At a luncheon hosted by Politico at the GOP convention in Tampa today, T. Boone Pickens said truck fleets will switch from diesel to natural gas without Congress approving the NAT GAS Act, legislation offering generous tax credits for the purchase of natural gas trucks (up to $64,000 per vehicle) and installation of natural gas fueling infrastructure. Pickens reportedly spent about $100 million over the past five years promoting his energy agenda, commonly known as the Pickens Plan.

Congress declined to pass either the NAT GAS Act or an earlier iteration of the Pickens Plan that would have required 20% of the nation’s electricity to come from wind, thus supposedly freeing up natural gas to be used to fuel both trucks and passenger cars.

Critics argued that if switching to natural gas vehicles makes commercial sense, private enterprise will bring about the transformation without Washington trying to pick energy market winners and losers. Pickens is now talking the talk. Politico‘s Darren Goode reports:

“You don’t have to have a tax credit; it’s going to happen,” he [Pickens] said. The choices to run 18-wheelers, he said, are between natural gas and diesel — and natural gas is “$2 a gallon cheaper.”

And Pickens strongly suggested that he doesn’t have any plans to try to push his plan anymore in the nation’s Capital.

“I will not go back to Washington again unless it’s for a social event,” he said.

The billionaire and former oil baron also lamented that while his plan initially promoted wind energy, that hasn’t worked out so well.

“I’ve lost my ass” to wind-energy investments, he conceded.

T. Boone Pickens went on Bloomberg to discuss the Pickens Plan:

Pickens claims that Koch is working for himself, while the pure hearted T. Boone Pickens is working for America. Now yes, Koch Industries has a financial incentive to not support federally built infrastructure for a fuel that competes with a product that he sells, but it also clearly aligns with a free-market perspective of not providing federal support for any particular energy sources. Furthermore, if it wasn’t obvious, Pickens would stand to make tons of money from increasing the use of natural gas in America, so its beyond disingenuous to pretend that he is solely “doing good.”

He takes a particular cheap shot in regard to ethanol. The Koch’s have repeatedly stated that they are against the ethanol program, but as refiners they are practically required to participate in order to stay competitive. They even fund numerous groups that have spent money in hopes of ending the ethanol tax credit (Pickens also hasn’t been following the news, as it seems the ethanol tax credit is likely going away). When Pickens resorts to taking cheap shots against opponents of his policy,  it seems clear that his proposals are without merit. When conservatives provide widespread support for the Pickens Plan, their resistance towards subsidizing other forms of energy is undermined.

Finally, Pickens claims that a transition towards fueling vehicles with Natural Gas vehicles is already underway for trucks, and that it is economical. If this is true, great, let the market work and get out of the way. It’s certainly is being used commonly in vehicles where centralized infrastructure can be used, such as city buses. Let us hope that the T. Boonedoggle Pickens plan does not move forward. CEI has written more about the plan here, here, here,  and here.

Some GOP House Members may see no problem in pushing H.R. 1380, the Boonedoggle, Pickens-Your-Pocket Bill, which would hand out tax credits up to $64,000 apiece for the purchase of natural gas vehicles, because, after all, chief beneficiary T. Boone Pickens is a major donor to Republican candidates.

According to Investor’s Business Daily, however, H.R. 1380 would also confer windfall profits on the Left’s patron-in-chief, billionaire George Soros. IBD explains:

It so happens that a company called Westport Innovations is a leading provider of technology that allows engines to operate on clean-burning fuels such as compressed natural gas and would be expected to benefit from HR 1380′s huge allocation of taxpayer dollars.

According to the folks at gurufocus.com, which monitors the wheeling and dealing of major investors, George Soros, the Hungarian billionaire who has made a fortune manipulating currencies among other financial shenanigans, owned 5,547,604 shares of WPRT, valued at $122 million as of March 31. That represented 1.45% of his equity portfolio and his third-largest holding.

So Soros could once again profit handsomely from U.S. energy policy determined largely by a Democratic party whose causes he has supported over the years, just as he profited from his investment in Petrobras, the state-run Brazilian oil giant.

On the company’s Web site, Westport Innovations describes itself as “The global leader in natural gas engines.” It says: “The Westport group of companies has sold over 32,000 natural gas and propane engines to customers in over 20 countries.” So yeah, H.R. 1830 would enrich Westport and the Left’s Daddy Warbucks.

GOP House Members who are unwilling to oppose H.R. 1380 out of free market principle should consider doing so out of a sense of political survival.

Get with the Plan

In The National Review, T. Boone Pickens again makes the case for The NAT Gas Act of 2011. I slept through the first few paragraphs (the piece began with a constitutional argument).

