Government Mandated Spending: A Lesson in Wasted Tax Dollars
Deja Vu All Over Again
A couple of weeks ago the US Department of Energy’s (DOE’s) Office of Inspector General released an audit report on how well taxpayer money has been utilized in the pursuit of commercializing integrated biorefineries:
The results are not pretty. In the opening section, the report notes “In our prior audit, Financial Assistance for Biomass-to-Ethanol Projects (DOE/IG-0513, July 2001), we reported that the Department had not met its goal to build a full-scale commercial biomass production facility by the year 2000, and provided recommendations for improving Program performance.” Turns out that a dozen years later, it’s deja vu all over again.
The audit document explains that as a result of The Energy Policy Act of 2005 (EPAct) and the Energy
Independence and Security Act of 2007, the DOE was required to carry out a program to demonstrate the commercial viability of integrated biorefineries. I think “demonstrate” is an interesting word choice there. I would have instead used a word like “evaluate.” That could have saved taxpayers a lot of money.
As a result of this mandate, there were three funding opportunity announcements (FOAs) from 2006 to 2009 that resulted in the selection of 29 projects for funding. As of March 2013, the DOE had “obligated over $929 million, including $561 million from the American Recovery and Reinvestment Act of 2009, for the 29 projects, and had expended approximately $603 million (65 percent) of those funds.”
Recipients of the funds were supposed to contribute 50 to 60 percent of the total project cost. The DOE goal was to demonstrate three integrated biorefineries by 2012, with 100 million gallons of advanced biofuels production capacity from 10 demonstration and commercial-scale plants by 2014.
So what do we have to show for over $600 million spent on these projects? Not much.
- Despite over 7 years of effort and the expenditure of about $603 million, the Department has not achieved its biorefinery development and production goals.
- The EPAct mandate to demonstrate the commercial application of integrated biorefineries has not been met and the DOE is not on target to meet its biofuels production capacity goal.
- The Program reported meeting its goal to demonstrate the successful operation of three integrated biorefineries by 2012, but the audit noted that these refineries were “small pilot projects,” and not commercial scale projects.
- The DOE has not successfully achieved commercial-scale operations even though the FOAs issued in 2006 and 2007 indicated that the proposed projects should be operational at commercial scale within 3 to 4 years.
- 40 percent of the demonstration-scale and commercial-scale projects selected from the FOAs were mutually terminated by the DOE and the recipients after expending more than $75 million in taxpayer dollars
- The DOE is not on target for achieving its 2014 production capacity goal of 100 million gallons of advanced biofuels. More than half of the projects specifically identified to contribute to the goal were terminated.
The reason given for these failures is that these projects weren’t at a stage where they were ready for commercial development. They hadn’t had been adequately tested at a small scale. That’s Due Diligence 101, which I explained in: Due Diligence: How to Evaluate a Renewable Energy Technology
If you are going to commercialize a technology, and you want to manage your risks, you prove it at increasingly larger scales and you work out problems at each stage before you scale up again. If you have substantial problems at one scale, you don’t build a larger facility and hope you work them out, because there is a high risk of wasting your money.
So why did they throw money at projects that weren’t ready? Because they had no choice. They were forced to spend the money: “Program officials acknowledged the projects selected were not fully ready for commercial-scale operations and that the projects were high-risk. However, they indicated that the EPAct required them to move forward with commercial-scale projects…”
The audit highlights the mantra about validation that I have said countless times: “In our opinion, if the Department had validated the technology at the pilot and/or demonstration scales, it would have had greater assurance that the projects were ready to move to commercial scale. This would have strengthened the likelihood for success by reducing project scale-up risks.”
It turns out that the law forced the DOE to spend money on what essentially amounted to the least stupid ideas. In many cases it was recognized that there was little chance of success, but the money had to be spent. Imagine that we are talking about curing the common cold. We have $1 billion to spend. Regardless of whether anyone comes up with a single credible idea, the money has to be spent. So instead of throwing money away at a million to one shot, you still throw it away at a thousand to one shot, when what you should have done is say “These are taxpayer dollars, and this doesn’t seem like a wise investment.”
I would have much less issue with a program that required a thorough technical assessment and approval by a panel of independent experts before funding was released. I also take issue with a program that requires the money to be spent. “No good ideas? OK, just spend it on the least bad ones.”
What’s worse is that the audit highlights that these are lessons that weren’t learned in the past: “We found that the Department had not fully addressed recommendations to improve operations that had been made by the 2011 integrated biorefinery peer review conducted by a panel of external experts. Specifically, the Program had not formalized lessons learned and best practices from ongoing and terminated projects.”
There was one bit of good news, in that some cost-saving measures had been implemented: “Program implemented budget phases and released funding to recipients only after specific project milestones and performance metrics had been validated. Additionally, Program officials stated that in some cases, they put projects on hold because recipients failed to meet their cost-share requirements. As a result, the Department had released only 56 percent of the obligated funds for commercial-scale and demonstration-scale projects as of March 2013, an improvement since our 2001 audit revealed that, despite a significant lack of progress, the Department had released all available funding to its financial assistance recipients.”
I think the lesson here is that political wishes continue to trump scientific realities, and taxpayers are left to pay the bills. It’s hard to fault the DOE in this situation, where Congress is forcing them to spend the money whether they can find any worthy projects or not. If only our political leaders understand that you can’t mandate technical breakthroughs, even if you require money to be spent trying to do so. If it worked like that, then every major problem we have could be solved like this. We would have cured cancer, and have thriving colonies on Mars.
But who I am kidding? As I write this the government is in the process of shutting down because apparently it is being run by children. To think that they can competently utilize tax dollars to create an industry that doesn’t exist is probably expecting a bit much.
Link to Original Article: Government Mandated Spending: A Lesson in Wasted Tax Dollars
Photo Credit: Government Spending and Waste/shutterstock
Robert Rapier is a chemical engineer with 20 years of international engineering experience in the energy business. He holds several patents related to his work. Robert is the author of Power Plays: Energy Options in the Age of Peak Oil. He is also the author of the R-Squared Energy Column and is Chief Investment Strategist for Investing Daily’s Energy Strategist service. Robert has appeared ...
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