Sunday, September 20, 2009

Economic Independence - The Green Holy Grail?


As I alluded to in my introduction, I have an interest in emerging technologies that promise to lead the United States toward energy independence from imported oil. Many of these technologies are currently in their infancy, or if they've been around for a while in theory, but only recently began receiving funding and attention.

However, conservative critics of the environmental movement have brought up a legitimate criticism of many of these technologies, in that they're heavily dependent on government aid, in the form of tax rebates, loans or other assistance to make a viable business case.

Perhaps this is an inevitable step in the advancement of green technologies, in the sense that short-term assistance will be required to subsidize the purchase price of these new technologies to make them attractive to consumers as a viable alternative to conventional equivalents.
More...

Although the compact fluorescent light bulb has become commoditized to the point where it's in rough price parity with its incandescent cousin, most other technologies still have a ways to go to be cost competitive on an up-front basis to their current peers.

The current example getting a great deal of attention in the automotive world is the Chevrolet Volt, an extended-range electric vehicle scheduled to go on sale in Fall 2010. The un-subsidized price is expected to be in the neighborhood of $40,000. With the expected federal tax credit of $7,500, it brings the net price down to approximately $33,000. Revolutionary powertrain aside, the Volt has been compared to the Civic, Corolla, and its conventional platform mate, the Chevy Cruze. All of which sell at prices starting at half the price or less. Even with substantial DOE loans, and the tax credit for consumers, it has been widely believed, and implicitly confirmed by General Motors, that the company will still lose money on the Volt in the first few years of production.

Even Tesla Motors, the golden child of the Silicon Valley venture capitalist set, has applied for and received government loans.

Personally, the libertarian side of me, and the environmentalist side of me feel conflicted on this issue. I believe businesses should be competitive in a market economy independent of government aid or assistance. Yet at the same time, short of subsidized assistance, neither the companies nor consumers have the incentive to invest in these new technologies, both from the standpoint of research & development, and ultimately, consumer purchase.

While I find the rapid and aggressive proliferation of government under the current administration alarming, I believe the consequences of inaction on developing energy-efficient technologies may have far more devastating consequences. I'm not necessarily talking about the melting of the polar ice caps, the de-forestation of the Amazon or the usual environmental alarmist buzz topics. I believe our adversaries around the world may use our dependence on foreign energy as a strategic weapon against us.

What do you think? Should the government continue to offer assistance to companies developing next-generation energy technologies, or should businesses learn to stand on their own in the marketplace?

2 comments:

  1. Ed, a wise man once said to me (last week actually) - (in reference to the T.A.R.P. funds, because he's a banker who was discussing whether his bank should take the funds or not)
    "I don't want to take money I don't need, from someone I have no interest in doing business with"
    - When we start looking to the government for good business ideas or practices, we will quickly find ourselves in a vegetative state of mind with no money in our pockets. I'm sorry to all those that think that money doesn't matter. But when you don't have any, it will....Going after "Big Business" is like over pruning a healthy fruit tree that produces a crop year after year. Eventually, you will no longer have fruit, or trees for that matter.

    ReplyDelete
  2. Matthew...excellent analogy. Businesses ultimately need to have a roadmap to self-sufficiency, otherwise, they're no different than a government agency. Likewise I agree that the relentless mantra of "tax the rich" will have the unintended consequence of biting the hand that feeds the workin' man. Well-put.

    ReplyDelete