given a direct, if implicit, admission of its overall difficulties in promoting green power by changing its tone on fossil fuels. In 2008 Chu famously admitted that he would welcome European-level gasoline prices as a way to wean America off of gas and onto renewable energy sources. On Tuesday he said, “I no longer share that view.” And the president has recently been touting the fact that American oil production has increased (though not on federal land). This change in rhetoric makes sense, because the most genuinely promising innovation the government has invested in is hydrocarbons from algae, which may trickle into the market in ten years or so.

As Ed Morrissey noted, when asked to assign himself a grade for his work as Energy Secretary, Chu admitted that “there’s always room for improvement” but gave himself an A−. If Secretary Chu’s performance has just half a letter grade’s worth of room for improvement, and he is the best-credentialed expert we could hope for, then perhaps venture capitalism should not be left to the government.

— Nash Keune is a Thomas L. Rhodes Journalism Fellow at the Franklin Center.

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