This commentary originally appeared in the Midland Reporter-Telegram on September 8, 2015.
Government-financed “green” energy projects are examples of corporate welfare on a colossal scale that pulls at the strings weakly weaving together remnants of capitalism in the United States. These projects consistently fail to fund efficient energy production or meet economic expectations.
From the federal level to California to Texas, the calamity of these projects for taxpayers and markets must end.
As a reminder, Sept. 1 marked the four-year anniversary of the solar company Solyndra’s filing for bankruptcy after receiving $535 million in federal loan guarantees from the 2009 so-called economic stimulus package.
Despite repeated failures of governments propping-up renewable energy projects, California voters approved the Clean Energy Jobs Act (Proposition 39) in 2012 that, as you might have guessed, failed to meet expectations.
Proposition 39 was sold to voters as a tax loophole closure for multi-state corporations that would generate roughly $550 million annually to fund clean energy projects at local education agencies and create more than 11,000 jobs per year.
What’s been the three-year reality?
Tax revenue generated has been only $973 million of the projected $1,650 million. Raising corporate taxes incentivizes businesses, like individuals, to change their behavior to avoid paying taxes by tax shelters or reducing economic activity contributing to less revenue. Of that revenue, $297 million has been spent with $144 million on energy projects and the larger $153 million portion on energy auditors and contractors.
Instead of 33,000 jobs created during the last three years, the total so far is a measly 1,700 jobs, costing a daunting $175,000 per job.
Interestingly, the government hasn’t released information about the energy projects or the specific jobs created, which makes these data questionable at best and reeks of crony capitalism.
With the nation’s highest 13.3 percent individual income tax rate and the eighth highest 8.84 percent corporate tax rate, according to the Tax Foundation, Californians could have achieved more prosperity by closing the corporate tax loophole and lowering these oppressive tax rates instead of the government wasting it on green energy projects.
Texas fosters an economic environment conducive for job creation with no individual income tax and less regulation, though the business franchise tax has to go. But Texas also props up green energy companies with the Renewable Portfolio Standard (RPS) that was put in place in 1999.
The RPS requires that power companies purchase some of their electricity from solar and wind farms. In 2005, the Texas Legislature increased the amount to 10,000 MW by 2025.
The subsidies from the RPS in the form of renewable energy credits along with federal production tax credits incentivized entrepreneurs to invest in wind farms, substantially increasing them in West Texas. This led to installed wind capacity meeting the 2025 target in 2010.
Advocates of renewable energy typically overstate the amount of electricity these inherently intermittent energy sources are capable of generating. The installed generating capacity of a wind farm may appear large, but the actual electricity generated from those turbines-known as the capacity factor-nationally averages only 30 percent of installed capacity. In Texas, wind’s performance at times of peak demand has a capacity factor of only 8.6 percent.
These examples of redistributing taxpayer dollars to failing green energy projects is a costly endeavor that forces a shift to less efficient, less abundant, and more expensive sources of energy at the cost of private sector jobs and prosperity. Texas, other states, and the federal government would be wise to avoid the false hope that corporate welfare can make green energy projects competitive.
Government intervention through renewable and nonrenewable subsidies and tax incentives that dictate market activity instead of free markets driven by profit motives take taxpayers down the known road of failure and should end.
Vance Ginn, Ph.D., is an Economist in the Center for Fiscal Policy at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin.