Small business

Even the liberal Washington Post, which hasn’t endorsed a Republican for President since 1952, seems to be souring on the Obama Administration’s failed energy programs, saying they were “infused with politics at every level.” As it noted in discussing the Solyndra scandal: “Obama’s green-technology program was infused with politics at every level, The Washington Post found in an analysis of thousands of memos, company records and internal ­e-mails. Political considerations were raised repeatedly by company investors, Energy Department bureaucrats and White House officials. The records, some previously unreported, show that when warned that financial disaster might lie ahead, the administration remained steadfast in its support for Solyndra,” which was owned by major Obama backers, like George Kaiser.

As law professor Glenn Harlan Reynolds notes, “all the ‘stimulus’ and ‘green energy’ stuff was never anything but a program to put taxpayer money into the hands of cronies and supporters.”

The Obama Administration hastily approved the  taxpayer subsidies for Solyndra despite obvious danger signs and warnings from accountants about the company’s likely collapse, the misgivings of agency officials, and the company’s mismanagement and lousy-quality products. (Solyndra executives are now pleading the 5th Amendment to avoid disclosing incriminating information.) The Obama administration was determined to shovel taxpayer money to its cronies as fast as it could. As an Obama fundraiser and Solyndra stakeholder exulted,  “there’s never been more money shoved out of the government’s door in world history and probably never will be again than in the last few months and the next 18 months. And our selfish parochial goal is to get as much of it . . . as we possibly can.”  “At the time Solyndra received its grant, Vice President Joe Biden declared that the Solyndra investment is ‘exactly what the [the stimulus package] is all about.’”

While diverting taxpayer money away from productive and efficient businesses to corporate-welfare recipients controlled by political cronies, the Obama Administration is busy wiping out jobs through thousands of pages of counterproductive regulations.  Some of these new regulations are designed to spawn lawsuits that will enrich trial lawyers at businesses’  and consumers’ expense.

Obama appointees at the EEOC are busy harassing businesses that hire and fire based on merit, thus discouraging employers from hiring or expanding operations, and the EEOC is bringing costly, unjustified lawsuits against businesses.  The 2010 healthcare law imposes financial burdens — some of them large, and others difficult to calculate — on the nation’s employers, resulting in some business owners deciding not to expand or hire new employees.

Many businesses are also suffering from the effects of the Dodd-Frank financial “reform” law, a 2,315 page monstrosity that makes it harder for small businesses to obtain credit, and also outsources and wipes out jobs in the financial sector. Even one-time Obama supporters in the business community have grown disenchanted: Democratic businessman Steve Wynn called Obama“the greatest wet blanket to business and progress and job creation in my lifetime,” saying that “the business community in this country is frightened to death of the weird political philosophy of the President of the United States. And until he’s gone, everybody’s going to be sitting on their thumbs.”

The Obama administration has sought to temporarily pump up the economy with stimulus spending paid for with massive deficits, but as the Congressional Budget Office has noted, the stimulus package will actually shrink the economy in the long run, so it will not be able to offset the economic drag resulting from all of the Obama administration’s new regulations and red tape.

No net jobs were created in America last month (even as the people needing jobs increased), as the Obama Administration drafted a host of new job-killing regulations and threatened costly lawsuits against employers.  But rather than rethink his failed economic policies, Obama is planning to spend billions more on green-jobs fantasies and boondoggles, in his upcoming “stimulus” proposals.  Forbes describes some of the past green-jobs fiascos promoted by the Obama Administration that cost taxpayers billions while creating no lasting jobs:

even as the president claims he is now laser-focused on job creation, he wants the public to forget all of his previous taxpayer-funded efforts to create those “green jobs” of the future, many of which have been abject failures. Like the $20 million federal grant given to Seattle to weatherize houses.  The promise?  To create “2,000 living-wage jobs in Seattle and retrofitting 2,000 homes in poorer neighborhoods.” . . . The reality a year later: “only three homes had been retrofitted and just 14 new jobs have emerged from the program.”

