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Fulfilling The President's Green Dreams Through Private Competition

Instead of handing out loans to companies like Solyndra, the government should offer prizes for actual results

Adam Peshek and Julian Morris
October 31, 2011

Solar-panel maker Solyndra, with its $535 million loan guarantee from taxpayers, was supposed to help usher in the era of clean energy and green jobs that President Obama has been promising.  Instead, Solyndra went bankrupt and the FBI, Treasury Department and Congress are all investigating the company’s collapse and how it got its loan.

The Department of Energy program that made the disastrous loan to Solyndra was supposed to “accelerate the domestic commercial deployment of innovative and advanced clean energy technologies at a scale sufficient to contribute meaningfully to the achievement of our national clean energy objectives.”   That obviously didn’t happen. And since the energy program handed out numerous other loans worth over $16 billion since 2009, it is likely we’ll be hearing about more “green” failures and further taxpayer losses.

The Obama administration should be examining a recent example that shows how to spur environmental innovation and progress – without putting any taxpayer money at risk. Last year, the X Prize Foundation and Wendy Schmidt partnered to create the Oil Cleanup X Challenge to “develop innovative, rapidly deployable, and highly efficient methods of capturing crude oil from the ocean surface.”

The Deep Water Horizon explosion and oil spill off the coast of Louisiana in 2010 demonstrated how little improvement in oil cleanup technology had been made since the Exxon Valdez spill in 1989. So the Oil Cleanup X Challenge’s goal was straightforward:  whoever could create the most efficient method of removing oil from the surface of sea water, meeting a minimum oil recovery rate of 2,500 gallons per minute, would receive $1 million.  Second- and third-place would get $300,000 and $100,000 respectively.

This $1.4 million call to action prompted over 350 teams to pre-register and the results, announced October 11, were impressive. Seven of the final 10 teams doubled the standard oil recovery rate of 1,100 gallons per minute.  The winner, privately-held Elastec/American Marine of Illinois produced an oil recovery rate of nearly 4,700 gallons a minute. In a single year, without any federal funding, the X Prize had identified a problem, incentivized a solution, and produced a more efficient and cheaper technology that more than quadrupled the industry standard for cleaning oil spills.

The primary difference between the Oil Cleanup X Challenge and the disastrous federal loan program that gave Solyndra over half a billion dollars is clear:  The government program wasn’t based on results. It loaned money to the companies, like Solyndra, that had the most lobbying influence and best political connections. The oil cleanup contest awarded money for outcomes.  It was an even playing field open to all comers. Companies didn’t compete through grant applications or lobbying. The best products won.

Some governments have started recognizing the merits of prizes over subsidies. In 2009, the governments of the United Kingdom, Italy, Canada, Russia and Norway, together with the Bill and Melinda Gates Foundation committed $1.5 billion to buy vaccines for diseases that primarily affect people in poorer countries. The first company to develop an effective vaccine is rewarded with a prize in the form of large scale purchases of its vaccine. The push for this prize-like system came after conventional government subsidies for vaccine research failed.

Government shouldn’t be in the business of selecting winners and losers in business at all. But if it is going to attempt to drive “green” innovation, it should use prizes to reward actual results and minimize corruption and corporate welfare. Prizes could be used to increase energy efficiency, cost-effectively convert solar energy to electricity, waste reduction efforts, and drive advancements on any number of environmental issues.  The type of crony capitalism that led taxpayers to waste over half-a-billion dollars on Solyndra needs to be eliminated. And rewarding proven success through prizes is a significantly better policy than subsidizing failure.

Julian Morris is vice president of research and Adam Peshek is a research associate at Reason Foundation. This column first appeared on Forbes.com.


Julian Morris is Vice President, Research

Adam Peshek is Research Associate


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