There isn’t a whole lot of new information in here, its more of a response to the ongoing attacks on the legislation. He reminds us that Americans get all antsy when gas prices go up, but when prices drop again we are lulled back into indifference.

Near the end:

Congress is considering a bill named the NAT GAS Act (H.R. 1380). It provides targeted tax credits (“lay and collect Taxes”) for companies to replace their current fleets burning imported diesel with vehicles running on domestic natural gas. Keep in mind, a tax credit means someone gets to keep more of the money he’s earned, rather than give it to the government to spend on who knows what. It is not a government grant. And this tax credit, unlike many others, has a sunset provision of five years.

Why do we need a tax credit at all? Because there is almost no manufacturing capability for natural-gas vehicles in the United States. Rather than support manufacturers in China and India, this credit would help jump-start that industry here, adding jobs up and down the supply chain.

There are people and companies — and think tanks they fund — that oppose the NAT GAS Act for a variety of reasons, most of them self-serving. There is no greater believer in free markets than I, but if you think OPEC is a free market, I have a bridge in Brooklyn to sell you. Absent a plan of their own, critics of my plan are for the status quo, which is to continue sending billions of dollars to OPEC nations, many of which, in return, are helping to fund terrorism.

As a member of a think tank opposed to the Pickens Plan (though its unclear how our reasons are self-serving), I think that a couple of points should be made. It is true that this is a tax credit, allowing people to keep more of their hard owned money. However, we can only get that tax credit back if we purchase a natural gas vehicle. This is right-wing economic engineering. Perhaps we should ask Newt Gingrich’s opinion on it.

Second, while OPEC’s control over the international oil market does not constitute a completely free-market, this doesn’t strengthen the argument for the Pickens Plan. On the contrary,  it weakens it.

Assume that OPEC is currently capable of (or engaged in) restricting petroleum production such that the price is artificially higher than it would be. This creates an even larger incentive for vehicle manufacturers to consider the feasibility of using natural gas as a fuel rather than petroleum, to capture some of the profit headed towards OPEC. That they haven’t done this likely indicates that they don’t believe consumers will switch over at this point in time, given the costs of converting vehicles on the road, building infrastructure, etc. This market could assuredly start up on its own. Being that it hasn’t, aside from certain niches like city buses, it seems as if the Picken’s Plan has failed the market test.

It’s true, the status quo isn’t perfect, though nothing is. But two wrong’s don’t make a right. Doubling down on natural gas subsidies will further distort the use of resources in our transportation sector, and lock in infrastructure that likely shouldn’t be built in the present. As far as a 5 year sunset, look at some of our other energy subsidies. Did they sunset after 5 years? Have we even been able to get rid of any of them? No.

Update on the Boondoggle Bandwagon

The controversy over the T. Boone Pickens Earmark Bill, H. R. 1380, continued to grow this week. Three more Republicans joined Rep. Steve Pearce (R-NM) in getting off the Boonedoggle Bandwagon and withdrew as co-sponsors.  They are Rep. Todd Akin (R-Mo.), Glenn Thompson (R-Pa.), and Tim Griffin (R-Ark.).  The complete list of 187 co-sponsors can be found here.

A joint letter organized by Heritage Action for America and signed by seventeen conservative organizations opposing the bill was sent to the Hill. Pickens himself published an op-ed co-authored by flack-for-hire Denise Bode in Politico that was full of his usual blend of self regard, bluster, and misinformation.  Pickens and Bode claimed in the op-ed that the House Republican Study Committee has endorsed his bill.  It has not, and Politico quickly corrected Pickens.  They also claimed that wind power is now cheaper than new coal-fired power.

Pickens continues to claim that he is not in this for the money, but only to reduce America’s reliance on foreign oil.  See my CEI colleague Marlo Lewis’s blog on GlobalWarming.org detailing Pickens’s BP Capital Management’s investments in a wide range of companies that would benefit by enactment of the Pickens-Your-Pocket Plan.

I just finished watching the Sunday morning political talkies, and the second biggest ad buy of the day was in support of H.R. 1380, the NAT GAS Act, legislation that was produced by billionaire T. Boone Pickens to benefit the natural gas industry. T. Boone Pickens is a major player in the natural gas industry, so he basically made H.R. 1380 to make himself richer. That’s why this blog has referred to H.R. 1380 variously as the “Pickens Your Pocket Boondoggle Bill,” and the “T. Boone Pickens Earmark Plan.”

The advertisements I saw left me troubled. They indicated that T. Boone Pickens is less tone deaf, and therefore potentially more successful, than the last time he tried to get the Congress to enact legislation that he wrote to further enrich himself.

