May 2012

The Competitive Enterprise Institute attended the 7th International Conference on Climate Change, sponsored by the Heartland Institute and held in downtown Chicago on May 21-23. We at CEI are deeply indebted to the Heartland staff for all the hard work that went into putting on this event. The conference ran smoothly and I thought it was well attended despite the recent public kerfuffle over the incident with Peter Gleick and Heartland’s billboard campaign. CEI’s Myron Ebell and Chris Horner participated in a panel on the social and economic impacts of climate change and climate change policies. A videos of Myron’s panel is embedded below, and Chris Horner’s can be watched at this link.

There were a number of presentations which I found excellent, including (but not limited to) talks by Tom Harris of the International Climate Science Coalition, Patrick Michaels of the Cato Institute, Czech President Vaclav Klaus, Julian Morris of the Reason Foundation, and a convincing presentation by Sebastian Lüning, a German geologist and author of The Cold Sun, which will be available in English later this year. [click to continue…]

Post image for Recap of the 7th International Conference on Climate Change

“We are winning the war!” was a phrase I heard repeatedly last week. Congressman Sensenbrenner, Vice Chair of the House Committee on Science, Space, and Technology, said: “We won on these issues because we were right.”

What “war” brought together more than 60 scientists from around the world—including astronauts,  meteorologists, and physicians; politicians—comprising the Congressman, a head of state, and a member of the European Parliament; and policy analysts and media for two-and-a-half days in Chicago? The battle over climate change and the belief that there needs to be real science—more “about honest debate than ideological warfare.”

Assembled by the Heartland Institute, the seventh International Conference on Climate Change (ICCC7) provided the second opportunity for Congressman Sensenbrenner to address the group. In his opening comments, Sensenbrenner said, “We’ve come a long way.”

He recounted: “When I last spoke, the House of Representatives was poised to pass the Waxman-Markey cap-and-trade bill; the United Nations was promising the extension and expansion of the Kyoto Protocol; and President Obama was touting Spain as our model for a massive increase in renewable energy subsidies. Three years later, cap-and-tax is dead; the Kyoto Protocol is set to expire; and Spain recently announced that it eliminated new renewable energy subsidies.”

Sensenbrenner told about the behind the scenes wrangling that went on to get the Waxman-Markey bill passed. “I was on the House floor on June 29, 2009, when then-Speaker Nancy Pelosi desperately pulled Members aside to lobby, beg, and bargain for votes for the Waxman-Markey bill.” It did pass. But “the electoral consequences for the proponents of these policies was severe.” Just 16 months later, in the 2010 elections, “over two dozen of the Members she convinced to vote ‘yes’ lost their jobs.”

It wasn’t just the Members who suffered harsh political ramifications for their support of the Waxman-Markey bill—which was supposed to nullify the impact of manmade global warming through a cap-and-trade scheme. Sensenbrenner contends that support of the manmade (anthropogenic) global warming position (AGW) also cost Al Gore the presidency back in 2000. He explained: “West Virginia’s 5 electoral votes would have tipped the election for Gore, and Gore’s near-evangelical support for climate change easily cost him the 42,000 votes he would have needed to win there.”

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Post image for EPA Continues the Cellulosic Ethanol Folly

Last week the EPA dismissed a petition by the American Petroleum Institute seeking relief from the cellulosic ethanol mandate, which requires that oil refiners blend 8.65 million gallons of ethanol into the fuel supply by the end of 2012:

“In all cases, the objections raised in the petition either were or could have been raised during the comment period on the proposed rule, or are not of central relevance to the outcome of the rule because they do not provide substantial support for the argument that the Renewable Fuel Standard program should be revised as suggested by petitioners,” EPA told API, American Fuel & Petrochemical Manufacturers, Western States Petroleum Association, and Coffeyville (Kan.) Resources Refining & Marketing on May 22.

“EPA’s mandate is out of touch with reality and forces refiners to pay a penalty for not using imaginary biofuels,” Bob Greco, API’s downstream and industry operations director, said on May 25. “EPA’s unrealistic mandate is effectively an added tax on making gasoline.”

