The NAT GAS Act and Solyndra—Birds of a Feather…

Today, Solyndra executives appeared before Congress to be questioned about how they wasted a half-billion dollar loan from the federal government. Yesterday, the House Ways and Means committee held a hearing on the NAT GAS Act (the New Alternative Transportation to Give Americans Solutions Act). It might not appear that Solyndra and the NAT GAS Act hearings have anything in common, but the NAT GAS Act is based on the same flawed ideas that gave us the Solyndra debacle.

The Solyndra loan program and the NAT GAS Act are both based on the idea that private investors are not making good enough decisions, and therefore the federal government needs to speed things up—either through direct subsidies or through tax subsidies. The proponents of these programs argue that subsidizing solar panels or natural gas truck, bus, and car conversions will stimulate the economy and create jobs. Sadly, the NAT GAS Act will create the same incentives that gave us Solyndra’s demise.

The Solyndra saga began when the Obama administration gave the company a $535 million loan through the Federal Financing Bank (a part of the Treasury Department). The White House argued that the loan would create jobs. As Vice President Biden said, “By investing in the infrastructure and technology of the future, we are not only creating jobs today, but laying the foundation for long-term growth in the 21st-century economy.”

The Department of Energy (DOE) has tried to justify the Solyndra loan by claiming that even though it was risky, they were trying to “leverage private sector capital.” As DOE spokesman stated, “What this program is intended to do is leverage private sector capital towards innovative clean energy technology that can help American manufacturing remain competitive, but might not otherwise receive project financing on the open market.”

The problem is that the government does a very bad job at creating jobs through these kinds of programs. According to the administration, the entire green energy loan guarantee program has only created 3,545 new jobs after spending about half of the $38.6 billion in loan guarantees. That works out to about $5 million per job.

Solyndra should be a cautionary tale about policymakers thinking they can create jobs by providing special help to politically-connected companies. These plans, however, are doomed because policymakers and bureaucrats do a poor job of picking winners and losers because it’s not their money. The Obama administration—or someone in the White House—obviously thought that Solyndra was a winner, but the company has turned out to be a terrible loser.

Despite Solyndra’s demise, some policymakers are supporting the same type of policies in other incarnations, such as the NAT GAS Act. The NAT GAS Act’s premise is surprisingly similar to the DOE loan guarantee program that gave money to Solyndra. Before the loan guarantee program, there were solar companies in the U.S. trying to figure out how to make electricity from the sun at economic rates. Today, before the NAT GAS Act has been made into law, there are companies converting trucks, cars, and buses to run on natural gas without the NAT GAS Act’s large tax subsidies.

The DOE’s loan guarantee program did not create a new solar industry. Instead, solar companies such as Solyndra have rapidly expanded—fueled by taxpayers’ dollars—even though it was uneconomic. Their uneconomic expansion led to Solyndra’s downfall; their product could only be sold for what it cost to make in the real market. We don’t know if the expansion of companies converting vehicles to run on natural gas will result in a meltdown as great as Solyndra, but we do know that the NAT GAS Act will lead to billions in uneconomic spending.

We know that the NAT GAS Act will lead to uneconomic spending because cost-effective technology does not need subsidies. Apple does not need subsidies to make money selling iPads. Microsoft doesn’t need subsidies to sell Windows, even though there are literally free operating systems. And the American TV company Vizio didn’t need subsidies to compete against Asian electronic giants like Sony, and Samsung. Companies that sell a cost-effective product or technology do not need special help from the U.S. taxpayer.

The NAT GAS Act is attractive to some because natural gas can replace some imported oil. This overlooks the obvious point that if we are concerned about importing oil, why not open up more than 2.5 percent[1] of offshore lands for oil and natural gas production and why not open up more than 6 percent of onshore lands?[2] The United States has large reserves of oil, so why not use them if we are concerned about importing oil?

Additionally, the companies advocating tax subsidies for natural gas vehicles argue that natural gas is a much more economic fuel than diesel or gasoline, and somehow that justifies a multi-billion dollar government subsidy program.  If it is cheaper, won’t people buy them?  Many times in the energy debate, if a long explanation about all the intended benefits of a particular proposed government policy or handout is needed, it’s a fair bet those doing all the fast talking are trying to outsmart over 300 million Americans making individual decisions based upon what they see makes the most sense….and they do it with their own money.  Because they decide in the free market—with their own money and without coercion—the winning technologies are those that win the trust of the consumer, rather than the favor of the politician.

The NAT GAS Act is based on the same flawed assumptions that undergird the loan guarantee program that gave us Solyndra. Instead of trying to outsmart private investors and consumers by convincing politicians, it would be far better if policymakers allow Americans to choose for themselves what to invest in and what sources of energy make the most sense. After all, if we’ve forgotten what the Founders intended for our nation, shouldn’t Solyndra remind us?

P.S. For a greater explication of the NAT GAS Act, see economist David Kreutzer’s testimony from the Ways and Means Committee hearing.