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In the Pipeline: 3/4/13

March 4, 2013 by Leave a Comment

Cronyism. Campaign finance. Prostitution. This story has it all. Politico (3/4/13) reports: “An Associated Press investigation has found that New Jersey’s Sen. Robert Menendez sponsored legislation with incentives for natural gas vehicle conversions that could benefit the biggest donor to his re-election… The CEO and a former consultant to GFS Corp. say that Dr. Salomon Melgen invested in the Florida company, which helps industries convert diesel fuel-fleets to natural gas, and joined its board of directors in early 2010.”

 

The bad guys ran Andy Revkin out because he was too calm and rational. Which should tell you a lot about the bad guys. NYTimes(3/1/13) reports: “The Times is discontinuing the Green blog, which was created  to track environmental and energy news and to foster lively discussion of developments in both areas. This change will allow us to direct production resources to other online projects. But we will forge ahead with our aggressive reporting on environmental and energy topics, including climate change, land use, threatened ecosystems, government policy, the fossil fuel industries, the growing renewables sector and consumer choices.”

 

Don’t break out the champagne, but this could be the only sane thing that happens in Washington this year. GlobalWarming.org(2/28/13) reports: “U.S. EPA has altered its cellulosic biofuel requirements for 2012 — from 8.65 million gallons to zero,” today’s Climatewire reports. In January, the D.C. Circuit Court of Appeals vacated EPA’s 2012 cellulosic biofuels standard. “As a result,” Climatewire explains, ”obligated parties — oil companies required to show EPA that they blend biofuels in their fuel supply — won’t need to provide information on their compliance. The agency will submit refunds to companies that have submitted payments for 2012 cellulosic waiver credits.”

 

Did you know that EDF has offices in New York, and Boulder, and San Francisco, and Washington, and . . . Bentonville, Arkansas? Did you know that they “help” Wal-Mart think about how best to implement “green” initiatives? Tell me again why the Republicans like Wal-Mart? Politico (3/4/13) reports: “Statement by Mike Duke, president and CEO, Wal-Mart Stores, Inc.: ‘We congratulate Sylvia on her nomination … Sylvia is a strong leader who both masters the details and has a clear vision for making big things happen. She cares deeply about people and has natural personal warmth that enables her to build relationships and drive results that deliver impact. She understands business and the role that business, government and civil society must play to build a strong economy that provides opportunity and strengthens communities across the country.’”

 

At least we don’t have to report that they’ll stay open with a government handout, only to report again in a year or two that 265 jobs will be lost. Denver Post (3/1/13) reports: “Rentech Inc. will mothball a research- and-development facility in Commerce City and eliminate 65 positions after struggling to bring its alternative fuels into commercial production, the Los Angeles company said Thursday… ‘We believe the technology has value and we have demonstrated that it works,’ said company spokeswoman Julie Dawoodjee… Rentech doesn’t have the $1 billion or more it would take to ramp up its technology on a mass scale, and potential fuel buyers haven’t been willing to lock into long-term contracts that would make it easier to raise capital, she said.”

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In the Pipeline: 3/1/13

March 1, 2013 by Leave a Comment

This is going to be fun. We’ll see you in Houston on the 9th. 

 

 

At every turn, the story behind wind energy gets more depressing. It’s like a kid who starts out in Mom and Dad’s basement after Harvard; it’s cute for a few months, and then you realize they may never leave. Green Tech Media (2/27/13) reports: “‘Capacity factor measures the power output from a generator as a percentage of its maximum capability. With most forms of generation, you would operate at whatever capacity factor is economic,’ Moland said. “With wind, it is dictated by however much wind is blowing.”…The best wind sites have about a 40 percent capacity factor, meaning they produce an average of 40 megawatts per 100 megawatts of nameplate capacity over ‘all the hours of a year.’…‘If you’re losing — curtailing — two percent of that generation,’ Moland said, ‘it really has a big impact.’ Capacity factor is reduced to 38 percent, perhaps five percent of a wind farm’s production. ‘All the cost of a wind plant is upfront,’ Moland explained. ‘All the financial models looking at rate of return on investment assume a certain level of wind availability.’”

 

It’s so obvious even the Obama Administration has to acknowledge it. Reuters (2/27/13) reports: “As U.S. oil and natural gas production booms, the Obama administration’s energy policy has been ‘fluid’ by necessity to adapt to the huge economic opportunities and climate challenges posed by growth, the top White House energy and climate adviser said on Wednesday… In a speech to a room packed with energy analysts and lobbyists, Obama adviser Heather Zichal acknowledged that U.S. energy policy “might not look perfectly pretty from the outside” as it evolves to shifting supply-and-demand scenarios… ‘It is a little bit fluid, but the landscape is changing,’ Zichal said at the Center for Strategic and International Studies, a Washington think-tank.”

 

Open up, big oil, and take your medicine. WSJ (2/28/13) reports: “Firearms manufacturers are well aware that if semiautomatic rifles are banned, bolt-action guns are next. It is a mistake to cede a millimeter on any issue, because it simply invites more demands. People in the gun culture know their opposition… Consider, by way of contrast, the foolish actions of Chesapeake Energy, a major producer of natural gas. Time magazine revealed last year that Chesapeake gave the Sierra Club $26 million. Presumably the Machiavellian reasoning was that the Sierra Club would use this money to attack Chesapeake’s competitor, the coal industry… Now the Sierra Club is trying to shut down hydraulic fracturing—the entire basis of Chesapeake’s natural-gas business. According to reports this week, the natural-gas boon from fracking could be a boon to the U.S. economy for 30 years, if the industry doesn’t fumble the opportunity… If Chesapeake’s managers had understood the environmental movement, they never would have subsidized Sierra Club.”

