Topic: Energy and Environment

Solyndra: Peeling Back the Layers

As I noted previously, the story of the taxpayers’ failed $535 million subsidy to the Solyndra company just keeps building as reporters keep digging. When the Democrats on the House and Energy Commerce Committee released selected emails from the Obama administration, I asked one reporter:

If OMB and Obama’s California campaign co-chair, the former California state treasurer, were trying to put the brakes on the Solyndra enthusiasm, who had his foot on the gas?

Could the answer have been merely Steven J. Spinner, “a senior Energy Department adviser … a major fundraiser for President Obama and a Silicon Valley investor tasked with helping the government invest in clean-technology companies [who] had an ethical conflict: His wife worked for Wilson Sonsini, a California law firm that represented Solyndra, the solar-panel maker, in its applications for the government loan”? Spinner is now a senior fellow at the Obama-adjunct Center for American Progress, where as recently as July he was writing, “Even the most controversial loan guarantee recipient—Solyndra, a solar manufacturer—is seeing an operational turnaround” in an article pushing for continued funding of the Department of Energy’s Loan Guarantee Program. But he’s not the sole source of the enthusiasm for “green energy” and stimulus spending, which obviously went to the top of the administration.

Some have tried to dismiss the Solyndra story. Private investors make plenty of mistakes, too, they point out. Companies fail, sometimes through no fault of their own. But this story has all the hallmarks of government decision making: officials spending other people’s money with little incentive to spend it prudently, political pressure to make decisions without proper vetting, the substitution of political judgment for the judgments of millions of investors, the enthusiastic embrace of fads like “green energy,” political officials ignoring warnings from civil servants, crony capitalism, close connections between politicians and the companies that benefit from government allocation of capital, the appearance — at least — of favors for political supporters, and the kind of promiscuous spending that has delivered us $14 trillion in national debt. It may end up being a case study in political economy.

Here’s an updated rundown of how the first rough draft of Solyndra history is playing out before our eyes:

Obama-backed green firm shuts down
The Washington Post, September 1, 2011

Solar firm to cease operations; Solyndra had received a $535-million loan guarantee. It plans to seek Chapter 11.
Los Angeles Times, September 1, 2011

A Third Solar Company Files for Bankruptcy
The New York Times, September 7, 2011

FBI raids offices of solar-panel firm
The Washington Post, September 9, 2011

E-mails cite rush on loan to solar firm
The Washington Post, September 14, 2011

Treasury to probe loan to Solyndra; The Federal Financing Bank’s role in the failed firm’s borrowing will be the focus.
Los Angeles Times, September 16, 2011

White House official: Funding Solyndra further was risky
The Washington Post, September 16, 2011

Amid Solyndra probe, Energy Dept. moving billions in loans
The Washington Post, September 17, 2011

SOLAR FIRM’S OBAMA LINKS PROBED; A fundraiser’s role in a loan program that aided Solyndra stokes concern about the company’s influence.
Los Angeles Times, September 17, 2011

Questions Raised Over Letting Another Lender Help a Failing Solar Company
The New York Times, September 17, 2011

Justice Dept. urged to probe Solyndra
The Washington Post, September 20, 2011

Solyndra officials to invoke Fifth before House panel
The Washington Post, September 21, 2011

Solyndra’s ex-employees tell of high spending, factory woes
The Washington Post, September 22, 2011

In Rush To Assist A Solar Company, U.S. Missed Signs
The New York Times, September 23, 2011

Government OKs new green loans; Two execs of bankrupt solar firm Solyndra plead the 5th before a congressional panel.
Los Angeles Times, September 24, 2011

A solar pariah had Republican parents, too
The Washington Post, September 27, 2011

Where Solyndra said yes, others demurred
The Washington Post, September 27, 2011

Obama aides voiced doubts about loans like Solyndra’s; A top concern was that the vetting process wasn’t rigorous enough.
Los Angeles Times, September 27, 2011

Energy Dept. knew Solyndra had violated its loan terms
The Washington Post, September 29, 2011

