The real “green” in the green energy economy

by Pete Geddes

In today’s Wall Street Journal the always well-informed Holman Jenkins offers a primer on the inherent problem of government intervention in the energy economy. To recap:

When we subsidize things that trade in the market, we benefit the well off and well organized at the expense of the most vulnerable members of society. This holds true whether in Bozeman, Boston, or Birmingham. George Will said it well: “The world is divided between those who do and do not understand that activist, interventionist, regulating, subsidizing government is generally a servant of the strong and entrenched against the weak and aspiring.”

To learn how this process works, I recommend the late Mancur Olson’s book, The Logic of Collective Action: Public Goods and the Theory of Groups. Olson examines how political forces derail the greater good. His explanation is straightforward: small, wealthy, well-connected groups easily organize into cohesive, effective units. They then use the political process to reap huge benefits while dispersing the costs over 290 million citizens. This graft is rarely challenged, by parties of either flavor.

But isn’t it reasonable to support subsidies for the “right” kind of energy, e.g., wind and solar? No, for the same pathological logic applies. Here’s an example:

Wind farms are enjoying a boom. Alas, their popularity has more to do with harvesting advantages in the tax code than with their environmental or energy merits. Following The Logic of Collective Action, we’re not surprised to learn these “good” subsidies annually transfer hundreds of millions of dollars from customers and taxpayers to a few large companies. Wind “farmers” reap more revenue from tax breaks and subsidies than from the sale of their product. They benefit at the expense of other taxpayers and energy consumers.

Our energy economy is in transition. Few doubt that some day, when technological advancement brings prices down, we’ll harness the sun and the wind in meaningful amounts. In the meantime, beware of corporate executives wearing green eyeshade.