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BLM Considers Raising Royalty Rates

June 26, 2015 by AEA 3 Comments

The Bureau of Land Management (BLM) announced in April that it is considering raising the royalty rate for oil and natural gas drilled on Federal lands—currently at 12.5 percent of drilling operations’ production value. The Center for American Progress (CAP) recommended that BLM increase the royalty rate for oil and gas drilled on public lands by at least 50 percent and allow regulators to raise the rate further when the price of these fuels is high because they believe U.S. taxpayers “aren’t receiving a fair share from the development of their resources.” But CAP has it wrong. If CAP wanted to increase returns to taxpayers, instead of promoting increases in the rates, they would promote streamlining permitting and bringing common sense to regulation on federal lands in order to increase natural gas and oil production and dramatically increase revenues to the U.S. treasury.

Oil and gas companies prefer to drill on private and state lands instead of federal lands due to permitting delays and massive amounts of red tape on federal lands. On non-federal lands, massive production increases have made the United States the largest producer of oil and natural gas in the world.

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Filed Under: Cartoons Tagged With: BLM, gas, Obama, oil

ICYMI: Half Measures Make Ethanol Mandate Worse

June 25, 2015 by AEA 1 Comment

This week, AEA President Tom Pyle penned an op-ed in Roll Call explaining why a corn-only repeal of the broken Renewable Fuel Standard may actually hurt American families more than the status quo. Pyle lambasts lawmakers’ attempts to re-work an unworkable law, and shows why full repeal is the only way to fix the RFS. Below is the text of the op-ed:

In an effort to show Congress “can work again,” some lawmakers are attempting to make an unworkable law even worse. Recently, several proposals have been floated to “amend” the Renewable Fuel Standard, which requires refiners to blend rising volumes of renewable fuel into gasoline.

Proponents of such bills, including Sens. Patrick J. Toomey, R-Pa., and Dianne Feinstein, D-Calif., would do away with the corn-ethanol mandate but retain the mandate for “advanced” biofuels — products that don’t exist in appreciable, economically viable quantities, if at all.

Lawmakers should reject these half measures. This month, Sen. Bill Cassidy, R-La., introduced legislation to do away with the RFS entirely. This approach addresses the reality that by keeping intact the costly “advanced” mandate, corn-only repeal may actually inflict more harm on American families than the status quo. The only real “reform” to the broken RFS is full repeal.

Congress enacted the RFS in 2005 and expanded it in 2007. The law requires refiners to blend 36 billion gallons of biofuel into the nation’s transportation fuel supply by 2022 — a figure that all agree is unachievable and most would argue unwarranted.

This program was doomed to failure. Under the delusion that “if you mandate an industry, it will come,” Congress and President George W. Bush trusted the Environmental Protection Agency to accurately project and mandate biofuel production nationwide.

Congress’ first mistake was passing the RFS. The error was compounded when lawmakers trusted EPA to implement it in a reasonable fashion. Case in point: in 2010, despite mandating millions of gallons of cellulosic biofuel (fuel derived from inedible plant matter), exactly zero gallons of cellulosic were produced. This “minor inconvenience” didn’t deter EPA. The following year, EPA raised the mandate even higher, but still cellulosic producers mustered up no fuel.

In fact, the EPA has so thoroughly mismanaged the RFS that in 2013 the D.C. Circuit Court ruled the agency’s actions amounted to illegal promotion of cellulosic biofuels. Not to mention that the EPA had, until last month, failed to even propose standards for 2014, in violation of federal law.

Instead of accepting reality, the EPA created a new reality. Faced with the fact that cellulosic biofuels aren’t cost-effective enough to be produced in large quantities, EPA simply changed the definition of “cellulosic” to include things such as compressed natural gas and electricity. Since those cannot physically be blended into gasoline, refiners are forced to purchase credits and pass along those costs to motorists.

Unfortunately, the EPA’s incompetence continues. In May, the agency released its long-delayed mandates for 2014 and beyond, calling on refiners to blend 206 million gallons of cellulosic in 2016—even though cellulosic producers have failed to demonstrate a capacity to produce even 1/206th of that amount (until the EPA changed the definition, of course).

It’s long past time Congress learned its lesson. Removing the implied corn portion but keeping the “advanced” mandate does nothing to stop the EPA’s accounting gimmicks. Instead it transforms the RFS into California’s expensive low-carbon fuel standard, which one study showed could raise the state’s fuel prices by more than $2.50 per gallon.

Partial repeal also, ironically, is worse for corn farmers than full repeal. Corn ethanol is a commercially viable product and a reliable blendstock — in the proper quantity. It doesn’t need the mandate to survive.

Under Toomey-Feinstein, however, corn ethanol loses the war for mandated market share. The mandate for “advanced” biofuel remains untouched, which means it continues to rise and shift the market for ethanol away from corn and toward more costly sources.

The big issue with corn ethanol isn’t commercial viability, but the ethanol lobby’s continued push for higher ethanol blends even though we’ve reached the maximum percent of ethanol most cars can safely handle—the blend wall.

If the last decade has taught us anything, it’s that Congress should never have passed the RFS. Yet proposals short of full repeal only make the mandate worse. The desire to “do something” does not require doing the wrong thing. Congress should fully repeal the RFS and give Americans, not the EPA, the power to choose the fuels they deserve.

