In the Pipeline: 12/14/12

It’s like Dan always says: Let the kids play, ref! IER (12/13/12) reports: “Persuaded by these claims, the Congress enacted the tax credit in 1992 obviously hoping that wind would become self-sufficient and not reliant on the U.S. taxpayer. That has not come to pass and the wind lobby is back in Washington, D.C. with its hand out. The law is fairly simple: it pays wind producers 2.2c per kilowatt hour for their electricity, whether the electricity is necessary or not. In some cases, that is close to the actual wholesale price of electricity. Here are a few claims from the Association’s promotional materials urging Congress to extend the tax credit:”

 

Not surprising that Robert Kennedy doesn’t know anything about electricity.  It is a little surprising that a dude who actually runs an electricity company doesn’t know much about electricity. Watts Up With That? (12/13/12) reports: “Never mind the fact that grid-tied solar power doesn’t work at night when you need it most, never mind the fact that during and after the storm, solar insolation is drastically reduced due to rain and cloudiness, and never mind the fact that all electrical systems, solar or otherwise, are just as susceptible to storm damage as conventional power infrastructure, there is one important point that kills the entire idea… Assuming the solar panels aren’t ripped off the roof by the hurricane/storm, they are of absolutely no use because the grid-tie is broken, and the mandated grid-tie safety features prevent the homeowner from using the inverters to get power locally.”

 

I have no clue why we are in a fiscal ditch.  But part of the explanation has to be that Senators can’t tell the difference between a phaseout and a 50 billion dollar extension. Energy Guardian (12/13/12) reports: “Thomas Pyle, president of the American Energy Alliance, said at the meeting of opposition groups that the phaseout proposal was ‘an admission that the PTC is no longer necessary for the industry to survive.’… He called on Congress to let the PTC expire and called it a test of lawmaker commitment to reducing the national debt. “It’s time to end corporate welfare for wind,” Pyle said.”

 

Jerry Brown and James Hansen together debating on whether the CA cap and trade law or a carbon tax is more suitable towards wrecking the economy. This is a glimpse of the alternative universe. SFGate(12/5/12) reports: “Arguably the best-known climate scientist in America, Hansen trashed cap and trade during a talk Tuesday night at the Commonwealth Club in San Francisco. The system, in which companies buy and sell permits to produce greenhouse gases, is a ‘half-baked’ and ‘half-assed’ way to deal with global warming, Hansen said… And he made those comments with California Gov. Jerry Brown sitting in the audience.”

 

Remember those tattletale programs that kids can join to rat out “polluters”?  Combine that with a few police raids here and there, and we’re well on our way to the new enviro-fascist world order. Reuters(12/12/12) reports: “Eight policemen wearing dark blue overalls and armed with handguns were stationed in the bank’s lobby and appeared to be coordinating a high-profile search of the glass towers which can house up to 3,000 staff… The officers declined to comment on the exact nature of the raids, which a person working in the building said started at 0915 CET (8:15 a.m. British time)… In October, a financial source familiar with the matter said Deutsche had suspended a handful of employees in connection with an investigation into tax evasion on carbon permits by traders.”

 

Any guesses as to how many birds are killed by wind turbines? Billings Gazette (12/12/12) reports: “A Denver-based energy company admitted to federal misdemeanor charges and was sentenced Wednesday after migratory birds died in oil field ponds operated by one of its subsidiaries, Nance Petroleum Inc. of Billings.”

In the Pipeline: 12/13/12

How do you like ‘dem apples?: “Hollywood wimps out and makes a formula film.” WSJ (12/12/12) reports: “If you somehow missed the twists and turns, Mr. Damon, who played a genius in “Good Will Hunting” and a master spy in the “Bourne” movies, has pled ignorance of the fact that financing for his movie came partly from Abu Dhabi, which, as the Heritage Foundation puts it, has a “direct financial interest” in fanning opposition to domestic energy development.”

 

Absolutely.  We should definitely hear more about Price Waterhouse’s green practice.  And for sure we should learn about how accountants and economists (like Rachenda Pauchauri) think about global warming. Energy & Commerce (12/11/12) reports: “The recently released PriceWaterhouseCoopers (PwC) fourth annual Low Carbon Economy Index 2012 report “Too late for two degrees?” finds that the world economy must now decarbonize at an unprecedented rate of 5.1% per year to maintain an even chance of limiting warming to 2 [degrees Celsius].”

 

Senator Coburn makes it happen, which makes us happy. Senator Coburn (12/12/12) reports: “Attached is a list of tax earmarks set to expire at the end of the year, that if allowed to do so, could save $18.5 billion without raising tax rates on any hard working Americans. Beyond these expiring tax earmarks, there are plenty of other loopholes and giveaways in that tax code that could be axed, which could reduce the deficit by as much as $100 billion over ten years.”

