I really appreciated this short piece by AEI’s Steven Hayward because it recognizes that there is a distinction between targeted public investment in upstream energy innovation and giving subsidized loans to for-profit firms:

Defenders of green energy investments are probably hoping that the Solyndra debacle can be attributed to corrupt or illegal influence from the White House, lest it discredit all government support for green energy. Already, these people are saying that Solyndra’s failure amounts to only about 2 percent of the $38 billion of the green energy loan guarantee program.
My, how far we’ve come since 1979, when we had a serious national debate about whether it was appropriate at all for the government to provide a mere $1.5 billion loan guarantee to Chrysler — a legacy company with more plausible prospects for profitability than Solyndra. Opponents said that once the government started backstopping business, it would undermine the discipline of the marketplace and create a moral hazard. Now we’re bailing out auto companies again and handing out billions in loan guarantees like Halloween candy to shaky start-ups, with scarcely any debate. Looks like the Chrysler loan critics had a point.
The shame of it is that the Obama administration can point to more promising initiatives in energy, especially the Department of Energy’s Advanced Research Projects Agency-Energy (modeled after the Pentagon’s Defense Advanced Research Projects Agency). But ARPA-E’s total budget was only $400 million in its first year — less than the Solyndra loan. …
We should admit that we’re still far away from knowing what forms of advanced energy will prove practical and scalable, and stop throwing taxpayer money after today’s uncompetitive technologies.

ARPA-E represents an effort to ferret out which technologies will deliver big dividends, and for that reason it reflects a more legitimate public interest (as part of a Plan B strategy for accelerating the decarbonization of the U.S. economy, for example) than giving a boost to for-profit firms that risk becoming dependent on public subsidies.

Interestingly, Lisa Margonelli, whom we’ve discussed in this space, reaches a very similar conclusion:

Taxpayers should shy away from directly investing in energy production. Our real strengths are supporting basic research and fostering an active private venture capital community. Recently, the government has been abandoning its support of basic research in favor of playing venture capitalist with loans. The government runs a great risk of becoming “the lender of last resort” and supporting projects too risky for banks or venture capitalists.

And Margonelli addresses the tiresome canard that we should subsidize for-profit firms that can’t attract private capital (and yes, firms that only attract private capital after an enormous injection of public money don’t count):

For China, the calculus of subsidizing green industries is quite different, and that alone should warn U.S. policy makers away from trying to subsidize these technologies — and consequently, jobs — into existence. China’s one-party government has the political will and financial resources to effectively create millions of jobs, which helps to stabilize the society. Heavy subsidies, low labor costs and a desire to increase market share make it possible for Chinese producers to export products at very low prices. If we try to create industries simply through selective subsidies, the U.S. will lose the game of chicken with China. Instead, we need to do what we do well — create innovative technology, business models and marketing platforms. [Emphasis added]

Margonelli adds another important point:

The U.S. government really needs to address our competitive disadvantage in the green space — namely, that energy is cheaper here than in many industrialized countries. According to the Energy Information Administration, the U.S. economy needs 27 percent more energy to produce a dollar of G.D.P. than do the economies of Europe or Japan.
What that means is that when energy prices are high, we pay through the nose: By the end of the year, Americans will have paid nearly half a trillion dollars for gasoline in 2011 — more than $100 billion more than we paid in 2010. Cycles of punishingly high prices, and the public perception that energy should be too cheap to notice, mean that energy efficient and low-carbon products in the U.S. — from cars, to turbines that can generate power from factory exhaust, to innovative home furnaces that are also electrical generators — have far dimmer prospects in our marketplaces than they do abroad.
Rather than financing big energy producers and concepts, the government should make many smaller loans to the consumers of these products to stimulate a market, while reducing our energy dependence. At the same time, American manufacturers need to change their sights from competing for government loans to competing for consumers’ dollars.

I find this interesting as a political strategy. I had expected Margonelli to reference carbon pricing, but instead she calls for subsidizing the purchase of energy-efficient technologies. Some would characterize this as a second-best solution, and that may well be true. I’m skeptical about the notion that the government should make consumer loans, or rather should scale up its efforts to make consumer loans, of this kind, but Margonelli has given us food for thought.

P.S. Wait a second. I endorsed Margonelli’s anti-subsidy view, yet I’ve explicitly advocated nuclear loan guarantees. What gives?

One thing I should specify, which I didn’t address in the column: I actually do think that some energy subsidies are appropriate, e.g., loan guarantees for nuclear power projects, in part because the government has created a great deal of regulatory uncertainty around nuclear power.

The perception that nuclear power is uniquely dangerous has created very high barriers to the widespread use of nuclear power, foremost among them a regulatory climate that makes it very difficult to invest in this space. The same is not true of solar, wind, coal, natural gas, and other energy sources, which is why I think it is right and appropriate to carve out an exception. I do think, however, that we need to think hard about alternative ownership structures for nuclear power, including the use of publicly-chartered non-profit corporations.