U.S. Backs New Loans For Projects On Energy
The New York Times, September 29, 2011

Energy chief cleared Solyndra loan breaks
The Washington Post, September 30, 2011

Trustee Is Sought For Records Of Solyndra
The New York Times, October 1, 2011

E-mails warned Obama of a shaky Solyndra
The Washington Post, October 4, 2011

E-Mails Suggest White House Weighed a 2nd Solyndra Loan Worth Almost Half a Billion Dollars
The New York Times, October 6, 2011

Solyndra loan deal: Warning about legality came from within Obama administration
The Washington Post, October 7, 2011

Obama fundraiser took active interest in Solyndra loan, emails show
Los Angeles Times, October 8, 2011

Government adviser defends Solyndra despite ethics agreement
Washington Post, October 8, 2011

Solyndra Collapse Sparks K Street Rush
Roll Call, October 12, 2011

I found these headlines on Nexis, but of course they can be found on the newspapers’ websites.

Louisiana Man Wins $1.7 Million From EPA For Malicious Prosecution

The legal might of the U.S. government is usually enough to roll right over someone like Opelousas, La. plant manager Hubert Vidrine Jr. But last week the underdog had his day: a federal court awarded Vidrine $1.7 million for having been maliciously prosecuted by the federal Environmental Protection Agency. Our friends at the Washington Legal Foundation, who helped represent Vidrine, give details:

The just-resolved case started in 1996 when the Environmental Protection Agency (EPA) ordered its SWAT-like special operations team (equipped with M-16 rifles and police dogs) to raid the Canal Refinery, Mr. Vidrine’s workplace. The raid led to a criminal investigation against Mr. Vidrine for allegedly unlawful storage and disposal of hazardous wastes under the Resource Conservation and Recovery Act (RCRA).

When it discovered that evidence of the alleged offense was lacking, the feds refused to back off and in fact redoubled their zeal. In a scathing 142-page ruling, Judge Rebecca Doherty wrote that federal prosecutor Keith Phillips “set out with intent and reckless and callous disregard for anyone’s rights other than his own, and reckless disregard for the processes and power which had been bestowed on him, to effectively destroy another man’s life.”

A Greenwire dispatch published in the New York Times is at pains to present the Vidrine case (quoting a former enforcement official) an “isolated situation” arising from the actions of a “rogue” agent. As a local paper reported, “Phillips was accused of targeting Vidrine because of his outspokenness and choosing an investigation in Louisiana to be close to a woman with whom he was having a sexual affair.” The second of these motives, at least, presumably doesn’t figure very often in decisions to pursue federal criminal charges.

Cato readers have reason to be less than surprised when federal enforcers abuse their powers, especially at an agency as convinced of its own righteousness as the EPA. Nine years ago, Cato published James V. DeLong’s “Out of Bounds, Out of Control: Regulatory Enforcement at the EPA.” In 2009 congressional testimony, Cato’s Tim Lynch discussed troubling cases like that of Alaska railroad employee Edward Hanousek (“prosecuted under the Clean Water Act even though he was off duty and at home when the accident occurred”).

Yesterday, incidentally, brought another setback in court for the EPA: a federal judge slapped it down for flagrantly overstepping its legal charter by usurping the Army Corps of Engineers’s statutory role as part of its efforts to restrict coal mining in Appalachia. How many times do the agency and its enforcers have to overstep their authority before those incidents cease to be just ”isolated situation[s]”?

Penn & Teller Tell a Lie

Cato Mencken Fellows Penn Jillette and Teller launch a new hour-long show, “Penn & Teller Tell a Lie,” on the Discovery Channel this Wednesday at 10 p.m. Eastern and Pacific Time. Discovery says:

Penn & Teller bring their unique vision of the world in a new interactive series with a twist. In each episode, Penn & Teller make up to seven outrageous claims. While most of the wildly unbelievable stories are absolutely, positively true - one of them is a BIG FAT LIE. It will be up to viewers to spot the fake and VOTE LIVE  online or with the new GUESS THE LIE app.

