Wednesday, October 17, 2012

Don't be surprised that Biden "forgot" some details in the debate with Paul Ryan

Biden Fibbed: Green Cronyism Is Alive and Well
By Diana Furchtgott-Roth
October 16, 2012
How soon he forgets. In Thursday's vice presidential debate, Joe Biden denied any "cronyism" in the award of Energy Department grants and loan guarantees to encourage the development of renewable energy. Plus, he asserted that government-assisted green energy projects had a better "batting average" than do projects backed by investment bankers.

Just one problem: Neither of Biden's assertions was true. Plus, the Vice President himself had a role in the cronyism.

Emails that rebut Biden's assertions were made available to me last week.

The email traffic was between BrightSource Energy, which sought and received $1.6 billion of government guarantees, its subcontractor, and its lobbying firm. The emails specifically refer to the Vice President's involvement in the $1.6 billion Energy Department loan guarantee to BrightSource for its proposed Ivanpah solar power project in the Mojave Desert in Southern California.

Some may dispute that the Vice President's support, itself, was a manifestation of cronyism. Whatever Biden's motive for supporting the application, the Vice President's role sheds light on a larger issue, one of principle, which separates President Obama and Mitt Romney. It is the question of "industrial policy," whether government should support business ventures in new technologies that are unable to secure private financing.

Another disapproving term for industrial policy is "picking winners." Government appears to be worse at this than are private markets.

In addition to putting taxpayer money at risk, industrial policy also undesirable because it creates opportunities for political influence on what should be decisions on the merits.

Vice President Biden's involvement in BrightSource Energy was not an isolated incident. There was Solyndra, a solar panel company that received $528 million in government loan guarantees before declaring bankruptcy in September 2011. The Republican-controlled House Energy and Commerce Committee has published emails that specifically refer to Biden and his staff as advocating for Solyndra.

Such advocacy illustrates a pernicious aspect of industrial policy. Winning government support appears to be determined, or influenced, by whom you know, rather than the merits of the proposal.

On Thursday night, Biden said to Representative Paul Ryan, referring to Energy Department green energy grants and loan guarantees, "And all this talk about cronyism. They investigated and investigated, did not find one single piece of evidence. I wish he would just tell -- be a little more candid."

Yet an email from BrightSource Energy's subcontractor, Bechtel Systems and Infrastructure, dated December 2, 2009, said that Biden met weekly with Energy Secretary Steven Chu to discuss Energy Department loan guarantees, to wit: "apparently VP Biden meets with Secretary Chu and [Matt] Rogers (in charge of loan program) on a weekly basis to push progress on all DOE loan guarantees...BrightSource would like to see if we can help get VP Biden to focus on the tasks that DOE needs to accomplish and have him help drive DOE..."

Bernard Toon, Biden's former chief of staff when he was a senator, was a principal vice president and manager for Bechtel. In an email to BrightSource CEO John Woolard dated December 3, 2009, Toon wrote, "Calls are in to Biden's staff and I will be approaching the political affairs office at the White House tomorrow as well, as this project could benefit two [Democratic] Senators who are in cycle and whose races will be tough next year-[Barbara] Boxer [CA] and the Majority Leader, Sen. Reid [NV]." Both won reelection in 2010.

A month before the loan guarantee was approved, on March 8, 2011, Arthur Haubenstock of BrightSource wrote to Woolard, "We have a lot of force gearing up to leverage them now, including the WH and VP office, [New Mexico Senator Jeff] Bingaman, [Nevada Senator Harry] Reid and [California Senator Dianne] Feinstein, and Gov. Brown."

Vice President Biden was also instrumental in the hurried approval of the Solyndra project in September 2009. In fact, Solyndra was rushed through precisely because Biden wanted to appear at an opening ceremony at the plant on September 4. On August 31, Elizabeth Oxhorn, a communications aide to the Vice President, asked Aditya Kumar, director of special projects for White House chief of staff Rahm Emanuel, to speed up the OMB decision so that the VP's office could announce his attendance after OMB approval rather than before.

Kevin Carroll, chief of the OMB energy branch, replied on the same day, "I would prefer that this announcement be postponed...this is the first loan guarantee and we should have a full review with all hands on deck to make sure we get it right."

Biden said on Thursday night, referring to green jobs, "It was a good idea, Moody's and others said that this was exactly what we needed to [stop the economy's decline.] It set the conditions to be able to grow again. We have, in fact, 4 percent of those green jobs didn't go under -- went under, didn't work. It's a better batting average than investment bankers have."

Biden appears to be saying that 4 percent of Energy Department-supported projects were unsuccessful, compared with a higher failure rate for private investors.

This is false. Government-supported energy companies have had a notoriously unsuccessful track record. Of the 33 energy loan guarantees made since 2009 under the Energy Department's programs, I calculate that 30, or over 90 percent, have shown signs of trouble. "Trouble" ranges from missed production goals to bankruptcy filings.

Take Compact Power, a subsidiary of LG Chem, which received a $150 million Recovery Act grant. Reports have recently surfaced that the Holland, Michigan battery company has placed its roughly 200 workers on rolling furloughs, where employees work three-quarters of their normal schedule, due to insufficient demand for batteries for electric cars.

A report by the House Government Reform and Oversight Committee published in March stated that 23 loans were judged by ratings agencies as "junk" because of their low credit quality. An additional four were rated BBB, a low investment trade. This is not surprising, given that borrowers with top-drawer credit ratings do not need government guarantees.

All this matters because President Obama has promised to continue government support of alternative energy projects if he is elected to a second term. Mitt Romney would end this support. American voters have a clear choice: do they want taxpayer support of renewable energy projects, and possibly attendant cronyism, to continue?

On this as on other matters, the Obama-Romney contest offers the voters an opportunity to choose.

Diana Furchtgott-Roth is a senior fellow at the Manhattan Institute.

No comments: