EnerBLOG

Understandably, there has been significant debate regarding whether or not the Big 3 US automakers should be bailed out of their current financial trouble. Most observers, including myself and Tom Friedman, believe that many of the auto-industry’s problems are self-inflicted. That said, how to handle the problem is far more contentious - is a restructuring under Chapter 11 protection the best bet, or should the government actually fund/invest in these companies provided there are certain conditions?

As part of this proposed industry bailout, a few small, American companies that are focusing on hybrids and electric vehicles have asked for assistance (see here and here). Some have even purchased full-page ads in the NYTimes asking to be included. Now this post wont attempt to answer what the best method for dealing with the Big 3 is, or if the proposed bailout package is the proper vehicle to direct funding towards these small innovative companies. Rather, I’d like to focus on the rationale these companies are espousing as it relates to the role of government and its support of emerging technologies.

Let’s focus on the best-known of these small companies, Tesla Motorcars. It has asked for 400 million worth of guaranteed loans to be used towards improving their battery manufacturing process and developing a new electric sedan.

Whereas a case can be made for the latter cause, I have trouble accepting the rationale around the first. In my mind, government should 1) create policies that allow the market to choose the most efficient solutions, and 2) fund early-stage technical research that is not yet mature enough to obtain private investment. Under the first category we’d find policies like a carbon tax or cap and trade system, as well as renewable portfolio standards. While these mandate behavior, the policies are in reality simply creating a set of rules, and the market can identify the best option for meeting these - the most-cost effective technologies that reduce carbon emissions and/or that classify as renewables will win out. The second category would include much of the work DOE already does at national labs such as Sandia, NREL, and LBNL.

Tesla’s request doesn’t fit into either of these buckets. While improvements in the manufacturing process will indeed likely bring down the cost of the technology, I tend to think that’s the role of venture capitalists, not the government. The trickle-down cost savings argument becomes even more tortured with a luxury automaker like Tesla, despite their stated plans to produce mass-market EVs.

Tesla is not blazing a new trail here. When I worked consulting for the DOE I spent plenty of time reviewing applications from solar energy firms who wanted a piece of the Solar America Initiative funding to improve their manufacturing capabilities - in fact, improving the efficiency and scale of manufacturing was a major focus of the SAI as it sought to address non-technical barriers to market penetration. Most egregious, some of these companies were quite well-established and should have been able to fund such projects on their own. While the goal of the SAI is admirable - to reduce the cost of solar power so that it reaches grid parity by 2015 - I’m not convinced it is using taxpayer money properly. From my perspective, with the proper regulatory frameworks in place, the private sector should feel comfortable making investments in both the improvement of technology and manufacturing. Government has a crucial role in leading us towards a clean energy future, but it must lend its support in the proper manner.

Anyway, that’s my $0.02

(photo above is from Flickr user justcallmekade)