August 2009

The EPA whistleblower saga took a new turn this week with a report that EPA was considering shutting down the agency unit in which Dr. Alan Carlin works.  Dr. Carlin is the senior EPA analyst who authored a 100-page study last March, which severely criticized the scientific basis for the agency’s position on global warming.  CEI broke the story in late June, when it unveiled a series of emails to Dr. Carlin from his boss, stating that his study would not be disclosed, and that Dr. Carlin was to stop working on global warming issues, because criticizing EPA’s position would only cause trouble.

Dr. Carlin works in EPA’s National Center for Environmental Economics (NCEE), whose function is, in its words, “analyzing the economic and health impacts of environmental regulations and policies, and … informing important policy decisions with sound economics and other sciences.”  EPA has long been criticized for the tunnel-vision, cost-be-damned nature of many of its policies.  (See, for example, Supreme Court Justice Stephen Breyer’s 1995 book, Breaking the Vicious Circle: Toward Effective Risk Regulation, written before he joined the court.)  Economists are the most likely professionals within EPA to examine the real-world effects of its policies.  For that reason, the NCEE is potentially a major restraining force on the agency’s out-of-this-world regulatory ambitions.  Wouldn’t it be great for EPA to get this office out of the way?

Hopefully, the publicity and scrutiny that Dr. Carlin’s report has received since it became public will carry over to EPA’s plans for NCEE, and this agency, with its hollow commitment to scientific integrity and transparency, won’t get its wish.

Germanic Hoards

by Iain Murray on August 26, 2009

in Blog

The old central powers (Germany, Austria, Hungary) seem to have come together again in opposition to plans to phase out incandescent light bulbs in favor of the more expensive twirly kind:

Germans, Austrians and Hungarians are hoarding energy-hungry light bulbs, which have fallen out of favour in other European countries, ahead of a European Union ban that takes effect next month.

The scramble for conventional bulbs illuminates the challenges of persuading consumers to embrace environmentally friendly shopping habits – particularly in the midst of an economic crisis. Sales of incandescent light bulbs have risen 34 per cent year-on-year in Germany in the first six months of 2009, data from GfK, the German consumer research group, shows.

In most other European countries, sales of old-style light bulbs have fallen at double-digit rates this year. In the UK, sales dropped 22 per cent, amid a voluntary agreement between retailers and energy companies to phase out light bulbs nine months ahead of the EU ban.

Germany, home of the Green Party founded by Petra Kelly and Joseph Beuys amongst others, seems to be doing so for reasons of comforting domesticity:

The shopping behaviour appears to contradict the stereotypes of Germans and Austrians as environmentally conscious. But Hans-Georg Häusel, a psychologist who uses brain science to explain consumer behaviour, said they were reluctant to change. “There is a fear that they could destroy the snug atmosphere of their homes,” he said.

CFLs will surely get more affordable and provide better quality light.  In the meantime, however, it seems that the Germans, Austrians and Hungarians have decided that, even if a German’s home is not his castle, it deserves to be as well lit as possible.

Image: Professor Joseph Beuys in the 1960s.  He was still wearing that hat when the author heard him speak in the 1980s.

Following a whistleblower report that criticized a global warming rule, the Environmental Protection Agency (EPA) is reportedly considering shutting down the agency office in which the critical report originated.  Dr. Alan Carlin, the senior analyst whose report EPA unsuccessfully tried to bury, worked in EPA’s National Center for Environmental Economics (NCEE).  According to a story in last Friday’s Inside EPA, the agency is now considering shutting that office down.
The Washington Times ran an editorial yesterday, critical of the potential shut down of the internal review office by the EPA.
In June, the Competitive Enterprise Institute made waves by releasing internal e-mails from the Environmental Protection Agency. In those messages, a top administrator told a key researcher that the researcher’s new report would not be released. Why? Because it does “not help the legal or policy case” for a controversial decision to treat global warming as a health hazard. In short, because researcher Alan Carlin’s conclusions differed from the administration’s political agenda, his research was ignored.
CEI General Counsel Sam Kazman appeared on the G. Gordon Liddy radio show yesterday to talk about the scandal, and the EPA’s plans to shutter the office that produced the controversial report.  Kazman reiterated what he said in a statement on Monday about the issue:
“Economists are the most likely professionals within EPA to examine the real-world effects of its policies,” said Kazman.  “For this reason, the NCEE is a restraining force on the agency’s out-of-this-world regulatory ambitions.  EPA would love to get that office out of the way, especially since it has within it civil servants like Dr. Carlin, who are willing to expose the truth about EPA’s plan to restrict energy use in the name of global warming.”
Blogger Michelle Malkin also takes the EPA to task for the move:

Over the past two months, I’ve chronicled the plight of EPA whistleblower Alan Carlin at the hands of Team Obama’s dissent-stiflers.  My friends at the Competitive Enterprise Institute first blew the lid on the story and continue to monitor the war on EPA watchdogs.  The latest development? EPA may get rid of a key internal review office that has provided too many inconvenient truths

Stay tuned for more developments in this story.

