Battery manufacturer A123 Systems, which got nearly $250 million in grant money under President Barack Obama’s 2009 stimulus program, filed for Chapter 11 bankruptcy protection Tuesday morning – just in time for Republican Mitt Romney to add the firm to his indictment of Obama’s green-energy program. In the first debate with Obama, Romney used the collapse of solar firm Solyndra to attack Obama’s energy agenda.

Herwig Prammer / Reuters

Energy Secretary Steven Chu

“A123’s bankruptcy is yet another failure for the President’s disastrous strategy of gambling away billions of taxpayer dollars on a strategy of government-led growth that simply does not work,” said Romney spokeswoman Andrea Saul on Tuesday.

But A123, based in Watertown, Mass., but with manufacturing plants in Michigan, got funding under the administrations of both Obama and President George W. Bush. The firm got a crucial influx of early money from the Bush administration in 2001 and 2003. In fact, the firm might not have been alive in 2009 to get its Obama stimulus funding if it hadn’t been for earlier subsidies under the Bush administration.

In a speech at a business conference on Sept. 4, 2008, then-Energy Secretary Samuel Bodman noted that in 2003 his department had made an award under the Small Business Innovation Research (SBIR) program to A123 Systems for work on lithium-ion batteries.

“While this company now has major private investors, on many occasions the company's founders have described this SBIR grant as their first source of outside funding,” Bodman said. “And the results, now just five years later, are remarkable. This company now employs over 1,100 people who produce batteries with an unprecedented combination of power, safety and long life…”

He added, “I've had the pleasure of visiting A123 Systems, located right outside of Boston, and I can tell you firsthand that this company is doing terrific work.”

According to Jan. 21, 2010, testimony by current Energy Secretary Steven Chu before the Senate Energy and Natural Resources Committee, A123 Systems received SBIR grants in 2001 and 2003 totaling $850,000 to refine its lithium-ion battery technology.

Bush also laid the foundation for Obama administration subsidies to alternative-energy firms when he signed into law the Energy Independence and Security Act of 2007. (GOP vice presidential candidate Rep. Paul Ryan voted against the bill, partly due to an earmark in the measure that he said would benefit one forestry company.)

The 2007 law created, but did not fund, the Advanced Technology Vehicles Manufacturing (ATVM) program. In the summer of 2008 as the automobile industry was beginning to fall on hard times, Midwestern lawmakers proposed $3.75 billion to activate the ATVM and make loans to U.S. vehicle and battery firms.

When Obama became president, one of his highest priorities was to spur manufacturing of alternative-energy technologies and vehicles. The Energy Department used ATVM grants as a way to subsidize green-energy firms. On Aug. 5, 2009, Vice President Joe Biden announced $1.35 billion in DOE grants to spur advanced battery and electric vehicle manufacturing. A123 Systems got $249 million of that money.

“Terrific news," said Sen. John Kerry, D-Mass. "A123 Systems is doing the kind of cutting-edge work we need to get our manufacturing industry back on track and create jobs here at home… These grants are a wise investment that will pay many dividends."

That summer of 2009 was a buoyant time for the firm, which launched its initial public offering in September, raising $390 million. “The IPO entered venture capital lore, a beacon for clean-tech entrepreneurs everywhere,” reported Climate Wire. The stock surged from its IPO price of $13.50 a share to more than $28 before 2009 ended.

The firm also got another Energy Department grant of $5 million to determine whether its batteries could store emergency power for the electric grid.

In January 2010, A123 was one of the firms benefiting from another stimulus cash influx – as the Labor Department announced the state of Michigan would get $5 million in grant money to train workers in green-energy skills.

In September 2010, Obama called Michigan Gov. Jennifer Granholm to congratulate her and A123 Systems for opening the largest lithium-ion battery manufacturing plant in the United States in Livonia, Mich.

"It is incredibly exciting to see how far you guys have come,” Obama said, in remarks reported by the Detroit News. “This is about the birth of an entire new industry in America -- an industry that's going to be central to the next generation of cars.”

But there were skeptics.

By early 2011 one stock analyst, Theodore O’Neill, now at Litchfield Hills Research, told Climate Wire that A123 was heading for “a giant train wreck” in the next few years. He said the tiny numbers of U.S. battery-powered vehicles would not create enough demand for A123 to make a profit.