The much-hyped company Solyndra, which manufactures—um, make that “manufactured”—solar technology, has closed its doors and filed for Chapter 11 bankruptcy.  Only a year ago Obama gave it $535 million in low-cost loan guarantees, touting the company “as a prime example of how green technology could deliver jobs,” according to an NBC-affiliate report.  Now another 1,000 people have become unemployed victims of Obama’s job-creating skills.  And taxpayers have become victims of another half-billion dollars sucked down the Obama job-creating drain. . .

[click to continue…]

Richard Morrison, Jeremy Lott, and Jerry Brito bring you Episode 90 of the LibertyWeek podcast. This week we take a look at Robert Bryce’s work on the myths of green energy. Segment starts approximately 10:25 in.

In these days of corporate scandal, who can argue against full disclosure on financial statements?  But now comes one cockeyed movement that pushes the concept to extremes.  It would require executives to guess potential liabilities from environmental and social problems that just might affect their companies, and list them on balance sheets.

 I can envision, for instance, that an oil company like Royal Dutch/Shell, as supplier of fuels that supposedly contribute to global warming, would have to report the potential environmental liabilities.  How much?  A ready estimate can be derived from the movie The Day After Tomorrow.  As the film ends, half the U.S. population lies frozen beneath a gigantic ice sheet.  So lets say $100 billion.  Or maybe $10 trillion is a better number.

 See how ludicrous this gets?  Remarkably, this movement is drawing support from Wall Street.  In June Goldman Sachs and Morgan Stanley endorsed a report of the United Nations Global Compact that calls upon regulators to require a minimum degree of disclosure and accountability on environmental, social and governance issues from companies, as this will support financial analysis.

 The Rockefeller Family Fund, the Turner Foundation and the United Steelworkers have also signed on to the balance-sheet responsibility movement. California Treasurer Phil Angelides wants his states public pension funds to push for accurate corporate environmental accounting.  The Rose Foundation for Communities & the Environment, in Oakland, Calif., has already asked the SEC to mandate disclosure of financially significant environmental liabilities.  These activists arent trying to improve the reliability of Moodys bond ratings.  They are out to influence corporate behavior.

 Yes, environmental and social liabilities can be hugewitness Superfund, asbestos and breast-implant costs.  In todays world of strict, joint and several liability, where almost anyone can be assigned fiscal responsibility for almost anything, conservative accounting would seem to require the disclosure of all the future damage that could be done by tort lawyers, The problem is coming up with a number.

 A federal judge in California just gave a green light to a class action on behalf of 1.6 million women who worked at Wal-Mart anytime since December 1998.  The plaintiffs accuse the retailer of denying women equal pay and opportunities for promotion.  Should Wal-Mart have anticipated this suit?  Should its 2004 balance sheet have included a liability of, say, $104 million (the amount Home Depot paid in 1997 to settle similar suits) or maybe $176 million (what Texaco agreed to pay out in 1996 to settle a race-discrimination class action)?  Wal-Marts bigger, though.  How about a few billion dollars?

 Note that American and United Airlines, Boeing and the owners of the World Trade Center are all being sued (by families who opted out of the September 11th Victim Compensation Fund) for failing to take measures to prevent the attacks.  Maybe juries will size up damages in the billions.  Should AMR, UAL, and Boeing be listing massive conditional liabilities on their quarterly reports?

 There are an infinite number of possible futures and thus an infinite number of possible asset/liability estimates.  Which of the myriad low-probability (but possibly high-cost) risks should be incorporated on companies balance sheets?  At what point does the noise introduced by adding more and more low-accuracy valuations destroy the informational value of accounting itself?  In mandating the disclosure of information about less-likely risks, dont we run the risk of omitting information about more-likely risks?

 Assets and liabilities that cant be connected to historical transactions or tradable contracts have no assignable market value.  Goodwill is like that.  If it isnt from an arms-length acquisition, the number you might put on this asset is entirely arbitrary.  So investors are better off if the asset is not counted.  So, too, for liabilities that are to be plucked from the air.  Accounting is not a field in which we want to encourage fanciful thinking.