The White House revised its long term budget outlook yesterday, but not in a good way-President Barack Obama tacked another $2 trillion onto America’s tab (to China). Two days ago, the U.S. taxpayer was projected to owe “only” $7 trillion (to China) through 2020; now, it’s $9 trillion.

But wait! There’s more! America’s dismal deficit is even worse than Obama is willing to admit.

Yesterday Reuters reported that Obama’s budget predictions include more than $600 billion in revenues raised from a cap-and-trade energy rationing scheme to fight so-called “global warming.” That’s a problem, because the House of Representatives in June passed a climate bill that gives away 85% of the cap-and-trade revenue that the White House was counting on in its new and unimproved budget.

So it looks as if the Obama administration needs to further revise the deficit.

A factoid is rapidly making the rounds in climate skeptic circles. By a factoid, I mean “A piece of unverified or inaccurate information that is presented to the press as factual . . . and that is then accepted as true because of frequent repetition.”

On the BBC program HARDtalk, reporter Stephen Sackur, in a combative interview with Gerd Leipold, retiring Executive Director of Greenpeace, accused Greenpeace of peddling exaggeration and alarmism about global warming. I think that’s true, but Sackur, however unwittingly, built his case on false evidence. And now the unfounded claim that Leipold confessed to misleading the public is making the rounds at skeptical blog sites and conservative newspapers.

Sackur cited a July 15 press release in which Greenpeace warns that, because of global warming, ”we are looking at ice-free summers in the Arctic as early as 2030.”

Sackur pounced on this statement, pointing out that ”the Arctic” includes the Greenland Ice Sheet, which is 1.6 million square kilometers in area, is 3 kilometers thick in the middle, and has survived previous warm periods over hundreds of thousands of years. “There is no way that ice sheet is going to disappear” in 20 or 30 years, he said.

Indeed, according to the self-anointed “consensus of scientists,” the UN Intergovernmental Panel on Climate Change (IPCC), it would take four times the pre-industrial level of carbon dioxide (CO2) — roughly 1100 parts per million (today it’s about 387 ppm) — sustained over 3,000 years to melt all of Greenland’s ice. See the figure below, which comes from Ridley et al. (2005), reviewed in Chapter 10 of the IPCC’s Fourth Assessment Report (p. 830).


Pressed by Sackur, Leipold said he did not think the Greenland Ice Sheet “would be melting by 2030.” Leipold allowed that “there may have been a mistake” in the press release, “although,” he added, ”I don’t know this specific press release, I do not check every press release.”

Some skeptics were quick to spin this exchange as a confession of error or even dishonesty by Greenpeace’s leader. It is not. First, Leipold said he did not recall the press release at issue, so he neither affirmed nor denied that it said what Sackur says it said. Second, and more importantly, Sackur took the sentence he quoted out of context.

Anyone who actually reads the press release, especially in conjunction with the NASA study to which it is linked, can see immediately that the warning of ice-free summers ”as early as 2030″ soley concerns floating polar sea ice, not Greenland ice (which is grounded). Here’s the pertinent passage:

Bad news is coming from other sources as well. A recent NASA study has shown that the ice cap is not only getting smaller, it’s getting thinner and younger. Sea ice has dramatically thinned between 2004 and 2008. Old ice (over 2 years old) takes longer to melt, and is also much harder to replace. As permanent ice decreases, we are looking at ice-free summers in the Arctic as early as 2030. They say you can’t be too young or too thin, but this unfortunately doesn’t apply to Arctic sea ice.

I don’t usually defend Greenpeace and don’t plan to make a habit of it. My point is not that Greenpeace is a reliable source but that we skeptics must exercise due diligence.  If something looks too good to be true (in this case, a confession of fraud by a political adversary), it probably is.

Stick to exposing true lies and do not peddle factoids. Alarmists are gunning for us everyday. The last thing we need to do is shoot ourselves in the foot!

Hear, Hear! The U.S. Chamber of Commerce wants to cross examine climate science. Last April, the Environmental Protection Agency proposed a rulemaking that carbon dioxide-the same stuff humans exhale-“endangers” human health and welfare because it causes so-called “global warming.” Now the Chamber demands that the EPA publically defend the science upon which it based the “endangerment” rulemaking, in what the Chamber says would be the “scopes monkey trial of the 21st century,” according to today’s LA Times.

Under the EPA’s rules, a public airing of the information that leads to a regulatory rule-making is allowed, but rarely performed.

