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  • A123: It's Not China's Government That's The Problem

    China’s largest auto-parts maker just won the bidding for A123 Systems, the bankrupted electric car battery company. It’s time to back the car up and remember where the American taxpayer started with A123.

    A123 received a $249 million grant as part of the 2009 stimulus. By the time it went bankrupt in October 2012, the company had spent $133 million of the federal grant, along with $141 million in Michigan grants and tax credits. The business was a quick and clear failure. But now that Wanxiang America has won a $256.6 million bid for the failed company, some lawmakers suddenly have a more favorable view of A123.

    Both competitors of Wanxiang and political opponents of the deal have expressed national interest concerns over technology transfer. They attest to the value of the company with the fact that the Chinese bid is nearly two times the lost portion of the federal handout, as if China’s willingness to overpay proves something is valuable.

    A123 sells commercial battery technology, not technology related to national security. And its market value has proved minimal, obviously, not only by the October bankruptcy but also by Wanxiang’s low bid, which rival American bidders were unwilling to top. The offer is still millions of dollars short of what the company owes to lenders.

    Critics of Wanxiang’s acquisition can be forgiven because there is a problem at the root—federal intervention in the market. While expressing disapproval of the Chinese bid, Senator John Thune (R–SD) said, “President Obama’s energy policy has been a win-win for China and a lose-lose for the American taxpayer.”

    He’s at least half right: The federal government played capital investor, lost out on A123, and is now left to protect taxpayer investments in a bankruptcy settlement. Whether A123 was a renewable or conventional energy company, an utter failure or market success, the government has no business picking out companies for its blessing.

    Is there a better way to stimulate the economy than federal loans, grants, tax favors, and other subsidies? Yes: Let investment occur freely. In this case, if there had been no federal money, it is likely A123 would have received capital from Wanxiang or another investor. There might not have been a bankruptcy court involved, and there would certainly not have been taxpayer money lost.

    The green energy sector has struggled mightily. But if Wanxiang can squeeze value from a risk no U.S. company is willing to make, they should be rewarded. That’s free enterprise, and that’s what drives the American economy.

    The lesson the federal government should draw from this sale is to begin retiring current energy subsidies and preventing new ones.

    Posted in Energy [slideshow_deploy]

    4 Responses to A123: It's Not China's Government That's The Problem

    1. Bobbie says:

      How is this even ethical? To tax private earnings for risky special interest businesses not within the control of the tax payers money spent without constitution and at a reckless, irresponsible amount at any risk? It's funny how Obama doesn't hold the involved accountable to the consequences of the involver's own poor ethics and incompetence and Obama's poor judgment but happy to lay it on America? China doesn't seem to mind either, eh? This is abusive governance! Why is this happening?

      Obama won't respect to follow any American rule and principle that isn't a convenience for him or circumvented to make his own.. It has to stop! The world is trying to get away from these types that have no respect for common principles and values that people came to America for. No matter the majority of votes in Obama's favor, many people are misguided and bribed to vote not knowing for what and many work in support of Obama's nation by infiltration. Not sure when it'll stop but it will stop and we need to keep doing without stopping,, all we can!!

    2. Here are a few facts on energy subsidies in the U.S.:

      - Tax credits have been extremely effective policy tools to expand domestic energy production and develop new technologies, including, for example, shale gas. U.S. government support for oil, natural gas, and coal totaled nearly $600 billion from 1950 to 2010, according to a study by consulting firm Management Information Services, Inc., (MISI) prepared for the Nuclear Energy Institute. Many of these incentives have been permanent fixtures of the tax code for five or more decades. (http://www.misi-net.com/publications/NEI-1011.pdf)

      - In cumulative dollar amounts, over the lifetimes of their respective subsidies, the oil, coal, gas and nuclear industries have received approximately $630 billion in U.S. government subsidies, while wind, solar, biofuels and other renewable sectors have received a total of roughly $50 billion in government investments. (DBL Investors, http://bit.ly/uV14lf)

      - The federal government has subsidized traditional energy technologies for more than 60 years before supporting renewable energy. A recent Congressional Budget Office (CBO) report notes: “From 1916 to the 1970s, federal energy-related tax policy focused almost exclusively on increasing the production of domestic oil and natural gas; there were no tax incentives for promoting renewable energy or increasing energy efficiency.” (Source: CBO, http://1.usa.gov/H1XKkB)

      - Renewable energy investments are working. The cost of renewable energy has dropped dramatically since the 1970s, with the greatest improvements occurring in the past 5-10 years. The average price of a solar panel has declined by 47% since the beginning of 2011. Wind energy has fallen over 90% since incentives for wind began in the 1980s, and attracted an average annual private investment of $15 billion for the past five years. (Sources: Solar Energy Industries Association, http://seia.us/MlIdcy; American Wind Energy Association, http://bit.ly/wys7NI)

      - The Renewable Energy Production Tax Credit (PTC) is not a cash handout from the government. Instead, it is “a per-kilowatt-hour [federal] tax credit for electricity generated by qualified energy resources” – and only applicable to businesses who are already successfully generating power. Thus, it has the effect of leaving more of the money from sales of wind-generated electricity in the private sector. (Department of Energy, http://bit.ly/sPVfSX).

      Energy subsidies have been around for decades and currently play a vital role in both renewable and traditional energy development. For renewable energy in particular, tax credits like the PTC are helping to level the playing field for wind energy, boosting production and protecting thousands of domestic jobs.

      For more info on renewable energy, visit http://www.energyfactcheck.org and on Twitter at @EnergyFactCheck

    3. John Smith says:

      Very well put. The government should not invest in private companies. That is not what it is set up to do. It cannot pick winners and losers well. Even if it could, that is not its role. It's not as though the government has extra money lying around to spend in that way.

      Even if a stimulus makes sense, the best way for the government to spend stimulus money is to buy things. Get something for its dollar. Not make loans.

      A123 is a classic startup story. I do not fault the people who started it, ran it, and eventually lost it. They did a good job reacting to the market and building up the battery industry. They failed, but we all gained from their failure.

      Had the government not invested, A123's failure would have been a success story to me. Now the failure of government investment makes it a failure story instead.

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