They’ll put lots of scientific claims and myths through rigorous testing, continuing their longstanding interest in science, truth, and skepticism.

If you have a DVR, note that Showtime is rebroadcasting an episode of their former series, this one a skeptical look at the environmental movement, at the exact same time: 10:30 p.m. Wednesday.

And if you can’t wait till Wednesday, listen to Cato’s podcast with Penn Jillette recorded a few weeks ago.

The First Rough Draft of the Solyndra Story

Just reading the headlines of the Solyndra stories in major newspapers the past month tells a story that just keeps getting more discouraging:

Obama-backed green firm shuts down
The Washington Post, September 1, 2011

Solar firm to cease operations; Solyndra had received a $535-million loan guarantee. It plans to seek Chapter 11.
Los Angeles Times, September 1, 2011

A Third Solar Company Files for Bankruptcy
The New York Times, September 7, 2011

FBI raids offices of solar-panel firm
The Washington Post, September 9, 2011

E-mails cite rush on loan to solar firm
The Washington Post, September 14, 2011

Treasury to probe loan to Solyndra; The Federal Financing Bank’s role in the failed firm’s borrowing will be the focus.
Los Angeles Times, September 16, 2011

White House official: Funding Solyndra further was risky
The Washington Post, September 16, 2011

Amid Solyndra probe, Energy Dept. moving billions in loans
The Washington Post, September 17, 2011

SOLAR FIRM’S OBAMA LINKS PROBED; A fundraiser’s role in a loan program that aided Solyndra stokes concern about the company’s influence.
Los Angeles Times, September 17, 2011

Questions Raised Over Letting Another Lender Help a Failing Solar Company
The New York Times, September 17, 2011

Justice Dept. urged to probe Solyndra
The Washington Post, September 20, 2011

Solyndra officials to invoke Fifth before House panel
The Washington Post, September 21, 2011

Solyndra’s ex-employees tell of high spending, factory woes
The Washington Post, September 22, 2011

In Rush To Assist A Solar Company, U.S. Missed Signs
The New York Times, September 23, 2011

Government OKs new green loans; Two execs of bankrupt solar firm Solyndra plead the 5th before a congressional panel.
Los Angeles Times, September 24, 2011

A solar pariah had Republican parents, too
The Washington Post, September 27, 2011

Where Solyndra said yes, others demurred
The Washington Post, September 27, 2011

Obama aides voiced doubts about loans like Solyndra’s; A top concern was that the vetting process wasn’t rigorous enough.
Los Angeles Times, September 27, 2011

Energy Dept. knew Solyndra had violated its loan terms
The Washington Post, September 29, 2011

U.S. Backs New Loans For Projects On Energy
The New York Times, September 29, 2011

Energy chief cleared Solyndra loan breaks
The Washington Post, September 30, 2011

I found these headlines on Nexis, but of course they can be found on the newspapers’ websites. I linked to two of the stories last week.

Some have tried to dismiss the Solyndra story. Private investors make plenty of mistakes, too. Companies fail, sometimes through no fault of their own. But this story has all the hallmarks of government decision making: officials spending other people’s money with little incentive to spend it prudently, political pressure to make decisions without proper vetting, the substitution of political judgment for the judgments of millions of investors, the enthusiastic embrace of fads like “green energy,” political officials ignoring warnings from civil servants, crony capitalism, close connections between politicians and the companies that benefit from government allocation of capital, the appearance – at least – of favors for political supporters, and the kind of promiscuous spending that has delivered us $14 trillion in national debt. It may end up being a case study in political economy.

The Solyndra Story Keeps Unfolding

Is the taxpayers’ lost $535 million in the green-energy company Solyndra just an unfortunate business failure, or is there something more scandalous involved? You should read every word of this front-page New York Times article. Sure, it says that “no evidence has emerged that political favoritism played a role in what administration officials assert were merit-based decisions.” But the story is full of smoking guns.