Dr. Margo Thorning
American Council for Capital Formation

Dr. Margo Thorning is senior vice president and chief economist with the American Council for Capital Formation and director of research for its public policy think tank. Dr. Thorning also serves as the managing director of the International Council for Capital Formation. Thorning is an internationally recognized expert on tax, environmental, and competitiveness issues. She writes and lectures on tax and economic policy, is frequently quoted in publications such as the Financial Times, Suddeutsche Zeitung, New York Times, and Wall Street Journal, and has appeared internationally on public affairs news programs.

Dr. Thorning’s study on the economic impact of McCain/Lieberman on the U.S. and on several individual states is available at and

Full Biography

The chat will begin at 2pm EDT on Wednesday, June 30.  You can send your questions now to .  Questions and answers will be posted as Dr. Thorning answers, beginning at 2pm.  Refresh your screen regularly to see questions and answers.

Moderator: Let me start by asking you, Dr. Thorning, to tell us a little bit about your study and summarize the results.

Dr. Thorning: The ACCF’s study (see on the impact of the McCain/Lieberman legislation to reduce carbon emissions in the U.S. shows significant negative impacts on the U.S economy and on individual states.  As a result of higher prices for energy, job losses could  be as much as 610,000 by 2020 and low income and the elderly bear a larger burden than high income and younger individuals.

Moderator: Katherine in Maryland wants to know —
Why would policymakers support a bill that causes substantial job

Dr. Thorning: If policy makers have not seen credible estimates using appropriate economic models the lost GDP and reduced employment they might think that meeting the McCain-Lieberman carbon emission reduction targets is virtually costless.  

The new ACCF study demonstrates the high costs to the US and to individual states.
Another possibility is that Senators from states that do not use much fossil fuel for industry may hope to gain a competitive advantage if other states are forced to curb energy use and switch fuels.

Moderator: Arthur in Pennsylvania asks —
Munich Re, the world’s largest reinsurance company and second-largest insurance company, argues that, “Continued climate change will almost inevitably yield increasingly extreme natural events and large catastrophic losses.  This may make some vulnerable regions uninsurable.”  Even if most areas of the U.S. remain “insurable,” many risk management specialists have predicted that global warming
will cause significant increase in all types of insurance costs — disaster, auto, health.  Insurance prices are obviously just one area
in which global warming could impact the economy.  What studies have been conducted on climate change’s costs to businesses?  

Dr. Thorning: Tech Central Station has posted responses to the Munich Re study.  One criticism is that the study does adjust for the rising value and increased building along coastal areas so that the apparent increase in damages over time are biased upward.

Moderator: Lucas in Virginia asks —
With oil prices relatively high due to the international situation, would the McCain/Lieberman bill help us to be less reliant on foreign oil?

Dr. Thorning: Given the restrictions on oil and gas drilling in the U.S. both onshore and offshore, and slow progress on new pipelines, it is unlikely that M/L legislation would reduce imports significantly. We will still find foreign oil cheaper so will not likely reduce our imports. In fact, the US might increase oil imports since foreign producers won’t be saddled with the carbon taxes or permit fees  contained in McCain Lieberman approach.

Moderator: Judy from Virginia wonders —
Do you think policymakers know what economic costs would be incurred? 

Dr. Thorning: Many probably do not as there has not been much debate yet about what the different  credible models say about the economic burden of ML legislation. The new ACCF report helps close this gap.

Moderator: Bill in DC asks —
In your analysis, what data and assumptions did you make regarding energy efficiency potential in the end-use and power generation sectors, and what cost assumptions did you make for those resources?

Dr. Thorning: In the high cost case, backstop technology is assumed to decline over time from $300 per tonne to $100 per tonne by 2050; in the low cost case the cost stays at $300 per tonne permanently. There is more reliance on combined heat and power, more nuclear and other technological progress that reduces energy intensity.