 

Excellent. National Center for Policy Analysis (12/11/12) reports: “Though I don’t believe we’ll see a bill along the lines proposed passed in this Congress, at least one legislator gets it – he’s on the right track: Republican Representative Mike Pompeo of Kansas has called for the end to subsidies for all energy sources.  I have suggested this a number of times, most recently in a critique I provided of former presidential  candidate Romeny’s energy plan.”

 

Deutsche Bank?  Aren’t they the crew with the big global warming office? BBC News (12/12/12) reports: “German prosecutors have raided offices belonging to Deutsche Bank as part of an investigation into a tax evasion scheme involving the trading of carbon permits… The Frankfurt prosecutor’s office said 25 employees of the bank were suspected of serious tax evasion, money laundering and obstruction of justice.”

 

These “people” are vile.  When do you figure national environmental groups are going to say something about these thugs? Independence Institute (12/11/12) reports: “For a community with an “Office of Human Rights” and is home to a university with a multi-million dollar diversity department, Boulder was anything but an atmosphere of mutual respect and tolerance of diverse opinions during a December 4 public hearing on land use and hydraulic fracturing… Newspaper (Denver Post, Daily Camera) accounts of what happened that night do not adequately convey how quickly events spiraled out of control, so much so that anti-fracking activists, including children, took over and forced Boulder County Commissioners Cindy Domenico, Deb Gardner, and Will Toor from the room.”

 

Rational, market-based rules?  What a brilliant idea.  But don’t get too excited – these free market dudes think taxpayer funded subsidies are the key to success here. NYTimes (12/12/12) reports: “In Germany, where sensible federal rules have fast-tracked and streamlined the permit process, the costs are considerably lower. It can take as little as eight days to license and install a solar system on a house in Germany. In the United States, depending on your state, the average ranges from 120 to 180 days. More than one million Germans have installed solar panels on their roofs, enough to provide close to 50 percent of the nation’s power, even though Germany averages the same amount of sunlight as Alaska. Australia also has a streamlined permitting process and has solar panels on 10 percent of its homes. Solar photovoltaic power would give America the potential to challenge the utility monopolies, democratize energy generation and transform millions of homes and small businesses into energy generators. Rational, market-based rules could turn every American into an energy entrepreneur.”

In the Pipeline: 12/12/12

We realize that taking someone else’s money for your own purposes is always tempting.  Congress should resist. AEA (12/12/12) reports: “The American Energy Alliance joined five other free market groups today in sending a letter to 158 members of the 112th Congress, urging them oppose an extension of the wind Production Tax Credit that would transfer taxpayer dollars from their states to other states that mandate renewable energy. AEA President Thomas Pyle signed the letter, along with Myron Ebell of Freedom Action, Michael Needham of Heritage Action, Phil Kerpen of American Commitment, Marlo Lewis of the Competitive Enterprise Institute, and Al Cardenas of the American Conservative Union.”

 

We offer this without comment. Politico (12/11/12) reports: “ExxonMobil said Tuesday that it does not support imposing a carbon tax as a way to raise revenue and help avoid the fiscal cliff — further deflating hopes that the long-shot proposal could find its way into the final deal.”

 

P.T. Barnum was pretty much right on target.  Especially when it comes to this crowd. Politics in the Zeros (12/11/12) reports: “The renewable energy bubble was just another sector to be exploited by financial interests who had had no real interest in the companies themselves. This is made worse by the viciously mercenary renewed interest in natural gas, oil, and fracking, which is also hurting development of grid-scale renewable energy.”

 

“On the cusp of positive cash flow . . .”  You can’t beat that. ALT Energy Stocks (12/11/12) reports: “Even though Blackrock appears to be holding onto its position in Tesla Motors for the time being, it does not mean that smart investors should not question Tesla’s future.  Recently the Wall Street Journal also reported Elon Musk used the Twitter social platform to declare Tesla on the cusp of positive cash flow.  Musk’s interests in Twitter aside, it was a bold statement.  Tesla used $233.1 million in cash to support operations over the twelve months ending September 2012.  For clarity, that is $19.4 million per month on average.  Musk’s declaration might suggest that the situation is improving.”

 

I wonder how long it will take this crew to be on the “cusp of positive cash flow”. Renewable Energy World (12/11/12) reports: “SolarCity Corp., the solar power provider led by billionaire Elon Musk, is betting prospects for clean energy and Musk’s name will help it garner a valuation 19 times the price of peers in an initial public offering.”

 

This is like cutting off a runner’s leg saying: “Look! He can’t run races anymore, we should replace him.” Colorado Springs Independent(11/13/12) reports: “The Sierra Club once again is trying to persuade the community to abandon the city-owned, coal-burning Martin Drake Power Plant, citing a study by the Union of Concerned Scientists.”

