Green Subsidies: A Cautionary Tale

By Karl Smith

by Adam Ozimek

The size of European and Asian country’s green energy industries and the generous government subsidies and industrial policy they thrive on is looked at jealously by many American commentators who wonder “why not us?”.

Leaving aside, for the moment, the disagreement about whether the composition of American industries is a worthwhile goal of public policy, there are reasons to be wary of heavy-handed green industrial policy. An article in the New York Times today is a great cautionary tale.

Generous subsidies from the Spanish government created a fast growing solar industry the small city of Puertollano. Things did not stay so rosy, however:

But as low-quality, poorly designed solar plants sprang up on Spain’s plateaus, Spanish officials came to realize that they would have to subsidize many of them indefinitely, and that the industry they had created might never produce efficient green energy on its own.

In September the government abruptly changed course, cutting payments and capping solar construction. Puertollano’s brief boom turned bust. Factories and stores shut, thousands of workers lost jobs, foreign companies and banks abandoned contracts that had already been negotiated.

This is the same government which, according to the Economist, spent an estimated 570,000 euros per green job. These are things to remember when people wonder why we can’t have “successful” green jobs programs like they have in Europe and Asia.