Thomas Pyle is president of the American Energy Alliance.

Click here to view the original op-ed.

Filed Under: Renewable Fuel Standard Tagged With: biofuels, EPA, Gasoline, Renewable Fuel Standard

AEA Applauds Gov. Pence for Rejecting EPA Rule

June 24, 2015 by AEA Leave a Comment

WASHINGTON — American Energy Alliance President Thomas Pyle issued the following statement after Indiana Governor Mike Pence rejected EPA’s climate rule:

“We applaud Governor Pence for standing up for Indiana families by rejecting the Environmental Protection Agency’s costly climate rule. This rule is an attempt by President Obama to impose a national cap-and-trade system that he failed to pass democratically when he controlled Congress in 2010. We hope other states join Governors Abbott, Fallin, Walker, and Pence in protecting the rights of their citizens to make their own energy choices.”

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Filed Under: Press Releases Tagged With: clean power plan, EPA, Governor Pence

Wind Lobby Blows Smoke on PTC Elimination Act

June 19, 2015 by AEA 2 Comments

The American Wind Energy Association (AWEA) sent a letter to Congress on June 18 in opposition to the PTC Elimination Act, a bill that would phase out and eventually end a subsidy that has funneled billions of taxpayer dollars into the wind industry over the last two decades. While AWEA claims that the PTC creates competition and benefits the economy, the subsidy stifles innovation and amounts to nothing more than corporate welfare for a mature industry. Below we correct the record on several of AWEA’s misleading claims from the letter:

CLAIM: “Eliminating the renewable energy Production Tax Credit (PTC) as proposed in H.R. 1901 would take away an effective, business tax incentive…”

FACT: This legislation does not “take away” the wind PTC, but rather, it phases out the subsidy over time. In fact, AWEA has supported a phase out in the past. In Dec. 2012, AWEA admitted a “Phase out of wind energy [PTC] would enable U.S. industry to become fully cost-competitive.” That is exactly what this bill would do—wind down wind subsidies over the next decade. It provides short-term certainty to wind developers and protects the long-term interests of taxpayers. AWEA recently supported a phase out and they should do so again.

CLAIM: “Reforming our nation’s tax code is an important national policy priority, but targeting one industry and making retroactive changes to existing law is misguided.”

FACT: If Congress is serious about tax reform, then the PTC is a good place to start. It is an egregious example of corporate welfare that a pro-growth tax reform plan would eliminate. It is poor tax policy to provide a subsidy that encourages the recipient to sell its product at a loss. The subsidy is so generous that wind producers can actually sell their electricity at a loss and still make money. This is called “negative pricing” and this legislation would significantly reduce this effect.

CLAIM: “[T]aking away the PTC and making retroactive tax policy changes would threaten an important economic opportunity for workers and their families.”

FACT: The wind PTC is a net jobs loser. Jobs created by subsidies lead to more jobs being destroyed elsewhere in the economy. One study of Spain’s green energy subsidies found that for every 1 green job created, 2.2 jobs were eliminated elsewhere. That’s because subsidies divert capital from the most economical projects to the most politically favored.

CLAIM: “[T]he value of the PTC flows to consumers in the form of lower electric rates by promoting market competition.”

FACT: The “value” of the PTC actually “flows” to wealthy wind developers at the expense of taxpayers, while making electricity more expensive for families. The PTC creates artificial demand for wind energy, which is much more expensive than other forms of electricity generation. As Warren Buffett has explained, wind energy is not cost competitive without subsidies: “On wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.” Buffett made it clear that the PTC is most beneficial to hedge funds and wind companies who are able to reduce their tax rate at the expense of all Americans.

CLAIM: “While the wind industry has grown over the years, it still accounts for less than 5% of total electric generation in the U.S. and recent PTC expirations have led to dramatic job losses and shuttered manufacturing facilities.”

FACT: The wind industry frequently complains about how a lack of “certainty” over PTC renewal harms investment in wind projects. This subsidy has existed for over 20 years. Advocates have continually said they just need it for a few more years, always pushing the end date to some uncertain future. This legislation ends the uncertainty associated with continual one-year extensions and puts a firm deadline on a phase out. If the wind industry wants “business certainty,” they should get out of the subsidy business.

Conclusion

Decades of subsidies have discouraged innovation in the wind industry, as companies relied on generous handouts to stay afloat. Even the wind industry has supported a phase out of the subsidy in the past. The PTC Elimination Act winds down the PTC in a reasonable way.

Filed Under: Wind Tagged With: AWEA, PTC Elimination Act, wind ptc

Study: Ohio Energy Mandate Will Cost State Billions

June 18, 2015 by AEA Leave a Comment

A majority of states have Renewable Portfolio Standards (RPS)—energy mandates that require utilities to produce or purchase a certain amount of electricity from renewable sources, such as wind and solar. These costly regulations have detrimental impacts on employment, income, and investment, leading policymakers in several states to take steps to either freeze or eliminate their renewable mandates.

