Tag: department of energy

House Testimony on Energy Subsidies

I testified to a House committee today on Department of Energy (DOE) loan programs. These were the Bush/Obama-era subsidies to Solyndra and other renewable energy businesses.

I discussed five reasons why the loan programs should be repealed:

1. Four Decades Is Enough. The federal government has been subsidizing solar and wind power since the 1970s. These are no longer the sort of “infant industries” that some economists claim need government help. Solar and wind are large and mature industries, and they already receive subsidies from state governments, particularly in the form of utility purchase mandates, which are in place in 29 states.

2. Failures and Boondoggles. The DOE claims that Solyndra’s bankruptcy was the exception, and that the agency’s overall loss rate on loans is low. But as an economist, I’m more concerned with whether the overall benefits of projects outweigh the costs, and that appears not to be the case for numerous projects. The Ivanpah solar project in California, for example, is producing less electricity and consuming more natural gas than promised, and its cost per kwh is at least three times more than for natural gas plants.

3. Corporate Welfare and Cronyism. The Washington Post found that “Obama’s green-technology program was infused with politics at every level.” Public opinion polls have shown plunging support for both politicians and big businesses over the years, and one of the reasons is such cronyism. Businesses and policymakers would gain more public respect if they cut ties to each other by ending corporate welfare.

4. Private Sector Can Fund Renewable Energy. Most DOE loan guarantees have gone to projects backed by wealthy investors and large corporations, such as Warren Buffett and General Electric. Such individuals and companies are fully capable of pursuing energy projects with their own money. Buffett’s Berkshire Hathaway has invested $17 billion in renewable energy since 2004. With that kind of private cash available for renewables, we do not need the DOE handing out subsidies.

5. Subsidies Distort Decisionmaking. Federal energy subsidies create counterproductive incentives in the economy. For example, subsidized firms tend to become slow and spendthrift, thus subsidies undermine productivity. Also, because subsidies are not driven by consumer demands, they can induce firms to invest in activities that will not succeed in the marketplace in the long term.

You can watch the full hearing here. My testimony is here. More background on energy subsidies is here.

You Ought to Have a Look: Advice for Trump’s Transition Team

You Ought to Have a Look is a regular feature from the Center for the Study of Science.  While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic.  Here we post a few of the best in recent days, along with our color commentary.

In this You Ought to Have a Look, we hope that some of the “You” are members of, or influencers of, President-elect Trump’s transition teams.

With so much talk about the Trump’s plans on killing the Clean Power Plan, withdrawing from the Paris Climate Agreement, reversing the Keystone XL pipeline rejection, removing energy subsidies and reigning in the EPA (all good ideas in our opinion), we want to make sure the transition team doesn’t overlook other, invasive, burdensome, costly, and climatologically-meaningless regulations that were put in place in President Obama’s Climate Action Plan.

Here’s a rundown of some of the more significant of them.

Energy Efficiency Regulations from the Department of Energy. 

The DoE and put forth a seemingly endless string of regulations governing the energy efficiency of all manner of power-consuming appliances large and small, from industrial boilers and refrigeration systems, to microwave ovens, and ceiling fans (and most things in between). The reason?

We have repeatedly submitted public comments as to why the climate change angle should be a non-starter (our latest in this long line is here). But besides that, the DoE standards result in appliances that work less well, cost more, and reduce consumer choice. Our big brother government thinks it’s doing us all a favor because we aren’t savvy enough to value long-term cost saving from energy consumption over other values. Not everyone agrees. Sofie Miller, senior policy analyst at the George Washington University Regulatory Studies Center, recently wrote:

This line of reasoning overlooks the possibility that consumers may have legitimate preferences for less-efficient appliances based on household characteristics or other observable product qualities (such as size, durability, reliability, or noise level). Also, the assumptions underpinning the DOE’s analyses may not be accurate; for instance, some consumers may have high discount rates, making future energy savings less important than immediate purchase savings. By regulating away the option for consumers to purchase less efficient appliances, the DOE claims to be improving consumers’ choice structure by removing choices. These rules aren’t technology-forcing, they’re consumer-forcing.

…the fact that consumers choose not to purchase efficient appliances indicates only that they do not value these attributes as much as the DOE does. As a result, these rules impose huge net costs on consumers, rather than benefits.

Yet the DoE has a lot more of these efficiency standard regulations in the offing (the public comment period is currently open for two more proposed regulations—governing walk-in refrigerators and residential furnaces).

Welcome to the Whimsy-conomy, Energy Trade Edition

The AP reports some bad news for anyone seeking a little security and predictability in the US and global energy markets:

Energy Secretary Ernest Moniz said Tuesday he will delay final decisions on about 20 applications to export liquefied natural gas until he reviews studies by the Energy Department and others on what impact the exports would have on domestic natural gas supplies and prices.