Here’s the opening:

President Obama’s visit to the Solyndra solar panel factory in California last year was choreographed down to the last detail—the 20-by-30-foot American flags, the corporate banners hung just so, the special lighting, even coffee and doughnuts for the Secret Service detail.

“It’s here that companies like Solyndra are leading the way toward a brighter and more prosperous future,” the president declared in May 2010 to the assembled workers and executives. The start-up business had received a $535 million federal loan guarantee, offered in part to reassert American dominance in solar technology while generating thousands of jobs.

But behind the pomp and pageantry, Solyndra was rotting inside, hemorrhaging cash so quickly that within weeks of Mr. Obama’s visit, the company canceled plans to offer shares to the public. Barely a year later, Solyndra has become one of the administration’s most costly fumbles after the company declared bankruptcy, laid off 1,100 workers and was raided by F.B.I. agents seeking evidence of possible fraud.

Solyndra’s two top officers are to appear Friday before a House investigative committee where, their lawyers say, they will assert their Fifth Amendment right against self-incrimination.

And there’s more:

[Solyndra’s] lobbyists corresponded frequently and met at least three times with an aide to a top White House official, Valerie B. Jarrett, to push for loans, tax breaks and other government assistance… Energy Department preliminary loan approvals—including the one for Solyndra—were granted at times before officials had completed mandatory evaluations of the financial and engineering viability of the projects.

…[T]he company spent nearly $1.8 million on Washington lobbyists, employing six firms with ties to members of Congress and officials of the Obama White House. None of the other three solar panel manufacturers that eventually got federal loan guarantees spent a dime on lobbyists… Solyndra’s loan guarantee was the highest of the four companies…

Five lobbyists employed by the McBee group eventually worked on Solyndra’s behalf, including Michael Sheehy, a former top aide to Representative Nancy Pelosi of California, the House Democratic leader. Solyndra has paid McBee Consulting $340,000 since 2009…

Solyndra and its lobbyists continued to provide assurances to the White House and the Energy Department, which still could have stopped the flow of federal money…

The story might well be read in conjunction with yesterday’s Washington Post story, which stressed “questionable spending by management almost as soon as a federal agency approved a $535 million government-backed loan for the start-up… ‘Because of that infusion of money, it made people sloppy.’”

Zoning Laws Are Strangling Silicon Valley

Many of the best jobs for computer programmers are concentrated in the San Francisco Bay Area, where dozens of innovative software companies—Google, Facebook, Apple, Intel, Cisco, Adobe—are located. This concentration of innovative, rapidly-growing firms shows up in income statistics. For example, the average wage in the San Jose metropolitan area, around $80,000, is among the nation’s highest.

Yet strangely, the Bay Area as a whole has been growing slowly. Between 1990 and 2000, the population of the Bay Area grew by 12.6 percent, slower than the 13.2 percent growth rate of the nation as a whole. Between 2000 and 2010, the Bay Area grew by just 5.4 percent, barely half the 9.7 percent growth rate of the nation as a whole. Compare that to the Phoenix metropolitan area. Despite dramatically lower wages (the average is less than $50,000) it attracted enough people to grow by a whopping 45 percent in the 1990s, and by 29 percent in the last decade.

A major factor is a severe shortage of housing in the Bay Area. Lots of people would like to live there, but the supply of homes hasn’t kept up. As a result, the median home in the Bay Area cost about $600,000 in 2009. This means that even though Silicon Valley firms offer some of the nation’s highest wages, many families can still increase their standard of living by moving to cities like Phoenix, where the median home costs about a third as much.

This pattern has been with us for long enough that most of us just take it for granted. Everyone knows that large cities are outrageously expensive, and that families often have to move to less glamorous cities to find homes they can afford. But in his new book The Gated City, Ryan Avent argues that this complacency is misguided. Living in the heart of a large city will never be as cheap, per square foot, as living in an outer-ring suburb. But the enormous discrepancy in housing costs between Silicon Valley and the Sun Belt is mostly a result of government regulations, not the inevitably higher costs of urban life.