Ohio’s RPS, passed in 2008, requires utility companies to source at least 12.5 percent of their electricity from renewable sources by 2025 (intervening years have lower requirements that build over time). Ohio froze its standard for two years while a committee investigates its economic effects, but a new study from the Institute of Political Economy at Utah State University has found that the RPS will have a resoundingly negative impact on the state’s economy.

Cost of Ohio’s Energy Mandate

Supporters justify renewable mandates by measuring the supposed benefits associated with reducing carbon dioxide emissions, but there is limited data on the costs of these regulations on ratepayers. A new study sheds some light on those costs.

The Institute of Political Economy quantified the cost of Ohio’s RPS on the state economy, finding that, by 2026, the renewable mandate will:

There were 29,366 fewer jobs in Ohio at the end of 2014 than there would have been without the RPS in place.
A family in Ohio made $3,842 less in 2013 than they otherwise would have had the RPS not existed.
Ohio families could potentially face $1.92 billion increase in electricity costs beyond what they would have paid in the absence of an RPS.

Action in Other States

Given the starkly negative economic effects of the RPS, it is unsurprising that other states are taking steps to freeze or repeal their standards, reflecting the growing momentum against these costly regulations.

West Virginia became the first state in the country to fully repeal its RPS in January, and Kansas followed suit in May. Colorado, Texas, and New Mexico have all passed legislation in at least one chamber to revise or repeal their RPS, and legislation has been introduced in North Carolina to freeze its renewable mandate.

Conclusion

In light of the negative impacts highlighted by the Institute of Political Economy’s study, Ohio’s lawmakers should follow through with a full repeal of its RPS. The costs of RPS on state economies far outweigh their ambiguous benefits, and all states should reconsider renewable mandates before the worst of the economic damage sets in.

Filed Under: Renewable Energy Mandates Tagged With: electricity, ohio, renewable energy mandate, renewable portfolio standard

Ex-Im Bank Won’t Solve Nuclear Industry’s Problems

June 17, 2015 by AEA Leave a Comment

Congress has until the end of June to decide whether to reauthorize the Export-Import Bank, the official credit export agency of the U.S. government. While the bank’s stated mission “is to ensure that U.S. companies—large and small—have access to the financing they need to turn export opportunities into sales,” Ex-Im has gained a reputation for favoring large, politically connected firms to the detriment of small businesses, the free market, and American families.

Ex-Im’s cronyism can be seen across the economy, particularly in the energy space. Those supporting Ex-Im, including some nuclear energy advocates, see the bank as a necessity. In a recent letter to Congress, the Nuclear Energy Institute (NEI) argued that without support from Ex-Im, it would be difficult to secure financing for the construction of nuclear reactors abroad.

Congress should let the Ex-Im Bank expire. The solution to inadequate nuclear financing is not to extend Ex-Im. Rather, nuclear advocates should focus on addressing regulations, subsidies, and mandates that put nuclear power at a competitive disadvantage in both domestic energy markets and export markets. To name a few specific policies, we recommend: 1) cutting excessive regulations that impede the licensing and construction process for reactors, 2) eliminating the wind Production Tax Credit and solar Investment Tax Credit, and 3) repealing state Renewable Portfolio Standards. Further, insofar as international banking requirements are the real impediment, nuclear advocates should focus on reforming those requirements rather than reauthorizing Ex-Im.

By focusing on Ex-Im instead of the measures outlined above, nuclear advocates miss the root cause of nuclear’s troubles: excessive government intervention. NEI’s letter is a classic example of the observation that each government intervention into the economy begets more intervention. Costly regulations and subsidies do not justify more of the same. Ex-Im supporters would get better results by streamlining regulations and reducing subsidies than asking Congress to fix government-created problems with more government.

Fixing Regulatory Barriers that Stifle a Strong Domestic Industry

One of the main barriers to a thriving nuclear industry that can compete domestically and internationally is the outdated regulatory process at the Nuclear Regulatory Commission. The current system primarily focuses on technologies that have existed in the market place for years—namely large, light water reactors. While light water reactors will likely remain the backbone of the nuclear industry for years to come, the regulatory apparatus makes it nearly impossible for new disruptive technologies to come to market. This effectively stifles the kind of innovations that could alter the domestic and international nuclear markets and make U.S. companies more competitive.

Improving the regulatory process so it moves quicker and is more technology-neutral would go a long way toward reducing costs and increasing U.S. competitiveness. Focusing efforts on Capitol Hill to these problems would do much more for the long-term health of the nuclear industry than Ex-Im ever will or could.

Streamline Permitting Process for Nuclear Exports

NEI argues in its June 4 letter to Congress that “commercial lenders are averse to financing nuclear power projects for regulatory reasons,” puts the U.S. nuclear industry at a disadvantage when competing against foreign firms. This is correct: for example, it takes between 15 to 90 days for Russian, Japanese, or Korean companies to obtain licenses for the export of nuclear materials, components, and technology. U.S. companies are forced to wait 6 months to a year.

However, taxpayer subsidies are not the solution. Instead of reauthorizing Ex-Im, the real problem holding nuclear exports back is onerous and overlapping regulations. The nuclear export licensing process falls under the jurisdiction of four agencies: Department of Energy, Department of State, Department of Commerce, and the Nuclear Regulatory Commission. Each of these agencies has a lengthy review and flawed process that companies must navigate before any proposal is approved.

