RALEIGH – The development and marketing of energy sources ought to be driven by economic realities and market prices. Instead, politics and politicians intrude at virtually every stage. The resulting morass of regulations, penalties, subsidies, and obstructions rarely makes any logical sense – and fails the test of providing safe, reliable energy to consumers at a reasonable cost.
That’s not to say that government has no appropriate role in the energy sector. Given environmental and national-security considerations, among others, government must fashion and implement energy policies. But they should be coherent, informed, and respectful of consumer choices.
We are far, far removed from such an ideal. Energy policy is all too often an inside game, played by special interests who manipulate legitimate concerns and public fears in an attempt to line their own pockets.
The ethanol industry, for example, would surely not exist in anything like its current form without massive government intrusions and subsidies. If consumers were calling the shots, farmers would grow corn primarily to feed people and animals. They wouldn’t grow corn to convert to motor fuel.
Even with all the intrusions and subsidies, ethanol has proven to be a risky business. Just last week, Triangle Business Journal reported that North Carolina’s first major venture into ethanol production, Clean Burn Fuels of Raeford, has, uh, burned through its seed capital and is now basically kaput.
Individual investors such as Sanford Oil Company executive Kirk Bradley and Capitol Broadcasting Company Chairman Jim Goodmon have lost pretty much all the $40 million they plowed into Clean Burn Fuels. And Capital Bank, KeySource Bank, Cape Fear Farm Credit, and the dozen other banks that put an additional $66 million into the venture may get 50 cents back for every dollar they lent, if they’re lucky.
The company’s bankruptcy is only the latest in a series of energy plays heavily promoted and subsidized by government that have failed the test of the market. At the national level, renewable-energy interests are reeling from the high-profile failure of Solyndra, a California solar company that had received half a billion dollars in federal loan guarantees and a personal visit from President Obama.
If the energy market weren’t so heavily politicized, the failure of any particular company or project would not be such a big deal. In virtually every sector of the economy, companies and projects that look good on paper don’t pan out in practice. As long as no one is coerced to invest in them – including taxpayers – their failure is a problem for their executives, workers, lenders, and owners, but not for society as a whole. Indeed, business failures are the flip-side of business starts. The risk explains why investors demand high potential returns – and receive them when a project succeeds. And business failures, while painful for those involved, serve as a sort of “hypothesis-testing device” that helps other entrepreneurs and investors guide scarce resources into more profitable pursuits.
But the energy market is heavily politicized. Corruption is not uncommon, and even those with the best of intentions are essentially flying blind because of a political attempt to substitute fantasies for realities.
What should the government do about energy? The John Locke Foundation’s Agenda 2010 briefing book suggest that, first off, North Carolina should do no harm. The General Assembly should repeal Senate Bill 3 and other efforts to engineer political outcomes in the energy sector. Second, the legislature should continue reforming the state’s regulatory process so that state agencies protect the legitimate health and safety interests of North Carolinians while removing obstacles for the discovery, development, and use of low-cost energy sources.
Meanwhile, reports TBJ, another company in Wilmington is planning to open in Sampson County to make alcohol from grasses. I would offer best wishes to everyone involved – if they were not trying to force me and other taxpayers to be involved with them.
Hood is president of the John Locke Foundation.