Coalition to 158 Members of Congress: Let the Wind PTC Expire

WASHINGTON D.C. — The American Energy Alliance joined five other free market groups today in sending a letter to 158 members of the 112th Congress, urging them oppose an extension of the wind Production Tax Credit that would transfer taxpayer dollars from their states to other states that mandate renewable energy. AEA President Thomas Pyle signed the letter, along with Myron Ebell of Freedom Action, Michael Needham of Heritage Action, Phil Kerpen of American Commitment, Marlo Lewis of the Competitive Enterprise Institute, and Al Cardenas of the American Conservative Union.  The letter went to senators and representatives from 21 states whose taxpayers would be responsible for the $12 billion subsidy price tag that a one-year PTC extension would bring, though their own states do not have renewable mandates that force utility companies to purchase wind energy and thus are unlikely to receive any from the PTC.

“Despite having this generous subsidy for two decades, wind only produces 3 percent of America’s electricity. This corporate dependence on federal subsidies not only harms the taxpayers who finance the PTC, it also creates an improper incentive for wind companies to focus on obtaining lucrative subsidies rather than long-term sustainability and competitiveness,” the group wrote.

“Extending the wind PTC ensures that your constituents will continue to subsidize wind power in other states that have made political decisions to force consumers to buy more expensive and less reliable forms of energy — like wind . . . . By taking a principled stand against the PTC, you help taxpayers in your own state and ensure more cost-effective electricity generation overall.  We urge you to allow this wasteful subsidy to expire, as planned, at the end of this year.”

To read the entire letter, click here.

The letter is being sent to the following United States Senators:

Shelby (AL), Sessions (AL), Murkowski (AK), Begich (AK), Pryor (AR), Boozman (AR), Rubio (FL), Nelson (FL), Chambliss (GA), Isakson (GA), Crapo (ID), Risch (ID), Lugar (IN), Coats (IN), McConnell (KY), Paul (KY), Vitter (LA), Landrieu (LA), Cochran (MS), Wicker (MS), Nelson (NE), Johanns (NE), Conrad (ND), Hoeven (ND), Inhofe (OK), Coburn (OK), Graham (SC), DeMint (SC), Johnson (SD), Thune (SD), Alexander (TN), Corker (TN), Hatch (UT), Lee (UT), Sanders (VT), Leahy (VT), Warner (VA), Webb (VA), Rockefeller (WV), Manchin (WV), Enzi (WY), and Barrasso (WY).

The letter is being sent to the following United States Congressmen:

Alabama: Bonner, Roby, Rogers, Aderholt, Brooks, Bachus, and Sewell.
Alaska: Young
Arkansas: Crawford, Griffin, Womack, and Ross.
Florida: Miller, Southerland, Brown, Crenshaw, Nugent, Stearns, Mica, Webster, Bilirakis, Young, Castor, Ross, Buchanan, Mack, Posey, Rooney, Wilson, Ros-Lehtinen, Deutch, Wasserman-Schultz, Diaz-Balart, West, Hastings, Adams, and Rivera.
Georgia: Kingston, Bishop, Westmoreland, Johnson, Lewis, Price, Woodall, A. Scott, Graves, Broun, Gingrey, Barrow, and D. Scott.
Idaho: Labrador and Simpson.
Indiana: Visclosky, Donnelly, Stutzman, Rokita, Burton, Pence, Carson, Bucshon, and Young.
Kentucky: Whitfield, Guthrie, Yarmuth, Rogers, and Chandler.
Louisiana: Scalise, Richmond, Landry, Fleming, Alexander, Cassidy, and Boustany.
Mississippi: Nunnelee, Thompson, Harper, and Palazzo.
Nebraska: Fortenberry, Terry, and Smith.
North Dakota: Berg.
Oklahoma: Sullivan, Boren, Lucas, Cole, and Lankford.
South Carolina: Scott, Wilson, Duncan, Gowdy, Mulvaney, and Clyburn.
South Dakota: Noem.
Tennessee: Roe, Duncan, Flesichmann, DesJarlais, Cooper, Black, Blackburn, Fincher, and Cohen.
Utah: Bishop, Matheson, and Chaffetz.
Vermont: Welch.
Virginia: Wittman, Rigell, Scott, Forbes, Hurt, Goodlatte, Cantor, Moran, Griffith, Wolf, and Connolly.
West Virginia: McKinley, Capito, and Rahall.
Wyoming: Lummis.

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In the Pipeline: 12/11/12

We could not have said it any better ourselves: “The Wind Production Tax Credit: Corporate Welfare at its Worst”. National Center for Policy Analysis (December 2012) reports: “Americans will soon learn whether the political class in Washington is serious about cleaning up the dirty acts of favoritism and cronyism that are business as usual in the nation’s capital. From loan guarantees for the well-connected to subsidies for the non-competitive, Washington specializes in feathering the nests of those with special access to levers of power and taxpayer money.”

