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A Path Not Yet Trod

| January 31, 2013

CleantechConservativeBy Douglas L. Faulkner, “The Cleantech Conservative” 

The dictionary defines a Pyrrhic Victory as a victory achieved at too great a cost. Well, the ancient Greeks would indeed quickly identify the Pyrrhic implications of the recent midnight resolution of the fiscal cliff.

That is, the cost of renewed tax breaks for the biofuels industry came at a great cost relative to the benefits gained. Being lumped in with Hollywood filmmakers, rum distillers, NASCAR track owners, Goldman Sachs and others in a special interest grab-bag is not a recipe for long-run political success.

That now notorious – - and short-term fix – - has embittered many on both the left and the right. The crowing about victory in this particular battle runs the risk of obscuring what’s looming in the longer-term war for positive public opinion. I predict this hard-earned success may well turn out to be bitter fruit, seen in hindsight as short-term gain for long-term pain, particularly from conservatives.

The problem with this win is that the level of political unpredictability is rising: businesses and investors cannot – - and, perhaps should not – - count on federal subsidies continuing into the near-term with any certainty. In fact, the recent victories only add to the political kindling already smoldering under ill-gotten gains by the politically well-connected, while ordinary voters and other industries suffer ever-higher taxes and reduced benefits.

The last thing the biofuels industry should want is to be identified in the public’s mind with the odor of crony capitalism and its endless subsidies for uncompetitive businesses, rather than the natural excitement of high-tech entrepreneurship.

So, to change the debate, change your battlefield.

Biofuels industry leaders should never lose sight of the impact of the unexpected rapid growth of its fossil fuel competitors. Recent headlines noted that U.S. oil production grew more last year than in any year of the domestic petroleum industry since its start in 1859 – - and is set to gush ever more this year.

Extensions of the biofuel subsidies will almost certainly require more political capital and more pain, with ever-diminishing returns.

The squeezing of mandatory funding from the energy title in the extended farm bill is a portent of what is coming from never-ending budget wars in Washington, D.C.

A much better strategy would be to prepare for this eventuality with a well-crafted strategy to voluntarily move away from subsidies, in exchange for more tangible gains that also are more palatable to average taxpayers and their champions.

Viewed from another perspective, the bioenergy industry should be considering how it can be part of the solution, not adding to the problem, of curtailing the gargantuan budget deficit. Begin charting a different path to support bioenergy’s entrepreneurial renaissance rather than fighting to the bitter end for unsustainable, unchanging subsidies.

Discussions should begin now about potential trade-offs for phasing out subsidies, such as mandatory funding for a few particular sections of the farm bill’s energy title or a reformed, streamlined Renewable Fuels Standard extending beyond 2022.

No doubt many will quickly dismiss my message as yet another jeremiad from the right about rising federal debt. Indeed, the industry may yet win yet another extension of some or all of these subsidies. But, the shifting political tides could turn quickly and with strong rip-current force if the U.S. fiscal or economic situation sours further and as the President moves ever so inevitably into lame-duckhood. New national elections are always just around-the-corner and predictably unpredictable in their results.

Sooner rather than later, the Pyrrhic bell will toll and the short-term gains secured by special interest subsidies will turn to ashes with little hope of a Phoenix rising. It’s way past time for a new strategy for this emerging industry.

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