Greco said the Clean Air Act requires EPA to determine the mandated volume of cellulosic biofuels each year at “the projected volume available.” However, in 2011 EPA required refineries to use 6.6 million gal of cellulosic biofuels even though, according to EPA’s own records, none were commercially available, Greco said.

EPA has denied API’s 2011 petition to reconsider the mandate and continues to require these nonexistent biofuels this year, he indicated. Greco called the action “regulatory absurdity and bad public policy.”

As regular readers of this blog will know, the whole problem with the EPA’s non-flexible mandate is that there is no commercially available cellulosic ethanol, thus making it impossible to meet the mandate. The EPA’s justification for this policy is that they need to maintain an incentive for companies to begin producing cellulosic ethanol, despite many past failures. The oil refiners are also required to purchase these cellulosic ethanol waivers, effectively giving the government money instead of purchasing the non-existent fuel. [click to continue…]

Fretting about rising sea levels is a hallowed past-time amongst global warming types.  Al Gore and Co. regularly ride through the public square yelling “The ice sheets are melting! The ice sheets are melting!”

Indeed the threat of catastrophic sea level rise due to the melting of polar ice has been one of the prime scare tactics in the alarmists’ arsenal, even if they have occasionally stooped to exaggerating the dangers.  National Public Radio Science Correspondent Richard Harris once lamented this fudging of the truth in an interview with NPR’s Renee Montagne

“Gore said that Arctic ice could be gone entirely in 34 years, and he made it seem like a really precise prediction. There are certainly scary predictions about what’s going to happen to Arctic sea ice in the summertime, but no one can say ‘34 years.’ That just implies a degree of certainty that’s not there. And that made a few scientists a bit uncomfortable to hear him making it sound so precise.”

Harris went on to question some of the outrageous claims made in Gore’s scarumentary “An Inconvenient Truth.”

“…in [Gore’s] documentary he talks about what the world will look like – Florida and New York – when the sea level rises by 20 feet. But he deftly avoids mentioning the time frame for which that might happen. When you look at the forecast of sea-level rise, no one’s expecting 20 feet of sea-level rise in the next couple of centuries, at least. So that’s another thing that makes scientists a little bit uneasy; true, we have to be worried about global sea-level rise, but it’s probably not going to happen as fast as Gore implies in his movie.”

No kidding.  But Gore’s over-zealous estimations aside, Harris thinks we should still worry about melting ice and its concomitant rise in sea levels.  And we–as in, we the people–are of course to blame with our dirty, carbon-spewing life style.

Warmists are therefore desperate to preserve the polar ice exactly as they are–or rather, exactly as they think they should be.  But this attitude takes for granted the notion that the ice caps are a permanent and unchanging feature of this planet.

Not true.

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Post image for This Week in the Congress

Senate Committee Checks Obama’s Push To Green the Military

The Senate Armed Services Committee voted in favor of two amendments this week to block key parts of the Obama Administration’s program to green the military.  Politico Pro reported that all Republican members of the committee were joined by two Democrats to pass the amendments by one-vote margins, 13-12.

An amendment offered by Senator John McCain (R-Az.) would prohibit the Department of Defense from building biofuel refineries unless authorized by Congress.  If enacted, this would halt the Navy’s plan to build a $170 million biofuel facility.  Democratic Senators Joe Manchin of West Virginia and James Webb of Virginia joined the committee’s eleven Republicans in voting for the amendment.

Another amendment offered by Senator James M. Inhofe (R-Okla.) would prohibit expenditures for alternative fuels “…if the cost of producing or purchasing the alternative fuel exceeds the cost of producing or purchasing a traditional fossil fuel that would be used for the same purpose….” Democratic Senators Manchin and Claire McCaskill of Missouri joined the Republicans to pass this amendment.  A similar provision was passed in the House of Representatives last week.