That was the 2008 “Pickens Plan,” and it was even bigger rip-off than H.R. 1380. The “Pickens Plan” was a simple four-step strategy: (1) subsidize wind produced by T. Boone; (2) subsidize transmission towers to deliver T. Boone’s wind power to cities; (3) force Americans to buy wind power produced by T. Boone; (4) force American motorists to fill their cars with T. Boone’s “leftover” natural gas, the stuff that was displaced by T. Boone’s wind power.

The first time around, T. Boone Pickens thought he had all his bases covered. He’d long been a big GOP donor, so he had that going for him. He relied on Democrats’ reflexive support for unreliable, expensive “green” energy like wind. Just to be sure, he supported their campaign coffers, too. Finally, he had a great public relations hook: “energy independence.” He could show videos of American flag burning in the Middle East and promise to wean the U.S. off Saudi crude with T. Boone’s wind and gas.

It was a great plan…with one fatal flaw. T. Boone Pickens branded his Plan with his face! He actually labeled his self-enrichment scheme the “Pickens Plan.” A lot gets past the American electorate, but they are intrinsically suspicious of legislation written by billionaires. It was too obvious a huge special interest payoff. And so it failed.

The ads I saw this morning were ALL burning flags, and ZERO T. Boone Pickens. This worries me, because it’s a much more effective pitch than, “billionaire T. Boone Pickens deserves even more money.”

One hundred eighty-six Members of Congress have signed on to H.R. 1830, the New Alternative Transportation to Give Americans Solutions (NAT GAS) Act of 2011, better known at this Web site as the Pickens-Your-Pocket Boonedoggle Bill, in honor of its chief lobbyist and beneficiary, billionaire T. Boone Pickens.

The bill would provide targeted tax breaks to subsidize the manufacture and purchase of natural gas vehicles, installation of natural gas refueling infrastructure, and production of compressed and liquefied natural gas for use as motor fuel. The bill includes no overall budget authorization. Moreover, many of the provisions modify current sections of the tax code, which in turn refer to other sections, and the Congressional Research Service inexplicably has yet to provide a bill summary. So the total amount of the tax breaks is anybody’s guess.

Nonetheless, the final tab has got to be huge even by Washington standards. Each manufacturer could claim credits of $4,000 per vehicle up to an overall amount of $200 million per year. Each purchaser could claim credits ranging from $7,500 to $64,000 per vehicle depending on how much the vehicle weighs. Each property installing natural gas fuel dispensers could claim a credit up to $30,000 (or $100,000 – it’s unclear). Each maker of compressed or liquefied natural gas could claim a credit of 50¢ per gallon for every gasoline-equivalent gallon sold. With anywhere from 225,000 to 400,000 18-wheelers sold in the USA each year, the vehicle purchase credits alone could cost billions.

T. Boone’s lobbying for these tax subsidies is all about patriotism and energy security and has nothing to do with rent seeking or corporate welfare. Just ask him!  “I’m sure not doing this for the money,” the Texas Gas Mogul told New York Times columnist Joe Nocera.

Only the Shadow knows what lurks in the minds of lobbyists, but the circumstantial evidence is rather overwhelming. Pickens and his wife have a 41% ownership stake in Clean Energy Fuels (CEF), the Wall Street Journal reports. CEF installs natural-gas-vehicle fueling stations. The company describes itself as the “leading provider of natural gas fuel for transportation in North America.” The NAT GAS Act would reduce CEF’s tax liability while pumping up demand for its services. 

Anyone who can’t see rent-seeking in this picture presumably also believes that none of the bill’s 186 co-sponsors ever got a campaign contribution from T. Boone Pickens.

Investment analyst Todd Shriber finds that Pickens’s main company, BP Capital Management, held multi-million dollar stakes in several firms with major natural gas exposure at the end of last year. Below is a list of the firms, excerpts from their Web sites indicating their financial interest in natural gas, the dollar amount of BP Capital Management’s holdings, and the number of shares held.

