David Bier

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 EPA’s MATS Economic Analysis Omits Economy from Analysis

The Environmental Protection Agency concedes that its recently finalized Mercury and Air Toxics Standards rule, also known as the Utility MACT, would cost $10 billion annually. Industry estimates are much, much higher. Even EPA’s (likely lowball) figure makes the MATS rule one of the most expensive direct regulations ever.

Despite these evident costs, EPA claims that the regulation will not only save the environment, but also benefit the economy. EPA Deputy Administrator Robert Perciasepe testified, for example, “Our analysis shows, particularly on these utility rules, that it will create jobs.” Head Administrator Lisa Jackson has repeated the same claim. “Every model that we run,” she said last year, “shows… that it would actually create jobs.”

But these claims are entirely disingenuous. EPA analysis does not show that the Utility MACT will result in net job creation, only that it will create jobs in the coal industry and those industries that produce pollution abatement equipment. The wider economic implications are ignored. As EPA’s Regulatory Impacts Assessment (RIA) states, “the Agency has not quantified the rule’s effects on all labor in other sectors not regulated by the [mercury standard].” In other words, “every model” Jackson ran cooked the books in favor of EPA’s conclusion.

In economics, such analysis is known as a “broken-window fallacy,” which views only a narrow range of effects of a particular action. “There is only one difference between a bad economist and a good one,” wrote 19th century economist Frederic Bastiat. “The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.” EPA focuses on the “seen”—the workers required to install pollution controls—while it ignores the unseen—the workers who lose their jobs or are forced to take pay cuts due to higher electricity prices.

Nevertheless, EPA continues to promulgate this myth that the Utility MACT will benefit the economy. But consider what it means to benefit the economy. As Bastiat writes, economic development “diminishes the ratio of effort to result… that is, [it] lessens the effort needed to have a given quantity.” EPA regulations do the opposite. The agency’s RIA notes, “regulation leads to more labor being used to produce a given amount of output.” In other words, it increases the ratio of effort to result—it increases the effort needed to have a given quality. In sum, unnecessary regulations do not develop an economy—they impoverish it.

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Post image for EPA’s Math: Coal Regs = Coal Jobs

The most absurd aspect of the Environmental Protection Agency’s War on Coal is their repeated denials that it’s happening. No matter how many onerous rules they release, each time they claim that the regulation will not only save the environment, but also create jobs in the industry. For example, EPA’s Regulatory Impacts Assessment (RIA) for their mercury regulation known as the Utility MACT—which was (until possibly this week) the most draconian of the coal regulations—argues that the regulation will create almost 10,000 coal jobs.

Specifically, EPA’s Utility MACT regulation requires plants to install “maximum achievable control technology” (MACT)—otherwise known as scrubbers—to remove mercury and other toxins from exhaust. The rule is one of the most expensive in history: EPA estimates it will cost almost $11 billion annually to implement. Already, these compliance costs have led to the shutdown of dozens of coal-fired power plants. Yet, EPA supporters parrot EPA’s claim that this regulation will create thousands of jobs as if it had scientific authority.

EPA’s science is based on a Resources for the Future (RFF) study (Morgenstern, et al) of environmental expenditures in four industries in the 1980s—pulp and paper, plastics, petroleum, and steel—which found “a net gain of 1.55 jobs per $1 million in additional environmental spending” in those industries. EPA then took this formula and just multiplied times the estimated cost of the Utility MACT—$10.9 billion adjusted for inflation—to get their result. They show their work in this footnote on page 9-8 of the RIA:

Highly scientific! In other words, EPA took someone else’s paper, which studied environmental expenditures over three decades old (1971-1991), and applied them to a totally unrelated sector of the economy, the coal industry, and then utilized the old “plug and chug” method. This work wouldn’t survive peer review in a kindergarten class.

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Post image for EPA Announces the Coal Industry’s Death

“This was the moment,” candidate Obama proclaimed after winning his party’s nomination, “when the rise of the oceans began to slow and our planet began to heal.” When he assumed office, President Obama attempted to act on that promise and regulate greenhouse gas emissions. On June 26, 2009, the House of Representatives passed the American Clean Energy and Security Act (Waxman-Markey Bill). In the words of The New York Times, “The vote was the first time either house of Congress had approved a bill meant to curb the heat-trapping gases scientists have linked to climate change.”

But in June 2010, Senate Majority Leader Harry Reid announced the Senate would not vote on the bill. “We know where we are,” Reid said, “We know that we don’t have the votes.” President Obama’s bid to become the first president to directly limit greenhouse gas emissions failed—he didn’t have the votes, he couldn’t change the law, right? Wrong. On December 7, 2009 (yeah, yeah, “the day that will live in infamy”), the Environmental Protection Agency announced its intention to regulate GHGs anyway, even without a law that “either house of Congress had approved meant to curb” GHGs.

