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Alan Reynolds, The Politics of Alternative Energy

Alan Reynolds, The Politics of Alternative Energy

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Published by Alan Reynolds
A crtiical review of green and geogreen arguments for subsidies for alternative vehicles (electric & hybrid) and alternative fuels (ethanol, natural gas, hydrogen). This is a draft chapter for a forthcoming anthology edited by a scholar from the Naval Graduate school in Monterey CA.
A crtiical review of green and geogreen arguments for subsidies for alternative vehicles (electric & hybrid) and alternative fuels (ethanol, natural gas, hydrogen). This is a draft chapter for a forthcoming anthology edited by a scholar from the Naval Graduate school in Monterey CA.

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Published by: Alan Reynolds on Apr 15, 2011
Copyright:Attribution Non-commercial


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Public choice theory (the application of economic analysis to political behavior) views

the political marketplaceas a place where favors are bought and sold. Because politicians have

found energy/environmental issues an expedient device for handing out favors, affected private

agents have incentives to allocate more scarce resources toward political (rather than economic)

activities in order to maximize their wealth.

Those who stand to benefit from energy-related subsidies, cheap loans, tax credits or

mandates share an intense interest in making investments in politics. The potential gains

makeenergy interest groups easy to organize for political action ± campaign contributions,

lobbying and public education (propaganda). Taxpayers are too broad and diverse a group to

stand up to such organized interests, particularly if they can be persuaded (e.g., by sponsored

studies, TV ads and op eds) that some ³crisis´ requires taxpayer assistance.As public choice

economist Richard Wagner put it, ³the creation and operation of public programs is guided less

by wishes and high motives than by interests and strong motives.´7

There are two distinct groups making distinctly different arguments for subsidizing

alternative fuels (ethanol, electricity and compressed natural gas), and alternative vehicles

(flexible-fuel vehicles, electric vehicles and plug-in hybrids).

The first group consists of a subset of environmental activists (³greens´) who are almost

exclusively concerned with climate change, as opposed those more focused on air and water

quality, food safety, or preservation of endangered species or scenic areas.Many of these single-

issue greens display a singular fascination with redesigning cars and fuels, even though this


paper demonstrates that U.S. light vehicles unquestionably account for a surprisingly small and

declining share of global greenhouse emissions.

The second group consists of what New York Times columnist Thomas Friedman calls ³geo-

greens.´ The geo-greens are individuals and organization who argue that subsidies and mandates

for ethanol (or methanol), plussubsidies and mandates for plug-in flexible-fuel vehicles, will

improve U.S. economic security by (1) purportedly reducing U.S. vulnerability to spikes in the

world price of oil, and by (2) purportedly depressing the world price of oil and thus inflicting

financial discomfort on autocratic middle-eastern oil producing countries thought to be indirect

sponsors of Islamic extremism and terrorism.8

The alliance between greens and geo-greens has been convenient, but somewhat unnatural.

Greens worry about all fossil fuels, not just petroleum.Yet geo-greens are enthusiastic about

producing domestic auto fuel (methanol) from natural gas or coal, and for plug-in hybrids that

will rely on fossil fuels for 69 percent of their electric power in 2035 (according to the 2011

Energy Information Agency projections). ³Shifting the way we produce electricity . . . has

essentially nothing to do with oil dependence, explainsgeo-green spokesman R. James Woolsey.9

So far, however, greens and geo-greens have been able to combine with politically-

connected business leaders and venture capitalists toform politically potent coalitions on behalf

of lucrative subsidies.

The way this process works was best explained by Clemson Universityeconomist Bruce

Yandle¶s telling metaphor of ³bootleggers and Baptists´ ± both of whom actuallylobbied for

Southern laws to ban the legal sale of alcoholic beverages on Sundays, but for entirely different

reasons. Bootleggers saw an opportunity to sell more liquor at premium prices. Baptists saw

themselves as taking the moral high ground. Yet the Baptist¶s moralistic arguments provided a


handy diversionary cover for politicians, and thatmade it cheaper (in terms of campaign support)

for bootleggers to gain monopoly profits by selling moonshine on Sundays.

In the case of subsidies and tax breaks (euphemistically called ³incentives´) for alternative

fuels and vehicles, and related grants (called ³resources´), the equivalent of the Baptists¶

moralistic arguments are conveniently providedby greens and geo-greens. Regardless of the

merit or sincerity of such arguments, there are huge sums of money at stake. Tens of billions of

dollars have already been received intax credits, federally-subsidized loans, mandated purchases,

research grants, and more. It does not require undo cynicism to suspect that strong financial

interests may hide behind the veil of seemingly high-toned arguments for suchfederal favors.

This paper reviews arguments and evidence deployed on behalf of spending billions more

tax dollars on changing the cars we drive and the fuels we use. Finding those arguments

unpersuasive, we uncover some evidence suggesting that the actual purpose of the proliferating

subsidies and mandates for alternative fuels and vehicles is simply ³rent-seeking´ ±the use of

political influence-peddling, lobbying, campaign contributions and TV ad campaigns to extract

funds and favors from the government.

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