A little background: An “endangerment” finding is more than mere bureaucratese. In fact, it would tripwire provisions of the Clean Air Act would send the American economy back to the Stone Age. I’m not exaggerating. If carbon dioxide “endangers” human health and welfare, than it is subject to the National Ambient Air Quality Standards of the Clean Air Act, which would require draconian regulations.

Despite the far-reaching economic consequences of an “endangerment” finding, there was little transparency in the EPA decision-making process. Earlier this summer, the Competitive Enterprise Institute revealed evidence that the EPA actually suppressed a dissenting voice from a career official.

Big decisions behind closed doors and bullying 70 year olds into silence….is this the change that Obama promised? I think not. Perhaps the President thinks it’s ok to engage in these shenanigans, because there is a scientific “consensus” on global warming.

The President is of course wrong; there is no consensus. Many smart people (we’re talking visionaries, such as Freeman Dyson) are also humble enough to admit that humans don’t know nearly as much about the climate as they think.

For example, global temperatures haven’t increased statistically since 1995, even though atmospheric concentrations of greenhouse gases have increased 5% during that time. The global climate models, however, predicted that temperatures increase with emissions. That is, the models were wrong.  These are the same models that predict dire global warming. And it is these alarmist predictions that animate the global warming hysteria.

The Chamber simply wants the EPA to demonstrate why it thinks that carbon dioxide “endangers” human health and welfare. That doesn’t strike me as being terribly burdensome. If Obama is serious about “change,” then he should allow the global warming scopes monkey trial.

The preponderance of future growth in global greenhouse gas emissions will take place in developing countries such as China and India, which is why stopping global warming must be a truly global effort.

But a global response to global warming is impossible, as I’ve been arguing for a long time, because there is no precedent for interstate burden-sharing of this magnitude, short of war. The International Energy Agency estimates that it will cost $45 trillion to limit warming to 2 degrees Celsius, and history indicates that the countries of the world are incapable of agreeing who should pay what portion of this gargantuan tab.

The impossibility of a meaningful climate change treaty is a sure thing, despite what you may hear from silly idealists who claim that China will hamstring its economy to fight global warming as soon as the United States does so. Yet this realistic portrayal of climate diplomacy is rarely admitted.

So it was with shock that I saw this quote, from Xie Zhenhua, China’s the top economic planner, to the 10th meeting of the Standing Committee of the 11th National People’s Congress, China’s top legislature.

“The conflict between developed countries centers on economy, technology and global dominance whereas developing nations fight against restrictions on their developments.

The conflicts are driven by commercial and political interests.”

Through this prism (one of national interest), compromise is impossible.

Today’s excerpt from CEI’s film, Policy Peril: Why Global Warming Policies Are More Dangerous Than Global Warming Itself, offers a free-market perspective on Al Gore’s proclamation, at the end of An Inconvenient Truth, that global warming is “a moral issue.”

Considered in the abstract, apart from its context in movie, this is a completely unremarkable statement. Just about all public policy issues can be described as moral issues, because they directly or implicitly ask us to decide whether a proposed course of action is fair or unfair, honorable or dishonorable, good or bad.

However, when Gore says global warming is a “moral issue,” he means something more. He means that combatting global warming is the overriding moral imperative of our time. He implies that if you are decent, self-respecting person, you have no moral choice but to follow his lead and  heed his call. He is trying to play a rhetorical trump card.

Gore is clever. In An Inconvenient Truth, he presents himself as an a-political Mr. Science – and then exploits the moral authority so contrived to bash the Bush Administration and other political opponents. Similarly, he presents as a moral imperative a policy agenda that — just by sheer coincidence, we’re supposed to believe – would empower him and his political allies to control the global economy. It’s all a little too convenient.

More importantly, what if the alleged imperative to decarbonize U.S. and global economy conflicts with other, arguably better-established imperatives, such as eradicating poverty? If Gore were a moral leader rather than a moralizing partisan, wouldn’t he at least acknowledge that his ”solutions” might have harmful side-effects? 

To watch today’s film excerpt, click here. To watch Policy Peril from start to finish, click here. The text of today’s film clip follows. The footnotes are to additional commentary and supporting information.

Narrator: Now let’s look at the international side of climate policy. Al Gore and the European Union advocate a 50% cut in global emissions by 2050. [1]  But most of the growth in global emissions between now and then will come from developing countries. [2] So those countries, too, will have to stop building coal plants. They, too, will have to limit their use of fossil fuel. [3] It would be a humanitarian disaster.