Take the DOE process. According to the Government Accountability Office, “DOE rarely meets its existing target time frames for processing Part 810 applications, which calls into question whether these targets are realistic and achievable in light of its resources and authorities.” Further compounding the licensing process is the ineptitude of the interagency review process. GAO confirms that “Interagency review times missed DOE’s 30-day target for 85 of the 89 applications approved from 2008 through 2013.” The current process is broken, and no amount of funding from the Ex-Im can fix that.

Removing impediments in the licensing process would encourage lenders to invest in nuclear projects and grow the industry, thereby eliminating the need for the Ex-Im bank. This could be done in a number of ways. First, the Nuclear Regulatory Commission should be the sole agency responsible for regulating the sale of nuclear equipment and technologies, and its review process should be streamlined. Additionally, firm time limits should be placed on the licensing process to avoid overruns on the number of days between submittal and approval. These time limits should be competitive with other nations to ensure that U.S. nuclear companies can compete abroad.

Eliminate Subsidies that Harm Domestic Nuclear Power: Wind PTC and Solar ITC

While permitting delays hurt the domestic nuclear power industry, nuclear is also hurt because the federal government directly subsidizes some of the competition to nuclear. For example, the wind Production Tax Credit (PTC) and solar Investment Tax Credit (ITC) harm nuclear power by making wind and solar appear artificially less expensive. Enacted in 1992, the PTC gives wind developers a lucrative tax credit worth 2.3 cents per kilowatt-hour of electricity produced. The solar ITC gives solar producers a 30 percent tax credit on the cost of installing residential and commercial properties.

The wind PTC is so lucrative that wind producers engaged in predatory pricing because of the federal subsidies. Wind producers who receive the PTC can sometimes pay the electric grid to take their power and still profit—a phenomenon known as negative pricing. This puts existing nuclear power plants—which cannot bid artificially low prices into the grid because they cannot claim the PTC—at a competitive disadvantage to wind. Recent reports have also highlighted the problem of negative pricing when it comes to solar power. Fundamentally, the problem is that intermittent supply from wind and solar facilities simply cannot match demand in real time.

Why does negative pricing particularly harm nuclear producers? As the Energy Information Administration (EIA) notes, “negative prices generally occur more often in markets with large amounts of nuclear, hydro, and/or wind generation.” That is because each of these technologies has an incentive to continue operating even when its facilities are temporarily paying the grid to take their power. Nuclear plants are designed to run at full output and not “ramp” up and down. In times of very low demand, nuclear plants will sometimes take negative prices rather than go through the long and expensive process of lowering their output.

Unlike nuclear producers, the wind industry actually profits from negative prices because the PTC is such a large subsidy. Wind producers receive PTC payments per unit of power produced (even when the power has no value whatsoever to the grid), so they flood the grid with uneconomic power and ignore the distress signal sent by negative prices. It is also important to note that wind and solar subsidies have a draining effect on reliable power plants, whether or not prices actually dip below zero.

The threat to baseload generation from negative prices is very real. Already, Dominion closed its Kewaunee Nuclear Plant in Wisconsin 20 years ahead of schedule and Entergy has retired its . Both companies cited economic considerations as the reason for closing the plants. The DOE’s assistant secretary for nuclear energy referred to this emerging pattern of nuclear plants shutting down early as “a trend we are clearly very, very concerned about.”

Negative pricing caused by the PTC has a chilling effect on private investment. Potential lenders will only assume the financial risk of investing in new nuclear plants if they have a reasonable expectation of earning a return on that investment. Eliminating the wind PTC would send a signal to investors that nuclear power can compete and profit.

Repeal Renewable Energy Mandates

Renewable energy mandates are another government policy that disadvantages nuclear power. Currently, more than half of the states have enacted some form of an energy mandate, or RPS, which requires utilities to generate a certain percentage of their electricity from renewable sources. Though the requirements differ from state to state, the result is the same: intermittent wind and solar benefit at the expense of reliable nuclear, natural gas, and coal—and families foot the bill.

State energy mandates paired with direct subsidies for renewables present a two-pronged threat to nuclear. Energy mandates artificially increase demand for wind and solar, requiring utilities to accept renewable power over reliable power. Then, wind and solar can bid artificially lower prices into the grid since their power is subsidized, and the true cost hidden, by the wind PTC and solar ITC. These two factors combine to depress prices for wind and solar while elbowing out reliable sources of power such as nuclear.

Investors are well aware of this scheme. As long as subsidies and mandates continue to distort the market and hide the true cost of wind and solar, nuclear will remain cost-prohibitive to private capital. Focusing on increasing subsidies through the Ex-Im Bank instead of on these more fundamental impediments to the domestic nuclear energy industry risks losing the forest through the trees.

Conclusion

Nuclear energy is a proven, low-cost, reliable source of energy. Unfortunately, the licensing process for nuclear exports is too long and arduous for many investors to stomach, and other regulatory hurdles here and internationally only make matters worse. Meanwhile, subsidies and mandates for renewable energy make operating some nuclear facilities cost prohibitive, which has a chilling effect on future investment. This is why most of the new nuclear power plants are being built overseas, where regulations aren’t as onerous.

