The other day, a friend pointed me to a Washington Post opinion that was published over the weekend. The headline, “Before Solyndra, a long history of failed government energy projects,” immediately grabbed my attention.  Although I had a general notion of past efforts by the federal government in subsidizing failed energy projects, the sheer magnitude of the government’s lost investment in energy is rather astounding.  According to a report by the U.S. Department of Energy, the federal government has invested some $172 billion since 1961 on research and development of energy technologies.  The vast majority of this funding has gone directly to private sector companies.  Much of the spending on these projects was left stranded due to failures of companies and projects.  Solyndra, (I wrote about it here) the solar panel manufacturer who filed for bankruptcy this past September and will cost taxpayers about $500 million, is just a drop in the bucket of government supported failures.

The list of past projects failing to produce energy gains includes:  Clint River Breeder Reactor, the Synthetic Fuels Corporation, the hydrogen car, and clean coal technologies.  These projects have been the brainchildren of administrations of several presidents (Republican and Democrat), including Nixon (Clint River Breeder Reactor), Carter (Synfuels Corp), Bush-43 (hydrogen car), and Obama (Solyndra).  Government investment in clean coal technologies has been underway since the 1990s, and has produced equally dismal results under several administrations.

So what gives?  Are we simply incompetent in judging good energy projects from bad?  Is our reliance on foreign oil driving us in a fit of irrational exuberance to achieve energy independence? Are we too-quick to ameliorate global warming doomsday scenarios, ala Al Gore?  Or is government simply under the influence of “cigar-chomping; fast talking; opportunist” capitalists in search of a free lunch? 

The answer:  probably all of the above to a lesser or greater extent. 

Many of my economist friends (and free market thinking friends), would tell you that government should not be in the business of picking winners in energy technology (or any other sector, for that matter) and that the market is more efficient in sorting that out.  The invisible hand of free enterprise will reward good ideas and punish bad ideas without putting the “House’s Money” at risk.

On the other hand, the “market” is not a perfect barometer of societal energy desires and the private sector will likely under-invest in certain technologies due to a host of issues, including failure to consider externalities like pollution, high up-front capital costs, or high risk/low return among others.

Regardless of its attraction for environmental reasons, solar power, for example, is just too expensive to stand on its own – at least at present.  It does, however, offer great promise.  Absent government intervention through a host of subsidies and government mandates, solar facilities just simply wouldn’t get built, since there are less expensive alternatives (e.g., electricity produced from natural gas).

Another way to make solar more competitive is to make electricity from fossil fuels more expensive.  One government agency (not that “third” agency) is working on just that concept.  In this case, rather than betting on risky ventures, the EPA would knee-cap the dirtiest generating sources, like coal, by forcing expensive retrofits to reduce pollution.  In some cases, it would be more economic to shut-down entire plants rather than undertake the costly repairs.  The bottom line is that the price of electricity for you and me would increase if EPA has its way.

Placing a cost or price on carbon dioxide emissions or implementing a tax on emissions is another potential tool in the government’s energy tool box for directing a cleaner energy future.  Once again, though, these actions will increase the price of electricity and create additional drag on the economy.

While government intervention in the energy market has its pitfalls and drawbacks, free market solutions may not produce the energy future we would all like to have.  Poll after poll of Arizonans in recent years have shown that we prefer investment in clean energy solutions.  The rub is that we don’t want to have to pay much for it. 

So, having the government as a back-stop to help jump-start innovation in advanced energy technologies may not be such a bad idea.  But, since we don’t have unlimited resources to support such efforts, it’s crucial these investments be based on sound reasoning.  Sure, some projects are bound to fail, as Department of Energy Secretary Steven Chu has stated.  They’re too risky for the market alone to attract sufficient investment.  But, there comes a tipping point in “picking” losers.

Too risky for the market is one thing. 

Placing stupid bets with tax dollars is another matter. 

And, what’s the name of that third agency?