 

Boxer, Sanders, Harvard, Stanford, AEI, RFF, Duke, Exxon – this won’t even be a fair fight once the American people know who is pushing this monstrosity. E&ENews (2/28/13) reports: “So almost every day in Washington, D.C., one think tank or another is discussing the pros and cons of the carbon tax… Yesterday, it was the nonpartisan Resources for the Future’s turn. The think tank hosted a forum on carbon taxes that drew not only the usual assortment of policy analysts and environmentalists, but also Democratic and Republican Capitol Hill staff and industry representatives… ‘We think that the appeal of a carbon tax in the United States is only going to increase over time,’ said Ian Parry of the International Monetary Fund, who convened yesterday’s panel.”

 

Let’s review what IER has to say about this carbon tax thing. IER(2/28/13) reports: “A recent story in EnergyGuardian (sub. req’d) centered on Senator Sheldon Whitehouse’s (D-R.I.) support for the carbon “fee” bill introduced by his colleagues Sen. Barbara Boxer and Sen. Bernie Sanders. Fortunately, the newly-released NERA study gives us a quantitative estimate of how much their scheme would hurt the U.S. economy. The whole episode fulfills the warnings that many of us have been making during the carbon tax debate. Specifically, advocates of a carbon tax rely on a bait-and-switch, where they make wild promises about the alleged environmental benefits of a relatively modest tax rate. As the NERA study shows, however, if the tax rate is modest, the environmental impact is negligible, but if the rate is high enough to really reduce U.S. carbon dioxide emissions, the economic impacts are absolutely devastating.”

 

The following think tank chiefs are opposed to a carbon tax. Please contact us at [email protected] if you wish to join our growing ranks. We are thinking about starting a new list – trade association heads. We fear, however, it will be pretty small.

Tom Pyle, American Energy Alliance / Institute for Energy Research
Myron Ebell, Freedom Action
Phil Kerpen, American Commitment
William O’Keefe, George C. Marshall Institute
Lawson Bader, Competitive Enterprise Institute
Andrew Quinlan, Center for Freedom and Prosperity
Tim Phillips, Americans for Prosperity
Joe Bast, Heartland Institute
David Ridenour, National Center for Public Policy Research
Michael Needham, Heritage Action for America
Tom Schatz, Citizens Against Government Waste
Grover Norquist, Americans for Tax Reform
Sabrina Schaeffer, Independent Women’s Forum
Barrett E. Kidner, Caesar Rodney Institute
George Landrith, Frontiers of Freedom
Thomas A. Schatz, Citizens Against Government Waste
Bill Wilson, Americans for Limited Government

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Boxer-Sanders Carbon “Fee” Relies on Huge Bait-and-Switch

February 28, 2013 by 1 Comment

A recent story in EnergyGuardian (sub. req’d) centered on Senator Sheldon Whitehouse’s (D-R.I.) support for the carbon “fee” bill introduced by his colleagues Sen. Barbara Boxer and Sen. Bernie Sanders. Fortunately, the newly-released NERA study gives us a quantitative estimate of how much their scheme would hurt the U.S. economy. The whole episode fulfills the warnings that many of us have been making during the carbon tax debate. Specifically, advocates of a carbon tax rely on a bait-and-switch, where they make wild promises about the alleged environmental benefits of a relatively modest tax rate. As the NERA study shows, however, if the tax rate is modest, the environmental impact is negligible, but if the rate is high enough to really reduce U.S. carbon dioxide emissions, the economic impacts are absolutely devastating.

The Boxer-Sanders “Fee”: Bait-And-Switch

The specific legislation proposed by Boxer and Sanders describes itself in this way:

Price Carbon — While setting a long-term emissions reduction goal of 80 percent or more by 2050 as science calls for, the legislation would enact a carbon fee of $20 per ton of carbon or methane equivalent, rising at 5.6% a year over a ten-year period….The Congressional Budget Office estimates this step alone could raise $1.2 trillion in revenue over ten years and reduce greenhouse gas emissions approximately 20 percent from 2005 levels by 2025. Additional emissions reduction under this legislation would occur as a result of the energy investments, and ongoing efforts by the EPA and a number of states. [Bold added.]

Now the part I have put in bold is crucial, and it epitomizes exactly what I was saying in my post about the new NERA study. The proponents of a carbon tax (or “fee” as Boxers and Sanders are euphemistically calling it) want to have their cake and eat it too. On the one hand, they point to the “settled climate science” to show why a drastic and aggressive reduction in U.S. emissions is extremely important.

On the other hand, they know that most Americans would never support the policies necessary to actually achieve such aggressive reductions. Therefore, the proponents of a carbon tax do what Boxer and Sanders have done in the block quote above: They point to a relatively modest carbon tax level, which will only cause mild suffering for lower-income households and workers.

But since this level of the carbon tax won’t achieve the allegedly necessary emissions reductions, they then tell a magic-bullet story about using the proceeds of the carbon tax to fund all sorts of new technologies that will then render conventional energy production obsolete. That’s how they can sell the whole package to Americans as (a) achieving the drastic emission cuts by 2050 that they say are necessary, while (b) not imposing the carbon taxes upfront that the same models say are necessary to achieve part (a).

What Does NERA Say About an 80 Percent Reduction?

A new study by NERA Economic Consulting, prepared for the National Association of Manufacturers (NAM), perfectly describes the impacts on the US economy from the two “endpoints” of the Boxer/Sanders bait-and-switch. In other words, if the government really does stick to just a modest tax that rises gently over time, then the NERA study tells us the outcome. On the other hand, if the carbon tax gets its foot in the door, and then the hoped-for innovations in “clean energy” don’t materialize so that future policymakers jack up the carbon tax, then the NERA study shows how bad the economic hit would be in order to achieve an 80 percent emission reduction.

