The primary difference between the Oil Cleanup X Challenge and the disastrous federal loan program that gave Solyndra over half a billion dollars is clear: The government program wasn't based on results. It loaned money to the companies, like Solyndra, that had the most lobbying influence and best political connections. The oil cleanup contest awarded money for outcomes. It was an even playing field open to all comers. Companies didn't compete through grant applications or lobbying. The best products won.
Some governments have started recognizing the merits of prizes over subsidies. In 2009, the governments of the United Kingdom, Italy, Canada, Russia and Norway, together with the Bill and Melinda Gates Foundation committed $1.5 billion to buy vaccines for diseases that primarily affect people in poorer countries. The first company to develop an effective vaccine is rewarded with a prize in the form of large scale purchases of its vaccine. The push for this prize-like system came after conventional government subsidies for vaccine research failed.
Government shouldn't be in the business of selecting winners and losers in business at all. But if it is going to attempt to drive "green" innovation, it should use prizes to reward actual results and minimize corruption and corporate welfare. Prizes could be used to increase energy efficiency, cost-effectively convert solar energy to electricity, waste reduction efforts, and drive advancements on any number of environmental issues. The type of crony capitalism that led taxpayers to waste over half-a-billion dollars on Solyndra needs to be eliminated. And rewarding proven success through prizes is a significantly better policy than subsidizing failure.
More Reason on Solyndra here.