Why are taxpayers propping up struggling energy firm SolarCity? The company’s dependence on subsidies is a great illustration of why policymakers should remove subsidies for all energy sources.
Company executives outlined how dependent the company is on the taxpayer in the company’s IPO document: “Our business currently depends on the availability of rebates, tax credits and other financial incentives. The expiration, elimination or reduction of these rebates, credits and incentives would adversely impact our business.”
SolarCity is in the spotlight again because Ranking Member of the Senate Budget Committee Jeff Sessions (R–AL) recently sent a letter to Treasury Secretary Jack Lew questioning taxpayer-funded grants going to SolarCity. SolarCity is part of a Treasury investigation into whether solar companies have misrepresented their fair-market value, which the companies themselves determine.
Overestimating the fair-market value means a bigger handout for the company, which puts the taxpayers on the hook for more money. Senator Sessions points out in his letter:
Over-inflating the cost of solar products is not only detrimental to the government, but to investors as well. Barron’s questioned whether SolarCity’s economic outlook or market value was adequately reflected through its stock prices, raising the question of whether its survival is reliant on political support, rather than investors’ belief in the company’s prospects.
SolarCity’s financial struggles demonstrate why the federal government should not use taxpayer money to support politically preferred energy technologies of any kind. The subsidies create a dependence on government and promote a perpetual technological stagnation where companies are focused more on securing the next handout or an extension of the handout rather than competing in the market without it.
Removing the subsidy is in the best interest of the taxpayer (whether the company succeeds or fails) and is better for the health of the energy sector and investors and the economy at large. It would encourage competition and result in financially viable products and services that Americans want.
Further, investors would truly understand the risk involved with financing different projects and reap the benefits of a successful investment or suffer the losses of a bad one. The more government participates in the market as an investor, the greater its temptation to shape the rules to advance its own interests. By attempting to force government-developed technologies into the market, the government diminishes the role of the entrepreneur and crowds out private-sector investment.
Politicians should focus less on cockamamie schemes to reduce our dependence on foreign oil and instead concentrate on freeing America from energy subsidy dependence.