Globally, about 1.6 billion people lack access to electricity. About 2.4 billion still rely on traditional biomass–wood, crop waste, even dung–for cooking and heating. [4]

Tom Tanton (Pacific Research Institute): Look at developing countries. The thing they need most of all is commercial energy and electricity. People in developing countries spend most of their day collecting fuel. They don’t have time to go to school and get an education. It gets dark at night so there’s no studying at night, because there’s no electricity. Electricity is the essential commodity for any kind of growth and improvement in lifestyle. [5]

Narrator: A coal-fired power plant would improve the lives of those villagers in many ways. Women would be freed from backbreaking toil. People would be healthier because indoor air quality would improve. Refrigeration would make food preparation easier and safer. Electric lighting would allow people to read and study at night. The forests and the species dependent on them would be spared. [6]

Myron Ebell (Competitive Enterprise Institute): I agree with former Vice President Gore that global warming is a moral issue. I think it is preeminently a moral issue because we have a billion and a half people in the world who don’t have access to electricity, for example. The world is not energy rich, it’s energy poor. And if we’re going to put energy rationing policies on the backs of the world’s poorest people, they will have very little hope of ever achieving even a fraction of the well-being, the lifestyle that we have.

Narrator: India is an emerging industrial powerhouse. Yet even in India, energy poverty kills. India has the largest incidence of snake bites in the world. About 50,000 Indians die from snake bites each year. Doctors there have developed an anti-venom antidote. So why is the death toll so high?

Barun Mitra (Liberty Institute): The primary reason is that most Indian health centers, primarily in rural areas where the snakebites are more prevalent, have no electricity, no refrigeration, no way to store the anti-venom. The technology is there. We know how to generate electricity. The technology is there. We know how to make the anti-venom. Yet, 95% of Indians, or thereabouts, do not have access to it, because they stay in areas which cannot store anti-venom in a refrigerated environment.

Narrator: Let me state the obvious. Poverty is the number one cause of premature death and preventable disease in the world. [7] Global restrictions on fossil energy use would trap millions of people in poverty.

Al Gore and others don’t say exactly how they would stop poor countries from using coal. But some U.S. and European politicians want to impose carbon tariffs on goods from China and other developing countries that refuse to limit emissions. [8]

Iain Murray (Competitive Enterprise Institute; author The Really Inconvenient Truths): I think the question to ask here is: Can any of the potential effects of climate change be so great as to justify keeping the developing world in poverty. I think to ask that question is to answer it.


[1] The goal of cutting global CO2 emissions 50%-85% by 2050 has become canonical for the global warming movement. Proponents of this viewpoint include the IPCC, the European Union, the G-8 (U.S., UK, France, Italy, Canada, Germany, Japan, Canada), and just about every environmental group. Supposedly, a 50%-85% cut would likely limit 21st century global warming to 2ºC (3.6ºF), which in turn would likely “avoid some of the worst effects” of climate change. All of this assumes that the climate is moderately-to-highly sensitive to increases in CO2 concentrations. Recent research contradicts that assumption.

[2] 80-90% of the increase in greenhouse gas emissions between now and 2050 is expected to come from developing countries, chiefly India, China, and SE Asia.  ceq-co2-projections-all-nations

Figure source: James Connaughton, Chairman,  White House Council on Environmental Quality (CEQ), Energy and Climate Policy, December 2007.


Figure source: Stephen Eule, U.S. Chamber of Commerce Institute for 21st Century Energy, Scale & Scope of the Challenge of Reducing Greenhouse Gas Emissions, February 2009

[3] Global CO2 emissions are projected to increase from 24 gigatons a year in 2000 to 50.6 gigatons a year in 2050. Thus, to achieve a 50% reduction, global emissions in 2050 will have decline to 12.3 gigatons — 76% below the baseline projection.


Figure source: Stephen Eule, Scale & Scope of the Challenge, Feb. 2009

This means that even if developed countries miraculously reduce their CO2 emissions to zero, global emissions cannot be cut by 50% unless developing countries cut their emissions 62% below baseline. Their per capita CO2 emissions will have to decline to 1.7 metric tons per year — less than current per-capita CO2 emissions in Central and South America.   

If developed countries reduce their emissions by “only” 84% — approximately the Waxman-Markey target for 2050 — then developing countries will have to reduce their emissions 71% below baseline. They’ll have to hold their emissions almost flat between now and 2050. Their per-capita emissions will have to decline to 1.3 metric tons per year. That’s about what per-capita emissions are today in Africa, the most energy-starved continent on the planet.


Figure source: Stephen Eule, Scope & Scale of the Challenge, February 2009

Absent spectacular breakthroughs in the cost and performance of zero-emission energy, the minimal EU/UN/Al Gore goal of a 50% reduction in global CO2 emissions by 2050 cannot be achieved without dramatically limiting developing countries’ energy consumption and economic growth.

[4] 1.6 billion people have never flipped a light switch and 2.4 billion people depend on primitive biomass for heat and light — these figures come from chapter 13 (”Energy and Poverty”) of the International Energy Agency’s World Energy Outlook 2002. 

