Green investment bank should make taxpayers see red
The White House and congressional Democrats are talking up a “green investment bank.”
The House did the right thing by striking the notion from the continuing resolution. It seems certain, however, that some Senate Republicans are considering going along with this. You have to be “for” something, they say, now that they’ve defeated “cap and trade.” This is something, but it’s a very bad idea. Here’s why.
Let’s start with today’s headlines. The Guardian reports that a UK green investment bank proposed by the deputy prime minister poses a serious risk to Britain’s credit rating because, if its liabilities go on the national balance sheet as Treasury officials argue they must, the UK would lose its triple AAA rating (h/t The Global Warming Policy Foundation). Then there’s this. And this. Oh, and this.
It’s that bad. But, did someone say “green?” Well, then it sounds like a plan.
The point of a green investment bank is ostensibly to facilitate the commercialization of new, dormant or otherwise commercially unsuccessful technologies by providing easier financing than is available in the real world, where people scrutinize where they invest their money. It turns bureaucrats into bankers, but with your money, and no real-world incentives to “invest,” as the word connotes and denotes.
Critics argue that these bureaucrats are picking winners and losers. If only. In fact, they just pick from losers. The losers argue that since private investors will not take the risk of investing in them, if they don’t get government support, they’ll go out of business or leave the country.
The proper response to this is: Then go out of business or leave the country. History suggests that this will likely happen anyways.
The green investment bank idea is just a way to keep the “stimulus” air inflated into the “green jobs” bubble that the stimulus and similar policies created. DOE has already operated one of these loan guarantee programs (or LGPs) and, if you believe the Government Accountability Office, the DOE loan guarantee scheme could well be the worst government program of all time.
The boondoggle was first created by the 2005 Energy Policy Act. A 2008 GAO report noted that the DOE rather rashly issued 50% of conditional loan guarantees before full reviews were conducted. Naturally, Congress then tripled funding for the program, and then added a scheme for green technologies in the “stimulus” bill.
This made the LGP even riskier, by allocating $8 billion to pay the “credit subsidy cost” of “green” schemes — i.e., the estimated value of the risk the government takes on by guaranteeing the loan, meaning the estimated value of the risk of default. That was not the case with the 2005 act.
The market assumes a 10% credit subsidy cost, so this is enough for $80 billion in loans. The first such LGP loan was awarded last September to Solyndra, a company that you may recall from reports of it being a total financial disaster. It canceled an IPO after a PriceWaterhouse Cooper audit found that the company’s shaky finances “raise substantial doubt about its ability to continue as a going concern.” Evidently, Solyndra already has lost $557 million. An E&E News story about Solyndra’s financial troubles quoted financial experts speculating that Solyndra received the loan guarantee because of its political connections.
Keeping true to form, DOE then reinterpreted the rules to allow even riskier collateral arrangements.
A July 2010 GAO report exposing the mess was actually the third on the subject. In its 2007 report, the GAO questioned “whether this program [LGP] and its financial risks will be well managed.” The above-cited July 2008 report said that the “Department of Energy is not well positioned to manage the LGP effectively and maintain accountability.” Congress interpreted that as a call for more money!
So it is that, today, in the current climate, this scheme is being rhetorically repackaged for another expansion. Meaning further, spectacular, entirely predictable — and therefore avoidable — waste.
This seems to be the apotheosis of government waste. Despite repeated warnings from federal watchdogs, it grows and grows. Congress authorized $38.5 billion in LGP loans for 2008 and 2009 — four times what the Department of Energy had requested. DOE has made 18 loan guarantees or “conditional” loan guarantees, worth almost $16 billion, to green energy boondoggles. In its 2011 budget, the Obama administration is asking for the authority to make $2 billion more in wholly subsidized loan guarantees to green energy companies.
This makes no sense economically. It would be laughable were this scam not bordering on criminal waste. It is Washington at its worst.
Which Republicans will stand up to support this? Better yet, which Republican will stand up to condemn the program and vow to kill it?
Christopher Horner is a senior fellow at the Competitive Enterprise Institute. William Yeatman is the assistant director of the Competitive Enterprise Institute’s Center for Energy and the Environment.