 

We really need to stop massaging the egos of the world’s ‘ruling’ class.  Who knows, maybe the summit in Rio would have been somewhat productive if attendees weren’t working under the false premise that biofuels can magically appear in fuel tanks. Platts (12/10/12) reports: “EPA issued 20,069 credits to Blue Sugars in June for 80,000 liters of fuel made in 2011 at the company’s Western Biomass Energy pilot plant. The company sold the entire batch to partner Petrobras America… Petrobras exported the cellulosic ethanol to Brazil, where it filled the tanks of minivans shuttling diplomats between hotels and the RIO+20 United Nations sustainability conference in June.”

 

Speaking of a carbon price, do you think Gilbert Metcalf over at Treasury will ever answer Chris Horner’s FOIA? Bloomberg (12/6/12) reports: “The Green Climate Fund, designed to channel as much as $100 billion a year in pledges to emerging nations, may try to wean recipients off fossil fuel and encourage them to put a price on carbon, according to an overseer.”

 

This is a fun read. Powerline (12/9/12) reports: “But one must say clearly that we redistribute de facto the world’s wealth by climate policy. Obviously, the owners of coal and oil will not be enthusiastic about this. One has to free oneself from the illusion that international climate policy is environmental policy. This has almost nothing to do with environmental policy anymore.”

 

Senator Bingaman is a good man.  But he is and has been wrong on many issues. Politico (12/10/12) reports: “Despite the long odds for passage of major energy legislation, Bingaman soldiered on — building one of the most bipartisan committees in the Senate… He spent months crafting the latest version of a bill to mandate an expansion of low-carbon power. He floated the proposal in March after intensive internal and external analysis of various policy options, all the while acknowledging that passage of the bill would be ‘very difficult.’”

 

Senator Kerry, on the other hand, has never been right about anything. NBCNews.com (12/8/12) reports: “But could it also be a signal that the NRDC prefers another candidate for the job – Kerry, the other of the final two candidates reportedly being considered for the post? After all, environmental groups have strongly supported Kerry in the past and have a long working relationship with him. Like they would for most Democrats in a presidential election, for example, the NRDC and the League of Conservation Voters, among others, ran ads in the 2004 election boosting Kerry.”

 

Some Californians are catching on to the idea that not everything under the sun is a bright idea. LA Times (11/25/12) reports: “So the county grew giddy last year as it began to consider hosting a huge, clean industry. BrightSource Energy, developer of the proposed $2.7-billion Hidden Hills solar power plant 230 miles northeast of Los Angeles, promised a bounty of jobs and a windfall in tax receipts. In a county that issued just six building permits in 2011, Inyo officials first estimated that property taxes from the facility would boost the general fund 17%… But upon closer inspection, the picture didn’t seem so rosy.”

 

What’s that old saying about being careful what you wish for?KTAR Arizona (12/11/12) reports: “A coalition of 238 groups urged President Barack Obama on Monday to nominate Rep. Raul Grijalva, D-Tucson, for the position of Interior Secretary should the job become open.”

In the Pipeline: 12/10/12

Does anybody really think the Supermajority is going to let CA refiners stay in business by allowing them to export their product to less crazy states instead of supplying the CA market?  This story is not going to end well.  For anybody. Sacramento Bee (12/9/12) reports: “Regulators have imposed cap and trade, seeking to use market forces to reduce carbon emissions, and created the low-carbon fuel standard, to force refiners to reduce the carbon footprint of fuel. There are rules to increase the use of hydrogen fuel and electric cars… As the list grows, industry representatives wonder if they’d be better off agreeing to a direct tax in exchange for getting out from under some of the regulations. Referring to the talk of a federal carbon tax, Reheis-Boyd said a “reasonable carbon fee” probably ought to be “on the table” in California, too.”

 

I am not sure this was even reported in the larger media outlets, but it is pretty simple.  Less than one-fifth of participating nations (37 out of 194) signed on to an extension of Kyoto.  Everyone else bailed.  This show is pretty much over everywhere except the United States Environmental Protection Agency. NoTricksZone (12/8/12) reports: “For those calling for rapid reductions in CO2 emissions, the result in Doha can only be described as an utter disaster. The Doha agreement will do absolutely nothing to curb CO2 growth, let alone cut net CO2 emissions.”

 

What is it with Utah governors? E&ENews (12/7/12) reports: “The bipartisan Western Governors’ Association is urging Congress to immediately extend the wind production tax credit for projects that begin construction next year as a first step to eventually eliminating all federal energy subsidies.”

 

This looks like a standard lose-lose situation, and not because the U.S. is ceding the ‘green’ arms race to China.  It’s because the Chinese also aren’t interested in buying obnoxiously expensive electric vehicles despite obnoxiously wasteful government subsidies. Chicago Tribune (12/9/12) reports: “Chinese firm Wanxiang emerged as the winning bidder of bankrupt battery-maker A123’s assets in an auction that ended Saturday… The sale of A123 Systems, which was awarded a $249 million federal grant and tens of millions in tax credits from Michigan, has been the subject of intense political debate, with military leaders and politicians arguing that U.S.-funded technology should not be transferred to a foreign company.”

