The US subsidiary of Iberdrola has received 0 million in renewable energy stimulus funds (grants) for the start-up of the Cayuga Ridge wind farm.This is the largest amount of aid ever given to a company to develop a renewable energy project. To date, Iberdrola has received 7 million of this type of cash incentive, offered by the US Treasury Department as part of the government’s stimulus package for renewable energies to encourage companies to invest in the country.
Source: Iberdrola press release
I wonder what these single minded grants are supposed to be good for other than destroying jobs. I will explain my reasoning by example of the aircraft industry.
Scenario:
Airbus increased its share of the world’s jumbo jet aircraft market and became the second largest manufacturer in 1993, only Boeing was larger.
How? Heavily aided by government subsidies.
Results:
The upsurge of Airbus, coupled with other market forces, drove the U.S. firm, Lockheed, out of the commercial aircraft market. The two remaining U.S. firms, Boeing and McDonnell-Douglas, felt the warm air of competitive pressure.
Sidenote: The World Trade Organization found last month that Airbus received billions of dollars in illegal subsidies from European governments over the past four decades.
Analysis:
Too bad that this finding does not help the thousands of people who lost their jobs in the competing companies and their suppliers due to these “job creation measures” over the decades. Since 2007, the U.S has shed 16% of its manufacturing jobs. Only 11.7M Americans work in manufacturing today, the fewest since the beginning of WWII. Don’ t get me wrong, this is not about a Spanish company taking in U.S. tax payers’ money. Many U.S. companies have foreign HQs, in fact 5.5M Americans have a job thanks to multinationals.
However, I am concerned about how governments keep picking winners and penalize all other market players. A subsidy always has two effects – a) on the company receiving the subsidy, and b) on the rest on the economy. In the aircraft manufacturing industry, the subsidies helped Airbus to develop commercial aircraft. Obviously the company had a competitive advantage by being able to use the government’s cash that other competitors had been deprived of. Lockhead and its consortium of bundled suppliers went out of business.
Now back to our energy topic – the U.S. government, still in stimulus mode, thinks it is following a positive strategic (energy) trade policy by throwing money at single companies. It is not. In order to create the desired industry boom for clean energy technologies (put your buck on smart grid investment portfolio companies) the U.S. administration should do two things:
- Frame the market with needed and reasonable policies that give long term security, such as a mix of U.S. subsidies for whole industries as a national level playing field, tax credits, loan guarantees, procedural simplifications and institutional support on a large scale. It needs to cut back on the plethora of state, county, municipal and town legislation that has emerged lately in order to strive for investment jobs.
- Show support for investors and industry by assigning a department to direct investment and energy deals. Right now, too many players are involved on the government level creating too much confusion, especially in the middle market.
Conclusion:
If you are into writing research papers I have an idea for you – it would be interesting to see how one man’s fortune can become another man’s downfall in the energy market. Look at the markets in Germany (solar industry) and compare to China (solar industry) and do a slight outbreak to the ramifications in the U.S. market (with the hypothesis that it is going to stall on the manufacturer level, but raise on the developer level) and construct the decisive factors of the energy industry in the global realm.
If you subsidize something – not only will you get more of what you are incentivizing, but the money has to come from somewhere. That means it is taking away from another part of the economy, often within the same industry.
Picture: FreeFoto.com
Renewable Energy in the U.S. at 5:39 AM
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- Go Schumer
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Thursday, July 29th, 2010, 10:24 am | 
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