The ‘Corporate Welfare’ Behind the Gas Revolution

Not long after President Obama defended his green energy investments by pointing to decades of taxpayer money for the natural gas revolution, prominent conservatives responded by denying the government's role outright. "I hear the President say the DOE invented [fracking] 30 years ago," said T. Boone Pickens, "and I don't know what he's talking about." At a public forum last July, Romney adviser Linda Gillespie Stuntz said, "The American wildcatters who really developed the hydraulic fracturing technology that's made this energy bonanza a reality didn't have anything to do with federal government."

But last month, the Associated Press published its own investigation into the history of shale gas that confirmed the critical role played by the federal government for over 30 years in pioneering fracking, directional drilling, underground mapping and other technologies to cheaply extract gas from shale. The AP story pointedly noted that the government played a similar role with shale gas that it is now criticized by some conservatives for playing with renewables.

In response, conservatives have sought to minimize the goverment's role. "According to the Associated Press," said Oren Cass, a senior Romney energy adviser at a recent M.I.T. debate, "that investment amounted to approximately $100 million over the course of 30 years, or approximately $3 million a year."

That sentence is false. The AP article specifically described the $10 billion in federal investment in unconventional gas -- much of which came in the form of a production tax credit similar to ones for wind and solar that Governor Romney wants to end.

Even so, the mythology of the shale revolution gets repeated - and contrasted negatively to President Obama's investments in clean tech. David Brooks echoed Cass' argument in a column last week. "Suddenly green tech looks less like a gleaming beacon of virtue and more like corporate welfare, further enriching already affluent investors.... Shale gas, meanwhile, has become the current hot, revolutionary fuel of the future."

But if the standard is that the government should never make investments that benefit already affluent investors, there would be no shale gas revolution to speak of. George Mitchell was already a very wealthy man when taxpayers supported his efforts to tap the Barnett shale.

Taxpayer support for shale fracking went far beyond research. The U.S. paid for Mitchell's first horizontal well, and gave him Sandia National Labs' high tech mapping technologies, supercomputers, and a team to use them. To incentivize the industry to push harder on shale gas, the Congress repeatedly extended the $10 billion tax credit to subsidize unconventional gas.

And shale isn't unique. To get microchips, the government purchased outright 80 percent of all semiconductors produced in 1960 -- and continued to buy cutting edge microchips during the five decades after. To get the predecessor to the Internet, the government not only funded computer sciences but also contracted with BBN (now part of Raytheon) to connect the networks of computers run by government-funded researchers.

In recent years, Brooks has championed Hamiltonian conservatism as a counterpart to the Hamiltonian liberalism proposed by Michael Lind, author of the American economic history Land of Promise. The bipartisan Hamiltonian idea is that America is the most technologically advanced and richest country in the world because of strong partnerships between big businesses and big government.

In that sense, Hamiltonianism is the centrist counterweight to the anti-government Right and the anti-corporate Left. Hamiltonian conservatives might favor a somewhat smaller federal government, while Hamiltonian liberals might favor more regulations of corporations. But both reject the view held that big corporations and big government are essentially parasitical for the view that both are vital to economic growth and well-being.

In ignoring the vibrant, half century-long partnership between the public and private sector on energy technology, Brooks sacrifices his Hamiltonianism on the altar of the Jeffersonian fantasy that the shale gas revolution emerged from market forces.

None of this is to say that all government innovation spending is well-spent. Much of the stimulus funding for energy innovation was confused with the goal of creating "shovel-ready" jobs. Too much went to things like retrofitting homes and too little to accelerating innovation. The most important lesson is that technological breakthroughs, whether shale or microchips require a decades-long commitment to incremental innovation -- not short bursts of spending.

But it's also the case that entrepreneurs and innovators must fail repeatedly before they can succeed. Mitchell's publicly-funded failures were vital to mastering the combination of technologies that made the gas revolution possible. Solar technologies and advanced batteries are more complex and capital-intensive that shale fracking, and will likely take far longer to become cost-competitive. As we noted in "Beyond Boom and Bust," the public interest is served when taxpayer funds are used to subsidize innovation -- not more deployment of the same old technologies.

Brooks is right that shale gas is indeed the revolutionary fuel in the energy economy, just as microchips are the revolutionary fuel of the digital economy. But for both technologies and many others, we can thank decades upon decades of what Jeffersonianians on Left and Right decry as "corporate welfare."

Photo by flickr user Miller_Center