 

I wonder if they’d say this about food. Or water. Or communist manifestos. HotAir (12/8/12) reports: “Chris Hayes: We’re talking about the massive, extractive energy boom happening in America right now and how it’s transforming our politics and how that can be made to work with a sane climate policy, which is really the difficult question. Before the break I left the question on the table about the price of energy being too low right now. Basically we see this massive amount of supply has come onto the grid thanks largely to natural gas. The price has come down, and I think we generally think, “Oh, lower prices are better.” But it seems to me there’s a lot of problematic stuff about the price coming down sharply as it is right now in terms of incentives for efficiency and et cetera.”

 

We sincerely apologize for missing this last month (!).  I think we were expecting the most prosperity to be somewhere near lots of wind turbines.  Guess not. USAToday (11/26/12) reports: “Small-town prosperity is most noticeable in North Dakota, now the nation’s No. 2 oil-producing state. Six of the top 10 counties are above the state’s Bakken oil field.”

 

This ninja better be careful sneaking around at night, lest he forget that many Americans still care very deeply about their 2nd amendment rights. SJSU (2/19/12) reports: “The Green Ninja, a climate-action super hero created at SJSU, continues to draw support… The project has received a $390,000 grant from NASA to support professional development for teachers, and $20,000 from PG&E to pilot an energy reduction contest for Santa Clara County middle schoolers.”

PRO-PTC GROUPS NOT LIKELY TO TELL ALL THE FACTS

WASHINGTON D.C. — As lobbyists, big labor unions and advocacy groups ramp up their efforts to push for another extension of the wind production tax credit, including a briefing today on Capitol Hill hosted by the Sierra Club, the BlueGreen Alliance, Oceana, and the United Steel Workers, Thomas Pyle, president of the American Energy Alliance, issued the following statement:

“The last thing Capitol Hill needs is another briefing that doesn’t give all the facts about Big Wind’s failure to grow up after two decades of taxpayer-funded child support. Today offers another example of how Big Labor and Big Wind are working together to protect billion dollar handouts for special interests. If our nation has any hope of averting a fiscal cliff, Washington must stop awarding rent-seekers with huge subsidies we cannot afford.

“Policymakers deserve all the facts about Big Wind’s twenty years of child support. A one year extension of the PTC will cost an additional $12 billion to U.S. taxpayers, and even then it won’t stop a contraction in the industry. State mandates that create a government-induced market for wind energy have already tipped the scale enough. Taxpayers funded wind energy to the tune of $5 billion in 2010, and subsidies for wind increased ten-fold between 2007 and 2010. On a per megawatt basis, Big Wind has been receiving more than $56.00 from taxpayers, more ten times than the total amount shared between coal, oil, natural gas, and nuclear, and yet it still only provides approximately 3 percent of our total electricity generation.

“But Big Wind’s powerful allies aren’t interested in the facts. Nor are they concerned about our nation’s dire fiscal condition. Like all rent-seekers, they’re just interested in getting more free money from Washington.”

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In the Pipeline: 12/7/12

This is all run by affordable, reliable electricity brought to you by hydrocarbons.  Sometimes by nuclear power. Slate (12/7/12) reports: “So it turns out the Internet really is a series of tubes. Last October, for the first time ever, Google posted dozens of rare photographs inside and around its data centers revealing the absurd level of organization, energy, and design that goes into powering some of the largest, most powerful systems plugged into the Internet.”

It’s probably easier to fool the Nobel Committee than the entire marketplace. Watts Up With That (12/6/12) reports: “Is green energy a fad that has run its course? The investment community seems to think so. RENIXX® World, the Renewable Energy Industrial Index of the world’s top green energy companies, hit an all-time low below 146 on November 21, down more than 90 percent from the December 2007 peak.”

 

In truly breaking news, elected officials are hesitant to steal money from the people to build wind farms.  The cowards!Bloomberg (12/5/12) reports: “Norway put development of its first planned offshore wind farm on hold until further notice, with the company involved citing a lack of political support, a setback in European efforts to boost renewable energy production.”

 

When is Senator Whitehouse going to debate Senator Inhofe on climate change?  Because it would be fun to watch Oklahoma crush Rhode Island. GlobalWarming.org (12/6/12) reports: “In a fiery speech yesterday, Sen. Sheldon Whitehouse (D-R.I.) ”calls out” “climate deniers.” In the first half of the speech he goes ad hominem, attacking opponents as “front groups” who take payola from “polluters” to “confuse” the public by selling “doubt” as their product.”