There is no doubt that American nuclear energy can thrive in the global market, but the Export-Import Bank isn’t the answer. Instead of trying to renew Ex-Im to boost their prospects, nuclear proponents should focus on streamlining the export licensing process. Domestically, eliminating subsidies for wind and solar and repealing state renewable energy mandates would help establish a more solid role for reliable nuclear power. Each of these policy changes would encourage more private-sector investment, thus building a stronger U.S. nuclear industry that is able to compete in foreign and domestic markets without taxpayer handouts.

Filed Under: Energy Development Tagged With: Ex-Im Bank, exports, nuclear, renewable energy mandates, subsidies

Opinion: Fossil Fuel Divestment: Flight From Reality

June 16, 2015 by AEA Leave a Comment

Institute for Energy Research Founder and CEO Robert Bradley, Jr. penned an op-ed on Forbes.com this past week explaining why the struggling divestment movement is a solution looking for a problem. The text of the piece is below:

Fossil Fuel Divestment: Flight From Reality

By Robert Bradley, Jr.
June 15, 2015

“The effect of [divestment] decisions on the consumption of fossil fuels will be nil; the effect on the growth of institutions’ endowments will be negative.”

– George Will, “‘Sustainability’ Gone Mad on College Campuses,” Washington Post, April 15, 2015.

There is a movement afoot to slow the wheels of modern life. A highly emotional, anti-industrial fringe is urging institutions to “divest” — or sell investments in the oil, gas, and coal industries. Their goal is to keep dense, reliable, affordable energy in the ground and out of our lives.

Divestment is a solution looking for a problem. It is destined to fail for at least three reasons.

First, every American is a prolific fossil-fuel user, and substitutes (ethanol for gasoline, wind/solar for electricity) are limited, expensive unreliable options. Second, many — if not most — Americans are rewardingly invested in the oil, gas, coal, and electricity industries. Third, profit-seeking investors can be expected to buy as fringe emotional investors sell, leaving stock prices unchanged.

The irony is that the decades-old case against fossil fuels has weakened. Instead of social costs, we should think in terms of net social benefits and welcome a consumer-driven, taxpayer-neutral, free-market energy future.

Growing But Futile Movement

The list of emotional sellers is growing. Since 2012, the divestment campaign has expanded to more than 220 colleges, faith organizations, pension funds, and other institutions. Some have already sold; the others have pledged to do so.

Syracuse University is a recent example of a high-profile institution jumping on the divestment bandwagon. Influenced by climate change activist Bill McKibben’s 350.org movement, the university announced its intent to redirect the fossil-fuel portion of its $1.2 billion endowment to “clean energy” investments.

Top-tier research institutions have also joined in. Stanford decided last year to cease all direct investments in companies engaged in coal mining. Oxford University, while rejecting formal divestment, stated that it will not invest in companies that mine coal or heavy oil.

‘Market Failure’ Mirage

The fuss is long on emotion and short on evidence The Big Four issues of fossil-fuel sustainability–depletion, pollution, energy security, and climate change — have all weakened over time.

Depletion? We are not running out of oil, gas, and coal. In fact, the opposite is true. Critics who once said it would not be economical to increasingly produce oil or gas (coal supply has never been an issue) now insist that there is too much to produce and consume. Hence the call for divestment so firms have less capital to extract hydrocarbons.

Air pollution? That’s been going down as more carbon-based energy has been combusted. Since 1970, the aggregate emissions of the six criteria pollutants — including carbon monoxide, lead, and sulfur dioxide — dropped by more than two-thirds. More improvement is coming as newer, cleaner equipment replaces current inventory. By 2017, for example, smog-forming emissions from motor vehicles will have fallen by 99.4 percent since 1970.

Energy Security? The U.S. Energy Information Administration forecasts continued growth in domestic oil and gas production. By 2017, the United States will be a net exporter of natural gas. On the oil side, today’s net imports of 25 percent (way down from the peak of 60 percent in 2005) is forecast to fall to 14 percent by 2020.

Climate Change? “Where the heck is global warming” remains the major question. Global warming has nearly stalled since the late 1990s, and modest increases are well below model forecasts, as I have detailed in a previous Forbes.com post. A recent attempt to reanalyze global temperature to increase warming to predicted levels is controversial and remains the outlier.

The “pause” or “hiatus” in global warming is mainstream — and it continues. And the data on hurricanes and other extreme weather events does not suggest a positive correlation with carbon dioxide (CO₂) atmospheric concentrations, which are increasing.

Compare the intellectual case for fossil fuels to the desperate analogies of Bill McKibben for divestment, the most notorious being apartheid. He recently suggested that “divestment will undercut the industry’s political power, just as happened a generation ago when the issue was South Africa.”

Such a comparison to the modern energy industry is morally repugnant — and inane. The institutional racism of apartheid has nothing to do with the fossil-fuel industries reliably and affordably supporting high standards of living for billions.

Social Costs — or Net Benefits?

Instead of exaggerated “social costs” of fossil-fuel reliance, the benefits of oil, gas, and coal over its (inferior) substitutes should be appreciated. Consumers voluntarily support gasoline, diesel, and gas-fired electricity for good reasons — and taxpayers are burdened by renewable energy for bad reasons.