Post image for International News Roundup

Carbon Markets Work, Until They Don’t

Having added layers of bureaucracy and complexity to their energy markets, the United Kingdom is struggling with a number of different problems in their electricity markets: rising prices, lowered reliability, and record low prices on carbon emissions. The UK’s answer involves granting the government further power to intervene in electricity markets. Under a draft energy bill put forth by Edward Davey, the Secretary of State for Energy and Climate Change, the new legislation would ban new coal-fired power plants absent carbon capture and sequestration, set a price floor for carbon dioxide emissions, and provide guaranteed rates of return on new low-carbon energy sources to encourage the increased investment that has yet to materialize. Like many bureaucrats, Davey is confident his proposal is a blueprint for success: “If we don’t secure investment in our energy infrastructure, we could see the lights going out, consumers hit by spiraling energy prices and dangerous climate change. These reforms will ensure we can keep the lights on, bills down and the air clean.”

Airline Emissions Fight, Round XVII

It’s the song that will never end. This week, those who predicted that this dispute would end in a trade war will feel a twinge of gratification: India has threatened to ban European airlines from Indian airspace if the Europe Union begins to impose sanctions on Indian airlines. Last week, both the Chinese and Indian governments forbade their airlines from providing the EU with data on their carbon emissions, signaling that this situation is not going to be resolved amicably anytime soon. The EU now seems to have backed off, to some extent, from the tough talk and complete refusal to back down. A spokesman for Connie Hedegaard, the EU climate commissioner, stated that the UN’s International Civil Aviation Organization was hoping to reach a mutually agreeable solution prior to April of 2013. It remains unclear what this solution will involve, as India and China have shown little interest in international negotiations to limit their economic growth through carbon taxation.

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Post image for Fraudulent Renewable Fuel Credits Continue to Surface

When the government introduced the mandates for ethanol and related biofuels, they needed a way in which companies could verify that they were complying with the Energy Independence & Security Act of 2007. For whatever reason, the decided mechanism would require that companies purchase credits to demonstrate that they had complied with the mandate: a renewable identification number (RIN). Each RIN is theoretically tied to a gallon of ethanol, biodiesel, or similar renewable fuel. However, because the RINs can be sold and traded similar to stock, in practice the pairing of a RIN with a particular gallon of fuel is somewhat superficial.

Unfortunately, this government created market in RINs has created an opportunity for criminally-minded entrepreneurs to scam the companies who are attempting to comply with the law by creating fake RINs and selling them in the marketplace. Note that these oil companies are required by law to purchase these credits, and its often difficult to verify that they are genuine, leading oil companies to often completely bypass small producers and only purchase biofuels and credits from larger, recognizable producers, a somewhat unique barrier to entry for small firms (suspicion of fraud). The latest case in fraudulent RINs surfaced late last month involved the sale of 60 million credits worth roughly $84 million, the third big bust in recent years ($ub required):

According to the violation notice, EPA determined that the fake credits were generated between July 16, 2010, and July 15, 2011. The Clean Air Act allows the agency to assess a civil penalty of up to $37,500 a day for each violation.

“When fuel credits are generated or used that do not represent qualifying renewable fuel, it undermines Congress’ goals in creating the program, creates market uncertainty and is a violation of the standard,” EPA said in a statement emailed to Greenwire. “EPA enforcement of the standard deters fraud and abuse in the system, helps to restore certainty in the market and ensures that the goals of Congress are met.”

This is the third notice EPA has issued since November to companies allegedly producing fake credits, and it is likely not the last.

Last November, EPA accused a Maryland man of generating $9 million worth of fraudulent renewable identification numbers (RINs) on his computer. The 38-digit numbers represented 22 million gallons of biodiesel that was never produced at the man’s company, Clean Green Fuel LLC.

EPA issued another violation notice in February to Texas-based Absolute Fuels LLC for allegedly creating 48 million fake credits worth approximately $62 million. The agency said CEO Jeffrey Gunselman used the money to purchase an aircraft and a number of vehicles, including a 2010 Mercedes Benz and a 2011 Bentley.

Yes, creating markets that are easy to fraudulently manipulate would indeed seem to undercut the goal of the ethanol mandate. Thankfully, unlike in previous cases, the EPA is working constructively with the companies who have been subjected to these scams rather than fining them for getting caught up in a problem the government has created.