 

Well now, this is a good example of why academics are not usually asked to do survey research for political campaigns.Brookings (12/5/12) reports: “Economists of nearly all methodological and ideological stripes concur that the best way to attempt to stave off the worst impacts of climate change is through some form of taxation on the carbon content of fossil fuels. This idea has been around for a long time. Its latest manifestation includes some form of carbon tax in order to raise government revenue as part of a grand bargain to avoid the pending fiscal cliff.”

 

So it turns out that the Chinese are no more stupid than Americans. Automotive News China (12/7/12) reports: “With a generous array of incentives, China’s government expected to turn the country into the world’s biggest market for electrified vehicles… It hasn’t happened, and the goal is starting to look like “Mission: Impossible.”… Complete sales figures for EVs and plug-in hybrids are unavailable. But data from various sources help us to gauge the situation.”

 

Canada, like Obama with Keystone XL, finds $30 B of F-35s made in the USA “not in the national interest.” Maybe Lockheed Martin can make it up selling bioenergy. Ottawa Citizen (12/6/12) reports: “The F-35 jet fighter purchase, the most persistent thorn in the federal government’s side and the subject of a devastating auditor-general’s report last spring, is dead.”

 

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
Fred Smith, 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

Dubious Arguments in Tier 3 Study

 

The EPA is planning to tighten its gasoline regulations from Tier 2 to Tier 3 standards, which would reduce permissible sulfur content from the current 30 parts per million (ppm) down to 10 ppm. (I have written a full overview of the economic issues surrounding Tier 2 and Tier 3 in this earlier IER post.) In contrast to those warning about the impacts on gasoline prices from even tighter regulations, a study from Navigant Economics seeks to defuse these concerns, claiming that Tier 3 standards would have no impact on retail gasoline prices, and would actually help the economy. In this blog post I’ll tackle just two of the more dubious claims in the Navigant study.

Tier 3 Standards Wouldn’t Raise Prices at the Pump?

The issue that most concerns the average American is: “Will these new Tier 3 standards on gasoline sulfur content result in higher prices at the pump?” The Baker & O’Brien analysis (B&O) estimated that Tier 3 (as formulated at the time of the analysis) would impose upfront compliance costs on refiners of $10 billion, and impose continuing higher costs on refiners of 6 to 9 cents per gallon. The analysis did not explicitly predict that pump prices would rise by the exact same amount, but inasmuch as the refining industry is a competitive market with narrow margins, a massive new regulatory burden will surely lead to higher pump prices for the end consumer. After all, when proponents of a carbon tax talk of applying it “upstream” to reduce enforcement costs, nobody has any illusion that this won’t trickle down to the actual motorists and induce them to drive less and to buy more fuel-efficient cars: that’s the whole point of a carbon tax, in the eyes of its environmentalist proponents.

Yet the Navigant study disputes this. The authors first challenge the cost estimates in the Baker and O’Brien study, relying on rival estimates by a MathPro study (which estimated industry compliance costs at much lower levels). The B&O and MathPro studies used different methods to reach their estimates, and one would have to reproduce their work to decisively say which estimate is the more plausible.

However, what we can say with confidence is that the Navigant Study is on shaky ground when it claims that a large compliance cost imposed on the refining industry—whether it is as large as B&O estimated, or a more modest figure as MathPro concluded—will have no noticeable impact on retail gasoline prices. As already stated, this flies in the face of basic price theory: The refining and retail gasoline markets enjoy real-world competition, meaning that their members do not enjoy monopoly or “oligopoly” profits. If the EPA imposes a massive new regulatory cost, raising the costs of doing business, then this will reduce margins. Other things equal, this will make the refining / retail gasoline industries less appealing to firms, meaning the supply will be reduced. With the same consumer demand for gasoline, the end result is a higher price per gallon.

This logic is fairly unassailable. If the government raised the federal gasoline tax, this would surely lead to an increase in prices at the pump—even if the tax is levied directly on the retailers, not on the motorists at the checkout counter. Now it’s true, it might not be a one-for-one increase; the issue involves what economists call “relative elasticities” on the supply and demand side of the market. But the point is, when a new tax is imposed on the producers in a market, some of that burden is absorbed by the consumers in the form of higher prices.

Now the authors of the Navigant study both have PhDs, so they are obviously aware of the textbook framework above. What they are implicitly assuming, therefore, is that in the refining / retail gasoline markets, the producers pick up all of the burden of a new regulation or tax. This is an interesting claim, since gasoline is considered a fairly inelastic good, meaning that a price hike of (say) 10% will not reduce the number of gallons purchased by the same percentage. Thus, compared to other goods and services, we would expect a hike in costs in this area to fall more heavily on the final customers.