Moderator: Another question about foreign oil, this from Brian in DC —
SA 2028 hopes to reduce our dependence on foreign oil.  Is this possible?  Is this desirable?

Dr. Thorning: S.2028 might well increase dependence on foreign oil since producing domestically will become even more costly due to the need for producers to pay for the right to emit carbon as they produce oil, gas and coal.

Moderator: Richard in West Virginia asks —
What inspired McCain and Lieberman to introduce this act?

Dr. Thorning: It is not clear.
Sen. McCain voted against a BTU energy tax in the early 1990’s and Arizona is a big user of coal to produce electricity. Arizona would be negatively affected by the bill. Sen. Lieberman’s state, Connecticut, would not be as hard hit as many other states because of its fuel mix so perhaps the incentive was to gain competitive advantage for Connecticut.

Moderator: Katrina wonders —
How do you reconcile your findings regarding McCain Lieberman with those of the Massachusetts Institute of Technology which states that there will be no negative employment effects and a reduction of natural gas demand and prices by 4 percent from reference case projections by 2020 due to incentives for greater energy efficiency?

Dr. Thorning: The MIT model ignored the impact of “foresight” on investors decisions about where to invest when they realize that carbon reduction targets will be tightening as time goes on. MIT also assumed households would not reduce the amount of labor supplied once they realize their real wages are falling.  Thus, MIT results understate the loss in GDP, investment and jobs compared to the model used in the ACCF analysis. See “Comparison of Models” at for more details .

Moderator: Fran from Louisiana wants to know —
In which states will consumers be hit the hardest?

Dr. Thorning: Louisiana is one of the hardest hit, households lose as much as $2800 annually in 2020 under the tighter target case.

Moderator: Bill in DC has another question —
In other US cap and trade programs, such as the Acid Rain program, compliance costs on a per-ton basis fell rapidly below pre-program estimates.  In your analysis, have you run any scenarios that model such declines in the cost of emission reductions?

Dr. Thorning: The simulations assume an efficient trading system where the marginal cost of reducing emissions is the same across all sectors of the economy.

The analysis shows carbon taxes or the cost of permits rising as targets get harder and harder to achieve with growth in the economy and in population.

Moderator: Thomas from New York asks —
Would the bill hurt U.S. international competitiveness or would vulnerable sectors be excluded?

Dr. Thorning: About 85 percent of U.S. emissions are covered. Agriculture receives special treatment but would still face higher fuel cost.

U.S. competitiveness is affected due to higher prices for U.S. goods and services stemming from increased fuel and electricity costs.

Moderator: Thanks to everyone for their questions; that will conclude today’s live chat.  Check back regularly at to find out about our next event.

Glenn Schleede, the intrepid energy analyst, has done another bang-up job of identifying the weaknesses of yet another wind power project. This time his sights are set on West Virginia, and the prognosis is bleak.

One wind farm is already in operation in West Virginia, another has been approved by the Public Service Commission, and a third application is still pending. The amount of power produced from the three plants, assuming a generous 30 percent capacity factor, would equal a little over 1.6 billion kWh of electricity per year. The plants would occupy 30 to 40 square miles, yet only produce an amount of energy equal to 1.7 percent of the total amount of electricity produced in West Virginia in 2000. A new 265 MW gas-fired combined-cycle generating plant, on the other hand, would produce slightly more electricity on just a few acres.

Not only will these wind farms produce paltry amounts of electricity, the electricity produced will be of lower value due to the intermittent, volatile, and unpredictable nature of wind-generated electricity. To offset these characteristics and maintain the reliability of the grid, they will have to be backed up with dispatchable generating units. “Units serving this backup role must be on line (connected to the grid and producing electricity) and running below their peak capacity and efficiency, or in a spinning reserve mode (i.e., connected to the grid and synchronized but not putting electricity into the grid),” according to Schleede.

Electricity from wind farms also increases the cost of electricity by adding to the burden of keeping the grid in balance and makes it difficult to keep transmission lines from being overloaded. Moreover, mountaintop wind farms require additional transmission capacity, which will only be used between 25 to 35 percent of the time due to wind powers low capacity factors. All of these costs are part of the true cost of wind power, but are usually ignored when the projects are being sold.

