Equality under Law and Energy Policy

Equality under law is a core principle of every free society. It means the law does not discriminate among persons based on irrelevant characteristics. It sets the ground rules for competition but does not seek to advantage one person or group at the expense of others.

Equality under law is not an arbitrary preference but the logical implication of a more fundamental, natural equality rooted in the unity of the human species. The Declaration of Independence, which proclaims the equality of all human beings in respect to certain unalienable rights, is the locus classicus of this philosophy. Thomas Jefferson concisely explained the natural basis for equality under law when he stated that, “the mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately, by the grace of god.”

Societies that reject (or do not recognize) the Declaration philosophy include not only those based on explicitly anti-egalitarian ideologies (Hitler’s master race, the feudal hierarchy of noble and serf), but also those based on the false equality of Marx and Lenin, who asserted that the human race is fundamentally bifurcated into two unequal classes — bourgeois and proletariat. Unsurprisingly, in Marxist-Leninist regimes all power ends up in the hands of a corrupt self-selected elite (nomenklatura) posing as the ‘vanguard of the proletariat.’

I’ve been thinking about this lately, because ‘progressive,’ activist government continually seeks to rig energy markets to favor some industries (those deemed green) at the expense of others (those deemed dirty). Moreover, interest groups continually lobby for special privileges, usually based on some public-interest pretext (‘What’s good for General Motors is good for the country’).

In his treatise The Law, 19th century French economist Frédéric Bastiat, discusses how to tell when law is perverted into a system of legal plunder:

But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.

Then abolish this law without delay, for it is not only an evil itself, but also it is a fertile source for further evils because it invites reprisals. If such a law — which may be an isolated case — is not abolished immediately, it will spread, multiply, and develop into a system.

The person who profits from this law will complain bitterly, defending his acquired rights. He will claim that the state is obligated to protect and encourage his particular industry; that this procedure enriches the state because the protected industry is thus able to spend more and to pay higher wages to the poor workingmen.

Do not listen to this sophistry by vested interests. The acceptance of these arguments will build legal plunder into a whole system. In fact, this has already occurred. The present-day delusion is an attempt to enrich everyone at the expense of everyone else; to make plunder universal under the pretense of organizing it.

Imagine if we had a government today that lived by Bastiat’s maxims! Bye-bye bridges to nowhere, the wind production tax credit, the ethanol mandate, green jobs programs, and Obamacare.

To Bastiat’s simple test for identifying legal plunder, I would add another — presumably with his approval were he alive today: The law aims to pick market winners and losers by imposing unequal burdens and/or conferring unequal benefits on different industries or firms.

The ethanol mandate clearly falls into the legal plunder category, and so does the campaign to restrict natural gas exports for the benefit of the chemical industry. I discuss those policies as equality-of-law-violating plunder schemes in recent comments on National Journal’s Energy Insiders blog. My comments (lightly edited) appear below.

This Gas Is Dow’s Gas?

Marlo Lewis, December 10, 2013

America’s Energy Advantage (AEA), a business coalition spearheaded by Dow Chemical, recently launched a petition campaign against “excessive” natural gas exports. More than 11,000 people have signed the petition, according to AEA’s Web site. Their message: “Do Not Export Away Our Natural Gas Advantage!”

Oh the irony! AEA seeks to regulate away U.S. gas companies’ first-mover advantage in the global marketplace.

Dow Chemical CEO Andrew Liveris talks as if fettering U.S. gas exports is risk free, because “we are only in the fourth or fifth year of a 100-year advantage.” That is more than he can know and is almost certainly false. No economic advantage lasts for 100 years.

U.S. gas companies compete for long-term contracts with suppliers from Qatar, Malaysia, Indonesia, Australia, and a growing list of other countries. Will AEA agree to indemnify U.S. gas producers for any sales forfeited to foreign producers if Congress fetters U.S. gas exports? Fat chance.

AEA’s rhetoric is socialistic. Natural gas is not “ours” until we have bought and paid for it. Until then, the gas belongs to those who made the investments to produce it.

Whatever the good or service, we all want to buy low. That, however, does not entitle us to jump to the head of the line, restrict sales to other customers, or deny investors the right to compete for new customers.

A Tweet accompanying the petition campaign states that “Americans demand and deserve affordable NATgas.” Loosely translated: “Gimme, I want it.”

What Americans “deserve” is not a particular price for natural gas but equality under law. If chemical companies are free to sell their products to the highest bidder, then gas companies should be too.

Even if it weren’t unjust, share-the-wealth populism would still be bad economics because it kills the golden goose. AEA may make out like bandits if Congress adopts their agenda — but only in the short run. Export restrictions are bound to scare off investment in the gas industry. Supply would decrease and prices rise — the reverse of AEA’s goals.

So let’s help AEA come to their senses by singing them a song of liberty! It goes to the tune of Woody Guthrie’s famous ballad, “This Land Is My Land.”

