The recent budget proposal from the Obama administration is taking a lot of criticism for its big emphasis on clean energy technology development. While some may critique the method on how this will be funded, others fear the possibility of these clean energy investments failing, the most recent and most widely publicized example being the bankrupt solar company Solyndra.
Yet while we rake the muck of these failed investments, many of us look over the fact that several industries and technologies were made possible from government funding. Clearly, not every investment the government makes will be a great success, but several successful businesses have developed in large part because of government assistance. There are examples across almost every sector of industry, but for now let’s focus on developments in energy and see if a failure like Solyndra is an aberration or just part of everyday business for the government.
Backing energy development: It’s just what we do
The concept of having the government grant favorable treatment to the energy sector can be traced as far back as before the Civil War. At that time, the U.S. government’s largest asset was land, and for many years it sold that land at below market value to encourage settlement and growth, which also gave a deep discount to the largest energy source at the time: timber. According to a research report by DBL Investors, the subsidies that were granted to the timber industry for energy purposes would have equated to about $25 billion per year in 2010 dollars.
Every source of energy has in one way or another benefited from governmental spending, especially in its nascent years.
Even during the Great Depression, the oil and gas sector received more than $1 billion a year (inflation adjusted) in subsidies. These kinds of subsidies have always been used to help these industries to find their feet, and they generally provide a financial incentive to make them competitive against the existing energy options on the market.
Like it or not, the development of energy sources in the U.S. has been closely linked to the government developing a structure for that industry to flourish in some way or another, and in the long run these investments have paid large dividends. Of the $17.1 billion spent on R&D for energy efficiency and fossil fuel development from 1978 to 2000, the Department of Energy estimates that it resulted in a return of $41 billion thanks to the additional revenue from industry growth.