Fueling Freedom

The $5 Billion Man

One of the greatest scams in modern government is the millions and even billions of dollars that Silicon Valley businesses and investors are making off green energy subsidies. And the poster child for green corporate welfare is Elon Musk, CEO of Tesla, SolarCity, and SpaceX. The multibillionaire is a master investor—he “goes where the money is”—and increasingly, the hunt for cash doesn’t take place on Wall Street or even in Silicon Valley. It’s in Washington, D.C.

Until the price of oil price went bust—he lost billions in early 2016—Musk was one of the hottest CEOs in the country, and Tesla stock had been a strong performer. But one key to Musk’s success has been that his companies have, according to a 2015 analysis by the Los Angeles Times, gathered in $4.9 billion of taxpayer subsidies over the past several years—everything from grants and loan guarantees to property-tax abatements and federal tax credits for buying his products.¹ The new king of corporate welfare, Musk is starting to make Florida’s Fanjul family, which lives off sugar subsidies, or former Archer Daniels Midland CEO Dwayne Andreas, who cashed in on ethanol mandates and subsidies, look like pikers.

Many Wall Street investors have gambled that Musk can cut his costs before the taxpayer money runs dry. But it might be that he and his backers are betting that Washington is so tied into the powerful green industrial complex that the tax dollars will never stop flowing, like a fiscal perpetual motion machine. This is what liberals mean by “public-private partnership.” It says a lot about the U.S. economy and the role that big government plays that those who reach the top of the federal subsidy mountain are Wall Street’s darlings.

Nearly all of Musk’s corporate activities—building electric cars, producing solar panels, and launching rockets into space—depend on government’s largesse. The secret to his success is finding out what the Obama administration and other politicians want then starting to produce it, regardless of whether it’s commercially viable. The solar panel scam is so costly that the government in many cases is paying homeowners to put Musk’s product on their roofs. The investment firm Sanford Bernstein found that late in 2015, when Congress extended green energy tax credits, the more than billion-dollar value of the credits was instantly translated into higher stock valuations. So the tax bill effectively took money from American taxpayers and handed it over to the shareholders of green energy firms. That’s quite a scam—taxing the poor and giving to the rich.

Challenged on CNBC in 2015 about the size of the subsidies he rakes in every year, Musk replied that they’re “helpful” and create jobs. He defended the government support as necessary because “what the incentives do is they are catalysts. They improve the rate at which a certain thing happens.” Well, it’s true that if the government subsidizes something, you usually get more of it. Even SolarCity’s own filings with the Securities and Exchange Commission concede that eliminating all the rebates and other handouts would “adversely impact our business.”

The fact is, there might not be a solar industry if the government weren’t underwriting it—which it has been doing for thirty years, even though the aid is always sold as “temporary.” The real issue is: Why do our governments do it? Why are politicians steering tax dollars to their favorite causes—and contributors?

Who knows if Musk’s electric cars will ever become profitable or whether solar energy can compete on its own anytime in the next decade? Oil is going to have to get many times more expensive for that to happen. It’s fairly certain that the wise men of Washington who pass out our money don’t have a clue whether this will happen. And it’s not their money they’re handing out as if this were a Monopoly board game. It’s the taxpayers’. How many Solyndras do taxpayers have to finance and then watch crash and burn before the government cuts off this cronyism?

The Forty-Year Green Energy Bust

Even against the backdrop of Washington’s extensive fiscal malpractice, Uncle Sam’s nonstop “investment” in green energy qualifies as one of Uncle Sam’s most expensive boondoggles. Bad bets on renewable energy since the 1970s include direct subsidies, government loans and loan guarantees, tax preferences, lavish grants, and regulatory mandates biased in favor of wind and solar power. The payoff has been elusive to say the least.

Let’s start with the simple facts. Green energy remains an inconsequential source of energy in America despite more than $80 billion in direct federal taxpayer subsidies under Presidents George W. Bush and Barack Obama. This is shown in Figure 8.1 on the following page. Wind and solar combined produce less than 3 percent of our energy, and only about 5 percent of our electricity.²

There are plenty of niche markets for wind and solar power. But the assumption that current renewable technologies can provide the same energy services that oil, coal, and natural gas now handily provide at a vast scale defies reality. Without the lavish subsidies, renewable energy would find its niche markets.