How then do the Navigant authors reach their surprising conclusion? They rely on a regression analysis of the earlier Tier 2 studies:

Regression analysis shows that Tier 2 regulations, which required a reduction in the average sulfur content of gasoline from 300 ppm to 30 ppm, had no material impact on the retail price of gasoline.  The regression analysis took into account several factors identified in an FTC study that were expected to influence the retail price of gasoline.  These factors include the cost of crude oil, refinery margins, the 2005 hurricanes, the 2006-07 transition to ethanol, and the 2008 global recession.   Our model explains more than 99 percent of the variation in retail gasoline prices.  The price of crude oil was the most significant determinant of the retail price of gasoline, and refining margin was a distant second in importance.  Importantly, Tier 2 had no statistically significant impact on the retail price of gasoline. [Bold added.]

An in-depth critique of the Navigant argument would require a statistical analysis beyond the scope of the present blog post. But to summarize the problem in plain English: The Navigant authors are trying to model the actual historical price of gasoline, to see if the introduction of Tier 2 standards had any noticeable impact on gasoline prices, over and above the movement in prices that can be explained by other variables. In particular, the Navigant authors included “refinery margins” in their list of other explanatory variables. Since Tier 2 standards didn’t show up in the regression output as a statistically significant factor, the Navigant authors conclude that they had no impact on gasoline prices.

The problem here is that the Tier 2 standards—if they did have an effect—would of course work through refinery margins. Just think through the standard textbook analysis of the impact of a new tax. When the government levies a higher tax on producers, they can’t automatically “pass it along” to consumers. If they could, they would have already done so, before the tax came along.

No, what happens (in the textbook treatment) is that a new tax on producers causes them to reduce supply (i.e. the supply curve shifts left). Why does that happen? Because they are making less profit with the tax, than they were before. In other words, their margin has been reduced.

To repeat, the immediate effect of a large new compliance cost imposed on refiners, will be to reduce their margin. (They earn a certain amount of revenue at the existing retail price, and now their costs of doing business have suddenly gone up because of the tighter Tier 2 standards.) Thus to say, as the Navigant authors do, that they can explain the change in gasoline prices after Tier 2 by reference to crude prices, refiner margins, and other variables, doesn’t really rule out the possibility that Tier 2 standards caused gasoline prices to go up. Hence, the Navigant study has given us no reason to think that Tier 3 standards will be benign either.

Job Creation Praised for Its Own Sake

Another major problem with the Navigant study is that it counts job creation among the benefits of Tier 3 standards:

As shown in Table 6 below, installation of the refinery modifications produces almost 24,500 jobs for full time equivalent employees with total associated employee compensation of $1.161 billion for each of the three years of installation.  The value added to the national economy is $2.027 billion each year.  Federal, state, and local taxes on the corporate profits and personal income created by the refinery upgrades is $0.502 billion per year.  According to our analysis, the annual operation of the refinery modifications produces almost 5,300 jobs for full time equivalent employees with total associated employee compensation of $0.294 billion.  The value added to the national economy is $0.632 billion.

The problem here is that this type of analysis would work for any proposed regulations. For example, if the EPA required that refiners hire workers to dig ditches with spoons, and then fill them back up again, then this too would “add value to the national economy” according to the salaries paid to attract these spoon-ditch-diggers from other possible lines of employment. The implicit assumption in the Navigant analysis is that there is a bottomless pool of surplus labor, such that diverting workers and other resources into meeting Tier 3 standards has no opportunity cost. That assumption could be forgiven in the current depressed economy, but the Navigant study says upfront that Tier 3 standards won’t go into effect until at least 2017.

Conclusion

No one disputes that the EPA’s proposed Tier 3 standards—which would reduce sulfur content in gasoline by 67%—would impose billions of dollars in upfront compliance costs on the refining industry. The argument has just been over how many billions of dollars, and whether this massive new cost will be passed along to motorists.

Common sense and standard economic logic suggests that such a large cost increase will indeed at least partially show up in the form of higher gas prices, rather than being absorbed fully be refiners. The statistical analysis that the Navigant study uses to argue otherwise, is dubious because it includes “refiner margins” as one of the variables in addition to earlier Tier 2 standards. This is a problem because the Tier 2 standards would have worked their effects (if there were any) through refiner margins.

Finally, the Navigant study should not be counting job creation among the benefits of Tier 3 standards. In the long run, with flexible wages the economy can “create” as many jobs as there are people in the work force. If the EPA causes refiners to hire workers to satisfy Tier 3 regulations, these workers necessarily can’t be doing something else productive. The regulations may or may not be economically efficient, but the workers needed to achieve compliance are a cost of the regulations, not a benefit. Put differently, if we could achieve the EPA’s desired sulfur content without using any labor, that would be a blessing, not a curse. The Navigant study gets this backwards, and thereby overstates the potential benefits of Tier 3 standards.

Cass Sunstein’s Garbage In, Garbage Out on Cost/Benefit Analysis

 

In a recent NYT op ed, Harvard Law professor and former Obama official Cass Sunstein cited Ronald Reagan, of all figures, as inspiration for more federal regulation on the transportation and energy sectors. Sunstein’s angle was to say that Reagan endorsed the cost/benefit analysis arguing for the US agreement to fight the “ozone hole,” and therefore Sunstein says, today’s conservatives should also support mandates on fuel efficiency and restrictions on greenhouse gas emissions. The problem is, even on a pure cost/benefit basis, Sunstein’s numbers don’t add up.

