Like anything else, carbon emissions have both costs and benefits. Marlo Lewis, a senior fellow in CEI’s Center for Energy and Environment, discusses a new study that finds the carbon debate has some nuance to it, after all.
Mother Jones’ profile of Elon Musk and Tesla Motors trots out a familiar story about industrial policy’s role in the success of infant industries. It also blasts Musk’s Silicon Valley cohorts for their ingratitude in the face of government assistance. But when we look a little more closely, the Mother Jones narrative about Musk’s success breaks down.
The relevant program in Tesla Motors’ case is the Advanced Technology Vehicles Manufacturing (ATVM) Loan Program, a $25 billion fund established by the 2007 Energy Independence and Security Act. The ATVM putatively offers loans to automotive companies to help them meet the Corporate Average Fuel Economy (CAFE) goal of 35 mpg by 2020. Boosters tout the ATVM as a program to help companies through the so-called startup “Valley of Death” during which companies transition from product release to full-scale production, a period so-named because companies are particularly vulnerable.
A closer look at the ATVM shows that we should in fact be grateful if the program disappeared altogether. Tesla has been the ATVM’s most public success after re-paying its $465 million loan nine years early. But Tesla likely succeeded not so much because of its ATVM loan, but because it has a fundamentally sound business strategy and a product capturing the imagination of consumers. While buyers of Tesla’s Model S benefit from a $7,500 federal tax credit for plug-in electric vehicles, in addition to benefits like access to HOV lanes and free charging infrastructure, these subsidies benefit the EV industry as a whole and cannot explain Tesla’s success relative to its peers.
And according to the DOE’s own data, 81 percent of the $8.4 billion spent so far by the ATVM program went to Ford and Nissan Motors—neither of which is a start-up navigating the Valley of Death. These firms could almost certainly purchase loans on the private market—are they really the vulnerable companies that defenders of the ATVM want to benefit?
This is not the ATVM’s only shortcoming. A February 2011 GAO report concluded that the ATVM lacked the expertise to properly monitor loan recipients, and lacked the crucial ability to measure how much the loans contribute to successfully meeting the stricter 2020 CAFE standards. Supporting a program whose success we can’t measure is unwise at best and defending corporate welfare at worst. The ATVM has had some very measurable failures, most notably its $500 million bet on Fisker Automotive that turned south. Despite having received nearly $200 million in taxpayer dollars, Fisker nonetheless announced this May it preparing for a possible bankruptcy filing. Public embarrassment from Fisker’s failure put the ATVM on hold, despite having loaned out barely a third of its allocated funds.
The ATVM has since re-opened and is now accepting applications for loans, but the question remains whether we will see more successes like Tesla or blunders like Fisker. The incentives and track record of subsidized loan programs suggest that it would be wise for the ATVM to quit while it’s ahead.
I had the privilege of meeting with Charlie Drevna, President of American Fuel and Petrochemical Manufacturers this week. He had some extremely interesting things to say about the way mounting environmental regulations are threatening jobs in the refining sector that he represents.
A particularly compelling insight he provided was that many of the Obama administration’s environmental regulations actually contradict each other. For instance, CAFE regulations require higher fuel efficiency from automobiles. Yet the Renewable Fuel Standard, which mandates the use of less efficient ethanol, reduces fuel efficiency. Meanwhile, the Tier III rules from EPA contradict the rulemaking on greenhouse gas emissions: refineries need to do more processing to reduce sulfur in gasoline, which increases emissions at a refinery by up to 2.3 percent, while at the same time they are required to reduce greenhouse gas emissions.
Two more examples: to reduce ozone in the atmosphere under the National Ambient Air Quality Standards (NAAQS) requires more energy. More energy requires more greenhouse gas emissions, so there is another clear contradiction. Finally, state sulfur regulations contradict federal greenhouse gas regulations — if you use energy to reduce the sulfur in heating oil, you will increase your greenhouse gas emissions.
Ron Binz is President Obama’s choice to head FERC, the Federal Energy Regulatory Commission. William Yeatman, in a new report, shows why Binz’s disregard for reliable, low-priced electricity, along with several ethical and ideological red flags, make him less than an ideal nominee.
The left seems to have decided the only way to win at global warming politics at this point is by smearing critics of climate change alarmism as being “anti-science” or equivalent to being a “flat earther.” Columnist Charles Krauthammer aptly describes this M.O. as “shockingly arrogant and anti-scientific” — the notion that questioning “settled science” or bringing new evidence to bear is wrong or disallowed. Our friends at Frontiers of Freedom posted the transcript and video clip.
William Yeatman discusses his new study, “The U.S. Environmental Protection Agency’s Assault on State Sovereignty.”
I have an op-ed online in USA Today today entitled “America should learn from Europe on wind power.” In it, I outline how Europe has begun to come to its senses about the unsustainable cost of wind energy:
However, wind power is expensive, and the growing size of the industry has meant that subsidies – and energy bills – have surged. The German subsidy is paid for by a surcharge on household electricity bills. The growth in wind power meant that in January the surcharge increased to over 5 cents (euro) per kilowatt hour, representing 14% of all electricity bills.
In Germany, Chancellor Angela Merkel, realizing that wind power is economically unsustainable, has proposed capping the subsidy until the end of 2014 and capping further rises to 2.5%, with the probability of further significant reform after the federal elections this year. It’s a similar story in Spain, where subsidies have been cut so much that the chairman of the country´s Association of Renewable-Energy Producers said recently: “Spain’s government is trying to smash the renewable-energy sector through legislative modifications.”
As it happens, President Obama has repeatedly said we should look to Spain and Germany as examples of how to handle renewable power. Indeed, and he should apply this thinking to the loan guarantee application for the Cape Wind project:
The project will cost $2.6 billion, and it has secured funding for $2 billion of that from a Japanese bank. But this is believed to be subject to the project gaining a loan guarantee from the U.S. Department of Energy. And there is every reason to believe that this would be as bad a bet as its loan guarantee to Solyndra.
The contracted cost of the wind farm’s energy will be 23 cents a kilowatt hour (excluding tax credits, which are unlikely to last the length of the project), which is more than 50 percent higher than current average electricity prices in Massachusetts. The Bay State is already the 4th most expensive state for electricity in the nation. Even if the tax credits are preserved, $940 million of the $1.6 billion contract represents costs above projections for the likely market price of conventional power. Moreover, these costs are just the initial costs, and like in Germany, they are scheduled to rise by 3.5 percent annually for 15 years.
In fact, one major Massachusetts employer estimates that each 1 cent increase in the cost of energy per kilowatt hour will cost the company $4 million, creating a major incentive to relocate, costing the state jobs and revenue.
When you consider that the Cape Wind project would also inflict environmental damage to cause Massachusetts residents and businesses to pay more for their energy, the case becomes a “no-brainer.” This is one case where the President could do with being a little more European in his outlook.
In the below video, U.S. Rep. Ed Whitfield (KY-01) talks about the Environmental Protection Agency’s discriminatory practice of granting fee waivers to political allies and denying them to critics—a practice CEI Senior Fellow Christopher Horner recently made public. (Whitfield begins talking about the issue around the 1:17 mark.)