Obama's Green Subsidies, Like Saints' Bounty System, Distorting the Market

How sadly ironic that a team called the Saints have been implicated in a scandal aimed at injuring other players. If you haven’t kept up with sports news in the past few days, New Orleans Saints’ players and coaches created a bounty system that gave monetary incentives for doing things like knocking an opposing player out of the game or rendering an opposing player unconscious.

Violence is an inherent part of football. But incentivizing injury, especially in an era where the long-term effects of head trauma is becoming more well known, is not what most players sign up for.

Likewise, green technologies are inherently a part of our energy future. But providing incentives for failing or underperforming companies, merely because they are green, at a time when our national debt threatens the prosperity of future generations, is simply unacceptable.

To be fair, there are far more differences than similarities between these two situations. Nevertheless, they both highlight how incentives that exist outside of an accepted framework can distort their environments, the game of football on the one hand and the economy on the other.

The latest example of the failure of green technology is Abound Solar, a solar panel manufacturer that received $400 million in taxpayer-backed loan guarantees. The company was recently forced to halt production, causing them to lay off 280 employees (70 percent of their workforce) and delay plans for the opening of an Indiana factory that was part of the deal with the government.

The real scandal is that the Department of Energy Loan was given despite a dubious business model. ‘ABC News reports:

“The House Committee on Oversight and Government Reform asked Energy Secretary Steven Chu to explain how the solar panel manufacturer had qualified for the loan after the ratings firm Fitch had determined the company would make a “highly speculative” investment.

“Fitch describes Abound as lagging in technology relative to its competitors, failing to achieve stated efficiency targets, and expecting that Abound will suffer from increasing commoditization and pricing pressures,” wrote Rep. Darrell Issa, the committee chairman. “DOE’s willingness to fund Abound, despite these concerns, calls into question the merits of this loan guarantee.””

Sadly, Abound Executives may be the first ones to tell you that their company isn’t really bringing anything new to the marketplace. Todd Woody writes in Forbes,

“The start-up’s strategy is to feed from the crumbs that fall off First Solar’s table in a booming market that the leader cannot supply on its own.

“First Solar has been the only game in town, Tom Tiller, Abound’s chief executiv, said in an interview. . . “The opportunity in the market is to be a second source of supply for cad tel panels,” he said.”

In other words their plan is to ride First Solar’s coattails in a booming market where the industry giant just can’t keep up. Two problems with that plan: (1) First Solar just announced it too is losing money, largely the result of low demand, and (2) Abound, which is shutting down production to focus on making more efficient panels (12.5 to 13 percent efficient), would still make less efficient panels than but First Solar already makes (14.4 percent).

Is this really the kind of behavior that the federal government wants to incentivize? The result, just as the Saint’s bounty system, is to fundamentally alter the status quo. In the case of paying player’s to hurt their opponents, the Saints encouraged reckless behavior that ultimately diminishes the product on the field, either through bad tackling or needless injury.

In much the same way, President Obama’s green energy subsidies fostered reckless decisionmaking that was more focused on securing government money than creating a product that could succeed in the marketplace.

In both cases, the consumer is the one who loses.