By this summer GOP lawmakers were raising the alarm about a Chinese firm taking majority ownership of A123 Systems. “We need to be sure that when the federal government invests close to a quarter of a billion dollars in grants to a company, that the technology developed as a result of this taxpayer support doesn’t end up in China,” said Sen. Chuck Grassley, R-Iowa.

But that Chinese investment didn’t happen, and on Tuesday A123 filed for bankruptcy. A larger firm, Johnson Controls, will buy its factories in Michigan.

In an interview Tuesday, O’Neill said, “The Fisker Karma was the only car taking the A123 batteries. And I started calling around to dealers and as late as November of 2011 the dealers still didn’t have cars to sell. So you had A123 going ahead and building a 600,000-square-foot manufacturing facility for which there’s no end market. It’s not clear to me how much the Department of Energy is to blame for having A123 expand as rapidly as they did in advance of actual demand or whether it was all (A123’s chief executive) David Vieau” who erred in his forecast. “It’s probably a little bit of both,” he said.

On the campaign trail in Colorado Thursday President Obama assailed Mitt Romney for opposing the tax break for wind energy production, saying the presumptive nominee would put tens of thousands of jobs at risk by letting them expire.

“At a moment when homegrown energy, renewable energy, is creating new jobs in states like Colorado and Iowa, my opponent wants to end tax credits for wind energy producers,” Obama said.

“Think about what that would mean for a community like Pueblo. The wind industry supports about 5,000 jobs across this state. Without those tax credits, 37,000 American jobs, including potentially hundreds of jobs right here, would be at risk.”

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Wind energy now supplies about 4 percent of U.S. electricity, up from 1.3 percent in 2008.

A spokesman for Romney's Iowa campaign said last week that Romney “will allow the wind credit to expire, end the stimulus boondoggles, and create a level playing field on which all sources of energy can compete on their merits."

Romney’s stance on the wind energy tax break puts him at odds with Republican senators such as Jerry Moran of Kansas and Chuck Grassley of Iowa. It was Grassley who pushed for the wind tax credit when it was created in 1992.

But Romney won applause from one GOP House member, Rep. Mike Pompeo of Kansas, who has proposed a bill to abolish all energy tax breaks. “The Solyndra scandal has demonstrated that taxpayers must no longer be forced to subsidize these industries,” Pompeo said last week. “When the government bets on these energy technologies, it typically selects the most unaffordable energy leading to unnecessarily higher energy prices for all Americans.”

Solyndra, a California solar-panel manufacturing firm that got a $535 million federal loan guarantee, filed for bankruptcy last year. Energy Secretary Steven Chu has acknowledged that the $535 million isn’t likely to be recovered.

Beyond the campaign rhetoric and the question of whether Romney’s anti-wind tax credit stance will hurt him in two wind-energy loving battleground states (Colorado and Iowa), there’s a serious economic debate here.

It hinges on the classic question: what activities and industries, if any, should the government require taxpayers to subsidize? Is it ever possible to have a “level playing field” so that consumers can choose the energy source that’s most cost effective?

And when Congress creates and preserves tax breaks for favored industries, does it also perpetuate the entrenched culture of lobbyists and special interests seeking favors from Congress?

In this case, every few years the wind energy industry and its lobbyists must urge Congress to give the tax break another lease on life before it expires. Lobbyist filings show that the American Wind Energy Association spent $1.1 million in the first half of this year on lobbying Congress.

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The group has hired lobbyists such as Juleanna Glover of the Ashcroft Group, former Louisiana Republican Rep. Jim McCrery of Capitol Counsel, and Elmendorf Ryan’s Steve Elmendorf, an aide to Dick Gephardt when he was House Democratic leader.

A pragmatist would say there’s nothing new here: the wind industry is just getting in on a subsidy game that other energy industries have played for decades.

As a Congressional Budget Office report noted in March, “Tax preferences for energy were first established in 1916, and until 2005 they were primarily intended to stimulate domestic production of oil and natural gas. Beginning in 2006, the cost of energy-related tax preferences grew substantially, and an increasing share was aimed at encouraging energy efficiency and energy produced from renewable sources, such as wind and the sun….”

That CBO report said energy-related tax breaks cost $20 billion in 2011 and 68 percent of them went to renewable energy, while only 15 percent went to fossil fuels.