America’s $18-trillion industrial economy cannot be powered with windmills and solar paneling unless we can transcend the four laws of thermodynamics, the application of which put man on the moon, led to micro-processors, semiconductors, and innumerable technological breakthroughs that have extended our life spans and improved human life across the world.

FIGURE 8.1

Renewable Energy Is Insignificant

The growth in oil & gas production from America’s sbale fields in the last seven years exceeds by twofold the total production of energy from all renewable sources (excluding bydro dams).

Data source: U.S. Energy Information Administration

The future of green energy is not much brighter than its dismal past—even according to some of its most vocal proponents. In 2012, the Department of Energy issued an amazing forecast: renewable energy’s share of electricity production in America is expected to shoot up—hold on to your hats—all the way to 9.5 percent in 2030.³ See Figure 8.2. Nevertheless, the Environmental Protection Agency has decreed that renewables must provide around 30 percent of our electricity by 2030.⁴ The total share of electricity from wind and solar combined is expected to only reach 6 percent of electricity production by 2040—if all goes according to plan.⁵ And even this minuscule increase presumes that the multi-billion-dollar federal subsidy machine keeps running and growing. Europe’s pursuit of renewable energy—begun a decade earlier than our own—shows that as more power is generated from wind and sun, the amount of subsidies needed will balloon.

FIGURE 8.2

Sources of U.S. Primary Energy Use in 2030

In 2014, Michael Kelly, of the University of Cambridge, published some revealing calculations about potential contribution of renewables to reducing carbon dioxide emissions by 80 percent in 2050—the goal of the United Kingdom’s Climate Change Act of 2008. Zero-carbon energy, he found, had been static for twenty-five years, accounting for 12 to 13 percent of the energy consumed. And remember the European Union considers wood, the use of which is increasing, to be a carbon-neutral renewable fuel. If overall energy trends continue as projected, carbon energy will grow—as a portion of energy consumption—seven times faster than the zero-carbon renewable energies.⁶ At these rates, the 80 percent reduction in carbon will be reached not in 2050 but sometime around the year 2400.

A more politically correct projection comes from the U.S. Energy Information Administration, which reports that renewable energy projects will be the fastest-growing source of new energy production over the next three decades in terms of percentage change.⁷ But this is growth from a tiny base in any case. For example, despite the billions of dollars “invested” in solar projects, solar power accounts for only 0.7 percent of U.S. electricity production—even after growth of 10.3 percent from 2010 to 2012.⁸ Then again, an increase to just 1.0 percent would represent a 100 percent growth rate.

The story of the world’s largest concentrated solar thermal plant, Ivanpah, illustrates the limitations of this form of renewable energy. Sprawling across four thousand acres of the Mojave Desert that once were home to a federally-protected tortoise, this plant focuses almost 350,000 mirrors (instead of solar panels) on steam turbines to generate electricity. Built at a cost of more than $2.2 billion and subsidized by a $1.6-billion federal loan guarantee, Ivanpah got off to a slow start, as the New York Times noted in an article titled “Huge Solar Plant Opens Facing Doubt about Its Future.”⁹

Ivanpah is generating only 40 percent of the time, evidently because cloud cover is more frequent than was expected. To jump-start the turbines in the morning after the sun comes up, the plant uses four times more natural gas than was planned, raising the question whether it is a solar or a natural gas plant. Producing air temperatures of up to a thousand degrees Fahrenheit, it killed 3,500 birds during the first year of operation. The math and physics underlying wind, solar, and biomass renewables—which our ruling class has decreed to be the replacements for steady-state, energy-dense coal, gas, and nuclear sources—do not in fact work. Yet the United States, and much of Europe have bought the renewable lobby’s bill of goods.

By far the biggest source of renewable electricity today (close to 50 percent of all renewable electricity produced) is hydroelectric power, yet it receives almost no subsidies. Wind and solar combined produce less than a quarter of all renewable energy but receive nearly two-thirds of all renewable energy subsidies.¹⁰ Even with these enormous subsidies, in total, the EIA projects that wind will produce only 4.9 percent of our electricity by 2040, up from 4.3 percent today.¹¹ The high costs and the insuperable problem of intermittency—the wind doesn’t always blow and wind speeds fluctuate—preclude wind power from fueling a large industrial base or a major metropolitan area.