Wind power receives generous subsidies from both federal and state governments. The subsidies available to the West Virginia wind farms include federal accelerated depreciation (5 years as opposed to 20 years for other electric generating facilities), production tax credits, a reduction in the West Virginia Corporate Net Income Tax (due to accelerated depreciation), an 87.5 to 93.75 percent reduction in West Virginias Business and Occupation Tax, and a 91.67 percent reduction in West Virginia property taxes.

These subsidies shift the tax burden to other taxpayers and electric customers. As Schleede notes, “The total of $69.7 million in tax liability that could be avoided by the wind farm in the first year, as well as the liability avoided in subsequent years represents a tax burden that would be shifted to remaining taxpayers.”

Offshore Wind Farm Poses Significant Economic and Environmental Costs

Energy analyst Glenn Schleede has once again exposed the problems with wind power in comments he has submitted to the U.S. Army Corps of Engineers, which is conducting an economic and environmental analysis of a proposed offshore wind farm.

The wind farm proposed by Winergy LLC would be located five miles off the coast of the eastern shore of Virginia. In a preliminary analysis, the Corps determined that the project would not require an Environmental Impact Statement. Schleede disagrees, saying that the Corps has “underestimated the potential environmental impactincluding onshore impact” of the project.

The wind farm would produce approximately 2.5 billion kWh of electricity per year, assuming a generous 30 percent capacity factor. The wind turbines themselves would cover 57 square miles of the Atlantic Ocean, yet would produce slightly less electricity than a “new baseload 350 MW gas-fired combined cycle generating unit,” which would “occupy only a few acres.” Moreover, the amount of electricity produced would only equal approximately 3.3 percent of the total electricity produced in Virginia.

Schleede points out several potential adverse effects that should be mitigated as a condition to awarding any permits, including impacts that would not be limited to the 57 square miles of ocean. “Feeding such a potentially large (975 MW, at times), highly variable (from 0 to 975 MW), and often unpredictable amount of electricity into an onshore transmission line and electric grid would be a significant burden on existing onshore transmission capacity and the stability of a regional electric system that must be kept in balance (e.g., voltage, frequency).”

The addition of wind capacity would likely “impair rather than enhance electric system reliability,” says Schleede. The Corps should also take into account the need for backup generation and transmission capacity as part of the full costs of the wind farm.

The Corps should also have a firm grasp of wind energy economics and especially the role of federal subsidies, says Schleede. “In some cases, the value of the subsidies may exceed the revenue wind farm owners receive from the electricity that they sell. Schleede estimates that Winergys proposed wind farm would receive an annual tax credit of more than $46 million. The project would also qualify for accelerated depreciation and would be able to write off the entire $900 million in estimated capital costs in 6 years. Yet the annual revenue from selling electricity would be only a little over $52 million. Schleede also notes that tax sheltering through accelerated depreciation often leads to early sale or abandonment of wind farms.

Finally, Schleede argues that rather than being environmentally benign, wind farms entail significant environmental costs. He notes the opposition to wind farms is growing around the world, “often due to the adverse impact of wind farms on environmental, ecological, scenic, and property values.”

Stanford Launches Energy Project

On Nov. 20, Stanford University announced the creation of the Global Climate and Energy Project (G-CEP). The purpose of the project is to “engage in research to develop technologies that foster the development of a global energy system where greenhouse emissions are much lower than today.” It may also be seen as addressing the challenge posed by the article in the November 1 issue of Science, which we reported in the last issue.

Funding commitments from three major corporations totaling $225 million over the next 10 years were also announced, with several other corporations expected to make additional commitments in the near future. ExxonMobil, the worlds largest publicly-traded petroleum company, plans to contribute up to $100 million; General Electric, the world leader in power generation technology and services, $50 million; and Schlumberger, a global technology services company, $25 million. Stanford engineers and scientists will do much of the research, but will be joined by other major institutions in North America, Europe and Asia.