[5] That electrification is a prerequisite for continual improvement in the human condition is obvious. Nonetheless, some scholars attempt via statistical techniques to demonstrate the importance of electricity to the physical quality of life. An October 2000 study by Alan Pasternak of the Lawrence Livermore Laboratory finds a strong association between per capita electricity consumption and the United Nation’s Human Development Index (HDI), a composite measure of human welfare taking into account GDP, life expectancy, and educational attainment.


Figure source: Alan Pasternak, Global Energy Futures and Human Development: A Framework of Analysis, Lawrence Livermore Laboratory, October 2000.

Although in 1997 four countries (South Korea, Russia, Saudi Arabia, and South Africa) with per capita annual electricity consumption somewhat above 4,000 kWh had an HDI below 0.9, no country with per capita annual electricity consumption below 4,000 kWh had an HDI of 0.9 or higher. Pasternak concludes that there is a “compelling need for increased energy and electricity supplies in the developing countries,” and that, “Neither the Human Development Index nor the Gross Domestic Product of developing countries will increase without an increase in electricity use.” 

[6] For this formulation, I am indebted to University of Alabama-in-Huntsville atmospheric scientist John Christy. A former African missionary, Christy has seen first-hand the hardship and perils of life in an energy-poor country. When Christy testifies before Congress, he often includes a plea not to demonize energy, because “life without energy is brutal and short.”

[7] “A large proportion of illnesses in low-income countries are entirely avoidable or treatable with existing medicines or interventions,” observes Philip Stevens, Health Director for the International Policy Network (see p. 4 of this report). Such illnesses include tuberculosis, malaria, HIV/AIDS, childhood diseases (polio, measles, tetanus), diarrhoeal diseases from poor sanitation, respiratory infections from indoor air pollution, and malnutrition such as vitamin A deficiency. These eminently preventable and treatable illnesses kill millions people — a high proportion of them children — in developing countries each year. Although vaccines or treatments are inexpensive, poor countries lack the infrastructure to make them widely available.

[8] Cap-and-trade and protectionism are joined at the hip. You might not think so, judging from the oft-repeated assurances that Kyoto-style policies will spur innovation, efficiency, and “green job” creation, making us more competitive in the “economy of the future.” Yet European politicians warn (see herehere, and here) that they will impose border taxes (carbon tariffs) on goods from countries — chiefly China but also the United States — that refuse to limit emissions.

Most “trade-exposed, energy-intensive” firms call for additional free emission allowances to “level the playing field” rather than for carbon tariffs (see here, here, and here). However, the Sierra Club argues that carbon border taxes may be needed as a “backstop,” particularly as emission caps tighten and the supply of free allowances shrinks. It is telling that some experts are making the case that carbon tariffs are legal under WTO trade rules. (Other experts, however, warn that unilateral imposition of border taxes or counterveiling duties on carbon-intensive imports would violate WTO rules, engendering a long period of trade friction and uncertainty.)

Both free allowances and carbon tariffs are also touted as a cure for “carbon leakage” — the flight of capital, jobs, and emissions to developing countries in order to escape the high energy costs stemming from carbon controls in developed countries.

But beyond concerns about unfair competition and carbon leakage, there are more basic reasons why cap-and-trade depends on protectionism. First, how do you enforce a treaty like Kyoto over the long term?  It’s a typical collective action problem. Even if one assumes it is in the common interest of all nations to mitigate global warming, it is in the individual interest of each nation to bear less than its negotiated share of the burden — to reap the climate benefits (if any) of other nations’ sacrifices and employ creative accounting on behalf of one’s own industries to give them a competitive edge. If cheating isn’t credibly punished, the number of “free riders” will grow, and the system will collapse.

How will the world’s nations punish cheaters? If military force is not an option, then trade penalties — carbon tariffs — are pretty much the only  remedy.

Furthermore, how do you persuade major developing countries to get on board? They repeatedly refuse to accept binding limits on their emissions. Yet, as explained above, developing countries must make heroic efforts to decarbonize their economies if the world is to cut emissions 50%-85% by 2050, as demanded by Vice President Gore, the EU, and the UN.

One option is to bribe them with massive wealth and technology transfers. But building hundreds of new nuclear power plants or hundreds of futuristic zero-emission coal power plants in China, India, Brazil, and other developing countries would cost trillions of dollars. In the midst of a global financial crisis and high unemployment, it is unlikely that U.S. and EU taxpayers will agree export more jobs to China.

If carrots are out as an inducement to decarbonize, then sticks are what’s left. It would need to be a big stick — for example, a coordinated campaign of trade sanctions by the United States, the EU, Canada, Russia, and Japan.

More than likely, though, such a campaign would fail because developing countries would retaliate with trade sanctions of their own. We would get trade war, not compliance.