This is yet another reason why moving forward with increasing blends of ethanol is not a good idea. Freeze the mandate at 2012 levels if it can’t be scrapped completely. Yes, the short term capital losses from ethanol investments  will be realized, and this will hurt a lot, but the alternative is to continue investments into a fuel that is still more expensive than gasoline once you adjust for its lower energy content. Or we can continue pretending that whatever minute environmental benefits accrue from corn ethanol are worth the absurd push to encourage ethanol use beyond E10. We can also continue to pretend that cellulosic ethanol is around the corner, and won’t suffer from the same problems that have haunted corn ethanol: high prices and heavy land use.


Post image for Solar Tariffs Expose Administration’s Crony Intentions

Last week, the Obama administration rolled out new tariffs on Chinese solar manufacturers. These new taxes will make solar energy more expensive, which will make environmentalists’ clean energy dream even more difficult to obtain. In other words, this action shows conclusively that this industry exists to benefit Obama Inc., not the American public.

Obama’s excuse for this move is that China subsidizes their solar industry and sells the panels here at a loss. Forget the absurd hypocrisy for a moment—what this argument really amounts to is an admission that the solar panel industry exists, not for the sake of the American consumer—that is, society in general—but for solar panel producers themselves. President Obama sees the industry collapsing all around him and has chosen to use government force to save it, another sly-bailout for the Bailout King.

China has decided to sell America solar panels at a loss. That’s true, but imagine if McDonald’s decided to do that. Should the government step in and subsidize Burger King, or should Americans just take advantage of the stupidity? You would think that Obama would be happy that another government is subsidizing his clean energy economy, but again, his tariff decision shows that he’s not actually interested in “clean energy” per se. He’s interested in the votes and campaign cash that the clean energy industry brings.

As Peter Schweizer, Hoover Institute Fellow and Throw Them All Out author, points out seventy-five percent of the Department of Energy green energy subsidies went to Obama bundlers or campaign members. Of the $20 billion in grants and loans, $16 billion went to “Obama-related companies,” notes Schweizer. “By that I mean either the chief executive or leading investor was a member of his campaign finance committee or was a bundler for his campaign.”

The Obama administration has lost a subsidy war and has started a trade war, all for the benefit of one politically favored industry. As China officials quickly pointed out, this tariff “will hurt both countries because China imports a large amount of raw materials and equipment from the U.S. to produce solar panels, and it exports such goods to the U.S.” But these industries aren’t as politically connected as the many wannabe Solyndras.

Crony-capitalism dressed in green rhetoric is still crony capitalism. It’s one reason that Congress should adopt a “Gift Clause,” which would ban all corporate subsidies. Only then would we have a true “level playing field” that Obama has advocated so many times.

Post image for Ethanol Reduced Gas Prices by $1.09/gal. – Or Didn’t You Notice?

Iowa State University’s Center for Agricultural and Rural Development (CARD) has just updated its 2009 and 2011 studies of ethanol’s impact on gasoline prices. CARD claims that from January 2000 to December 2011, “the growth in ethanol production reduced wholesale gasoline prices by $0.29 per gallon on average across all regions,” and that in 2011 ethanol lowered gasoline prices by a whopping $1.09 per gallon.

I’m no econometrician, but this study does not pass the laugh test. We’re supposed to believe that ethanol has conferred a giant boon on consumers even though gasoline prices have increased as ethanol production has increased, and even though gas prices hit their all-time high when ethanol production hit its all-time high. If that is success, what would failure look like?

CARD’s argument boils down to this. The gasoline sold at the pump today is E-10 — motor fuel blended with 10% ethanol. Ethanol thus makes up 10% of the motor fuel supply for passenger cars. If there were no ethanol, the motor fuel supply would be 10% smaller, and gas prices would be $1.09 per gallon higher (p. 6).