The project was immediately criticized as inadequate, and ExxonMobils role was attacked. “Im somewhat skeptical, given the history of some of the companies involved in this, that it represents a dramatic change in their resistance to aggressive federal and state policy action on the issue,” said Alden M. Meyer, director of government relations for the Union of Concerned Scientists.

“This could be seen as another effort [by ExxonMobil] to say, Were doing something, but this is a complex problem thats going to take decades to solve and, in the meantime, lets not do anything aggressive with fuel economy standards or anything else that actually reduces oil use today,” he said (Los Angeles Times, November 21, 2002).

Lee Raymond, chairman of ExxonMobil, responded that, “Our investment in G-CEP is a demonstration of our long-held belief that successful development and global deployment of innovative, commercially viable technology is the only path that can address long-term climate-change risks while preserving and promoting prosperity of the world’s economies.”

San Francisco Leaps Into Solar Power

Following a major referendum last year in which San Francisco residents approved a $100 million bond measure to install as many solar panels in the city as the rest of the nation does all year, Mayor Willie Brown announced a $7.4 million project to install solar panels on the roof to the Moscone Convention Center. “The Moscone Center project itself couldnt be better. It is a gem which should make city leaders across the country salivate,” said Brown. “It would be fiscally irresponsible not to do a project like this” (Associated Press, November 22, 2002).

The economics of the project dont look good, however. The project, which will also include retrofitting for energy efficient fixtures, will save the city a mere $210,000 per year, meaning it will take more than 35 years for the project to “pay for itself (San Francisco Chronicle, November 22, 2002).” Several other cities are considering following San Franciscos example. Brown says that he has heard from 15 other cities that are considering similar programs, including San Diego, Denver and New York (Los Angeles Times, November 22, 2002).

Another Southwestern state is making a big splash in the renewable energy market. New Mexicos largest utility company, Public Service Company of New Mexico (PNM), announced on October 22 that it will team up with Florida-based FPL Energy to build the nations third-largest wind generation facility.

The project, known as the New Mexico Wind Energy Center, will be located in Quay and De Baca counties 20 miles northeast of Fort Sumner. It will cost $200 million dollars and will include 136 wind turbines that will reach 240 feet into the sky. The turbines will be the tallest structures in the state and will sprawl across 9,600 acres.

It is estimated that the 204-MW plant will provide electricity for about 94,000 average-sized New Mexico homes, or about 4 percent of PNMs total power production. PNM readily admits, however, that wind is an intermittent energy source and that the project will not provide a steady source of electricity. In fact, the facility will operate mostly during the spring months when wind conditions are optimal, or about 30 percent of the time.

“The scale of this project will put New Mexico on the map as one of the nations leading producers of renewable energy,” said PNM Chairman, President and CEO Jeff Sterba. “As renewable technology continues to improve, and costs come down, it is clearer than ever that smart business decisions and environmental stewardship can successfully coexist. PNM is thrilled to play a role in making renewable energy an everyday reality in New Mexico.”

Despite Sterbas rosy outlook, the project will rely on a “green tariff,” a small monthly premium paid by participating customers, to cover its costs. It is still unknown how much the wind-generated electricity will cost New Mexicans. Charles Bensinger of the Coalition for Clean and Affordable Energy joined Sterba at the press conference to praise PNM and to encourage New Mexicans to participate in the project. “PNM has really challenged us to put our money where our mouth is,” said Bensinger. “We want to make that 200 megawatts go really fast.”

New York Wind Farms a Bad Decision

In August, New York Governor George Pataki announced a $17 million aid package to four private companies to develop wind farms in various parts of the state. But, according to Glenn Schleede, president of Energy Market & Policy Analysis, New Yorkers should be wary of the environmental claims of wind power.