Moniz, who was sworn in Tuesday as the nation’s new energy chief, said he promised during his confirmation hearing that he would “review what’s out there” before acting on proposals to export natural gas. Among the things Moniz said he wants to review is whether the data in the studies are outdated.

A study commissioned by the Energy Department concluded last year that exporting natural gas would benefit the U.S. economy even if it led to higher domestic prices for the fuel.

The AP adds that Secretary Moniz justified this delay as his “commitment” to Senate Energy Committee Chairman Ron Wyden (D-Ore.) who opposes natural gas exports and has criticized the DOE study.  Moniz’s statement comes just days after his department (quietly, on a Friday) approved one pending export application—moving the grand total of approvals to two out of 20 total applications, most of which have been sitting on DOE’s desk for several years now.

And who says the U.S. government isn’t swift and efficient?

An Update on Different Pentagon Spending Plans

On Monday, I posted a lengthy entry here comparing the different plans for military spending: the current Obama administration/OMB baseline, CBO’s latest estimate for sequestration, Mitt Romney’s plan to spend four percent of GDP on the Pentagon’s base budget, and Paul Ryan’s plan.

I should have taken a bit more time checking my numbers, because I ended up comparing apples to oranges (or 050 to 051, in budget-wonk-speak).

Thankfully, the ever-watchful Carl Conetta at the Project on Defense Alternatives spied the error, and set me straight. The gap between the Ryan plan and the current baseline (President Obama’s plan) is less than I had previously reported. The gap between the Ryan plan and the Romney plan is larger. The new numbers, and a revised chart are enclosed below.

I have had to make some inferences, so Governor Romney has some wiggle room. Romney’s surrogates have clarified other aspects of his plans for military spending, most recently here, but I still don’t know what is included when he says he will have a “goal of setting core defense spending—meaning funds devoted to the fundamental military components of personnel, operations and maintenance, procurement, and research and development—at a floor of 4 percent of GDP.” And no one seems to know how soon he intends to achieve that goal.

He could claim that the four percent goal should be applied to the entire “national defense” category (aka 050), which includes nuclear weapons spending within the Department of Energy, for example. This amounts to about a $25 billion difference annually. He could also include mandatory spending within the Pentagon’s budget, another $9 billion a year, on average.

The bottom line remains unchanged, however: Paul Ryan would spend more than President Obama on the military; Mitt Romney would spend much more. To his credit, Ryan has specified other spending cuts in domestic programs to ensure that his plan doesn’t add to the deficit or require higher taxes. Romney has not.

As before, I anxiously await additional clarification on how Romney plans to make up the difference.

Details, in constant 2012 dollars, for the period 2013-2022:

  • Obama/OMB Baseline (051, discretionary):  Total $5.163 trillion
  • Sequestration per CBO (051, discretionary): Total $4.659 trillion; $504 billion in savings
  • Ryan plan (051, discretionary): Total $5.321 trillion; $158 billion in additional spending
  • Romney 4 percent in four years: Total $7.015 trillion; $1.852 trillion in additional spending
  • Romney 4 percent in eight years: Total $6.868 trillion; average $687 billion/year; $1.704 trillion in additional spending

Political Support for Energy’s Loan Guarantees

Several weeks ago, 127 House Republicans joined 155 Democrats to defeat an amendment introduced by Rep. Dennis Kucinich (D-OH) and Rep. Tom McClintock (R-CA) that would have shut down the Department of Energy’s Title 17 loan guarantee program. That’s the program that gave birth to Solyndra, which has come to symbolize the failure of the Obama administration’s crony capitalist policies.

Why would members of Congress, and Republicans in particular, continue to support this federal boondoggle incubator? A new paper from Cato adjunct scholar Veronique de Rugy that looks at the Energy loan guarantees explains:

One reason is it serves three powerful constituencies: lawmakers, bankers, and the companies that receive the subsidized loans. Politicians are able to use loan programs to reward interest groups while hiding the costs. Congress can approve billions of dollars in loan guarantees with little or no impact to the appropriations or deficit because they are almost entirely off-budget. Moreover, unlike the Solyndra case, most failures take years to occur, allowing politicians to collect the rewards of granting a loan to a special interest while skirting political blame years later when or if the project defaults. It’s like buying a house on credit without having a trace of the transaction on your credit report.