This Gas Is Dow’s Gas

This gas is my gas, this gas is Dow’s gas

From the great Marcellus, to the Permian Basin

We didn’t drill it, we didn’t frack it

This gas belongs to Dow and me

                       * * *

I went seeking, rents from the Congress

Corporate welfare, let’s call it balance

America’s advantage, the public interest

Don’t say confiscatory

                      * * *

Of course I know well, that blocking exports

Cheats the workers, who produce the resource

That’s not my problem, I want a subsidy

This gas belongs to Dow and me

                    * * *

It’s a natural windfall, a common bounty

It’s not really, anyone’s property

So we’ll just hog it, and they’ll still frack abundantly

Plunder will grow the GDP

                 * * *

What’s that you’re saying?

Let’s curb Dow’s exports

So drug companies, have cheaper feed stocks

But sauce for the goose, ain’t for the gander

Don’t expect consistency

              * * *

This gas is my gas, this gas is Dow’s gas

From California to the Bakken shale play

We didn’t drill it, we didn’t frack it

This gas belongs to Dow and me

The RFS Is Unjust

Marlo Lewis, December 2, 2013

For the first time in the history of the Renewable Fuel Standard (RFS) program, the Environmental Protection Agency plans to scale back the government’s overall biofuel blending target for the next year. Specifically, the EPA proposes to cut the 2014 blending target from 18.15 billion gallons to 15.21 billion gallons.

Market realities forced the agency’s hand. Like all central planning schemes, there comes a point where even the commissar has to admit it’s just not working.

Two factors impelled the EPA to make this adjustment. One is that the RFS requires obligated parties – refiners, blenders, and fuel importers – to sell 1.75 billion gallons of cellulosic ethanol in 2014. However, despite years of research and taxpayer support, commercial production of cellulosic biofuel was only 20,000 gallons in 2012.

The second factor is the blend wall — the maximum quantity of ethanol that can be sold each year given legal or practical constraints on how much can be blended into each gallon of motor fuel. The most common blend today is E10 — motor fuel with up to 10% ethanol. Although the EPA approved the sale of E15 in October 2010, potentially increasing by 50% the total amount of ethanol sold annually, insufficient fueling infrastructure, warranty and liability concerns, and lack of consumer demand effectively limit the standard blend to E10.

The EPA’s proposal is a welcome step in the right direction but does not go nearly far enough. Nobody likes the RFS program except the special interest groups who profit from it. Even as environmental policy, the RFS is a bust, as an extensive AP investigation confirms.

The RFS inflates food prices, increases pain at the pump, exacerbates world hunger, expands aquatic dead zones, contributes to habitat loss, and fails to reduce greenhouse gas emissions.

However, even if the RFS were working exactly as promised, Congress should still repeal the mandate, because it is an unjust policy. The RFS violates the core constitutional principle of equality under law.

In a free society, the law treats people as equals. No one is legally bound to buy from another, sell to another, or render service to another – except on the basis of contracts or agreements that each party enters into voluntarily.

That’s not how the RFS works. The RFS literally compels one industry to purchase, process, and sell other industries’ products. It obligates one group of companies to expand the market for other companies’ products.

We would all instantly see what a moral anomaly this policy is if the shoe were on the other foot.

Imagine the howls from RFS supporters if Congress were to compel corn farmers to blend their produce with annually-increasing quantities of wheat, soybeans, or rice. Imagine the outcry if Congress imposed on corn farmers a 15-year plan establishing volumetric targets for the purchase of certain types of seeds, fertilizers, pesticides, or harvesting machinery.

RVOs (Renewable Volume Obligations) are just as dumb — and just as big a rip-off — as SVOs (Seed Volume Obligations), FVOs (Fertilizer Volume Obligations), or PVOs (Pesticide Volume Obligations)!

Reporters who want to have some fun — and get to the bottom of things — should ask ethanol lobbyists: Do you favor central planning in general, or only when it rigs the market in favor of your industry?

Rather than admit the RFS is broken, Renewable Fuels Association chief Bob Dinneen proposes to eliminate the blend wall by compelling the oil & gas industry to “invest” in biofuel infrastructure.

That would only compound the injustice. Mr. Dinneen would force refiners to build the distribution system for products the government forces them to buy, process, and sell.

Mr. Dinneen sometimes argues as if refiners are legally bound to undertake whatever infrastructure “investments” are needed to meet their RVOs. Nope. During the Congress that enacted the Energy Independence and Security Act (EISA) and RFS2, lawmakers considered bills mandating the construction of biofuel infrastructure (Biofuel Security Act, SAFE Energy Act, Global Warming Reduction Act) as well as others mandating the production and sale of flex-fuel vehicles (Open Fuel Standard Act). Those measures did not make it into EISA and are not part of RFS2.

Even those additional mandates would likely fail to eliminate the blend wall, because a 36-billion gallon RFS translates into E20-E25 as the standard blend, and high-ethanol blends are a net money-loser for consumers. At current prices, a typical motorist would spend $650 – $1050 more per year to run a flex-fuel vehicle on E85 rather than on regular gasoline.

To blame the blend wall on oil industry machinations is both demagogic and silly. When biofuels genuinely deliver more bang for buck than gasoline there will be no shortage of investment in biofuel infrastructure and flex-fuel vehicles. Until then, the RFS will continue to pit its injustice against consumer preference.