If you read much of the media coverage of last week’s report from the Department of Energy about its clean energy lending program, you might have come away with the idea that the U.S. government is earning a profit on low-interest loans to various companies in the sector.
It made for a great story. This is, after all, the program that funded the ill-fated Solyndra. But in a blog post Monday morning, economist Donald Marron, the director of economic policy initiatives at the Urban Institute, points out that the DOE report skimmed over one crucial set of facts, which turns the whole story on its head.
The report said, “As of September 2014, more than $810 million of interest has already been earned and the estimated loss ratio on [the Loan Program Office’s] portfolio is approximately 2 percent of LPO’s total commitments.”
The report notes that the program has incurred actual and estimated losses of $780 million, which still appears to leave a profit of $30 million. Over the longer term, it noted, more than $5 billion in interest payments it expects to receive over the life of the loans it has so far made. It sounded as though DOE was claiming that it was making money on the loans and, as Marron points out, that’s exactly how the report was played in the media, including The Washington Post and Bloomberg. Unfortunately, he contends, it just isn’t true.
The problem is that the DOE report fails to mention, except in a footnote, that the money it lent to clean energy companies came from the Treasury Department, which funds a large amount of government spending by borrowing in the first place. Because the loans made to clean energy companies were made at very low rates, the flow of interest payments back to DOE would likely only just cover the interest Treasury is paying on the money in the first place. Add to that the reported $780 million in losses, and suddenly the program doesn’t look profitable at all.
“They don’t provide enough information about the interest rates to tell how much money the government is losing, but it’s got to be in the hundreds of millions of dollars,” Marron said in an interview.
In his blog post, Marron makes it clear that he has nothing against the program in principle, even if it does lose money. His problem, he said, is the agency’s decision to create a false narrative about profitability rather than sticking to the actual purpose of the program, which is to promote innovation in the clean energy sector.
“DOE’s lending programs should not be evaluated solely or even primarily based on their profitability or lack thereof,” he writes. “What matters is their overall social impact. How much are they advancing new technologies? How much are they reducing future pollution? Have they created jobs and economic growth? And are any gains worth the taxpayer subsidies? Those are the questions we should be trying to answer.”
The Department of Energy had not responded to a request for comment when this story was published.
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