Secretary Chu’s ‘Clean Energy Race’ Blather

The House Energy and Commerce Oversight Subcommittee grilled Department of Energy (DOE) Secretary Steven Chu for four hours yesterday about his role in approving and managing a $535 million loan guarantee to Solyndra. The solar technology company — celebrated by President Obama and other top administration officials as a “green jobs” and Stimulus success story in 2009 and 2010 — closed its doors and filed for bankruptcy protection in September 2011.

Yesterday’s hearing was part of a nine-month investigation. The Committee reviewed 186,000 pages of documents from DOE, 10,000 pages from the White House, and another 1,000 from Treasury. Oversight Chairman Cliff Stearns (R-FL) and other GOP Members charge that Obama officials rushed the Solyndra loan out the door without due diligence, ignored the company’s significant financial problems, and illegally gave investors first dibs over taxpayers in collecting $75 million loaned to the company in early 2011.

The Committee developed this case in several briefing memos (Sep. 12, Sep. 23, Oct. 12, Nov. 17) and published collections of supporting emails and documentation (here, here, here). Allegations — as yet unproven — have also been raised claiming the DOE loan and taxpayer subordination were political payoffs to George Kaiser, a big-time bundler for Obama’s presidential campaign who was also a major investor in Solyndra.

As expected, Chu denied that DOE officials acted incompetently or improperly, or that politics intruded in any of the decisions DOE made in reviewing, approving, and restructuring the Solyndra loan. However, Chu had so little to say about specific emails, most of which he had not seen until published by the Committee, that he came across as a man out of the loop at his own agency.

Chu probably failed to persuade any Republican on the Committee that Solyndra was just a good bet gone sour. On the other hand, GOP Committee members did not produce smoking-gun evidence of high crimes and misdemeanors.

Chu’s written testimony — barely three pages long — recycled his customary spiel about the promise and peril of the global “clean energy race.” The argument has become a staple of green rhetoric: China is spending billions subsidizing its clean tech sector, if we don’t “invest” in “our” clean tech firms America will lose the race and China will “eat our lunch.”

Talk of a clean energy race harkens to the “space race” and “arms race” of the Cold War era. But although those races had economic spinoffs, they were first and foremost geopolitical, not commercial. Renewable energy advocates now try to recreate a Cold War sense of drama about companies like Solyndra. Nukes and missiles had an obvious potential to affect the outcome of a global power struggle. But wind turbines and solar panels?

The global marketplace comprises countless races, because each firm typically faces competition from many others. Dannon, Yoplait, General Mills, Kraft Foods, and Chobani, for example, are engaged in a global yogurt race, and by all accounts “we” (General Mills, Kraft) are losing. Yet you probably won’t read about the yogurt race in the Washington Post.

Chu has probably done more than any other official to popularize the notion of a clean energy race. A testimony he gave in November 2009 offers a more complete explanation than the one he gave yesterday.

Chu argued that the world would need to invest $2.1 trillion in wind turbines and $1.5 trillion in solar panels to meet global emission reduction targets. Thus, to his mind: “The only question is … who will invent, manufacture, and export these clean technologies and which countries will become dependent on foreign products.”

Chu warned that China was investing “about $9 billion a month on clean energy” and lamented that America had “fallen behind” other countries in global market share, but said the Stimulus was helping U.S. firms make a comeback. However, he cautioned the only way to ensure our clean tech companies can compete is to put a steadily tightening “cap” on carbon emissions. “That critical step will drive investment decisions toward clean energy.”

This does not compute.

China does not cap carbon. China is fueling its development chiefly with coal, oil, and hydro-power, not wind and solar. Almost 80% of China’s electricity comes from coal, and China is investing billions in Canadian tar sands oil production. If China is both threat and model, won’t America fall further behind in the “economic growth race” if we wage political warfare on coal and block the Keystone XL Pipeline?

Be that as it may, from day one President Obama’s goal has been to make wind and solar power “the profitable kind of energy” by handicapping economically efficient power generation from coal and natural gas. Banking on this, Solyndra’s business plan assumed that Congress would pass the Waxman-Markey bill, with its carbon caps and renewable electricity mandates.

But then a funny thing happened on the way to the clean energy future. One month after Chu’s 2009 testimony, the Copenhagen climate conference fizzled. In 2010, Senate leaders pulled the plug on a Waxman-Markey companion bill, and the November elections nailed the coffin shut on cap-and-trade.

By Chu’s (and Solyndra’s) logic, the clean energy race, predicated as it was on handicapping carbon-based energy, should be over. Nonetheless, we hear the same old, same old. China is pumping billions into wind and solar. If we don’t do the same, we’ll become dependent on Chinese products.

This is bad advice for three reasons.

First, the easiest and cheapest way not to become “dependent” on Chinese wind turbines and solar panels is not to shoot ourselves in the foot in the first place. The Chinese are selling to an artificial market, one created by European and U.S. policies mandating reliance on high-cost, intermittent electricity sources. Get rid of these Soviet-style production quota, and we won’t be tempted to buy Chinese products!

Second, we cannot beat China in catering to this ersatz market, and cannot afford to do so even if we could.

As my colleague Chris Horner points out, America’s strength is innovation but China’s is mass production. Chinese solar panels are not more innovative than Solyndra’s — quite the contrary. But China, with its cheap labor, coal-based power, and a government free to fleece consumers and taxpayers for the benefit of favored producers (they’re communists, after all), will always be able to undersell competitors in a market where what really counts is not satisfying non-coerced customers but simply meeting politically imposed quota.

To suppose that we can subsidize our way to a level playing field is to forget that Beijing is flush with cash and Washington is broke.

Third, even China’s profits may turn into losses, because the renewable energy market looks like a bubble about to burst. As CCNet’s Benny Peiser reports, the recession and sovereign debt crisis are putting pressure on governments to scale back green energy subsidies. Spain’s Industry Ministry announced it intends to cut the feed-in tariff for wind turbines by 40%. Britain too may cut subsidies for wind farms and household solar panels. Japan, worried about the billions it is paying other countries for carbon credits, is reconsidering its commitment to cut carbon dioxide emissions 25% by 2020. Even the European Union acknowledges a “trade-off between climate change policies and competitiveness,” and is questioning whether it should press ahead with decarbonization if other countries don’t follow suit.

China is to our times what Japan was to the 1980s — an economic rival that supposedly proves the superiority of politically directed industrial policy to free markets. But Japan, Inc. turned out to be a bubble economy, with the booming 1980s followed by the “lost decade” of the 1990s.

In August, China instituted a feed-in tariff program to offset declining demand as large buyers such as Germany and Italy shrunk their subsidies for solar panels. The feed-in tariff may be enough to keep the bubble inflated, but it too is a subsidy. And subsidies consume wealth, they do not create it.