The following diagram from the NERA study shows the trajectory of the carbon tax over time, in the two scenarios:

 

In my earlier blog post, I walked through more of the NERA study’s details, but in this post let me just reiterate two of its most important tables. The first one below (Figure 3) shows the impact on workers from the two possible carbon tax scenarios:

 

 

Thus we see, for example, that the more aggressive carbon tax scenario implies a long-run average worker income loss of the equivalent of 1.26 million full-time jobs, while in year 2053 (when the carbon tax reaches its peak) the impact is a staggering hit to worker income of 20.67 million jobs. (In my earlier post I explain what the “job-equivalents” phrase means in this context.)

Finally, consider the effect of the two carbon tax scenarios on various energy prices:

 

 

In particular, the 80% reduction case shows drastic increases in electricity and gasoline prices in the coming decades, should the US government seriously try to meet the emission reduction targets that many groups are proposing as “sensible climate policy.” By 2053, the NERA study anticipates residential electricity prices having risen 42 percent relative to the baseline, and gasoline prices at a whopping $14.57 per gallon (compared with $5.51 in the no-tax baseline, because of rising crude market prices).

Note that this figure means there will be a tax of $9.06 cents per gallon, or $135 worth of tax for a 15-gallon fill up. Even if automakers can meet the new federal regulations that double fuel efficiency, the one-two punch of the economic dislocation of higher energy prices on businesses and families and the fact that such prices will price many out of personal transportation means there will be a huge number of feet pounding the pavement. (If there still is pavement, since asphalt is carbon based and cement uses enormous amounts of energy.) I can guarantee they will not be happy feet.

Conclusion

There are all sorts of proposals floating around on how many goodies the government could get, by taxing carbon. Recall the McDermott proposal from last summer, which would cause trillions of dollars of economic damage, over and above the theoretical benefits from reduced climate change, even according to the conventional models devised by people who support a carbon tax.

With the Boxer-Sander proposal, things are much more clever. First, they call it a “fee” because nobody likes the t-word. Secondly, they propose a relatively modest carbon tax rate, so that official analyses will show only modest energy price hikes and lost income. They assume that this modest nudge in the right direction will then kick off a wave of innovation in “clean energy” developments, because otherwise the US won’t come anywhere near the emissions reductions their own models say are absolutely critical.

Policymakers and the general public need to know all of the facts before making an informed decision on these weighty matters. When someone says the US needs 80 percent emissions reductions by 2050, and then touts a new “carbon fee” that will, according to their numbers, only achieve reduction of 20 percent in emissions by 2025, we should all be suspicious.

Proponents of a carbon tax should be straightforward with their presentation. If their plan is to tax the US into compliance with their emissions goals, then they should explain what their own models say will be necessary. (President Obama admitted as much in 2008.) Since they realize that the American public will never support such high tax rates, they should think of a different strategy, rather than using a bait-and-switch that won’t work, even on their own terms.

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New NERA Study Shows Economic Dangers of a Carbon Tax

February 28, 2013 by Leave a Comment


A new study by NERA Economic Consulting, prepared for the National Association of Manufacturers (NAM), documents the economic dangers of a federal carbon tax. The study is very conservative in its assumptions (as I’ll explain below), giving the benefit of the doubt to the proponents of a carbon tax. Even so, there study reaches two conclusions: Either the US government sets a carbon tax low enough so that its economic impacts are simply bad, but not awful, in which case there are few environmental benefits, or the US government sets a carbon tax aggressive enough to meet the emission goals that its proponents want, in which case it is economically devastating.

Either way, the average American household should be alarmed at the prospects of a U.S. carbon tax—and these numbers, to repeat, are very conservative in their estimates of its economic harms. Before implementing a carbon tax, policymakers should be very clear about what its objectives are. Up till now, proponents keep promising the moon: Extra revenues for tax cuts, deficit reduction, and “clean energy” investment, all while saving the earth from climate change! But the new NERA study shows that this is an illusion. By focusing on one or two of these goals, the carbon tax forfeits the others, and in no case does it pass any reasonable cost/benefit test.

The NERA Study’s Two Carbon Tax Scenarios

The NERA study looks at two scenarios for assessing the economic impacts of a carbon tax imposed at the federal level in the United States. In the first scenario, it assumes a $20 initial tax levied on each metric ton of carbon dioxide (CO2) in the year 2013, which then increases in inflation-adjusted terms by 4% each year. This scenario lines up with some recent projections conducted by the Congressional Research Service and the Brookings Institution, so it’s a good ballpark of a “modest” carbon tax proposal. Notice that in this scenario, there is a gentle uptick in the carbon tax over time, with little attention being placed on emissions.

The second scenario looks at the carbon tax trajectory that would be necessary to reduce US emissions by 80% relative to 2005 levels, by the year 2053. In other words, the second NERA scenario asks what the carbon tax rates would need to be over the next forty years, in order to achieve an 80% cut in US emissions by the end of the four-decade phase-in period. They picked this specific goal because it too is a popular discussion point, and is often used in discussions of international agreements on climate change policy. The only constraint on the carbon tax rate is a cap placed at $1,000 per metric ton.

The following diagram from the NERA study shows the trajectory of the carbon tax over time, in the two scenarios:

At this point, we should pause and reflect on Figure 1 above. Proponents of a carbon tax like to argue that it will have a “modest” or “negligible” impact on US households, especially in the early years. If they want to argue this way, then they must have in mind the type of carbon tax schedule depicted in the first scenario (the blue line above).

But although the Scenario One approach will raise a lot of money for the government—and will thereby make American households that much poorer in terms of their personal finances—it is nowhere near what the carbon tax “needs” to be, in order to stave off the alleged environmental problems of unrestricted U.S. carbon emissions. The red line above shows the level necessary (in the NERA model) to achieve what the climate alarmists tell us is the barest minimum in cutbacks, to avoid catastrophe.