Veronique notes that most of the money for the loan guarantees issued under section 1705 of Title 17 have gone to large and established companies:

These include established utility firms, large multinational manufacturers, and a global real estate investment fund. In addition, the data shows that nearly 90 percent of the loans guaranteed by the federal government since 2009 went to subsidize lower-risk power plants, which in many cases were backed by big companies with vast resources. This includes loans such as the $90 million guarantee granted to Cogentrix, a subsidiary of Goldman Sachs. Currently, Goldman Sachs ranks number 80 on the list of America’s Fortune 500 companies.

In recent testimony before the House Budget Committee, Chris Edwards and I also discussed the crony nature of the president’s “green” energy subsidies:

President Obama’s green energy programs illustrate how corporate welfare creates corrupting relationships between businesses and politicians. The Washington Post found that “$3.9 billion in federal [energy] grants and financing flowed to 21 companies backed by firms with connections to five Obama administration staffers and advisers.” It also noted that the “main players in the Solyndra saga were interconnected in many ways, as investors enjoyed access to the White House and the Energy Department.” According to the New York Times, Solyndra “spent nearly $1.8 million on Washington lobbyists, employing six firms with ties to members of Congress and officials of the Obama White House.”

American businesses, of course, have a right to lobby the federal government. But given that reality, Congress throws fuel onto the corruption fire by creating business subsidy programs. When subsidy money flows out the door from Washington to businesses at the same time that money flows back from businesses to Washington for lobbying, it’s no surprise that we get influence-peddling. Corporate welfare undermines honest and transparent governance, and Americans are sick and tired of the inevitable scandals.

Unfortunately, most members of Congress apparently aren’t sick and tired of it.

Debate Needed on Nuclear Weapons Spending

Nuclear weapons have played a major role in U.S. force planning for many decades. But we have never had a thorough accounting of the total cost of these weapons, and we still don’t. (The best to date is probably this study by Stephen I. Schwartz and Deepti Choubey, but they don’t claim to capture every nickel spent on nuclear weapons.)

The Washington Post’s Glenn Kessler published a fact checker article earlier this week that challenged the claim that we would spend $700 billion on nuclear weapons over the next decade. Since then, other organizations have come forth to decry the lack of transparency within the nuclear weapons budget, and call for the government to do a much better job of documenting all of the costs associated with our many nuclear weapons programs. This would include an understanding of the full life-cycle costs for fissile material, warheads, and delivery vehicles, from design and development, to production, to retirement and waste removal and abatement. As with the rest of the Pentagon’s budget, which has never been subject to a complete audit of its assets and liabilities, the nuclear weapons portion (much of which resides in the Department of Energy) remains shrouded in secrecy.

I hope that the latest dust-up over what we are actually spending creates additional pressure on the bureaucracy to open up its books.

This an excerpted version of a longer post from “The Skeptics” at the National Interest.

Senate Vote on Rand Paul’s Budget

Last week, a motion to proceed on a budget resolution introduced by Sen. Rand Paul (R-KY) was decisively defeated in the Senate (7 in favor, 90 opposed). Paul’s proposal would have balanced the budget in five years (fiscal year 2016) through spending cuts and no tax increases. Social Security and Medicare would not have been altered. Instead, the proposal merely instructed relevant congressional committees to enact reforms that would achieve “solvency” over a 75-year window.

That’s hardly radical.

Paul’s proposed spending cuts were certainly bold by Washington’s standards, but they weren’t radical either. For example, military spending would have been cut, in part, by reducing the government’s bootprint abroad. From the Paul proposal:

The ability to utilize our immense air and sea power, to be anywhere in the world in a relatively short amount of time, no longer justifies our expanded presence in the world. This budget would require the Department of Defense to begin realigning the over 750 confirmed military installations around the world. It would also require the countries that we assist to begin providing more funding to their own defense. European, Asian, and Middle Eastern countries have little incentive to increase their own military budgets, or take control of regional security, when the U.S. has consistently subsidized their protection.

Over 750 confirmed military installations around the world. That’s enough to make a Roman emperor blush. Isn’t continuing to go deeper into debt to subsidize the defense of rich allies the more “radical” position? (See these Cato essays for more on downsizing the Department of Defense.)

Other cuts included eliminating the Department of Housing & Urban Development, the Department of Energy, and most of the Department of Education. But unlike most Republicans, Paul didn’t apologize for the cuts or use the debt dilemma as a cop out. Instead, he explains in his plan why these federal activities are counterproductive and should be devolved to the states or left to the private sector.

It’s disappointing that Paul could only get seven Republicans and no Democrats to support his budget. For all the bluster about needing to cut spending, not raise taxes, and stop the Obama administration’s big government agenda, most Republican senators said “no dice” when given the chance to vote in favor of a plan that would accomplish all three objectives and balance the budget in five years.