Politicians can't stop such rent-seeking behavior. What they can do is craft well-considered policies that maximize social welfare. Unfortunately, when it comes to policies marketed as reining in global warming, protecting the environment, or creating "green jobs," we have a tendency to make hasty decisions that don't pass the test.
Government support for biofuel is only one example of a knee-jerk "green" policy that creates lucrative opportunities for a self-interested group of businesses but does very little to help the planet. Consider the financial support afforded early-generation renewable-energy companies. Germany led the world in putting up solar panels, funded by $75 billion in subsidies. The result? Inefficient, uncompetitive solar technology sitting on rooftops in a fairly cloudy country, delivering a trivial 0.1 percent of Germany's total energy supply, and postponing the effects of global warming by seven hours in 2100.
Given the financial stakes, it is little wonder that alternative-energy companies, "green" investment firms, and biofuel producers are lobbying hard for more government largesse, and marketing their cause directly to the public by highlighting its supposed benefits for the environment, energy security, and even employment—none of which withstand scrutiny. "The NASCAR deal will push American ethanol into the stratosphere," declared Tom Buis, CEO of the ethanol trade association Growth Energy.
At least one group is already sold: presidential contenders. In Iowa last month, possible Republican candidate Newt Gingrich derided "big-city attacks" on ethanol subsidies. And, in what must be music to the industry's ears, an Obama administration official declared that even amid the highest food prices the world has seen, there is "no reason to take the foot off the gas" on biofuel.
In fact, there are millions of reasons—all of them suffering needlessly—to apply the brakes.
This article comes from Project Syndicate.