Thus we see, even at this stage, the rhetorical corner into which the carbon tax proponents have painted themselves. In order to drum up support from citizens for something that will obviously raise gasoline and electricity prices, as well as just about every other price, the carbon tax proponents stress the scientific research on climate change. But then when trying to pooh pooh the negative economic effects of their proposed “solution,” the proponents will talk about a very modest carbon tax that will barely put a dent in the alleged climate problem.

These observations thus far don’t prove whether a carbon tax is a good or a bad idea, but already we see that Americans have not been getting the full story in the standard discussions.

Economic Effects of the Carbon Tax

After explaining their two cases, the NERA study summarizes its findings in the following table, where the changes are measured relative to a no-carbon-tax baseline:

Let’s walk through the table above to be sure we understand it. The top line shows the baseline (no carbon tax) forecast of US GDP, in billions of inflation-adjusted dollars. For example, in the year 2033 the NERA study assumes baseline GDP would be $24.68 trillion.

As you move down the table, we see the impact of first the $20 Tax Case, and then the 80% Emission Reduction Tax Case. Since the latter is so much more punitive, it has bigger impacts.

Yet in both cases, we see that the annual impact rises drastically as we move forward in time. For example, the $20 tax case shows only a very modest $20 change in average household consumption in the first year, but this annual impact rises to $350 per household by the year 2033 (i.e. 20 years into the policy). Remember that the NERA study assumes—as do other studies and proposals—that the initially modest $20/metric ton CO2 tax rises steadily over time, which is why the damages increase over time.

In contrast, the 80% Reduction case shows a far more devastating impact. By the final year of implementation (2053), when the carbon tax has hit the ceiling of $1,000 per metric ton, the annual impact on the average household will be a reduction of $2,680—in that year alone. Overall US GDP will be a full 3.6% below what it otherwise would have been, in the absence of a carbon tax.

This is an incredible hit to economic growth. Consider that since the official “recovery” began, there have only been two quarters where US real GDP has grown at more than a 3.6% rate. Thus, NERA’s projected impacts in the second scenario eventually have the carbon tax lopping off more than an entire year’s worth of what would otherwise be considered great economic growth.

Because the impacts ramp up over time, the way to summarize in a “snapshot” the full long-term effects is to compute the “present discounted value.” This involves summing up near-term and long-term outcomes, but discounting future values at a 5% annualized rate. (It’s the same procedure used to calculate the current market value of a bond offering a stream of payments over the years, for example.) With this approach, the NERA study summarizes the $20 Tax Scenario as reducing average household consumption by $310 per year, while the 80% Emission Reduction scenario involves a near-tripling of the damages to $920 per household in an “average” year under the tax.

In a similar vein, the NERA study forecasts the carbon tax scenarios on the labor market:

Thus we see, for example, that the more aggressive carbon tax scenario implies a long-run average worker income loss of the equivalent of 1.26 million full-time jobs, while in year 2053 (when the carbon tax reaches its peak) the impact is a staggering hit to worker income of 20.67 million jobs.

It is careful to note that the carbon tax will not permanently “destroy jobs” in the sense that these people will be unable to find work. So long as the government doesn’t tinker with price controls (as President Obama wants to do with low-skill workers with his minimum wage proposals), then after the dust settles from a new carbon tax, workers can find niches in the economy. But the point is, the carbon tax imposes artificial constraints and makes workers less productive. Therefore, even though they can eventually find jobs, they will earn a lower wage or salary than they would have, in the baseline (no carbon tax) case. The “job equivalent” numbers in the table above are quantifying this reduction in total labor income, in terms of how much a full-time worker earns.

Finally, consider the effect of the two carbon tax scenarios on various energy prices:

In particular, the 80% reduction case shows drastic increases in electricity and gasoline prices in the coming decades, should the US government seriously try to meet the emission reduction targets that many groups are proposing as “sensible climate policy.” By 2053, the NERA study anticipates residential electricity prices having risen 42 percent relative to the baseline, and gasoline pries at a whopping $14.57 per gallon (compared with $5.51 in the no-tax baseline, because of rising crude market prices).

And of course, if someone is interested in the coal industry—forget about it. The price of coal in the high-tax scenario eventually ends up being 54 times higher than it would be without the carbon tax. Such a punitive tax rate will obviously destroy the coal industry, which after all is one of the stated objectives for those who want to drastically reduce US emissions.

The NERA Study Is Very Conservative In Its Projections

The NERA study is very precise and clearly lays out its assumptions; its authors are good economists. However, I would argue that its results are too conservative in their projections of the harms of a carbon tax.

The most obvious reason is that the NERA study assumes the carbon tax receipts will be used to either (a) reduce the federal deficit from what it otherwise would have been, holding spending constant and/or (b) reduce other taxes. In terms of supply-side economic analysis, given that there is going to be a new carbon tax, then the very best things one could do with the revenues is use them to cut other tax rates and/or to make the deficit smaller, so that the government doesn’t siphon off as much from the capital markets away from private investment.

In other words, NERA’s projections of economic outcomes under the two carbon tax scenarios has the government behaving very responsibly, doing just what a free-market economist would want, given that it was imposing a carbon tax.

In reality, of course, the government won’t keep its spending trajectory the same, (for reasons I explain here) in the presence of hundreds of billions of new annual revenue in the modest scenario, and even trillions of dollars in new revenue in the aggressive case. Specifically, the NERA projections show that the 80% Emission Reduction scenario has the federal government taking in $1.8 trillion in inflation-adjusted revenues by the year 2053 from its carbon tax.

Does anybody seriously believe this flood of new revenue won’t lead to higher federal spending than would otherwise be the case? Note that such spending would include any “transition payments” to help poorer households or certain industries adjust to the new carbon tax, which will surely be part of any politically feasible deal.