Apache Corporation (“an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids”): $20.6 million, 165k shares

British Petroleum (“one of the world’s leading international oil and gas companies”): $48.2 million, 1.1 million shares

Chesapeake Energy (“America’s Champion of Natural Gas”): $31.0 million, 923.5k shares

Canadian Natural Resource (“one of the largest independent crude oil and natural gas producers in the world”): $15.7 million, 317.5k shares

Devon Energy (“a leading independent natural gas and oil exploration and production company”): $14.4 million, 157.2k shares

EOG Resources (“one of the largest independent [non-integrated] oil and natural gas companies in the United States”): $25.5 million, 215.0k shares

McMoran Exploration (“an independent public company engaged in the exploration, development and production of oil and natural gas in the shallow waters of the Gulf of Mexico Shelf and onshore in the Gulf Coast area”): $21.0 million, 1.2 million shares

 Murphy Oil (“produces oil and natural gas in the United States, Canada, the United Kingdom, Malaysia, and Republic of the Congo and conducts exploration activities worldwide”): $14.7 million, 205k shares

Noble Energy (“broadbased assets include both crude oil and natural gas resources, with exposure in the U.S. and internationally”): $35.6 million, 781k shares

National Oil Well Varco (“worldwide leader in providing major mechanical components for land and offshore drilling rigs”): $14.3 million, 180.0k shares

Occidental Petroleum (“an international oil and gas exploration and production company”): $22.5 million, 215.3k shares

Plains Exploration & Production Company (“primarily engaged in the activities of acquiring, developing, exploring, and producing oil and natural gas”): $22.9 million, 631.7k shares

Sandridge Energy (“diversified oil and natural gas company”): $26.2 million, 2 million shares

Suncor Energy (“In Western Canada, across the East Coast of Canada and internationally, Suncor explores for, develops and produces conventional oil and natural gas — from both onshore and offshore developments”):  $16.2 million, 360.5k shares

Weatherford International (“one of the largest global providers of advanced products and services that span the drilling, evaluation, completion, production and intervention cycles of oil and natural gas wells”): $25.1 million, 1.1 million shares

In total, then, in Dec. 2010, BP Capital Management held $354.9 million worth of stock in companies that would profit handsomely from a politically-contrived surge in natural gas demand. Pickens stands to gain hundreds of millions – perhaps billions — of dollars if Congress enacts his scheme to rig the motor fuel market in favor of natural gas.

Republicans in the House of Representatives are flocking to support a bill to extend and create a number of taxpayer-funded subsidies for manufacturers and buyers of vehicles powered by natural gas.   Nearly eighty House Republicans (and a hundred Democrats) have signed up as sponsors of H. R. 1380, the New Alternative Transportation to Give Americans Solutions Act (or NAT GAS Act).  Just call it the T. Boone Pickens Earmark Bill.

Many conservative Republicans in the House, particularly a number of new Members with Tea Party connections, have sworn that the fiscal and economic crisis confronting America requires a radical change in federal policies.  Out-of-control spending must be stopped; spending earmarks must be abolished; crony capitalists on the prowl for corporate welfare must be sent packing; subsidies for special interests must be abolished; government must stop interfering in the economy and let free markets work.

That big talk doesn’t seem to apply when the spending is being earmarked for a crony capitalist who is one of the biggest contributors to Republican candidates in history–billionaire T. Boone Pickens.  Apparently, some subsidies are good if they benefit the right special interests.  And government interference in the economy is wonderful if it is done in the name of reducing oil imports.

H. R. 1380 would extend the tax credit of 50 cents per gallon of liquid natural gas (or its equivalent of compressed natural gas) when used for fueling vehicles and provide purchasers of natural gas vehicles with credits ranging from $7,500 to $64,000.  The lower end is for passenger cars and the upper end for big trucks.  There are also credits for natural gas vehicle manufacturers and for installing natural gas fueling stations.

Why are billions of dollars of taxpayer-funded subsidies needed?  According to T. Boone Pickens’s web site, it’s because natural gas vehicles are cheaper to operate than gasoline or diesel vehicles:  “Even with higher initial costs (which will disappear as manufacturing ramps up) the life-cycle costs of NGVs [natural gas vehicles] are significantly lower.  Fuel costs are at least 15 percent less using natural gas rather than gasoline or diesel.”

So people need to be paid in order to make them want to buy vehicles that will save them money.  Yes, that makes sense: I always prefer the more expensive product unless there is a government rebate for the cheaper one.  Call it the Boonedoggle bill.

As for getting us off foreign oil, this claim is trotted out to support every payoff to special interests in the energy sector.  It’s a claim for which little evidence is ever produced.  What will reduce our dependence on foreign oil is producing more of it in this country.  What the bill will do is increase demand for natural gas, which will tend to increase prices for natural gas, which means a big payoff for T. Boone Pickens, who has invested heavily in–you’ll never guess–natural gas.

