Will Electric Cars Jolt California’s Economy?

With the support of Governor Schwarzenegger, the mayors of San Francisco, Oakland, and San Jose last week announced a $1-billion joint plan to make the Bay Area “the electric-vehicle capital of the world.” The announcement follows President-elect Obama’s pledge to reinvigorate the nation’s economy with millions of “green collar” jobs. Such well-intentioned government policies, however, could turn the “green collar” into a “green noose.”

Mayors Gavin Newsom, Ron Dellums, and Chuck Reed established a partnership with Better Place, a Palo Alto-based startup backed by $200 million in venture capital investment. Rather than manufacture or market electric cars, Better Place will build the infrastructure to support them. According to the company, this will include 250,000 charging stations across the Bay Area by 2012. Though the cities will not offer a direct subsidy, they will provide Better Place with significant advantages over rival technologies.

This “public-private partnership” will prop up electric vehicles through tax incentives, favorable regulations, and rights to build on public land, as well as exclusive contracts for public transportation, city-owned vehicles, and government buildings. Despite the economic downturn, private investments in a diverse array of competing clean technologies surged to a record $1.6 billion last quarter. Declaring plug-in vehicles the only game in town rigs the competition and throws many promising Bay Area startups under the electric bus.

Companies such as South San Francisco-based Solazyme and LS9, and Emeryville-based Amyris Biotechnologies, are using advanced genetic engineering to create a new generation of clean, renewable biofuels. Silicon Valley startups including PolyFuel and Bloom Energy are building revolutionary hydrogen and natural gas fuel cells. Other ventures aim to harness solar power efficiently, or develop cleaner diesel engines. Unfair privileges for the electric-vehicle industry will make it harder for these companies to compete.

It is impossible to predict how this rapidly changing market will evolve, yet the Better Place proposal substitutes the judgment of three mayors for the will of 7.3 million Bay Area residents. How can consumers choose the best technology if policy makers rush to take the alternatives out of alternative energy?

Before locking the Bay Area into a single technology, Newsom, Dellums, Reed, and Governor Schwarzenegger, should consider the consequences. Better Place may be an innovative venture led by a brilliant young entrepreneur, but even so, most tech startups ultimately fail. Electric vehicles in particular have faced obstacles, setbacks, and empty promises since Thomas Edison first proclaimed a century ago that “gasoline buggies will be out of existence in no time.”

What will happen to the new all-electric infrastructure if compatible cars never make it to market? What if Better Place’s business model proves unfeasible? What if technologies change, or the company backs out? The landscape could soon be littered with hundreds of thousands of useless parking-meter-sized charging stations, and taxpayers will foot the bill to clean up the mess.

Such a disaster may sound familiar to Gavin Newsom. In 2006 he contracted with EarthLink to blanket San Francisco with free municipal Wi-Fi. Recognizing it had underestimated costs, and overestimated the technology, EarthLink last year declared its business model “unworkable.” EarthLink had not yet broken ground, but a similar failure in Portland, Oregon, forced taxpayers to dismantle the infrastructure.

In clean technology, these risks are unnecessary and counterproductive. An explosion in private-sector investment has created unprecedented opportunities for groundbreaking innovation. Because bureaucracies cannot possibly keep pace with such fluid markets, government interference will only discourage competition and waste public funds. Governor Schwarzenegger has already witnessed this firsthand. More than four years after he signed an executive order to build a “hydrogen highway” across California, the government has spent $19 million but constructed not a single hydrogen fueling station.

Entrepreneurs are California’s best renewable resource. They can produce solutions that drive job creation and define the next generation of modern transportation. This can only happen if local, state, and national lawmakers create a level playing field and give consumers the ultimate freedom to decide which ideas succeed and fail. Electric vehicles may hold enormous potential, but politicians shouldn’t pull the plug on equally promising technologies.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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