In the 19th Century, the most innovative cities tended to also be the fastest growing. New York, Chicago, and Detroit all grew by an order of magnitude in the late 19th and early 20th centuries as key American industries grew in them. Skyscrapers sprang up in these cities’ downtowns. In New York and Chicago especially, developers built dense, walkable neighborhoods to accommodate the surging demand for housing. And this, in turn, helped keep supply in balance with demand and avoided large price increases.

This isn’t happening in Silicon Valley. If Wikipedia is to be believed, the tallest skyscraper in San Jose, the self-styled capital of Silicon Valley, is a pathetic 22 stories tall. Silicon Valley continues to be dominated by low-density, suburban patterns of development, even as housing prices have skyrocketed.

Why is this happening? In a nutshell, it’s because high-density development is illegal. The city of San Jose has 350 pages of regulations that place an effective ceiling on building density. The regulations include minimum lot sizes, minimum building setbacks, maximum building heights, minimum parking requirements, and so on. Of course, developers can apply for exceptions to these rules, but when they do so, city officials are besieged by what Avent calls NIMBY’s (“Not In My Back Yard”), local activists who strenuously oppose having more people live or work in their neighborhoods.

Avent argues that this isn’t just an aesthetic or lifestyle dispute between those who like the suburban lifestyle and those who prefer to live in cities. By strangling the growth of America’s densest and most productive cities, restrictive zoning laws actually make the nation poorer. When an engineer leaves his $80,000 job in Mountain View for a $60,000 job in Scottsdale, he may wind up with a larger house and more disposable income. But the economy as a whole becomes less productive. In a free market, developers would be allowed to supply more housing in Mountain View so that engineer could enjoy a higher salary and an affordable home. And the phenomenon isn’t limited to the Bay Area. Large, coastal cities like New York and Boston also have high wages but anemic population growth. Meanwhile, people flock to cities like Atlanta, Las Vegas, and Charlotte with lower wages but cheaper housing. Deregulation would not only allow more people to enjoy life in America’s most dynamic cities, but it would have a real impact on the nation’s economic growth.

The Gated City is a Kindle Single. It’s just $2, and short enough that you’ll be able to finish it in an afternoon.

Solyndra: Another Energy Boondoggle

The details surrounding the $535 million government loan to Solyndra – the now-bankrupt solar energy company that had been the green apple of the president’s eye – are still emerging. It remains to be seen whether or not the Obama administration broke any laws when it pushed the loan out the door despite obvious problems with the company’s finances.

At the very least, the administration is guilty of wasting taxpayer money. In that regard, it’s no different than all the other administrations that have tried to tinker with energy markets. When the dust settles, Solyndra will take its place alongside other infamous federal energy boondoggles, including the Synthetic Fuels Corporation, the Clinch River Breeder Reactor, and the Superconducting Super Collider. (All of these and more are discussed in a Cato essay on federal energy subsidies.)

Congressional Republicans are salivating over the prospects of a scandal involving a key initiative of the administration. But Republicans should be careful when casting stones given their past and present support for energy subsidies. (Note to investigative reporters: Republican [and Democratic] governors like to hand out subsidies to businesses, which often backfire on taxpayers. I’d know.)

As the political circus over the Solyndra loan unfolds, let’s not lose sight of the fact that the more important question is whether taxpayers should be forced to subsidize energy companies to begin with. The Cato essay argues that they shouldn’t:

The private sector is entirely capable of performing research into coal, nuclear, solar, and alternative energy sources for itself. Businesses will fund new technologies when there is a reasonable chance of commercial success, as they do in every other private industry. Federal subsidies may even be actively damaging to our energy future by steering markets in the wrong direction, away from the best long-term energy solutions…

Policymakers often make grandiose promises, such as proposing to make America ‘energy independent’ or to convert the nation to a ‘green economy.’ Those visions don’t make any sense, but even if they did history shows that the Department of Energy would be incapable of putting them into place with any degree of competence. Federal energy schemes are often poorly managed and generate huge cost overruns, or they aim at objectives that make little economic sense[.]