Conclusion

The new NERA study is a precise work of solid economics that carefully spells out its assumptions and offers nuanced conclusions. It outlines two plausible carbon tax scenarios—one involving “modest” tax rates that won’t significantly alter U.S. carbon dioxide emissions, the other involving very large tax rates that will impose crippling impacts on economic growth, worker income, and energy prices. Yet as ominous as the NERA numbers are, they vastly understate the true economic damage from a carbon tax, because they assume the government will use trillions of dollars (over the years) in new revenue in the most efficient manner possible, which is hardly a plausible assumption.

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In the Pipeline: 2/27/13

February 27, 2013 by Leave a Comment

If you want to throw down fisticuffs, fine. Pyle’s got Jack Johnson and Tom O’Leary waiting for ya, right here. National Journal (2/26/13) reports: “As passionate as these protests may be, the reality is that the oil in Alberta will go somewhere, and no amount of plastic zip ties — made from refined petroleum products, I might add — will change that. The price of Western Canada Select crude oil was $68.27 last Friday compared to $95.87 for West Texas Intermediate, and more than $110 for Brent crude oil. This price difference is why the Canadian oil will find its way to market regardless of whether the Keystone XL is built. Unfortunately, those markets will be in Asia where governments have little to no concern about pollutants.”

 

It’s so cute when peak-oilers try to explain the shale oil and gas revolution. It has to be frustrating to be so wrong. And I should note that this is Sen. Udall’s brother. Christian Science Monitor (2/22/13) reports: “As we move from a reliance on conventional oil flowing freely from highly porous reservoirs to a dependence on shale plays, whose permeability is a million times less, the future course of America is no longer indicated by a compass needle pointing west, but by a drill bit pointing down… In short, shale plays are a peculiar sort of blessing. For sure, they’ve given us a staggering amount of new energy. Simultaneously, they’ve hijacked our energy future, chained us to a drilling rig, and thrown away the key.”

 

The Red Sox are probably causing more health problems for these folks. But we’re all on the same team in some sense, so we do sympathize with them. Fox News (2/26/13) reports: “Two wind turbines towering above the Cape Cod community of Falmouth, Mass., were intended to produce green energy and savings — but they’ve created angst and division, and may now be removed at a high cost as neighbors complain of noise and illness… ‘It gets to be jet-engine loud,’ said Falmouth resident Neil Andersen. He and his wife Betsy live just a quarter mile from one of the turbines. They say the impact on their health has been devastating. They’re suffering headaches, dizziness and sleep deprivation and often seek to escape the property where they’ve lived for more than 20 years.”

 

It isn’t just the unborn that are threatened by Gov. Cuomo, it is also landowners with dreams of getting in on the energy boom.The Reporter (2/26/13) reports: “‘I have three young girls. My husband left,’ More said. ‘I don’t want to be on social services. I want to take care of my family with my own land.’ But five years later, her natural gas dreams and those of thousands of other New York landowners have faded to frustration as a decision languishes on whether the state should allow fracking, the process of extracting gas by drilling horizontally through the shale and breaking it apart with chemically treated water.”

 

Why is Senator Ben & Jerry shilling for the insurance companies? I thought he disliked corporate profits. Politico (2/26/13) reports: “Sen. Bernie Sanders, who recently introduced legislation to put a fee on carbon emissions, rebuffed a study from the National Association of Manufacturers that criticized a potential carbon tax. Sanders cited insurance industry concerns regarding extreme weather and the $60 billion in government funds directed at Hurricane Sandy recovery aid. Sanders says his legislation, introduced with Senate environment chair Barbara Boxer would invest $75 billion over 10 years in energy efficiency for manufacturers and $10 billion over a decade for job-training in new energy technologies. ‘The price that America cannot afford to pay is the price of doing nothing to reverse global warming,’ said Sanders.”

 

I wonder if the bad guys are going to attend the ceremony for these ‘solar sarcophaguses’. Mourning is a crucial step in the healing process. Heritage (2/26/13) reports: “The Denver Post estimates more than 2,000 total pallets of solar panels remain that are either unsellable or defective. Abound’s manufacturing facility still contains more than 4,000 gallons of cadmium-contaminated liquids, The Post said… At the height of Abound’s production, CDPHE estimated a “waste stream” of 630 pounds of hazardous cadmium-laced materials produced per month, according to a report from Complete Colorado… Following the company’s bankruptcy, an investigation by the Environmental Protection Agency (EPA) revealed that the warehouse in Denver storing the unsold panels did not have a hazardous waste permit. The cleanup, NCBR reports, will require encasement and burial…”

 

Abound Solar Denver Post

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In the Pipeline: 2/26/13

February 26, 2013 by Leave a Comment

All you have to do in the new economy is own a suit! Here’s how it works: All Americans will stop going to school and will pay a visit to the local портной when they turn 18. There, you will be armed with a suit. With this technology – free for all Americans – you will have the opportunity to meet with at least half of the Senate and 150 Congressmen (multiple times each, at that!). These wise old sages, who aren’t nearly as corrupt as everyone says they are, will look at your suit and instantly make you a billionaire entrepreneur. That’s the new economy! Get in line now, though – there are already a lot of people wearing suits in Washington. Bloomberg (2/25/13) reports: “Musk also said in the interview today that Model S demand would be 10 percent to 20 percent less without a $7,500 U.S. tax credit.”

 

 

Wind is unreliable and turbines wear out much faster than expected. Got it. Now you’re telling us if you put lots of turbines together it decreases their effectiveness even more? Phys.org (2/25/13) reports: “Yet the latest research in mesoscale atmospheric modeling, published today in the journal Environmental Research Letters, suggests that the generating capacity of large-scale wind farms has been overestimated. Each wind turbine creates behind it a “wind shadow” in which the air has been slowed down by drag on the turbine’s blades. The ideal wind farm strikes a balance, packing as many turbines onto the land as possible, while also spacing them enough to reduce the impact of these wind shadows. But as wind farms grow larger, they start to interact, and the regional-scale wind patterns matter more.”

