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Subsidy Addiction

Government incentives are smothering free enterprise.

Fortnightly Magazine - December 2009

When Sen. Lamar Alexander (R-Tenn.) announced legislation in November 2009 aimed at doubling America’s nuclear power capacity within 20 years, he compared the clean-energy challenge to fighting a war.

“If we were going to war, we wouldn’t mothball our nuclear navy and start subsidizing sailboats,” he told attendees at the American Nuclear Society’s winter meeting. “If addressing climate change and creating low-cost, reliable energy are national imperatives, we shouldn’t stop building nuclear plants and start subsidizing windmills.”

Alexander’s bill, co-sponsored with Sen. Jim Webb (D-Va.), would provide $100 billion in federal loan guarantee capacity for nuclear plants and other similarly capital-intensive projects that produce energy without emitting carbon. It would direct the Department of Energy to conduct what Alexander called “mini-Manhattan Projects” to advance clean-energy technologies.

Of course, Alexander isn’t the first person to equate the energy challenge with a war—and given what’s at stake, the metaphor seems apt. Just a couple of weeks earlier, Navy Vice Admiral Dennis McGinn (retired) told the Senate Environment and Public Works (EPW) committee—of which Alexander is a member—“Climate change has the potential to create more frequent and intense natural and humanitarian disasters due to flooding, droughts, disease, and crop failure. It will magnify existing tensions in critical regions, overwhelm fragile political, economic and social structures, causing them to fracture and fail. The predictable result: much greater frequency and intensity of regional conflict and direct threats to our United States’ interests and national security.”

Indeed, energy policy as a general matter is closely intertwined with foreign policy and defense policy, vis-à-vis our reliance on a global energy trade to fuel the economy and the military itself. However, putting America’s energy industry in the same category as national defense raises a fundamental question. If, as Sen. Alexander and others are suggesting, the clean-energy challenge represents a “national imperative” on the same order as a war, then should the federal government shoulder the burden for America’s clean-energy campaign in the same way it would a military campaign—bearing substantially all the risks and costs, employing private-sector companies and institutions as little more than contractors?

By degrees, that seems to be precisely what’s happening. Alexander’s proposal—similar to several others working their way through Congress—would federalize a host of risks for developing clean-energy technologies and projects. Other legislation proposes creating a federal green bank, termed the “Clean Energy Development Administration,” with $100 billion in loan authority, on top of the $111 billion in clean-energy loan authority Congress already provided DOE in the Energy Policy Act of 2005. And the subsidies don’t stop with appropriations and loans. Introduced in August 2009, the Carbon Storage Stewardship Trust Fund Act (S.1502), would make the federal government responsible for all long-term risks associated with carbon sequestration, similar to its unmet responsibility for managing spent nuclear fuel ( see “ Nuclear Breach ).

Nor do subsidies stop at the Capitol steps. The Federal Energy Regulatory Commission (FERC) already provides special incentive rates for transmission

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