December 21, 2012 12:27PM

Green Industrial Policy: Taxes, Subsidies, and Privilege

After lengthy investigations by multiple federal agencies, the United States is going to impose a tax ranging from 45 percent to 70 percent on all imported wind towers from China and Vietnam. Manufacturers in those countries are doing too good a job and it’s harming the U.S. wind tower industry.

These duties come on the heels of similar levies (18–250 percent) imposed on Chinese solar panels.

For anyone who wants to see more “green” energy production, these duties are a direct step backwards. Both the wind and solar industries are heavily subsidized by U.S. taxpayers. If the goal of subsidizing green energy is to reduce carbon emissions and protect the environment, then taxing green energy would necessarily serve the opposite goal.

Aside from the general follies of protectionism, this contradiction also exposes the problems inherent in pursuing a policy to promote “green jobs” as a corollary of a broader environmental policy.

Green jobs policy is formed as follows. First you use subsidies to distort incentives and increase investment in wind and solar power. This creates green jobs that the market can’t support without those subsidies. Other countries then do the same, but their manufacturers are better than yours. So to protect the new green jobs you created, you impose tariffs to prevent green competition from harming the green investments you artificially incentivized.

The result is domestic industries ultimately dependent on government intervention rather than consumer choice. It’s not a good way to promote jobs or green energy, but it does benefit the specific firms who now get unearned money both from taxpayers through the subsidies and from consumers through higher prices.

A troubling consequence of this paradigm is that the targeted industries develop a culture of rent‐​seeking. Matthew Mitchell of the Mercatus Center aptly describes this phenomenon in his paper, “The Pathology of Privilege: The Economic Consequences of Government Favoritism.” Firms respond to the availability of government favors by devoting time, money, and effort to acquire privilege. The more they do it, the better they get at it.

Success in the wind and solar industries doesn’t depend on a company’s ability to deliver high‐​quality products at a competitive price; it depends on the quality of the company’s lawyers and lobbyists. In this way, government intervention has done far more to harm the development and success of domestically produced green energy than has transient Chinese competition.