Under current law, for a wind facility that starts operating by the end of this year, the owners can claim a 2.2 cent tax credit for each kilowatt hour of electricity produced. The tax credit is good for a 10-year period.

In a bill approved by the Senate Finance Committee last week, the wind production tax credit was extended through 2013 but it was also modified in a significant way, said energy industry consultant and blogger Geoffrey Styles.

The Finance Committee bill would make wind energy facilities eligible for the tax preference if the construction of such facilities or property begins before Jan. 1, 2014. “This will sweep in many more projects,” said Styles. “It has the effect of being much more than a one-year extension” since as long as a project gets started – not completed -- before Jan. 1, 2014, it would be eligible for the tax break.

According to the staff of the Joint Committee on Taxation, the proposal would cost $12 billion in lost revenue over ten years.

Energy economist William Pizer, who served as Deputy Assistant Secretary for Environment and Energy at the Treasury Department from 2008 to 2011 and now teaches at Duke University’s Sanford School of Public Policy, said the tax break is less than ideal energy policy for a variety of reasons.

One is the inefficiency of a subsidy compared to higher tax on more polluting energy sources such as coal and oil. And he said frequently some of the benefit of the tax-break flows to “tax equity partners” who are brought in to join with the actual wind energy project company.

And noting that the wind energy credit has expired three times since 1992 (with Congress ultimately reviving it each time), he said, “The boom-and-bust cycle has been problematic for the industry.”

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When analysts at the nonpartisan Tax Policy Center in Washington looked at the wind and other renewable energy tax breaks that were part of the 2009 stimulus bill, they said, “In general, these subsidies are less cost-effective than price increases” which Congress could impose through higher taxes on fuels such as coal.

The Tax Policy Center added that, “Such subsidies are very hard to remove once they have outlived their usefulness, since they develop powerful constituencies.”

In a blog post last week, Styles noted that during the 20 years in which the renewable energy production tax credit “has been escalating annually with inflation -- from 1.5¢ per kilowatt-hour (kWh) to the present level of 2.2 ¢/kWh -- the cost of wind turbines and (the cost of) their output has fallen significantly.” During that same period, wind energy capacity in the United States grew by 30 times.

So, Styles said, “in effect, we're subsidizing today's relatively mature onshore wind technology by a larger proportion than we did when it was in its infancy. That makes no sense, especially in the current environment.”

One factor which might call into question the competitiveness of wind energy in the marketplace is the new abundance of domestically produced natural gas in the United States.

But Ellen Carey, a spokeswoman for the American Wind Energy Association said, “One of the reasons the U.S. is able to enjoy this new abundant source of low priced natural gas was the multi-decade government support of the Section 29 production tax credit for unconventional gas. The production tax credit for wind energy ensures we build a diverse and stable portfolio of energy and do not over rely on a single energy source which exposes us to potential volatility.”

U.S. Energy Secretary Steven Chu yesterday said he no longer believes in increasing gas prices to help spur research in alternatives to fossil fuels.

When questioned by Sen. Mike Lee (R-Utah) at a Senate Energy and Natural Resources Committee hearing about his past statement, which he gave four years ago, Chu said: "Since I walked in the door as secretary of Energy, I’ve been doing everything in my powers to do what we can ... as we see these gas prices spike, to reduce those prices." 

He continued, "But in the Department of Energy's tool chest, the most important thing we are doing is to offload the dependency on oil, using natural gas for transportation, bio fuels and all of those things."

In an interview with the Wall Street Journal in 2008, before becoming Energy secretary, Chu had said: "Somehow, we have to figure out how to boost the price of gasoline to the levels in Europe."  

Yet yesterday, Chu stated: "The president and I, yes we do acknowledge and feel the pain of not only American consumers but American businesses when these prices increase."

And when asked by Lee if he no longer believes that "we have to figure out how to boost the price of gasoline," Chu responded, "I no longer share that view."

In yesterday’s White House press briefing, Press Secretary Jay Carney responded to Chu’s walking back his 2008 statement on gas prices.

"I know that it's part of the fun for folks to find these quotes and suggest that they have some deeper meaning, and maybe that would be the case on Day One of the presidency. But we're in the fourth year of the presidency, and this president has a very clear record."