Consequently, America will derive upwards of 90 percent of its energy from sources other than wind and solar for at least the next thirty years—mostly traditional fuels like coal, natural gas, nuclear energy, and hydropower. Of course, it’s these vital resources which the environmentalists despise.

The International Energy Agency concedes that green energy is in fast retreat and is getting crushed by “the recent drop in fossil fuel prices.”¹² It finds that because of the huge price advantage of oil, natural gas, and coal, “fossil plants still dominate recent [electric power] capacity additions.”¹³ Barack Obama told voters that green energy was necessary because oil is a “finite resource” and we would eventually run out.¹⁴ But as the late economist Julian Simon taught us in his classic book The Ultimate Resource, human ingenuity in finding new resources almost always outpaces resource depletion.¹⁵ The recent shale revolution is a stunning example of Simon’s insight. (See Figure 2.1 on page 28.)

What does this mean for the future of green energy? Well, for now, it can’t possibly compete with fossil fuels in a free and functioning market. But the market works only in countries that allow it to do so. German and British renewable mandates have resulted in a cascade of subsidies, soaring prices, energy scarcity, and industrial flight. Our own EPA Clean Power Plan rule threatens to inflict the same disaster on the United States by eliminating competitive energy markets and mandating that the carbon intensity of electricity trump cost and reliability.

The national leaders who got their countries into this renewable mess bravely insist that necessary energy revolutions may have painful chapters. Held hostage to Vladimir Putin’s natural gas prices—two to four times higher than in the United States—the dogmatic European greens have few alternatives. So they are returning to their great-great-grandparents’ heating fuel—wood.

Germany and England are learning that the more renewable fuels they dispatch to their electric grids, the more coal they must burn to back up the intermittent generation from wind or solar sources. And since most of their coal plants have been shuttered, not because of government mandates but because they could not compete with lavishly subsidized renewables, these countries are now subsidizing coal plants to come back on line.

On another green energy front, the collapse in the price of oil and natural gas is flattening the market for battery-powered cars. The trade publication Fusion noted in 2015 that “electric vehicle purchases in the U.S. have stagnated. According to auto analysts at Edmunds.com, only 45 percent of this year’s hybrid and EV trade-ins have gone toward the purchase of another alternative fuel vehicle. That’s down from just over 60 percent in 2012.”¹⁶ And a major car market website observes, “Never before have loyalty rates for alt-fuel vehicles fallen below 50 percent.” It seems that “many hybrid and EV owners are driven more by financial motives [than by] a responsibility to the environment.”¹⁷ That’s what happens when the world is awash in abundant fossil fuel and technology advances.

Don’t bet on the long-promised super batteries storing wind and solar power any time soon. The much acclaimed Tesla “gigafactory” in Nevada is supposed to produce more storage than all the current lithium batteries in the world. In storage capacity, according to our colleague Mark P. Mills, the batteries to be annually produced at the Tesla facility would amount to thirty billion watt-hours of electricity. Yet the United States consumes around 4,000,000 billion watt-hours per year.¹⁸ This means that annual production of batteries at the “gigafactory” would store about five minutes’ worth of U.S. electric demand. For context, thirty minutes of the energy output of the Eagle Ford shale field in Texas represents a greater quantity of energy than the batteries produced in a year at the Tesla factory.¹⁹

Giving Green Energy the Old Google Try

Scientists at Google—the epitome of a modern “green” business—encountered the sobering realities of renewable energy when they searched for a fast path to a zero-carbon future. The RE<C initiative (“Renewable Energy Cheaper than Coal”), launched in 2007, invested in “potentially breakthrough technologies.” After four years, Google’s high-powered engineers concluded that renewables “simply won’t work” on the scale envisioned. In fact, the grand green plan was damaging to the environment. They wrote:

Even if one were to electrify all of transport, industry, heating, and so on, so much renewable generation and balancing/storage equipment would be needed to power it that astronomical new requirements for steel, concrete, copper, glass, carbon fiber, neodymium, shipping and hauling, etc., would appear. All these things are made using mammoth amounts of energy: far from achieving massive energy savings, which most plans for a renewables future rely on implicitly, we would wind up needing far more energy, which would mean even more vast renewables farms—and even more materials and energy to make and maintain them and so on. The scale of the building would be like nothing ever attempted by the human race.²⁰

The green movement has responded that RE<C simply wasn’t “ambitious enough.” But unlike governments, private company’s don’t have unlimited budgets. They have to turn a profit at some point.