Nonetheless, if the major-emitting developing countries — China, India, Brazil, and Indonesia — continue to reject binding emission limits, advocates of CO2 controls will be continually tempted to rattle the trade sabers and demand carbon tariffs. Indeed, earlier this month, 10 Democratic U.S. Senators, in a letter to President Obama, indicated they would not support a cap-and-trade bill lacking a “border adjustment mechanism” (a.k.a. carbon tariff) to create a level playing field and pressure nations like China into adopting carbon controls.


Yes, global warming is a moral issue, but not for the reasons Al Gore supposes. As John Christy reminds us, human life without energy is brutal and short. Yet Gore would suppress the 85% of the world’s energy that comes from fossil fuels.

But there’s more to it than that. In a recent video commentary on CO2Science.Org, Christy offers both a personal insight and an analyst’s perspective on why abundant, affordable energy is one of the great blessings of modern civilization. I’ll conclude this blog post — the last in my series of posts on Policy Peril – with the text of Christy’s remarks.

John Christy: When people talk about the moral issue of controlling carbon dioxide emissions, I say yes, that’s right, it is a moral issue. In 1900, the energy technology of the day supported 56 billion human life years. Okay. That’s 1.6 billion people times 35 years’ life expectancy. 56 billion human life years. The average person lived to 35. Now, the energy technology supports about 450 billion human life years. That is an eight-fold increase in the experience of human life, and that is a spectacular achievement.

I am a grandfather now. And when my little grandson runs up and hugs me around the knees, I am experiencing something in human life that, a hundred years ago, the average person could not, at all. So this experience of human life that’s been granted to us by energy technology is tremendous and wonderful.

Therefore, the moral issue here is that we should provide people, who do not have it, energy, so that they can experience life that is safer, that is healthier, and that is longer. That’s the moral issue. 

To read previous posts in this series, click on the links below:

  • Policy Peril: Looking for antidote to An Inconvenient Truth? Your search is over.
  • Policy Peril Segment 1: Heat Waves
  • Policy Peril Segment 2: Air Pollution
  • Policy Peril Segment 3: Hurricanes
  • Policy Peril Segment 4: Sea-Level Rise
  • Policy Peril Segment 5: Is the Science Debate Over?
  • Policy Peril Segment 6: Cap and Trade
  • Policy Peril Segment 7: Fuel Economy Standards 
  • Policy Peril Segment 8: Coal
  • Policy Peril Segment 9: Big Business
  • A couple of days ago I explained at American Spectator Online how the Southern Governors Association will hear a heavy dose of global warming alarmism this weekend at their annual meeting. Not mentioned in the piece is the fact that Virginia Gov. Tim Kaine, a Democrat environoiac, will step down as SGA chairman while Alabama Gov. Bob Riley, a Republican, takes the helm. The transition presents the opportunity for some climate reality to be injected into the proceedings, as AP notes:

    Riley says the governors will also be discussing how federal issues, such as cap-and-trade energy legislation, will affect the region. He says southern companies have relatively cheap energy and cap-and-trade legislation could raise their costs 40 percent.

    The way these things usually go, it’s almost always about the costs and there’s little, if any, discussion that the proposed legislation will do nothing to affect global climate. But something is better than nothing — that is, if Riley decides to go there.

    Update 11:35 a.m.: The Daily Press in Newport News says Riley is not attending SGA, which makes no sense at all given his impending higher profile with the group. If the newspaper is correct, then only Mississippi’s Haley Barbour and Georgia’s Sonny Perdue provide the only possible anti-cap-and-trade voices at the summit. Unsurprisingly, the Schwarzeneggerish alarmist Charlie Crist of Florida is skipping the meeting, given his new political aspirations.

    And to correct/update something I reported at last week, Texas Gov. Rick Perry has not been a member of the Southern Governors Association (or the Western Governors Association) since 2002 (even though both groups like to claim him), according to a staffer I spoke to, who explained, “He quickly realized that all those groups were about is how to make government bigger.”

    Spectator cross-post.

    Today’s excerpt from CEI’s film, Policy Peril: Why Global Warming Policies Are More Dangerous Than Global Warming Itself, rebuts the argument that regulatory climate policies can’t be bad for the economy because so many big businesses support them.

    This is an odd argument coming from people who are usually suspicious of big business, or even hostile to corporations. When did they decide that corporate support is some kind of good-housekeeping seal of approval?

    To watch today’s film excerpt, click here. To watch the entire movie, click here. The text of today’s film clip follows.

    Narrator: Some big corporations call for caps on CO2 emissions. Supposedly, this proves such policies won’t harm the economy. In fact, all it proves is that special interests can make windfall profits from energy rationing schemes.

    Remember that $5 trillion loss the Lieberman-Warner bill would inflict on the economy? Well, that’s only half the story.

    Dr. David Kreutzer (Heritage Foundation): The Lieberman-Warner bill also enacts a huge transfer from the consumers of energy to groups that are picked out–special interest groups–that Congress would designate. So after America has lost $5 trillion in income, there will be another $5 trillion taken and transferred from energy consumers.