Consider home energy costs. Thanks to the fracking revolution, natural gas is abundant in the United States — so electric bills are plummeting. According to research firm IHS, households saved $1,200 in disposable income on average in 2012 thanks to lower energy costs and utility bills. By the end of this year, that figure could be closer to $2,000.

The domestic energy boom has also led to savings at the pump, thanks to plummeting oil prices. The Energy Information Administration predicts that the average U.S. household will spend nearly $550 less on gasoline this year than in 2014.

Sonecon Analysis

While the domestic energy boom is helping Americans save money on everyday expenses, investments in the industry also power Americans’ retirement savings. Almost 29 percent of fossil fuel industry shares are held by pension funds, with another 18 percent in IRAs.

These are good investments. A study by Sonecon found, for example, that oil and natural gas stocks comprising 3.9 percent of pension holdings generated 8.6 percent of the returns in those accounts. (The four-state study was from 2005 — 2009.) Another Sonecon study found that $1 invested in these stocks in 2005 grew to $2.30 by 2013. Over the same time period, that $1 would be worth only $1.68 without fossil-fuel investment.

University investments in fossil fuels have helped to grow their endowments considerably. Sonecon found that between 2001 and 2011, investments by college endowments in the oil and gas industry produced the highest returns of any other asset class. And during the 5-year period of 2006 — 2011, oil and gas stocks generated yearly average returns just under 8 percent. That was 172 percent higher than the average returns for all U.S. stocks.

According to the National Association of College and University Business Officers (NACUBO), university endowments hold an estimated $23 billion in energy stocks. Revenues generated from these investments support financial aid packages, professors’ salaries, and new infrastructure.

Fischel Analysis

Daniel Fischel, former head of the University of Chicago’s law and economics program, examined the growth of two hypothetical investment portfolios over the last 50 years. According to his analysis, $100 invested in an optimal portfolio in 1965 would yield $14,600 by 2014. But a fossil-fuel-divested portfolio yielded only $11,200 over that same time period — a shortfall of 23 percent.

In other words, divestment threatens to compromise and shrink university endowments. With aggregate endowments of $456 billion in assets (NACUBO), the Fischel-estimated cost of divestment is $3.2 billion each year. That translates into less financial aid, and thus less opportunity, for needy students.

“I conclude that the costs to investors of fossil fuel divestiture are highly likely and substantial, while the potential benefits — to the extent there are any — are ill-defined and uncertain at best,” Fischel warns.

Fossil-Fueled Future

Fossil fuels are our future. According to the U.S. Energy Information Administration’s 2015 Annual Energy Outlook, the United States will depend on fossil fuels to supply 80 percent of its energy needs in 2040. That’s not far off last year’s 82 percent. Globally, three-fourths of primary energy consumption will come from fossil fuels in 2040, the International Energy Agency predicts.

And these numbers will be higher if governments scale back their massive subsidies to renewable energies in the false hope of achieving parity with the real thing.

Instead of vilifying an industry that has been key to the enhancement of the quality of life, colleges and universities should welcome traditional energy investing. Swarthmore, for example, despite strong objections from green activists, recently decided “not to modify its investment guidelines to allow for use of the endowment to meet social objectives.”

“The divestment impulse recognizes no limiting principle,” George Will wrote several months ago. He fears “shedding investments tainted by involvement with Israel, firearms, tobacco, red meat, irrigation-dependent agriculture, etc.” where “progressivism’s dream of ever-more-minute regulation of life is realized but only in campus cocoons.”

One can only hope the divestment craze ends so that nonprofits will not have to choose between expanding educational opportunity and kowtowing to a futile political crusade.

Robert L. Bradley Jr. is the founder and CEO of the Institute for Energy Research. This post originally appeared on Forbes.

Filed Under: Divestment Truth Tagged With: climate change, divestment, Energy Security, fossil fuels

10 Fatal Flaws in EPA’s Dubious Health Claims

June 16, 2015 by AEA 1 Comment

The Environmental Protection Agency claims its proposed climate rule will drastically improve public health and save lives, but that claim is questionable. EPA has a track record of overestimating and double counting benefits, cherry picking data, misrepresenting studies, and ignoring the negative health impacts associated with poverty. Here are 10 ways the Obama administration is exploiting dubious research to push radical climate change policies.

Latest science casts doubt on EPA’s health claims: While EPA claims the point of its rule is to reduce carbon dioxide related to climate change, EPA can’t actually point to any real, tangible climate impacts. Instead, EPA relies on particulate matter reductions to form the basis of its benefits. However, new research casts doubt on EPA’s central claim that the climate rule is necessary because it improves public health. A new, peer-reviewed study from researchers at Indiana University “analyzed nine air pollution regulations issued by U.S. EPA between 2011 and 2013 and found that the number of lives saved ranged from zero to 80,000. The wide range was driven largely by uncertainties over the effects of exposures to fine particulate matter, according to the study.” EPA’s dubious health claims show that the climate rule is not about health, but about advancing a political agenda designed to undermine affordable energy.