Google’s setbacks in green energy were even more embarrassing when the firm also had to admit that it couldn’t even power its own data centers with the solar panels it had installed. According to the company statement: “The plain truth is that the electric grid, with its mix of renewable and fossil generation, is an extremely useful and important tool for a data center operator, and with current technologies, renewable energy alone is not sufficiently reliable to power a data center.”²¹ Try lighting up a whole city.

The Google scientists were not “climate change deniers.” But they came to a stark realization that other greens should ponder. Transitioning to a green power system would require two to three times more generating capacity to provide the same amount of electricity as a coal or natural gas plant, back-up generation from reliable sources for grid balancing, and energy storage equipment. These structures would in turn require astronomical quantities of steel, concrete, copper, glass, carbon fiber, neodymium, along with shipping and haulage of these raw materials. All this output requires copious amounts of energy inputs. Far from achieving the massive energy savings assumed by most renewable energy master plans, humanity would end up needing far more energy.

Nevertheless, Washington clings to the fantasy that green energy is going to replace fossil fuel production. If Google can’t make renewable energy work, does anyone really think Washington can?

Government’s Fatal Conceit

The practice of fleecing American taxpayers to fund pipe dreams of alternative energy sources goes back to the late 1970s, when the Carter administration spent billions of dollars on the Synthetic Fuels Corporation, one of the great corporate welfare boondoggles in American history. Under Presidents George W. Bush and Obama, Washington demonstrated that it continues to suffer from what F. A. Hayek called the “fatal conceit.” Like the central planners of the 1950s Politburo, Congress and the White House thought they knew where the future was headed, and from 2010 to 2015 the U.S. Government poured $150 billion into solar and other renewables.²² Even as fracking changed the energy world around them, these blindfolded sages stuck with their green fantasy that wind turbines were the future.

It’s bad enough when private sector investors are sucked in to placing foolish bets on a medieval energy source like wind turbines. But when politicians play public venture capitalist, they lose our money. To make matters worse, government-backed technologies divert private investment toward those deemed worthy by policymakers and away from more promising innovations. This turns a genuinely competitive market on its head.

We don’t know if renewables will ever be a bigger part of America’s energy mix. But if they do, it will be because of market forces and technological advances, not central planning.

Who Gets All Those Subsidies?

Which form of energy is most heavily subsidized by taxpayers? This has been a source of raging debate for at least the last decade. If you listened to the Obama administration, you would think all of the tax breaks and subsidies go to oil and gas. But in 2010, the natural gas and oil industry received $2.8 billion, coal got $1.4 billion, hydropower $216 million, and solar $1.1 billion. The grand-prize winner in the government-subsidies sweepstakes was the wind industry, which received $5 billion.²³

The most meaningful gauge of subsidies takes into account how much electricity each recipient actually produces. The Department of Energy will not provide such a calculation, but the Institute for Energy Research, using DOE data for 2010, has tallied government energy subsidies per unit of electricity produced.²⁴ Coal received sixty-four cents per megawatt hour, natural gas and petroleum received sixty-four cents, nuclear $3.14, wind $56.29, and solar a whopping $775.64. So for every tax dollar that goes to oil and natural gas, wind gets about $60 and solar about $800, and solar still can’t compete in the market.