    A corporation may lobby for cap-and-trade for various bottom-line reasons unrelated to environmental concern:

    • In a carbon-constrained world, a company like GE, which makes nuclear reactors and wind turbines, can expect to sell more of its products.  
    • Utilities like PG&E that generate most of their electricity from hydro-electric dams, natural gas, or nuclear power can make a killing in the carbon market if the emission allowances are allocated for free based on a firm’s historic electricity output rather than historic emissions.
    • Conversely, utilities like Duke Energy that generate most of their electricity from coal can make a killing if the emission allowances are allocated for free based on a firm’s historic emissions.
    • Wall Street firms like Goldman Sachs salivate at the prospect of a new, multi-trillion-dollar market in carbon permits, futures, and derivatives. They can make big bucks as brokers and carbon portfolio managers.

    The last bullet merits additional comment, because if there ever was a policy issue that pits Wall Street against Main Street, cap-and-trade is it. The Breakthrough Institute summarizes the key finding of a non-public Goldman Sachs report titled “Carbonomics: Measuring impact of US carbon regulation on select industries”:

    In a section titled “Carbon exchanges — build it, and they will (must) come to trade,” it estimates the bill [Waxman-Markey] would grow the global carbon market to become one of the biggest in the world, with trading volume of 175 to 263 million contracts per year – larger than the oil and gas markets combined and approximately the third-largest commodity market in the world after U.S. interest rates and stock indexes. The analysts estimate the profit margin for financial firms resulting from the new carbon market could reach $2 billion annually.

     Baptists and Bootleggers

    Corporate support for cap-and-trade should really come as no surprise, because nearly all “public-interest” regulation depends on marriages of convenience between the high-minded (or lofty-talking) and the narrowly interested–between those who seek regulation based on some moral, religious, or ideological concern and those who seek regulation to rig the market in their favor.

    Economist Bruce Yandle of Clemson University was among the first to develop the theory of the Baptist-Bootlegger coalition as an explanation of public policy change. 

    “The theory,” says Yandle, “draws on colorful tales of states’ efforts to regulate alcoholic beverages by banning Sunday sales at legal outlets. Baptists fervently endorsed such actions on moral grounds. Bootleggers tolerated the actions gleefully because it limited their competition.” 

    Baptists provided the moral justification–the public-interest rationale–for restricting the sale of alcoholic beverages. Bootleggers provided the filthy lucre–the campaign contributions to politicians supporting the restrictions (known as ”blue laws“). 

    Nothing better illustrates the “bootlegger” role of big business in advancing the climate policy agenda than Enron’s lobbying and PR campaign for the Kyoto Protocol.

    Enron, that poster child of corporate fraudulance, was a leading advocate of cap-and-trade in the climate treaty negotiations culminating in the Kyoto Protocol. Enron was a natural gas distributor, and Kyoto would suppress (or kill) electricity production from coal, boosting demand for Enron’s core business. Carbon controls would also pump up the market for Enron’s wind turbines and energy management services. In addition, Enron’s energy traders  expected to make juicy commissions on the purchase and sale of emission allowances.

    On December 12, 1997, the day after the Kyoto conference, Enron environmental affairs director John Palmisano, in a memorandum to colleagues, enthused:

    If implemented, this agreement [the Kyoto Protocol] will do more to promote Enron’s business than almost any other regulatory initiative outside of restructuring of the energy and natural gas industries in Europe and the United States. The potential to add incremental gas sales, and additional demand for renewable technology is enormous. In addition, a carbon emissions trading system will be developed.

    For both its high-profile and behind-the-scenes lobbying for Kyoto, Enron became the darling of green groups (a fact many prefer to forget). Palmisano elaborated:

    Through our involvement with the climate change initiative, Enron now has excellent credentials with many “green” interests including Greenpeace, WWF [World Wildlife Fund], NRDC [Natural Resources Defense Council], German Watch, the U.S. Climate Action Network, the European Climate Action Network, Ozone Action, WRI [World Resources Institute], and Worldwatch. Such praise went like this: “Other companies should be like Enron, seeking out 21st century business opportunities” or “Progressive companies like Enron are…” or “Proof of the viability of the viability of market-based energy and environmental programs is Enron’s success in power and SO2 [sulfur dioxide] trading.” 

    At the end of his memo, Palmisano exulted: ”I predict business opportunities within three years. . . This agreement will be good for Enron stock!!”

    Many rent-seeking companies follow the trail that Enron blazed. For example, big-business lobbyists had a strong hand in crafting the Waxman-Markey cap-and-trade bill, the American Clean Energy and Security Act (ACES, H.R. 2454).