Here’s Sunstein’s argument:

Recent reports suggest that the economic cost of Hurricane Sandy could reach $50 billion and that in the current quarter, the hurricane could remove as much as half a percentage point from the nation’s economic growth. The cost of that single hurricane may well be more than five times greater than that of a usual full year’s worth of the most expensive regulations…True, scientists cannot attribute any particular hurricane to greenhouse gas emissions, but climate change is increasing the risk of costly harm from hurricanes and other natural disasters. Economists of diverse viewpoints concur that if the international community entered into a sensible agreement to reduce greenhouse gas emissions, the economic benefits would greatly outweigh the costs.

Skeptics have rightly observed that even aggressive regulatory steps by the United States cannot stop climate change. Greenhouse gases stay in the atmosphere for decades, and many nations, especially in the developing world, are contributing growing levels of emissions. For this reason, the unilateral actions of any country will not do what must be done to reduce anticipated warming and the resulting harms. Nonetheless, cost-effective reductions from the United States would help, both in themselves and because they should spur technological changes and regulatory initiatives from other nations.

For the United States, some of the best recent steps serve to save money, promote energy security and reduce air pollution. A good model is provided by rules from the Department of Transportation and the Environmental Protection Agency, widely supported by the automobile industry, which will increase the fuel economy of cars to more than 54 miles per gallon by 2025.

The fuel economy rules will eventually save consumers more than $1.7 trillion, cut United States oil consumption by 12 billion barrels and reduce greenhouse gas emissions by six billion metric tons — more than the total amount of carbon dioxide emitted by the United States in 2010. The monetary benefits of these rules exceed the monetary costs by billions of dollars annually. [Bold added.]

We should be very skeptical when a Harvard law professor tells us that federal regulations on what cars we can buy will save consumers almost $2 trillion. Elsewhere my colleagues and I have explained why such numbers are bogus; they rely on the assumption that consumers need people like Cass Sunstein to force them to save money on gasoline, because they are too ignorant or weak-willed to grab those savings for themselves. Another possibility, ignored by Sunstein and others who champion the tighter fuel economy rules, is that consumers are perfectly capable of spending their own money in ways that benefit them, and if they want to buy, say, an SUV with lower fuel efficiency, perhaps this is because they value passenger safety more than saving money at the gas pump. But Cass Sunstein will override such choices and make their decision for them.

As far as fighting climate change, here is what the EPA itself had to say about the impact of its tighter rules on vehicles:

The results of the analysis demonstrate that relative to the reference case, projected atmospheric CO2 concentrations are estimated by 2100 to be reduced by 3.29 to 3.68 part per million by volume (ppmv), global mean temperature is estimated to be reduced by 0.0076 to 0.0184 °C, and sea-level rise is projected to be reduced by approximately 0.074–0.166 cm, based on a range of climate sensitivities.

That’s not a typo: The EPA estimated that these rules (which will drive up the price of vehicles by thousands of dollars, and/or will make the manufacturers cut back on other areas such as passenger protection in a collision) will, by the year 2100, make the world about one-hundredth of a degree Celsius cooler than it otherwise would be.

Sunstein’s discussion on greenhouse gas restrictions is also misleading. Yes, it is true that many scientists and economist think that a worldwide, modestly calibrated tax on greenhouse gas emissions would deliver more benefits than costs. Yet that by no means proves that a unilateral US tax would itself pass a cost/benefit test. For sure, it would not pass such a test looking just at Americans. This is because Americans would suffer all of the compliance costs, while other areas of the world (particularly regions closer to the equator and with less advanced infrastructures to adapt to changing conditions) would reap the lion’s share of the benefits. Now some would make a moral case that this is the right thing for Americans to do, but Sunstein leads innocent readers to believe such a move would be good for the United States on net, which is not true, unless we make some optimistic assumptions about the rest of the world following suit and damaging their own economies for the greater good.

For a point of reference, climate scientist Chip Knappenberger recently estimated that the U.N. Intergovernmental Panel on Climate Change’s own simulations show that unilateral US action on greenhouse gas emissions would reduce global temperatures by the year 2100 by about 0.2 degrees Celsius. Again, that’s no typo: Even draconian restrictions on US emissions would perhaps spare the world of two-tenths of a degree of warming, a century from now. This is because emissions would continue to grow in China, India, and other economies, especially as a U.S. tax pushed businesses to relocate (a factor not included in Knappenberger’s analysis).

In summary, Americans should be wary of analysts who produce calculations allegedly proving that more regulations and taxes from DC will improve their lives. A quick inspection will typically show that the assumptions used to generate those results are very dubious.