The Synthetic Fuels Corporation (SFC) might be the biggest boondoggle you’ve never heard of. Established under the Energy Security Act of 1980 in response to the supply scares of the 1970s, the SFC was hailed by President Jimmy Carter as “the cornerstone of U.S. energy policy.” The now-defunct SFC was an independent federal entity that functioned “primarily as an investment bank to accelerate the commercialization of synfuels,” in the words of a February 1983 CRS report.
With 225 staffers and an original budget of $20 billion, the SFC supplied financial incentives, such as loan guarantees and a guaranteed purchase price, to companies to produce liquid fuels from coal, natural gas, and heavy oil, often called synfuels. The goal was to generate 500,000 barrels per day by 1987 and two million barrels per day by 1992.
Like solar panels, wind turbines, batteries, and electric vehicles in our time, synthetic fuels prompted frenzied speculation that our energy landscape would soon be transformed. “The Government’s enormous synthetic fuels program, the centerpiece of the nation’s energy policy,” wrote the New York Times on August 25, 1980, “is already taking shape as one of the biggest bonanzas in American business history.”
The craze ran so hot that a University of Georgia political science student netted almost a thousand subscribers to a newsletter with an annual charge of $250 that he called The Synfuels Report.
By 1986, the SFC had pumped $1 billion into projects including the Coolwater Coal Gasification Program in California, the Dow Syngas Project in Louisiana, the Forest Hill Heavy Oil Project in Texas, and the Parachute Creek Program to produce synthetic fuel from oil shale deposits in Colorado.
But just as quickly as synfuels became the darling of U.S. energy policy, energy economics rendered the practice moot.
The oil crises of the 1970s faded from memory as the 1980s ushered in a new energy paradigm.
“In the first half of 1986 crude oil prices fell to about $12 a barrel, back to their level of 1974 and, when adjusted for changes in the general price level, close to the real oil price that prevailed in 1973 just before the first OPEC price increase,” the Brookings Institution explained later that year.
The good news—and this is remarkable—is that Congress took that price drop as a signal and shut the Synthetic Fuels Corporation down five years after it granting it its charter.
As the New York Times wrote on April 19, 1986, “Government agencies are easily born, but they never seem to die. Rarely do they even fade away. But at 5 P.M. today the Government’s Synthetic Fuels Corporation closed its doors forever.”
Countless other agencies and programs outlive their purposes, prove themselves inefficient, and yet continue to funnel dough to interested parties. One obvious example is the Renewable Fuel Standard, which is an environmental negative and is no longer justified even on its ostensible energy security grounds.
In a 2007 Synthetic Fuels Corporation apologia in the Wall Street Journal, a one-time SFC executive argued that “the corporation achieved a significant part of its congressional mandate and the Journal would be hard-pressed to find other government programs entailing the development of new technology that were as cost-effective.”
That isn’t much of a claim. And, moreover, it’s probably not true.
As George Mason University’s James T. Bennett writes in his “Unsustainable: The History and Politics of Green Energy,” published in August 2021:
Cost-benefit analyses repeatedly revealed that costs [of the SFC] outweighed potential benefits by orders of magnitude. However, actual losses were limited, because the projects tended to fail quickly, and these failures were blessings in disguise, as ‘potential expenditures were enormous.’
To the extent that synfuels were ever viable, markets, not the federal government, ought to have supplied the capital. It’s worth recalling here that the oil price shocks of the 1970s were anything but a creation of the free market.
What’s more, as I recently argued in the pages of the American Spectator, while synthetic fuels failed to contribute to energy security, they also worsened a problem that would soon leap into public awareness: global warming. “To make synthetic fuels, energy must be used. That use of energy produces carbon dioxide, as does the burning of the synthetic product,” the Washington Post wrote just before the SFC was created. “The net result is that synthetic fuels produce two to three times more carbon dioxide than do the natural fuels.”
In effect, the SFC aimed to solve a problem that would soon be obsolete, while exacerbating another problem not yet on the radar.
As Congress steams toward finalizing the $1 trillion infrastructure bill, it isn’t difficult to imagine today’s bright idea (carbon capture, electric vehicle charging, et cetera) becoming tomorrow’s SFC.