FIGURE 8.3

Electric Shock: Federal Electricity Subsidies, 2010

Source: U.S. Department of Energy, 2011; Institute for Energy Research, 2011

The DOE has calculated subsidies for transportation fuels and the story is much the same as for electricity production. Oil and natural gas, which get 20.7 percent of fuel subsidies, account for 80.3 percent of our transportation fuel. The big winner here is “biomass and biofuels”—mostly ethanol, which account for 10.9 percent of fuel production but receive 73.2 percent of the taxpayer assistance. On an equivalent Btu basis, for every dollar of aid to oil and gas, ethanol receives roughly $28.²⁵

An important difference between fossil-fuel producers and green energy producers is that the former pay a great deal in taxes, the latter almost none. According to a recent study by the American Petroleum Institute, the oil and gas industry contributes more than $30 billion a year in the form of income taxes, rents, royalties and other fees.²⁶ Renewables, especially wind and solar, with profits close to zero, pay almost no income tax. The Congressional Research Service reports that the renewables industry will receive nearly $40 billion in tax-related provisions between 2014 and 2018.²⁷ 18 percent, or $7.2 billion, of this tax-related support comes from a program called “Section 1603 Grants in Lieu of Tax Credit program.” These are like earned income tax credit payments to corporations that pay no income tax, and the CRS notes that the “one-time grant” instead of future credits is popular because of the “uncertainty renewable energy investors may have regarding their future tax position.”²⁸ This means there is a good chance they won’t have any profits to tax.

In 2012, then-Senator Jim DeMint of South Carolina proposed, as a free-market alternative to this spider web of subsidies, extinguishing all targeted federal tax credits and other subsidies to all forms of energy—coal, gas, oil, wind, solar, bio-fuels, batteries, and nuclear power.²⁹ This measure would have eliminated about $90 billion of corporate welfare—enough savings to lower the federal corporate income tax rate by almost 1 percentage point. DeMint could muster only twenty-five votes for his proposal. Almost all Senate Democrats and even many Republicans refused to end “green” taxpayer giveaways.

Solar Scam

About half the states have imposed “renewable portfolio standards,” which require utilities either to generate or to buy a certain percentage of their electric power from wind and solar energy producers. These standards raise consumers’ costs by forcing utilities to buy power from more expensive sources.

Thanks to a slew of solar industry subsidies, homeowners can effectively contract with solar leasing firms that will install those panels for free. But they often get gouged later, as do taxpayers in one of the great corporate welfare scams of modern times. Homeowners buy the solar power system at an ultra-low long-term interest rate while immediately receiving the prized 30 percent tax credit. Or they install the equipment with a long-term, no-money-down lease option. SolarCity offers customers loans with financing from major banks, including Bank of America and Citigroup.

Rooftop solar would probably not survive without these giveaways. According to SolarCity’s 2014 annual report, 93 percent of new customers enter into the second option. “Our business,” says the report, “currently depends on the availability of rebates, tax credits and other financial incentives. The expiration, elimination or reduction of these rebates, credits, and incentives would adversely impact our business.”³⁰

In a typical lease, SolarCity owns the equipment and pockets the tax credits. The homeowner pays SolarCity monthly for the energy individually consumed from the panels, while the electric utility credits net metering proceeds to the homeowner.

These solar panels are installed regardless of whether the savings from the electric power generated covers the cost of materials, installation, and upkeep. Often they don’t come close. Congressman Paul Gosar (R-Ariz.), a member of the Committee on Oversight and Government Reform, and eleven House colleagues have written to the Federal Trade Commission asking if the booming solar leasing market—a “new industry with a limited track record and little regulatory oversight”—poses a “considerable risk” to homeowners.³¹

Congressman Gosar is not worried only about the taxpayers but also about the families that have been lured by “deceptive marketing strategies” into sucker deals. His investigation has found that “homeowners who signed these zero-money-down leases are struggling to sell their homes” and may not have been “fully aware of the terms of their 20–30-year leases.”³² In some cases these pay-me-later, long-term leases exceed the life of the roof or the homeowner’s intention to live in the home.

SolarCity’s website claims you can “secure lower, predictable solar energy rates that are guaranteed for years to come.” Its advertisements romance customers with slogans like: “Start with no upfront cost” and “Our coverage is the best in the industry, with repairs and a production guarantee at no additional cost.”³³ Yet the fine print indicates solar power costs on home systems will increase by up to 2.9 percent annually for twenty to thirty years—hardly a bargain if long-term electricity trends have reversed because of the natural gas boom.