 

EPA closes a plant “in a community that has historically been disproportionately impacted by environmental contamination,” failing to mention that the community has also been disproportionately impacted by 33.8% unemployment. EPA (2/25/13) reports: “‘This settlement will eliminate the source of almost 200 tons of air pollutants each year, in a community that has historically been disproportionately impacted by environmental contamination,’ said EPA Regional Administrator Susan Hedman… As part of the consent decree, Geneva will also withdraw all permits and permit applications submitted to Illinois EPA and surrender all sulfur dioxide allowances. Based on an analysis of financial information, the government concluded that Geneva is insolvent and unable to pay a civil penalty.”

 

Somewhere down the road, we’ll be able to lean on Mexico for advice about how to drag the economy out of the dumps. WSJ (2/25/13) reports: “‘It is very hard to explain why Mexico is an expensive energy country while having abundant resources,’ he says, quickly answering his own riddle by reminding me of something his boss campaigned on. ‘He said it is time to get free of our ideological constraints and be a lot more practical.’ Those “constraints” date back to the 1917 constitution, which stipulates that the oil belongs to the state, and to the 1938 nationalization of the oil sector. Mexican politicians have long demagogued foreign investors, insisting that the oil is national patrimony that must not be ‘stolen.’”

 

First they partner with the Sierra Club, now Sinopec. Clearly the era of Aubrey McClendon is not over at Chesapeake. Chesapeake Energy (2/25/13) reports: “Chesapeake Energy Corporation (NYSE:CHK) and Sinopec International Petroleum Exploration and Production Corporation (Sinopec) today announced the execution of an agreement which provides for Sinopec to purchase a 50% undivided interest in 850,000 of Chesapeake’s net oil and natural gas leasehold acres in the Mississippi Lime play in northern Oklahoma (425,000 acres net to Sinopec). The total consideration for the transaction will be $1.02 billion in cash, of which approximately 93% will be received upon closing.”

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Deficit Reduction Through Energy Development

February 20, 2013 by Leave a Comment

 

The new report from Joseph Mason, “Beyond the Congressional Budget Office,” explores the various ways that the CBO’s recent estimates vastly understate the economic activity and tax receipts that would be generated if the federal government merely got out of the way of the development of domestic oil and gas resources. In the present post, I’ll summarize some of Mason’s key findings, and then relate them to other proposals for easing the federal budget crunch. As we’ll see, relaxing federal restrictions on domestic energy development should be a no-brainer, if one wants to help the unemployed and reduce the deficit with no pain to taxpayers.

Mason: Why the CBO Got It Wrong

First we should put the Mason study in the context of the ongoing debate over U.S. energy policy. At a time when the federal budget is running up trillion-dollar-plus deficits year after year, oil prices are high, and millions of Americans are out of work, one would think that opening up federal lands to further oil and gas development would be an obvious policy solution that would ease each of these problems.

Yet in August 2012, the Congressional Budget Office (CBO) released an analysis projecting that opening up ANWR and “most” other federal lands to leasing wouldn’t bring in significant amounts of additional federal revenue over the next decade. Among the reasons they cited for the delay in revenues was a lag in bringing new production on-line due to permitting and other delays, things the government has only made worse. Even extending the time horizon, CBO projected gross proceeds from opening up ANWR of only $2 to $4 billion per year during the period 2023-2035. Of course, even these numbers are nothing to sneeze at, but in light of environmental and other concerns, the CBO figures appear relatively modest in the grand scheme.

Enter the Mason study. Mason argues that the CBO analysis vastly understates the potential economic and government revenue impacts of allowing expanded access to federal lands. For one thing, the CBO study only looks at the revenue derived explicitly from leases, royalties, and bonus payments paid by private companies to federal and state governments. Mason instead uses standard economic modeling to estimate the economy-wide impact of increased access. In particular, the federal government will see an increase in tax collections not simply because of explicit lease and royalty payments, but also because of higher incomes in a stronger economy. Furthermore, state and local governments will also see increased tax receipts from new activity and the creation of new wealth

There are other weaknesses of the CBO estimate. Mason points out that it relies on oil and gas price estimates that are lower than those used by other agencies, such as the World Energy Outlook. Further, CBO relies on estimates of oil and gas reserves that were made decades ago. It is well known that with refined exploration techniques and equipment, reserve estimates are usually adjusted upward, as the following chart from the Mason study illustrates:

 

 

The chart above shows how the reserve estimates of oil (green, left side) and natural gas (red, right side) in the Gulf of Mexico Outer Continental Shelf (OCS) increased significantly from 1996 through 2011. We can expect the same pattern to hold in other federal lands, if only private companies were given the green light to start looking.

Having said all this, we should be clear that the Mason study did not tweak the CBO’s assumptions of oil and gas prices, or of reserves on federal lands. Mason retained those assumptions, to get an apples-to-apples comparison to isolate the effects of incorporating all of the economic activity from expanded access. In other words, the only change Mason made, was to go beyond the explicit lease and royalty payments, to include additional tax receipts generated by greater economic activity. His point in mentioning the other drawbacks of the CBO analysis, is to show that even Mason’s estimates remain conservative.

Tax Receipts From Expanded Access: Mason vs. CBO

The CBO analysis estimates only very modest increases in federal receipts from opening up ANWR and select other portions of the OCS to development, working out to a combined total of about $700 million annually during the first decade ($500 million due to ANWR and $200 million to OCS). Further, those gross lease revenues wouldn’t accrue entirely to the federal government, as some would have to be shared with the Alaskan and other state governments.