    All the distinguishing features of the Waxman-Markey cap-and-trade provisions were spelled out months in advance of the bill’s introduction by the United States Climate Action Partnership (US-CAP), in a January 2009 report called A Blueprint for Legislative Action. Core US-CAP proposals incorporated into Waxman-Markey include:

    1. Year 2020 emission reduction targets significantly less stringent  than those called for by the European Union (17% below 2005 levels instead of 20%-30% below 1990 levels).
    2. Generous provision of free emission allowances (energy-ration coupons) rather than 100% auctioning as called for by President Obama (the Heritage Foundation’s August 6, 2009  analysis, p. 4, estimates that 85% to 101% [!] of the coupons will be given away in the early years of the program).
    3. Generous ”carbon offset” provisions authorizing regulated U.S. firms to pay non-regulated entities to reduce, avoid, or sequester emissions in lieu of reducing emissions themselves (the Breakthrough Institute estimates that the Waxman-Markey offsets will allow U.S. emissions to increase through 2030).

    A Carbon Cartel

    In February 2007 testimony before the Senate Environment and Public Works Committee, CEI President Fred Smith noted that cap-and-trade “is an ugly combination of two of the greatest ills to affect the market economy over the past two hundred years–cartelization and central planning.” The emissions cap, which determines how much CO2-emitting energy society may use, is set by the government–that’s the central planning element. The provision of emission allowances under the cap effectively creates a cartel.

    The emissions allowances (energy-ration coupons) function just like the production quota allocated among members of OPEC (Organization of Petroleum Exporting Companies), the only difference being that the ration coupons can be bought and sold. The economic effect, though, of both oil production quota and emission allowances is the same: restrict energy supply, raise energy prices, and create monopoly profits for a favored few.  Fred commented:

    As a result of this cartelization, energy costs rise, real wages fall, and output and employment fall. We know these are the effects of cartels, which is why we used to put the people who set up cartels in jail. Yet the Climate Action Partnership wants legal blessing for this new cartel. Any legislation enacting cap-and-trade would actually ennoble a new generation of robber barons and provide legal protection for their profiteering activities.

    A key point to bear in mind is that the amount of wealth transferred from consumers to cartel members can greatly exceed the overall loss to the economy. See the diagram below.


    Figure description: 1.5 gigatons of carbon (GtC) is the hypothetical amount of CO2 emissions society produces in the absence of a cap. When there is no cap, the right to emit CO2 costs zero dollars per ton of carbon. The hypothetical cap requires a 20% reduction in emissions from 1.5GtC to 1.2 GtC. The right to emit CO2 now costs $50/tC. That increases the cost of energy, which then reduces economic output (the dark shaded triangle). However, the amount taken and transferred from energy consumers–the additional dollars they must spend for home heating oil, natural gas, electricity, and gasoline (the lightly shaded square)–can be much larger.

    Think again of OPEC. As long as oil prices don’t get so high that they depress the global economy, the wealth transferred from consumers to OPEC members will exceed the overall reduction in global GDP.

    In the European Emissions Trading System (ETS), utilities made out like bandits during the first two years of the program. Governments gave the utilities more free ration coupons than they needed. The utilities then passed their imaginary costs onto their customers by raising rates. Then they sold the surplus coupons they didn’t need to manufacturers whose electric rates they had raised. Thanks to the ETS, the utilities achieved a two-fold (albeit short-lived) windfall profit. Open Europe, the British free-market think tank, provides the gory details in this hard-hitting report.

    In the run-up to Waxman-Markey, cap-and-trade proponents repeatedly said that they had learned from Europe’s mistakes, and here in the USA all emission allowances would be auctioned in competitive bids. Yes, your electric rates would “necessarily skyrocket,” Barack Obama said, when campaigning for the White House. But, he assured us, the revenues would be returned somehow to taxpayers. Cap-and-trade would become cap-and-dividend.

    That, however, was unacceptable to US-CAP, and in the sausage factory known as the legislative process, they carried the day. The Heritage Foundation’s August 6, 2009  report describes what happened:

    In order to get the Waxman-Markey cap-and-trade bill through the House Energy and Commerce Committee . . . Members of Congress promised generous handouts for various industries and special interests. In the near-term, the legislation promises to distribute 85-101% of the allowances to various interest groups at no cost . . . The biggest winners are the electric utilities, receiving 43.75% of the emission allowances in 2012 and 2013.

    To read previous posts in this series, click on the links below.

  • Policy Peril: Looking for antidote to An Inconvenient Truth? Your search is over.
  • Policy Peril Segment 1: Heat Waves
  • Policy Peril Segment 2: Air Pollution
  • Policy Peril Segment 3: Hurricanes
  • Policy Peril Segment 4: Sea-Level Rise
  • Policy Peril Segment 5: Is the Science Debate Over?
  • Policy Peril Segment 6: Cap and Trade
  • Policy Peril Segment 7: Fuel Economy Standards 
  • Policy Peril Segment 8: Coal