On that day, EPA found that GHGs endanger human health and welfare, and therefore, could be regulated under the Clean Air Act (CAA) of 1972. Sadly for EPA, this regulatory action leads to clearly absurd results. According to the letter of the law, EPA would have to process over 6 million operating permits for stationary sources each year—400 times the current amount. This inconvenient truth didn’t, however, make EPA reconsider whether the CAA was ever intended to regulate GHGs. Rather, EPA decided to simply “tailor” the Act on their own—that is, amend Congressional legislation without Congress’s approval—to target only those environmental “criminals” it wanted.

Today, EPA released its first GHG regulation for coal-fired power plants. As Politico reports, “The standard will generally require that new power plants emit CO2 at a rate no greater than that of a natural-gas-fired power plant. Such plants emit about 60 percent less greenhouse gases than coal plants. The only coal plant to break ground during the Obama administration is a carbon capture and sequestration plant — Southern Co.’s Kemper County plant in Mississippi.” And that’s federally-subsidized.

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Post image for Liberals Stand Up For Corporate Welfare

The Supreme Court’s decision in Citizens United to allow corporations to spend money on political activities has become a primary target for liberals in Congress. Sen. Bernie Sanders (I-VT) wrote this year that “this spending will fundamentally distort our democracy, tilting the playing field to favor corporate interests, discouraging new candidates, chilling elected officials and shifting the overall policymaking debate even further in the direction of giant corporate interests and the super-wealthy.”

Sen. Sanders was seconded by Sen. Chuck Schumer (D-NY), who said, “At a time when the public’s fears about the influence of special interests were already high, the Court’s decision stacks the deck against the average American even more.” Liberals, you see, want to defend the average American from corporate interests. Liberals want to stop special interest deals that “distort our democracy.” Liberals want to stand up to the “giant corporate interests” and “level the playing field.”

This fiction sells copies, but after last week, the true story was made plain: Congressional liberals voted overwhelmingly to keep “tilting the playing field,” but rather than the playing field of democracy, it was the playing field of the market. These liberals might not like corporate political spending, but they certainly don’t have a problem giving them a reason to spend.

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Carl Sagan

Common sense teaches that the world would be a better place if people were more informed about it. Scientists with the fervor of corner preachers exhort anyone who will listen to take an interest in scientific matters. Astrophysicist Carl Sagan writes, for example, that:

the consequences of scientific illiteracy are far more dangerous in our time than in any that has come before. It’s perilous and foolhardy for the average citizen to remain ignorant about global warming, say, or ozone depletion, air pollution, toxic and radioactive wastes, acid rain, topsoil erosion, tropical deforestation, exponential growth….How can we affect national policy… if we don’t understand the underlying issues?

Certainly everyone wants to overcome ignorance in the world, but notice that Sagan does not just complain about ignorance. Rather, he says that it is “dangerous,” “perilous,” and “foolhardy” to be ignorant of environmental issues. Passages like these rarely create “average citizens” who become experts on environmental policy, particularly when these issues barely warrant a mention in the rest of the book. Instead they create average citizens who become experts on caring about environmental policy. They tell the reader that it’s “perilous and foolhardy”  to ignore these issues. After all, they’re scientific.

The Experts on Caring then go out and flood politicians and bureaucrats with questions about the environment. What will you do about this or that new catastrophe? Those who ignore such calls are labeled as “anti-science.” Anyone who disagrees just doesn’t understand science.

This weekend, one such Caring Expert told me that “all our wealth has a downside. Think about global warming. We are responsible for that. Hurricanes and floods kill people.” Statements like these encapsulate the major problem with Experts on Caring: Even if they’re right about a problem, their sense of proportion has been totally distorted by the Carl Sagans of the world who tell them it’s “dangerous” not to care.

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Post image for Strategic Petroleum Wars: About Politics, Not Economics

Politics is, well, political, and as such, few battles in Washington are fought over principles as much as over power and image. That’s why in many political debates both sides are wrong because they fight for goals no American should want—namely, for the power to control society in their own way. That both parties share the same underlying myths about government and its role in the economy has been on elaborate display during the current bickering over whether the president should release oil from the Strategic Petroleum Reserve (SPR).

As I pointed out in a previous blog, the President shouldn’t just release some oil from the SPR, as Congressional Democrats want—he should release all the oil and close the SPR permanently. The reserve’s origins and purposes are entirely based on myth—that the 1973-74 OPEC oil embargo decreased imports so dramatically that a massive oil shortage resulted (read why this is wrong here). The political benefits of this myth are plentiful. It outsources blame for the energy crisis to foreigners—in particular, Arabs. It also creates a climate of fear that showers extraordinary powers on politicians and bureaucrats. Finally, it permits political saviors to rescue us from high gas prices.

Once the myth is accepted by both sides, however, facts can be jettisoned, and arguments can proceed on purely political grounds. Should the reserve be used or not?  Economic-sounding arguments are discussed, but in the end, the question isn’t economic—it’s political.