However, Mason’s analysis indicates a much larger figure, because he includes the increase in revenues due to expanded economic activity. In other words, the federal government (for example) would see increased revenues not merely because of explicit lease payments, but also because of higher incomes.

Using standard economic modeling of such “feedback” effects, Mason estimates that in the “short run” (defined here as 7 years), the federal government could expect an annual boost in tax receipts from expanded economic activity of $24.1 billion.

Comparing the “Mason Plan” With Other Deficit Proposals

To appreciate just how much an extra $24.1 billion per year in federal tax receipts would be, let’s compare this number to other proposals out there. For example, on these pages I’ve already shown that the much-ballyhooed “fiscal cliff” actually would have involved a mere $9 billion cut in the absolute level of federal spending for a single year, before returning to a permanently increasing level of spending.

What about those “tax loopholes for Big Oil” that we often hear about? According to the White House’s FY2013 budget proposal (see pages 221-236), the three biggest suggested changes involve repeal of the manufacturing deduction for oil and gas companies ($11.6 bn over ten years), repeal of the percentage depletion allowance for oil and gas wells ($11.5 bn), and repeal of expensing of “intangible drilling costs” ($13.9 bn). IER President Thomas Pyle has explained why these really aren’t “tax loopholes” and why they aren’t at all about “Big Oil,” but for our purposes here, let’s just look at the total figures: They add up to a total of $37 billion over ten years in extra revenue for the federal government, according to the White House analysts. Of course, that means on average they would only bring in $3.7 billion per year, in the short run.

Recall that the Mason study estimates an immediate boost to federal tax receipts of $24.1 billion per year from expanded economic activity. Thus, giving energy companies more freedom to develop domestic resources, would bring in six and a half times as much extra revenue as jacking up taxes on energy companies.

Conclusion

The new report by Joseph Mason provides estimates of increased job creation and economic activity that would result from increased access to federal lands. In this blog post, I have looked at just one element of the Mason study. Namely, I showed how his estimate of increased federal tax receipts in the short run, is six and a half times higher than what the White House projected it would collect by “closing tax loopholes” on oil and gas companies.

There is no hocus pocus involved here. At a time with millions of people out of work, there are “free lunches” available in the sense that relaxing federal restrictions can instantly render workers employable. The extra revenue that the federal (and other) government would collect on this new economic activity would not come as a cost, because that is economic activity that otherwise would not have existed.  As President Obama said on February 19, “nothing shrinks the deficit faster than a growing economy that creates good, middle-class jobs.  That should be our driving focus — making America a magnet for good jobs.”

In contrast, proposals to explicitly hike tax rates on either individuals or businesses really will depress the economy, and further burden taxpayers. If the goals are to increase employment, reduce energy prices, and reduce the federal budget deficit as painlessly as possible, then reducing federal restrictions on domestic energy development is an obvious policy solution.

Author: Robert Murphy 

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In the Pipeline: 2/20/13

February 20, 2013 by Leave a Comment

The people at IER sure do good work. They’re pretty good looking, too. Join them and Neil Cavuto in Houston on May 9, 2013. 

 

This should be obvious, but there is a strong correlation between per capita energy use and life expectancy. Roger Pielke Jr. (2/14/13) reports: “The graph above shows energy use (expressed as kilograms of oil equivalent per capita) versus life expectancy at birth (expressed in years) for 151 countries in the World Bank Development indicators database that had data for both variables in 2010… Nonetheless these data carry a powerful message — Energy poverty is not the only factor which contributes to below-average life expectancies, but it is clearly a very important factor.”

 

I wonder what the lag time is before these protests start in America. His Majesty seems pretty bent on following in these morons’ footsteps with expensive and unreliable energy, so we’ll take the under on four years. The Sunday Times (2/17/13) reports: “The payout — equal to £158 for each of the Scottish utility’s 5.6m customers — will inflame the debate over soaring gas and electricity prices. The average annual bill has doubled in the past five years to £1,340, pushing one in five homes into fuel poverty. Scottish Power raised its dual-fuel tariff by 7% in October, adding about £100 to the average annual charge… Fuel poverty protesters brought traffic to a standstill yesterday with a demonstration in front of the Department of Energy & Climate Change building in central London.”

 

Since we’re in a betting mood, we’ll put our coins on the table for the monkey-wrench throwers in this scenario. It’s not that we think they’ll come out on top, though. Sometimes gambling is about principles.Clean Technica (2/14/13) reports: “Wow, talk about taking the wind out of a guy’s sails. Just minutes after President Obama urged the nation to support more wind power in his State of the Union address, Rep. James Lankford (R-OK) sure put a damper on things. He announced that his House subcommittee intends to challenge the new one-year extension for the production tax credit for wind power. That comes on the heels of a similar announcement last month by Rep. Darryl Issa (R-CA), who complained that the new wind tax credit extension is a “dramatic” change from previous versions… The investigation threatens to throw yet another monkey wrench in the path of the wind industry, which is just coming off a banner year for wind production in 2012.”

 

We like to keep things simple, too: “Three Reasons to Build the Keystone XL Pipeline”. Reason (2/17/13) reports: 1. The oil isn’t going to stay buried / 2. The pipeline isn’t a disaster waiting to happen. / 3. It will help the economy.

 

Maybe the Mafia was getting bored. After all, there’s likely going to be a lot more crime, traffic on the black market, and general economic decline as countries like Italy (and America) self-impose energy poverty. Sounds like an excellent market opportunity for coercive-types. BBC News (2/15/13) reports: “Police have arrested five people in eastern Sicily suspected of involvement in Mafia corruption over contracts to build wind farms, Italian media report… The mayor and a councillor in the small town of Fondachelli Fantina, in Messina province, were among those detained… The five face charges including extortion, fraud and Mafia association… The investigation, which began in 2009, is linked to sub-contracts awarded to build energy farms near Agrigento, Palermo and Trapani.”