California and Louisiana homeowners have filed class-action lawsuits against solar leasing companies alleging fraudulent marketing campaigns that don’t warn customers of true costs and risks.³⁴ The California lawsuit against SunRun cites a website claim that “nationwide, electricity rates have been increasing 6 percent per year over the last 30 years . . . and there’s no evidence that this trend will reverse anytime soon.”³⁵

“Net metering” is residential solar’s most important subsidy, because it forces the local power company to purchase any excess energy—even at money-losing rates—generated by these home systems, regardless of demand. Under this scheme, a sunny day with below-normal energy demand may lead to a surplus of electric power. The homeowners can sell this unneeded solar power at a tidy profit to an unwilling buyer at full retail cost—a level often four times the wholesale rate. Ultimately these costs must be passed on to other ratepayers.

According to E&E News, a leading energy policy newsletter, “43 states, the District of Columbia, and four U.S. territories have net metering policies in place, with differing capacity limits. Under the Energy Policy Act of 2005, all public utilities are required to offer net metering to customers upon request.”³⁶

Solar panel users are guaranteed access to the electric grid when they need it—on stormy or cloudy days, for example. But they fail to pay their fair share for construction and upkeep of the grid, making them free riders.

With power generation plants, fixed costs can make up 20 to 50 percent of electricity’s retail price. Thus solar users don’t have to pay for the fixed cost of the grid system, but plant owners get to charge for its cost, embedded in the retail price of electricity, when they sell to the grid. In effect, each solar panel home enjoys a $1,000 subsidy paid for by neighbors and other grid users, according to Greg Bernosky of the Arizona Public Service Co.³⁷

The Solar Energy Industries Association likes to tout the industry’s “amazing success”—but the continued success of this fad depends on a cascade of government subsidies, including a 30 percent federal investment credit that was supposed to expire at the end of 2016. None of these “renewable energy” subsidies to harvest the sun’s rays will have more than a tiny effect on greenhouse gas emissions. But when green homeowners can pass the costs on to their neighbors, such schemes can look attractive.

SolarCity boasts that it plans to have one million long-term leases in place by 2018 in spite of the 50 percent drop in oil and gas prices that began in 2014.³⁸ Don’t be surprised if we see taxpayer losses that dwarf the Solyndra debacle.

Anatomy of a Green Energy Flop

One of the premier government-as-venture-capitalist fiascoes was Fisker Automotive, a California-based maker of battery-powered cars, which received a loan of $529 million from the Department of Energy in 2010.³⁹

Fisker’s success was critical to fulfilling Barack Obama’s promise that America would be “the first country to have a million electric vehicles on the road by 2015.”⁴⁰ Fisker was supposed to build about one hundred thousand of those vehicles,⁴¹ but by the end of 2013 the company had produced and sold only about two thousand of its $100,000 Karmas.⁴²

When, during the 2012 presidential campaign, Mitt Romney confronted Obama with this spectacular failure, the administration and the press rushed to Fisker’s defense, and the firm’s spokesman indignantly declared that “we don’t consider ourselves a loser.”⁴³

Well, judge for yourself. Financial documents from congressional sources reveal that Fisker was crippled by severe financial and production problems that began even before the half-billion taxpayer loan was approved. DOE knew all this but gave the green light anyway. On August 23, 2009, Bernhard Koehler, Fisker’s chief operating officer, sent a panicked email to DOE’s loan office. The firm was so cash-strapped that it needed funding “in a very short time frame,” Koehler warned. “A delay until the end of September is not possible for us or our suppliers.” Then he added: “I’m sorry if I’m being very direct right now, but we don’t have much time. I have to lay off all of my Fisker Coachbuild employees on Monday and some of the Fisker automotive people.” Fisker could raise more equity with the loan, Koehler assured DOE, but was “nowhere without it.”⁴⁴ No one could mistake Fisker for another Google.

In an internal e-mail, the DOE loan office admitted that it knew Fisker was troubled early on. The “Location of Collateral” report reveals that under even the most generous assumptions the value of the assets would never be close to making taxpayers whole in case of a default. Much more indefensible was issuing a low-interest, under-collateralized loan to a company whose credit rating—CCC+—is a warning of possible bankruptcy. This loan was looking like a Hail Mary pass.