EPA ignores the premature deaths it causes: EPA’s cost-benefit analysis is fatally flawed. While it likely inflates the health benefits from particulate matter, it ignores its own analysis on the relationship between income and health. In the past, EPA has admitted a positive correlation between “people’s wealth and health status, as measures by mortality, morbidity, and other metrics.” Yet the agency made no effort to quantify the wealth-health correlation in its rule, likely because EPA wouldn’t look good. As the Energy & Environment Legal Institute explains in a public comment to EPA on its ozone rule, the Office of Management and Budget recommends using a “federal estimate of one premature death for every $8.5 million ($US 2006) in reduction of disposable income.” Using a study conducted by NERA Economic Consulting, which estimates GDP losses of $366 billion, we estimate that EPA’s climate rule could result in more than 32,000 premature deaths. EPA cannot ignore these health costs.

EPA’s rule harms public health: By raising energy prices, EPA’s rule will reduce the amount of income Americans, especially poor families, can spend on health and nutrition. About 9.2 million families have annual pretax incomes of less than $10,000. For those millions of families, 32 percent went without food for at least one day; 42 percent went without medical or dental care; and 38 percent did not fill a prescription or took less than the full dose, according to a report from the National Energy Assistance Directors’ Association. EPA’s rule will cause double-digit electricity rate hikes for residents of 43 states, forcing the poorest among us to make even more tradeoffs between basic necessities like food and medicine.

The rule harms minorities it claims to help: Gina McCarthy has called EPA’s climate rule a “justice issue” for minorities. However, the health impacts of the rule will be especially severe for minority families, who tend to be poorer than White families. A new study by the National Black Chamber of Commerce found that the rule would increase poverty for Blacks and Hispanics by 23 and 26 percent, respectively, “thereby endangering health and safety while creating additional barriers to meaningful low-income participation in the economy.” By making poverty worse for those who can least afford it, EPA’s climate rule will make poor people sicker.

The rule could exacerbate childhood asthma: President Obama and EPA claim that the climate rule will reduce the “development of asthma” in children. He even uses his daughter’s asthma to advance his political agenda. However, a Johns Hopkins study that examined data for 23,065 children across the country found that poverty was more closely linked to asthma development in children than it was to living in inner cities. The authors found that inner city living, where outdoor air pollution tends to be worse, was “not significant” in asthma development—instead, what matters is poverty. The problem is that this regulation will drive up energy prices, making it difficult to escape poverty and the bad health impacts of poverty.

EPA misinterprets and cherry picks studies: EPA has a history of using dubious studies to justify air regulations. For example, Dr. William Adams at the University of California – Davis said EPA “misinterpreted the statistics contained in my published, peer-reviewed report” and “reanalyzed” his findings to justify a stricter regulation for ground-level ozone. As Dr. Julie Goodman at Harvard’s School of Public Health and Dr. Sonja Sax have explained, EPA has reviewed hundreds of studies on ozone but has not done so in “systematic fashion, by considering study strengths and limitations in a consistent manner from study to study.” This, they say, could lead EPA to “cherry picking of studies.” They conclude that “EPA assumes that ozone causes more health effects than what the science supports.” Given EPA’s dubious science on ozone, the public should be suspicious of EPA’s health claims related to its climate rule.

EPA double counts benefits: Since the alleged climate benefits of EPA’s climate rule are either inflated or nonexistent, EPA is leaning on “co-benefits” of reducing pollutants, notably particulate matter. Yet EPA admits it may be double counting health co-benefits already attributed to other EPA rules: “…it is possible that some costs and benefits estimated in this RIA may account for the same air quality improvements as estimated in the illustrative NAAQS RIAs.” Benefits EPA already claims in previous rules can’t be used again to justify the climate rule.

EPA ignores health impacts of job losses: The climate rule will raise electricity prices and destroy jobs. In its cost-benefit analysis, EPA does not consider the negative health outcomes associated with job losses—exactly the threat posed by higher electricity prices. A recent study found the odds of self-reporting a new health condition increase by 83 percent after losing a job due to your employer going out of business. The authors concluded these and other data “suggests that there are true health costs to job loss.” EPA ignores these health costs.

EPA overestimates climate benefits: The climate rule is supposed to reduce greenhouse gas emissions associated with climate change. Yet even by EPA’s own admission, the rule has no impact on climate change. According to EPA’s own model, the rule will only limit global warming by 0.02 degrees Celsius and slow sea-level rise by just 0.01 inch by the year 2100. Moreover, a Brookings paper found that EPA is overestimating climate benefits by a factor of 15. A more traditional cost-benefit analysis would estimate climate benefits of only $2 billion to $7 billion – less than the estimated compliance cost of the rule. Since EPA can’t point to any tangible climate benefits—sea levels or temperatures—the agency calculates its climate benefits using the “social cost of carbon,” an arbitrary metric that many economists criticize for having little basis in reality.

America’s air quality is excellent: Since the EPA can’t point to any tangible climate impacts of its climate rule, the agency derives most of its benefits from reducing air pollutants such as particulate matter and ozone. EPA, however, already regulates these pollutants through other parts of the Clean Air Act. Furthermore, these pollutants are already declining without the climate rule. Air quality in the United States has greatly improved in recent decades: the six criteria pollutants have declined 62 percent since 1980, according to EPA data. Our air is cleaner than it’s been in generations, and cleaner than Europe’s air despite the fact that EU countries impose cap-and-trade and other controls the EPA wants to replicate here. In fact, according to EJ Calabrese at the University of Massachusetts, we may have already reached the diminishing marginal return on health benefits for reducing PM and ozone levels.