Economics explains how people will act in a market under the forces of supply and demand that are represented in prices. In a market, an action is worth taking if output exceeds input—that is, if the sales price of the finished good is sufficiently greater than the prices of the materials required to make it. In this way, we know that consumers valued the final good more highly than its inputs, producing profit or wealth for society. On the other hand, if consumers value the inputs more than the final good, the result is a loss signaling to the business that society demands those resources elsewhere in the economy.

That’s economics, but the decision to release oil from the SPR isn’t based on the forces of supply, demand, profits, nor prices. Rather, it’s pure politics, and in politics, you can’t be wrong.

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Post image for Strategic Petroleum Reserve: A Hedge against Economic Illiteracy

Reps. Peter King (D-NY), Ed Markey (D-MA), and Rosa DeLauro (D-CT)  have written President Obama urging him to release oil from the U.S. government’s Strategic Petroleum Reserve (SPR) in order to help drive down high gas prices. Congressional Republicans are opposing the effort “to politicize” the SPR. Who’s right in this latest political squabble?

Well, Democrats are maybe 10 percent right. Congress should release oil from the SPR, but not just some—all of it! The SPR was created in 1975 after the OPEC oil embargo, which was instituted as retaliation for the U.S. intervention in the Yom Kippur War. President Nixon responded to the embargo with oil price controls. These controls created artificial scarcity as investors withdrew oil from the market to sell at higher prices later, causing massive shortages and gas lines.

In other words, the energy crisis was of Nixon’s own creation. Supposedly, the OPEC oil embargo so rapidly decreased oil imports that it was necessary for the U.S. to create a national reserve to hedge against another embargo. Except oil imports did not go down in 1973, or 1974, or 1975, they went up. All the embargo did was shift OPEC’s U.S. oil to other countries, and other oil normally intended for those countries to the U.S. Moreover, investors created private reserves as soon as they saw that Middle East oil was compromised, which means we exported less and imported more.

The SPR was created to solve an oil shortage, but since this was caused by Nixon’s controls, it seems that the reserve was actually created as a hedge against future politicians’ economic illiteracy—not future embargoes.

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Post image for President’s Budget Doubles Down on Eco-Car Fiasco

The president’s phony green economy is collapsing, drip by drip. While the rest of country is frantically trying to turn off the tap, it’s like the president has turned up his environmental music so loud he can no longer hear the coming cascade.

Consider the president’s clean car initiative, which has already funneled $5 billion into the electric car industry. Ener1—an electric car manufacturer who received $118 million from the Obama Department of Energy—went bankrupt two weeks ago. Fisker Automotive is downsizing and firing workers because the stimulus money that supported their green jobs ran out. Its battery supplier and fellow stimulus recipient A123 will also be down-and-out if Fisker goes. Even while the industry continues to receive tax credits for electric car sales, electric car manufacturers Aptera and Think both went bankrupt this month.

Enter the Obama 2012 budget, which fulfills his promise to “double-down” on clean energy investments. The budget not only continues the failed clean car fiasco, but actually escalates it, raising the $7,500 tax credit by $2,500 to $10,000 and broadening eligibility, in what sure looks like another industry bailout. Didn’t the president say something about bailouts in his State of the Union Address? Oh right, “It’s time to apply the same rules from top to bottom,” he claimed. “No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody.” Except for my green energy allies, he apparently forgot to add.

The budget also calls for one million electric cars “on the road” by 2015—no matter how long, or how much it takes. So let’s do the math: $10,000 X 1,000,000 cars = $10,000,000,000: $10 billion to make 1/234th of the total light duty vehicles on the road electric, and to reduce oil consumption by less than 1 percent.  If only 10,000 are sold next year, which would be low, it’ll cost taxpayers $100 million. As Iain Murray and I pointed out in a Washington Examiner op-ed last month, these are subsidies for the rich: “The Volt sells for about $40,000, while the Fisker Karma sells for $100,000—well above most Americans’ price range. That means that the federal government is again working to benefit the rich so they can drive cars that ease their environmental conscience.”

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Iain Murray and I today published an article in the American Spectator, which disputes many of President Obama’s State of the Union energy policy claims. As we wrote, “While the president spent more time on the topic than any other policy area, he distorted the facts, misrepresented his plans, and ignored his record.” It’s time to set the record straight:

Obama announced that “tonight, I’m directing my Administration to open more than 75 percent of our potential offshore oil and gas resources.” For those who favor energy production, this sounds great, but a close inspection reveals that this announcement was nothing new — the sale should have been scheduled last year, and the only reason the administration is planning it now is that it is required under the Outer Continental Shelf Lands Act. In fact, he didn’t direct his administration to do anything new — he just recycled a plan actually released in November 2011 that actually kept closed key areas for future oil and gas exploration in Alaska, the Gulf of Mexico, and the Atlantic coastline.

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