Within months of receiving the loan, Fisker’s troubles cascaded. According to the DOE loan office’s corporate quarterly credit report of December 12, 2011, “the original business plan, delivered at closing in April 2010, called for a February 2011 launch of the Karma. The February 2011 launch date was included as a required milestone in the Loan Arrangement and Reimbursement Agreement.”⁴⁵ In March 2011, “Fisker claimed that the milestone had been met.” Not until June of that year did Fisker come clean, presenting “new information calling into question whether the milestone had actually been met.”

The same report also revealed that in 2011 Fisker’s credit rating had been downgraded to an even more dreadful CCC rating. The reason for the downgrade: “Deteriorating financial profile and/or persistent operation inefficiencies.” The expected “recovery rate” on the Fisker loan was now put at 50 percent—scarcely better than the return rate of a 2007 subprime mortgage—and even that was optimistic.

Fisker signaled SOS again in November 2011. According to the DOE credit report, “Fisker investors told DOE that Fisker could not raise additional equity cash unless DOE agreed to move financial covenants and milestones that Fisker would begin to breach on December 31, 2011.”⁴⁶ Like a rich uncle, DOE granted the extension.

Conditions kept getting worse. For example, because of continuing delays in launching the Karma, the estimates of the number of cars steadily declined through 2011.⁴⁷ Fisker then admitted that it would not meet its Karma sales milestone for February 29, 2012. The DOE, for good reason, feared the firm would experience a “liquidity shortage”—Fisker’s burn rate on capital soared to $244 million in 2011, up from $190 million in 2010 and $90 million in 2009. It was losing money at an accelerating pace.

At the end of 2011, DOE halted further funding of the loan, saving $336 million of taxpayer money after $192 million had been lent out.⁴⁸ In late August 2012, more than two hundred of the Karmas on the road were recalled for a faulty cooling-fan after one caught fire while parked at a shopping mall. In 2012, Consumer Reports slammed the model as “plagued with flaws.”⁴⁹ Bloomberg reported that the Karma “quit running during a road test” by the consumer magazine.⁵⁰

Fisker, having sold virtually no cars, eventually went belly up. The environment wasn’t improved; but taxpayers got soaked with at least $200 million in losses on a loan that should never have been made. The Fisker debacle represents the triumph of Obama’s green dreams over common sense. Unfortunately, its lessons were lost on the administration, which has spent $8 billion on the Advanced Technology Vehicles Manufacturing Program.⁵¹ You can’t just look at the losers, the White House says. Fair enough. But where are the winners?

Biofuels

The spectacular excesses of the Obama administration should not lead anyone to assume that environmentalist boondoggles are the exclusive preserve of Democrats. In his 2006 State of the Union message, President George W. Bush proclaimed, “We’ll fund additional research in cutting-edge methods of producing ethanol, not just from corn but from wood chips and stalks or switch grass. Our goal is to make this new kind of ethanol practical and competitive within six years.”⁵² The seeds of some of the biggest green energy flops were thus planted to “end our addiction to fossil fuels” an odd goal for a President from Texas to articulate in one of his State of the Union speeches.

President Bush and Congress went on to establish numerous subsidies in the hope of launching a viable biofuels industry. They began by funneling nearly $400 million in grants and loans to fledgling producers, the Solyndras of bio-fuels. Then, to give the industry an extra financial push, Bush signed an energy bill in 2007 that provided production tax credits of more than $1 per gallon for the manufacturers of corn-based and cellulosic fuels. On top of that, he enticed producers with the guaranteed market created by the Renewable Fuel Standard (RFS), which required oil companies to blend 250 million barrels of cellulosic fuel into conventional gasoline. The mandate would rise to five hundred million gallons in 2011, and by the end of the decade the requirements would jump to 10.5 billion gallons annually. As if the subsidies and mandates were not enough, American ethanol producers would be protected through 2011 by a tariff on ethanol imported from Brazil.

When these mandates were established, there were no companies producing commercially viable cellulosic fuel. The dream was that if you mandate and subsidize it, someone will build it. But nobody did. Despite the federal subsidies, by 2011 cellulosic fuel production wasn’t as much as 250 million barrels or even twenty-five million but very close to zero.⁵³ In 2010, the EPA revised the cellulosic mandate downward to 6.6 million. Even so, there was no cellulosic fuel available, so oil companies had to purchase “waiver credits” for failing to comply with a mandate to buy a product that the feds promised would exist but didn’t. In 2010 and 2011, waiver credits cost oil companies about $10 million—a tax on gasoline production eventually passed on to motorists in higher gas prices at the pump.⁵⁴

In 2012, the EPA had to concede that that year’s five-hundred-million-gallon production mandate was unattainable, so the agency again vastly lowered the mandate, and the Department of Energy has since acknowledged that none of the original targets is likely ever to be met.