It’s sad to look at the list of conservatives who claim to be principled who have signed up to support the Boonedoggle.  Here’s the complete list of Republican sponsors as of today.  The chief sponsor is Rep. John Sullivan of Oklahoma.  Most surprising and perhaps most disappointing is Rep. Ron Paul of Texas, who claims that he votes against everything that isn’t in the Constitution.  I seemed to have missed the section of the Constitution that allows taking billions of dollars from taxpayers to give to fatcat billionaires and corporate welfare queens.  Call it the Pickens-Your-Pocket bill.

This stampede by conservatives, including several freshmen who identify with the Tea Party, to support the T. Boone Pickens Earmark Bill makes a mockery of their claims to want to cut federal spending, eliminate subsidies to special interests, and get government out of people’s lives.  We’re very close to returning to business as usual in Washington.

With the current partisan fighting over oil subsidies (and energy policy more generally), its worthwhile to look at energy legislation that has found bipartisan support: the New Alternative Transportation to Give Americans Solutions Act of 2011 (the NAT GAS Act, often called the Boone Pickens bill). It currently has 180 cosponsors, split roughly even between Republicans and Democrats. Joe Nocera likes it.

True fiscal/small government conservatives understand the danger of using the tax code to steer the economy. It has brought us ethanol, subsidized home ownership for the wealthy, etc. Populist conservatives-in-name-only don’t actually care about applying consistent principles, or often let their concern be overshadowed by campaign donations.

Which is why I was surprised to see Representative Ron Paul, principled libertarian/free-market extraordinaire, as a cosponsor. I spoke to someone in Ron Paul’s office, and they explained (roughly) that support for tax credits (i.e., industries paying less in income tax relative to the status quo) is consistent with Ron Paul’s support for lower taxes.

This YouTube clip seems to explain Paul’s position (he was asked about a bill to end tax credits for the oil industry):

PAUL: Well, how do you define a subsidy? I don’t consider any tax break as a subsidy. That was not a spending bill, that was not a grant.

…

I never vote to increase any taxes. I vote to always give tax credits, and I always cut spending. I’ve never voted for a real spending bill, so, I don’t think that is in the category of something I’d consider a spending bill.

Essentially, Paul’s position appears to be that any move to lower taxes is a good move. This position isn’t unique to Ron Paul. This post examines a similar fight over whether or not repealing the ethanol tax credit amounts to a tax increase that would violate a pledge to oppose tax increases endorsed by many conservatives. However, I think that supporting selective tax credits for industry is bad policy, and has the effect of steering the economy, something Paul doesn’t support:

Government cannot invest, it can only redistribute resources. Just look at the mess government created with ethanol. Congress decided that we needed more biofuels, and the best choice was ethanol from corn. So we subsidized corn farmers at the expense of others, and investment in other types of renewables was crowded out.

Now it turns out that corn ethanol is inefficient, and it actually takes more energy to produce the fuel than you get when you burn it. The most efficient ethanol may come from hemp, but hemp production is illegal and there has been little progress on hemp ethanol. And on top of that, corn is now going into our gas tanks instead of onto our tables or feeding our livestock or dairy cows; so food prices have been driven up. This is what happens when we allow government to make choices instead of the market; I hope we avoid those mistakes moving forward.

Flex-fuel vehicles, capable of running on 85% ethanol blends, mostly exist because of government policy (note, not technically due to a tax credit), and are largely considered to be a government-science-experiment gone wrong. Electric vehicles largely only exist because of enormous tax credits. This natural gas legislation will result in increased production of natural gas vehicles.

Paul wants to get rid of the income tax. Great. But is it a good idea to lower taxes (often at the behest of industry who come begging to Washington) in a piecemeal fashion? Given the constraints of a corporate tax rate already in place, lowering taxes for specific industries would seem to do more harm than good.

(Curiously, Paul has voted against tax credits for renewable power before. Note that these bill summaries don’t always explain the entirety of the bill, and Paul often will vote against bills for small provisions on principle, so this might not be inconsistent.)

Imagine two pizza companies competing against one another. Now allow one company to pay zero dollars in corporate taxes. They now have an unfair advantage and can potentially force the other company out of business via lower prices. Now phase that up into enormous industries like the natural gas, coal, or oil industry. Allowing these industries to pay lower taxes relative to one another distorts the most efficient use of our energy resources.

Cheers to Ron Paul for opposing subsidies. And I understand the difference between a “subsidy” where the government gives you money, and a “tax credit”, where you get to keep more of your own hard earned money. However, in the macroeconomic sense, the destructive outcome of either a tax credit/subsidy is often the same. Aim for overall corporate tax reform, not more individual deductions or credits that further distort economic activity.

And shame on all of the cosponsors on those bills who pretend to ideologically oppose picking winners, or who consistently vote against the same type of energy tax credits for industries that are less popular with their constituents.