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In the Pipeline: 2/19/13

February 19, 2013 by Leave a Comment

Yikes… does anybody know a good shrink for this guy? Center for Industrial Progress (2/17/13) reports: “I approve of a blackout, I’m pro population control!”

  

Why we fight. Townhall (2/14/13) reports: “Given our unsustainable national debt — nearly $17 trillion and climbing — America is said to be in decline, although we face no devastating plague, nuclear holocaust, or shortage of oil or food… Yet we don’t talk confidently about capitalizing and expanding on our natural and inherited wealth. Instead, Americans bicker over entitlement spoils as the nation continues to pile up trillion-dollar-plus deficits. Enforced equality rather than liberty is the new national creed. The medicine of cutting back on government goodies seems far worse than the disease of borrowing trillions from the unborn to pay for them.”

 

I wonder what the GHG emissions were for the dope they were smoking. Denver Post (2/18/13) reports: The rally began at the Auraria campus, where demonstrators, many clad in black, gathered and marched to Civic Center… At the park, a band of demonstrators broke off and lay down to create a “human oil spill.”… Gina Hardin, 56, a Denver lawyer who watched the oil spill form, said, “Climate change is the most critical issue. … If we don’t curb climate change, nothing else matters.”

 

How many of these dudes drove to this thing? How many wore clothes that were transported in trucks or trains, and were made with petrochemicals for that matter? The Hill (2/18/13) reports: “Environmental groups gathered on the National Mall in Washington, D.C. Sunday and marched on the White House for a climate change rally largely aimed at pressuring President Obama to reject the Keystone XL oil sands pipeline.”

 

There’s a lot here, but let’s make it easy. Reliance on one fuel source is a bad idea, no matter where you are. It is especially bad when you don’t build pipelines and shut down powerplants both coal (thank you EPA) and nuclear (thank you electricity “markets”). NYTimes (2/15/13) reports: “Electricity prices in New England have been four to eight times higher than normal in the last few weeks, as the region’s extreme reliance on natural gas for power supplies has collided with a surge in demand for heating.”

 

How can the meaning between value-creation and redistribution be so easily confused? Removing green subsidies wipes out subsidies, not “profit”. Reuters (2/14/13) reports: “The Spanish Parliament approved a law on Thursday that cuts subsidies for alternative energy technologies, backtracking on its push for green power…That measure, along with other recent laws including a tax on power generation that hit green energy investments especially hard, will virtually wipe out profits for photovoltaic, solar thermal and wind plants, sector lobbyists say.”

 

This is why folks in Congress who care about things like accountability and affordable energy should start constructing votes on energy taxes. Because folks like Senator Begich want no part of such things. The Hill (2/17/13) reports: “Congressional Democrats will not commit to forcing votes on major climate change bills, even as they try to build political momentum behind President Obama’s promise to make global warming a second-term priority… Obama’s State of the Union address called on Congress to create a “market-based solution” such as cap-and-trade to limit greenhouse gases, but vowed new executive action if lawmakers do not act.”

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In the Pipeline: 2/15/13

February 15, 2013 by Leave a Comment

Congratulations to the caption contest winner… you know who you are. Your box of Whitman’s Sampler is currently melting at the Postal Service, but should be delivered no later than March. 

 

 

John Broder is a good reporter who was rude enough to point out that this particular king didn’t have any clothes. NYTimes (2/14/13) reports: “Elon Musk , the chief executive of Tesla Motors, has now responded in detail to the account of my test drive of his Model S electric car, using the company’s new East Coast Superchargers, that was published in The Times on Feb. 10. His broadest charge is that I consciously set out to sabotage the test. That is not so. I was delighted to receive the assignment to try out the company’s new East Coast Supercharger network and as I previously noted in no way anticipated – or deliberately caused – the troubles I encountered.”

 

It appears there’s only one kind of drilling allowed on public lands. U.S. Interior Department (2/15/13) reports: “As stewards of America’s National Parks, Wildlife Refuges and other public lands, we get to see many wonderful events on a daily basis. None of which are more exciting than when we see visitors using our Nation’s public lands for their most memorable moments.”

A market-based mechanism from Ma’am Boxer and Senator Ben&Jerry? That’s like saying there’s no horsemeat in a British cheeseburger. Energy Guardian (2/14/13) reports: “Senate Environment and Public Works Chairman Barbara Boxer on Thursday put a new carbon emissions fee bill on track for committee action by this summer, even as the chances for the proposal to be enacted appeared slim… The fee is part of a package of two climate bills by Boxer, D-Calif., and Sen. Bernie Sanders, I-Vt., that sidesteps President Barack Obama’s call for a market-based mechanism to cut greenhouse gas emissions.”

 

The following think tank chiefs are opposed to a carbon tax. The list to date follows. If your guy is not on the list, it is because he either favors a carbon tax, wants to retain the option of favoring a carbon tax at some point in the future, or has yet to contact us.

Tom Pyle, American Energy Alliance / Institute for Energy Research
Myron Ebell, Freedom Action
Phil Kerpen, American Commitment
William O’Keefe, George C. Marshall Institute
Lawson Bader, Competitive Enterprise Institute
Andrew Quinlan, Center for Freedom and Prosperity
Tim Phillips, Americans for Prosperity
Joe Bast, Heartland Institute
David Ridenour, National Center for Public Policy Research
Michael Needham, Heritage Action for America
Tom Schatz, Citizens Against Government Waste
Grover Norquist, Americans for Tax Reform
Sabrina Schaeffer, Independent Women’s Forum
Barrett E. Kidner, Caesar Rodney Institute
George Landrith, Frontiers of Freedom
Thomas A. Schatz, Citizens Against Government Waste
Bill Wilson, Americans for Limited Government

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