(E)verything about the program was misconceived, and the decision to invest so much in synfuels seemed to critics an “emotional and romantic” response (Lee et al. 1990). The price prediction was based on assumptions of declining supply coupled with rising demand, economic assumptions deservedly termed “farcical,” (Cohen and Noll 1991). There was in fact no reason to believe that supply was declining worldwide, much less “running out,” Higher prices in 1980 were spurring companies to search for more oil and to find ways to enhance resource extraction. Arguably, the market, which was not investing in synfuels, was giving a useful and it turned out correct interpretation of future energy scarcity. Nonetheless, Congress passed the Synthetic Fuels/Defense Production Act by a four to one margin. As one critic later put it, Synfuels was a “quick-fix…high tech solution that embodied the panacea of massive investment and wondrous technologies,” (Willis 1987).
But it was quickly apparent that the technology was not at all economically viable nor was the technology sufficiently proven to be undertaken on such a vast scale (Stanfield 1984). As Willis (1987) noted, five different agencies of government including the Office of Technology Assessment (OTA) criticized the program because the technology was untried and the goals overly optimistic (Grossman 1992).
Of course, the SFC was mismanaged as well as misconceived and the incoming Reagan Administration (after arguably worsening the corporation’s management12) eventually terminated the project, with a resulting waste of between $1 billion and $3 billion. The project had missed all of its benchmarks, failing to create the great technological feat Carter had envisioned. It has been argued (Cohen and Noll 1991) that the synfuels program was closed down in part because it lacked a particular constituency in Congress determined to fight for its preservation as a way to please local voters. It had been a program developed in a crisis atmosphere and in the aftermath no one had a vested interest in preserving it. But the synfuels act of 1980 certainly cannot be said to have righted a market failure; there was no market reason to invest heavily in synfuel technology and market participants did not do so. Market failure presumes firms fail to respond to market signals. But instead, the signals market participants received were ignored by government. The market was essentially correct; government, on the other hand, appears to have failed.
The History of U.S. Alternative Energy Development Programs: A Study of Government Failure