The New York Energy Plan estimates that the eight wind farms, with a combined 250 wind turbines, would produce approximately 900,000 kilo-watt hours (kWh) of electricity per year. But this is a drop in the bucket compared to the states total electricity demand. For example, this amount equals 58/100 of 1 percent of the total electricity imported into New York in 2000. It is only 15 percent of the energy that will be produced from a single gas-fired combined cycle plant that is scheduled to come online in Athens, NY in 2003.

The wind power industry often claims that “electricity generated by the wind turbines will displace on a kWh for kWh basis electricity that would be generated by fossil-fuel generating units and any associated emissions.” But that simply is not true, says Schleede. “Such claims are generally exaggerated. For example, they do not take into account that any fossil-fueled generating unit that is kept available to back up the intermittent electricity from the wind farm will be giving off emissions while it is running at less than peak efficiency or in spinning reserve mode. Nor do they take into account the fact that other alternatives for reducing emissions are likely to be far more cost-effective.”

New Yorkers should also be aware that there is growing opposition to wind farms wherever they are proposed, in Europe, Australia and in nearly every state in the U.S., says Schleede. “Opposition is due to a variety of reasons including scenic and property value impairment, noise, bird kills, flicker effects of spinning blades after sunrise and before sunset, potential safety hazards from blade and ice throws, interference with telecommunications, and higher costs of electricity.”

Full Expensing of Capital Will Reduce Carbon Intensity

Several climate-related initiatives pose a serious threat to Americas economic future, according to Marlo Lewis, a senior fellow at the Competitive Enterprise Institute. One such scheme is President Bushs proposal to expand the Department of Energys Voluntary Reporting of Greenhouse Gases program to include the awarding of transferable carbon credits for voluntary greenhouse gas reductions.

Currently, the DOE program is a simple voluntary reporting program with no regulatory significance. But, says Lewis, writing for Tech Central Station (September 10, 2002), the addition of the awarding of credits to companies that report greenhouse gas reductions will corrupt the “politics of U.S. energy policy” and “grow the greenhouse lobby.”

Under Bushs proposal, companies that begin to comply with Kyoto before it is ratified would be awarded credits that they could sell or use to offset future regulatory obligations. In the absence of a regulatory cap on carbon emissions, the credits are worthless. Only if Kyoto or a similar regulatory program were enacted would the credits yield dividends. “Credit-holders thus acquire cash incentives to support Kyoto, or lobby for its domestic equivalent,” says Lewis.

A credit scheme would be a zero-sum game where one companys gain is anothers loss. Every credit awarded in the voluntary early action period is one that wont be available during the mandatory period. Companies that dont or cant “volunteer” to reduce greenhouse gas emissions now will be penalized later under the mandatory cap, which means that the program isnt really voluntary.

Lewis argues that the Bush administration should stop legitimizing climate alarmism by playing games within the Kyoto framework. Instead, it should embrace non-regulatory, pro-growth policies that would also have the side benefit of reducing carbon intensity. Bush should lower tax barriers to investment by allowing companies to “deduct from current-year revenues, the full cost of capital investment,” says Lewis. Replacing the current system of capital depreciation with full expensing for all types of capital investment would eliminate barriers to economically efficient capital turnover.

The British government keeps raising taxes on energy, and businesses are feeling the pinch. Industrial gas prices rose 20 percent last year, due in large part to Britains climate change levy. As noted by Reuters (January 7, 2002), higher taxes exacerbate an already turbulent energy market in Britain. “UK prices have doubled over the last two years, partly because the opening of the UK/Belgium interconnector pipeline linked British prices to European gas prices which are indexed to oil prices.”

“Gas demand in Britain,” said Reuters, “has doubled over the last 10 years. Industrial, commercial and domestic use has risen 16 percent but usage in power generation has grown from virtually nil in 1990 to around 30 percent last year.”

Several German utilities have announced hikes in household power prices effective January 1, reflecting higher taxes and fees, reports Reuters (January 3, 2002). Customers served by the utilities will see their monthly power bill increase by about 5 percent, although some will see their rates go up by as much as 10 percent. Two thirds of the rate hikes are due to higher taxes, according to one industry spokesman.