EPA’s climate rule will impose enormous economic costs for dubious health benefits. The public should not trust EPA’s health claims, as the agency has a long history of manipulating science, inflating benefits, and ignoring costs to advance its agenda. As a result, EPA should rescind its proposed climate rule.

Filed Under: Emissions Standards Tagged With: climate change, EPA, Obama Administration, public health

Governor Christie, I Award You No Points…

June 15, 2015 by AEA Leave a Comment

At a recent event in New Hampshire, New Jersey Governor and potential presidential candidate Chris Christie was asked by a member of the crowd his stance on the Renewable Fuel Standard (RFS). In the past, Christie has come out in support of the mandate, telling Iowans that he “absolutely” supports the RFS because “it is what the law requires.”

At the New Hampshire event, Rep. Joe Pitre (R-Strafford) asked “in light of the EPA’s recent proposal to roll back the amount of ethanol blended into our gasoline supply, would you support reforming this policy to protect consumers from the costs of this broken policy?”

Based on Christie’s past support for the RFS, one would think that he would be able to field this straightforward question. His response was anything but clear:

Listen, what I’ve said before about this is that, you know, Congress has to decide what they want to do here. The fact is they have renewable fuel standards on the books that they’re not enforcing, and they haven’t enforced.

First off, it is actually the executive branch, specifically the EPA, that is tasked with enforcing the RFS. Just like Gov. Christie (presumably) learned in school, Congress is responsible for passing laws, while the executive branch is responsible for administering laws. Christie continued:

Well, if they want to change them that’s the President’s problem that he hasn’t enforced them and put those things into effect as the executive. Congress has put them on the books. So Congress, or the President, needs to do one of two things: take them off the books and do what you’re suggesting, or enforce the law as it is now.

Wrong again. Congress is responsible for changing the RFS, not the President. Further, Congress has actually been considering repealing the RFS altogether, which would end this costly, broken mandate. More insights from Christie:

But right now we live in a kind of Neverland in between because nobody knows what they want to do. So my view of it is let the President state where he’s at, let the Congress either do or not do what they’re saying their position is before all of us start weighing in and deciding what we want to do…

The EPA has made its position very clear based on its most recent decision to dramatically increase cellulosic biofuel. If Gov. Christie had a grasp on the issue at hand, he would realize that the EPA’s levels for cellulosic biofuels are wildly unrealistic and will lead to increased gas prices for consumers.

Christie then laid out a vague energy platform in which he discussed lifting the oil export ban and promoted hydraulic fracturing, nuclear energy, and solar energy. However, he gets tied up again when he tries to circle back to the RFS:

Ethanol and the Renewable Fuel Standard has to be judged and prioritized within that menu of options and, if I were President of the United States I would set out a national energy policy… and we would make those decisions based on cost and effectiveness of the program, and not upon anything else. And that’s the way I’d make that judgment.

If he were judging the program based on cost and effectiveness he should have no trouble supporting efforts to completely repeal this mandate because it is both ineffective and costly for consumers.

So the verdict, Governor Christie, can be summed up by the following video:

Filed Under: Renewable Fuel Standard Tagged With: EPA, Iowa, Renewable Fuel Standard, rfs

Under EPA Rule, Blacks and Hispanics Suffer the Most

June 15, 2015 by AEA 2 Comments

The Environmental Protection Agency’s so-called “Clean Power Plan” will impose severe economic burdens on Black and Hispanic families, according to a new study from the National Black Chamber of Commerce. Rising electric rates and job losses expected under the EPA’s rule will have a disproportionate impact on poor people and minorities, who spend a higher share of their household budgets on energy.

NBCC’s study shows that EPA’s agenda will inflict the most pain on those who can least afford it, “thereby endangering health and safety while creating additional barriers to meaningful low-income participation in the economy.” The study’s key findings include impacts on poverty, jobs, and income:

By 2035, Black poverty rises by 23% and Hispanic poverty by 26%. Over the same period, energy burden of Blacks increases by more than one-third and Hispanics by more than 35%.
In 2035, 535,000 Black jobs would be lost and nearly 900,000 Hispanic jobs would be lost. Cumulative job losses for Blacks and Hispanics total about 7 million and nearly 12 million, respectively.
Black median household income will be $455 less than under the reference case, and Hispanic median household income will be $515 less.

As the following chart shows, Blacks and Hispanics will suffer more under the EPA’s rule because they spend a much higher percentage of their income on energy costs than White families:

EPA’s rule amounts to an energy tax on the poor and minorities. Fortunately, a growing number of states are fighting back. But time is running out, with EPA expected to finalize its rule in the next few months. State leaders that want to protect the interests of their most vulnerable constituents should act now by refusing to submit a compliance plan to the EPA.

Filed Under: Emissions Standards Tagged With: clean power plan, energy tax, EPA, household income, national black chamber of commerce

Fossil Fuel Divestment: Flight From Reality

By Robert Bradley, Jr. June 15, 2015

By Robert Bradley, Jr.
June 15, 2015