The Twinkie is dead, long live the Twinkie. Hostess is bankrupt again, as it has been off and on since 2004, and at the heart of the story is a company that’s been producing the same products for decades, and wasn’t willing or was simply incapable of innovating as Americans stopped eating processed treats. Hostess thus is a shining example of the free market at work. But the fact that it survived this long despite not responding to an increasingly-unreceptive and shrinking market sheds light on why government investment is so key to speeding growth in an industry that’s arguably more important and more in need right now: green energy.
Hostess was once an innovator, to be sure. Twinkies are an industrial marvel, and the company’s drive to produce tastier and longer-lasting baked goods at a massive scale for cheap is what made Hostess a behemoth in the first place. But decades of stagnancy, as the company traded on its brand equity and nostalgia even as Americans shifted en masses away from processed confections, led to its demise.
Hostess, thus, was the ultimate in industrial one trick ponies: it innovated its way into producing something more efficiently than most others, but it wasn’t positioned to move with the market.
That single-minded drive to produce one thing faster and cheaper is a mirror of the energy industry. Hydraulic fracturing, tar sand oil recovery, mountaintop removal, and horizontal and deepwater drilling are all engineering marvels, no matter what you think of the end product. But a majority of Americans do think the end product — climate change — is worrisome, and favor action to address it. So, if fossil fuels are the Wonder Bread of the energy market, why haven’t we seen the collapse of a producer on the scale of Hostess?
Hostess’s true failure was not reacting as Americans started replacing toast with yogurt and white bread with tortillas. That’s why free market folks should be happy: people spoke with their wallets, and Hostess failed to respond. The market worked.
But that isn’t happening in the energy sector, for myriad reasons. First is the simple fact that the majority of Americans can’t just give up their utilities like they can Ho-Hos. Yes, you can cut back and conserve, which does reduce carbon emissions and all that. But cutting back, rather than shifting to something else, isn’t cause for energy producers to drop fossil fuels because there’s nothing forcing them to change.
There’s no supermarket aisle for energy. While in some deregulated markets you can shop for the provider that produces the largest percentage of its energy via renewables, you can’t call up your utility provider and order solar or wind power sent to your home. And even then, switching providers is a process that takes a lot more time and effort than picking out a different cereal. The only recourse is to do it on your own by installing solar panels or wind turbines, but for most Americans, going off the grid isn’t feasible.
Electricity is electricity. Once it’s in the grid, you can’t tell where it came from. You can’t go down to the local substation and say, “This wind turbine juice is looking fresher today,” or “No nuclear, thank you.” Sure, utilities do respond to PR issues by paying lip service to demands for clean power (or any power, in the case of New York’s Rockaways), but fossil fuel companies are going to keep producing what they do until they see people switching to something else. But the market doesn’t allow people to do that.
You see these effects in the auto industry. People want eco-friendly, fuel-efficient cars these days, and because that’s what sells, the number of hybrids and small, efficient cars have boomed in recent years. (The same thing happened in the 70s, as oil shortages led to the rise of compacts.) But they’re still powered by petroleum. Unlike the bread aisle, there’s no whole grain gasoline on offer, and without alternatives, consumers can’t force change. Sure, there are electrics now, but range anxiety aside, they’re still hampered by the inertia in the power generation market.
While there aren’t gasoline alternatives on offer, biofuel company Solazyme has brought algal biodiesel to pumps in California, which is now one of the rare cases in the energy market where consumers have a direct choice. And how was Solazyme able to afford to take its tech commercial? In part, its due to its development contracts with the Navy.
The Navy has been a huge supporter of biofuels — even if Congress won’t let it have them — for strategic and efficiency purposes. Because they don’t want to be dependent on sources outside of their control (especially the kinds of fuels that have contributed to some very real military tensions), all branches of the military are heavy investors in green tech.
But Solazyme is hardly the only success story. Despite the groundless claim that half of green energy businesses that received government funding failed, the military and the Department of Energy’s funding programs are responsible for a nationwide boom in green tech. In 2011, the U.S. was the world’s largest investor in green tech, and that type of investment has produced results: from 2008 to 2012, power production from solar has grown by 285 percent, wind by 172 percent, and geothermal by 14 percent.
That growth is gaining pace as we speak. Comparing the first ninth months of 2011 to the first nine months of 2012, electricity production from coal declined by 16.9 percent. During the same period, solar production increased by 131 percent. That number will leap again once the Ivanpah solar farm in California goes online. It’s set to be the world’s largest solar farm, and it wouldn’t exist without government loans. Solyndra was a big failure (its bankruptcy was just approved by the way), but the critics failed to notice one thing: that the government’s green loans have otherwise had a success rate higher than the private market.
Climate change is an issue that’s not going to go away, no matter how badly people want to stick their heads in the sand, no matter how long governments and companies choose to kick the ball down the road. The CIA just shuttered its climate change office, but a report it recently commissioned repeats the warnings it’s been giving for years: that climate change poses a threat to US national security, and “will produce consequences that exceed the capacity of the affected societies or global system to manage and that have global security implications serious enough to compel international response.” A recently released World Bank report states unequivocally that a global temperature rise of four degrees Celsius would result an economic apocalypse. At the pace we’re at, that’s a realistic amount of warming.
And yet we still hear about the failures of Solyndra, the failed solar panel manufacturer that took a large loan from the government, still hear the same confused soundbites about green tech companies going under. The implication being that major fossil fuel and energy producers could fail too, if only they weren’t what people want. But the energy market isn’t Hostess, and while polls like one from Texas A&M last week show that a majority of Americans support renewable energy, they can’t so easily make the choices that would change the energy market like they can in the snacks aisle.
I’d never support the government funding research into industrial bread production, because the market already works freely on its own. But that argument absolutely does not work with regards to energy, as much as conservatives and fossil fuel proponents try to make it work. The fact that Hostess managed to hang on as a zombie through nearly a decade of bankruptcy, despite flagging sales and disappearing interest, only bolsters the point that we need to invest in green tech. Because, as we’ve seen over the last century, it takes an extremely long time to bring any change to the energy industry. And right now, time is something we don’t have.
Follow Derek Mead on Twitter: @derektmead.