Solar Bankruptcies Mean It’s Time to End Energy Subsidies, Not Increase Them

Last week, Solyndra became the third solar company in recent weeks to go belly-up, but the Fremont-based solar manufacturer made the most noise—because it lost more than a half a billion dollars in taxpayer money. Solyndra received one of the first stimulus loan guarantees, a $535 million loan. During a visit to the plant last year, President Obama said, “Companies like Solyndra are leading the way toward a brighter and more prosperous future.” In 2010, Solyndra closed one of its facilities and canceled its initial public offering, and last week Solyndra filed for Chapter 11 bankruptcy and laid off all of its 1,100 workers.

Solyndra exemplifies the government’s abysmal track record of picking winners and losers in the marketplace, and the solar company is not the only example of energy stimulus struggles. With a number of targeted energy tax credits set to expire at the end of this year or next, industry groups are lobbying hard for extensions. Especially given the U.S. fiscal situation, this is a time to end all energy subsidies—not to extend wasteful, market-distorting policies. When the government decides to favor a technology with subsidies, it’s a good bet that subsidy “winner” is a loser in the marketplace.

Depending on who you talk to, the solar industry is either in trouble or the bankruptcies simply mean that some solar technologies will succeed while others will fail. Ken Zweibel, director of the Solar Institute at George Washington University, said, “It coincides with the fact that the industry is in trouble. There is a crisis in the solar manufacturing world; there’s no question about it. With three companies declaring bankruptcy in three weeks, there’s no question that they’re all under pressure.” Rhone Resch, president and CEO of the Solar Energy Industries Association, has a different view, saying, “What we are seeing in solar happens in every industry that is maturing and growing more competitive. You’re going to see winners emerge who find innovative ways to offer consumers the most competitively priced products.”

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Either way, there’s no justification for the subsidy.

If an energy source is not economically competitive, then the government should not artificially prop up these technologies and energy sources to create a market that wouldn’t exist without the subsidy. And if producers do have an economically viable idea, then they shouldn’t need the handouts from Washington in the first place.

The investment tax credit for the solar industry does not expire until the end of 2016, but the ability to convert the investment tax credit into a cash grant will no longer be available at the end of this year. The solar industry isn’t the only one worried about extending its preferential treatment. A 45 cent per gallon blenders tax credit for ethanol will expire this year, and the production tax credit for wind, biomass, hydro, and geothermal projects will run out at the end of 2012. One of the larger problems with targeted tax credits is that upon expiration, industry groups will lobby Members of Congress to extend them for another year or multiple years. Congress should specify that any tax credit set to expire December 31, 2011, or on December 31, 2012, cannot be extended and should be accompanied with an offsetting tax reduction.

These are just a few provisions of the complicated web of energy tax policy woven over the past few decades by our federal government. It’s time to untangle that web, not add to it.

Congress should set expedited sunset clauses for any energy tax expenditure not set to expire at the end of the 2012. Moreover, Congress should create a three-year window for all other tax credits that extend for multiple years or do not expire, and reduce the percentage by one-third after every year. Congress should then reduce other taxes by the amount of revenue that expediting the elimination of these unsound policies would raise.

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America is a broke country, and the last thing we need is to be spending taxpayer dollars on energy subsidies. Eliminating energy subsidies means the industries and companies that provide the most benefit to the consumer will be the ones that are successful.

Source material can be found at this site.

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