Well, sure, if we assume a drop in supply and no change in demand, prices will rise. But this scenario tells us nothing about what really matters — whether ethanol’s policy privileges, especially the Renewable Fuel Standard (RFS), a.k.a., the ethanol mandate, benefit or harm consumers.*

Note first that even in the absence of government support, billions of gallons of ethanol would be sold each year anyway as an octane booster. So a scenario in which 10% of the motor fuel supply simply disappears does not correspond to any policy choice Congress is actually debating or considering.

More importantly, CARD assumes that if the motor fuel supply were 10% smaller, refiners would not increase output to sell more of their product at higher prices. In other words, refiners would not engage in the economically-rational, profit-maximizing behavior that would bring supply back into balance with demand, thereby moderating the initial price increase.

Why wouldn’t they? There are only two possible explanations. One is that refiners don’t want to get rich, which is absurd. The other is that refiners operate like a cartel, colluding to restrict output in order to charge monopoly rents. CARD gives no sign of endorsing this view, and repeated investigations of the U.S. refining industry by the Federal Trade Commission repeatedly fail to find evidence of such anti-competitive scheming.

CARD’s analysis also ignores the opportunity costs of ethanol’s policy props. Capital is a finite resource. Every dollar refiners are forced or bribed to spend on ethanol is a dollar they cannot spend to produce gasoline. Government cannot rig the market in favor of ethanol without discouraging gasoline production. It is ridiculous to assume that all of the resources (e.g., refining capacity) commandeered by federal policy over the past decade to boost ethanol’s market share would have been left idle and not used to make gasoline in a free market.

In short, CARD’s analysis abstracts from the most basic economic realities we were all supposed to learn in Econ 101: resources are finite, choices have opportunity costs, and incentives (prices) matter.

I leave it to econometricians to quantify the repercussions, but this much is clear. In a free market, refiners would have blended less ethanol and produced more gasoline than they did in the market rigged by the RFS and other pro-ethanol policies. CARD — or, more precisely, CARD’s sponsors, the Renewable Fuel Association (RFA) — would have us believe that refiners would produce no more gasoline in a free market than they would in a market politicized by mandates and subsidies. That assumption is so unrealistic that any analysis based upon it is inappropriate and even fraudulent if used as a justification for maintaining or expanding government support for ethanol. [click to continue…]

Post image for Wind Energy: The Wheels Are Coming Off the Gravy Train

The wind energy industry has been having a hard time. The taxpayer funding that has kept it alive for the last twenty years is coming to an end, and those promoting the industry are panicking.

Perhaps this current wave started when one of wind energy’s most noted supporters, T. Boone Pickens, “Mr. Wind,” in an April 12 interview on MSNBC said, “I’m in the wind business…I lost my ass in the business.”

The industry’s fortunes didn’t get any better when on May 4, the Wall Street Journal (WSJ) wrote an editorial titled, “Gouged by the wind,” in which they stated: “With natural gases not far from $2 per million BTU, the competitiveness of wind power is highly suspect.” Citing a study on renewable energy mandates, the WSJ says: “The states with mandates paid 31.9% more for electricity than states without them.”

Then, last week the Financial Times did a comprehensive story: “US Renewables boom could turn into a bust” in which they predict the “enthusiasm for renewables” … “could fizzle out.” The article says: “US industry is stalling and may be about to go into reverse. …Governments all over the world have been curbing support for renewable energy.”

Michael Liebreich of the research firm Bloomberg New Energy Finance says: “With a financially stressed electorate, it’s really hard to go to them and say: ‘Gas is cheap, but we’ve decided to build wind farms for no good reason that we can articulate.’” Christopher Blansett, who is a top analyst in the alternative-energy sector in the Best on the Street survey, says, “People want cheap energy. They don’t necessarily want clean energy.”

It all boils down to a production tax credit (PTC) that is set to expire at the end 2012. Four attempts to get it extended have already been beaten back so far this year—and we are only in the fifth month. The Financial Times reports: “Time-limited subsidy programmes…face an uphill battle. The biggest to expire this year is the production tax credit for onshore wind power, the most important factor behind the fourfold expansion of US wind generation since 2006. Recent attempts in Congress to extend it have failed.”

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