From the start, the cellulosic revolution careened off the tracks. For example, some 70 percent of the cellulosic fuel supply was supposed to come from a single small company, Cello Energy in Alabama.⁵⁵ But in 2009, Cello was found guilty in a federal court of civil fraud for lying to investors about how much cellulosic fuel it could produce. The fuel that Cello showed to investors was derived from petroleum not plants.⁵⁶ The firm has never come close to producing the seventy million gallons the feds were counting on.

The prospects for biofuels became even dimmer in 2012 when the federal bio-diesel program, which the EPA was supposed to monitor and regulate, exploded in scandal. Regardless of who was at fault here—and there’s plenty of blame to go around, spanning two administrations—the victims of this bumbling renewable energy policy are taxpayers and consumers. Some $400 million of federal “investment” is down the drain, wasted on a series of mini-Solyndras. The mandates and production credits have raised the cost of gasoline.

And for what? A 2012 report from the National Academy of Sciences offered a dire assessment of the biofuels industry, concluding not only that the biofuels target would not be met, but also that they “may be an ineffective policy for reducing global greenhouse gas emissions.”⁵⁷ Nor have they reduced U.S. reliance on foreign oil. It was all money for nothing.

The Obama administration responded to the manifest failure of biofuels by awarding $510 million to a military biofuels project⁵⁸ and lending another $134 million for the construction of a biofuels plant in Kansas that optimists expect to produce twenty-five million gallons of biofuel a year,⁵⁹ a miniscule contribution to the federal mandate’s goal of 36 billion gallons by 2022.⁶⁰ The National Academy of Sciences says it doubts renewable fuel output will come anywhere near the federal requirements.

What About Green Jobs?

Politicians often try to sell these green energy handouts with the promise of additional jobs. In 2006 and 2007, the environmental Left forged an ingenious partnership with organized labor—the so-called blue-green alliance—in which the unions would support the green energy agenda and the construction projects would use union workers. The bargain with the greens turned out to be a catastrophically bad calculation for labor. Far more blue-collar jobs would have been created by fossil fuel projects, whereas the green energy craze has eliminated many of the trucking, coal mining, drilling, welding, pipefitting, electronics, and construction jobs that were the backbone of the industrial unions.

Despite President Obama’s promise of five million green jobs over ten years if elected,⁶¹ green energy projects have created hardly a fraction of that. A 2013 study by the Institute for Energy Research found that, for the over $26 billion committed to Department of Energy loan guarantee projects since 2009, only 2298 permanent jobs have been created. In other words, each one of these green jobs cost taxpayers an average of $11.45 million.⁶² The amount of waste, moreover, has proved enormous. The Department of Labor’s Office of the Inspector General examined a $500 million grant to the Employment and Training Administration to “train and prepare individuals for careers in ‘green jobs’.”⁶³ The report found that, out of a target of 80,000 participants, only 8,035 of those trained had found jobs, and only 1,033 had retained employment for more than six months. In other words, only one in ten participants found employment whatsoever, and only one in eighty found long-term employment. Such failure rates make America’s inner city schools look like high performers.

The green jobs track record is even more dismal if adjusted to account for the deceptively broad definition of green jobs the Obama administration uses to juice the numbers. A report by the House Committee on Oversight and Government Reform found that “the metric of a ‘green job’ is nothing more than a propaganda tool designed to provide legitimacy to a pre-determined outcome that benefits a political ideology rather than the economy or the environment.”⁶⁴ EPA regulators, university ecology professors, school bus drivers, bike-repair shop clerks, and even the Washington lobbyists who lassoed federal green loan guarantees count as “green” employees. The Oversight Committee estimates (charitably) that $157,000 was expended for every person trained through the Department of Labor and permanently placed in a job.⁶⁵ Yes, it can be less costly to send a young adult to Princeton for four years than to put one through a six-month federal training program.