U.S. Chamber of Commerce

FDIC’s Pay Caps Will Keep Businesses on “Sidelines”

by John Berlau on February 7, 2011 · 1 comment

in Agenda for Congress, Bailout Watch, CEI Projects, Deregulate to Stimulate, Economy, Legal

At 11:30, in a much-anticipated speech at the U.S. Chamber of Commerce, President Obama used Super Bowl analogies to urge American businesses to “get off the sidelines,” “get in the game,” and “invest in America.” But some two hours later, an action by Federal Deposit Insurance Corporation proposing to slash bonuses at financial firms illustrated why so many private-sector players are reluctant to enter a “game” in which the referees change so many of the rules at mid-quarter.

The proposed rules issued by the FDIC would require banks, brokerages, and other financial firms to defer 50 percent of executives’ bonuses for three years. The FDIC, in coordination with other agencies, was given the authority to issue such a rule by Section 956 the of the 2,400-page Dodd-Frank Act that passed last year. But the law doesn’t require this action to be taken. If Obama really wanted to be true to his word about rational regulation, he would tell the FDIC — led by George W. Bush-holdover Sheila Bair — to shelve this rule that micromanages decision that should be made by private companies and their shareholders.

In a free market, it’s up to a company’s owners to decide how to reward those who run it. What is Facebook CEO Mark Zuckerberg worth given the value he has created? That is a hard question; but it is thankfully one government bureaucrats don’t have to decide. The owners of Facebook and every other companies.

The stated purpose of some of the other provisions of Dodd-Frank — such as say-on-pay and “proxy acccess” — is to give shareholders more of a say on how the amount of CEO pay and how it is structured. Whether these provisions actually do this — or whether they simply override state law and empower special interests — is another story.

But here the FDIC as nanny-state entity is overturning the entire justification of shareholder empowerment by dictating terms of a financial executives’ compensation. The argument is that pay practices can encourage “excessive risk taking,” but it simply isn’t borne out in the data that executives made the hazardous bets they did to reap short-term gains.

A study issued by the National Bureau of Economic Research (NBER) from finance professors at the Univeristy of Ohio and the Swiss Federal Institute of Technology found that “banks with higher option compensation and a larger fraction of compensation in cash bonuses for their CEOs did not perform worse during the crisis.” In fact, the study found some evidence these executive performed better than those at banks that had deferred long-term pay plans along the lines the FDIC is now proposing to mandate.

The NBER study and other evidence indicates that bank CEOs were just as caught up in the housing bubble as other players, such as home buyers, the real estate industry, and government-sponsored enterprise Fannie Mae and Freddie Mac — of which all members of the Financial Crisis Inquiry Commission agreed contributed to the crisis, but disagreed on the degree of this contribution.

Many financial executives, like the others, believed that housing would go up in the long haul and many invested accordingly. The authors of the NBER study conclude: “Bank CEOs did not reduce their holdings of shares in anticipation of the crisis or during the crisis. Consequently, they suffered extremely large wealth losses in the wake of the crisis.”

Regulations on CEO pay are a poor tool to address bank risk-taking. This should be addressed by reserve requirements, leverage rules, and above all reform of deposit insurance to reduce the moral hazard of taxpayer guarantees. The FDIC bonuses threaten to make U.S. financial firms — and the Main Street businesses who depend on financing from these firms — less competitive and put a crimp on job growth.

Another Oldie But Goodie: Mark Mills 1998 CO2 Compliance Burden Study

by Marlo Lewis on May 4, 2010

in Global Warming

In the interest of ensuring public access to climate-related documents that may be hard to find, I am posting here the original, June 1998 study by technology analyst Mark P. Mills of the sprawling compliance burdens of EPA regulating carbon dioxide (CO2) as an air pollutant under the Clean Air Act (CAA).

The study, entitled A Stunning Regulatory Burden: EPA Designating CO2 As A Pollutant, estimated that applying CAA permitting requirements to CO2 would compel EPA to regulate over 1 million small- and mid-size businesses.

In September 2008, Mills and his daughter Portia updated the study for the Chamber of Commerce in a report entitled A Regulatory Burden: The Compliance Dimension of Regulating CO2 as a Pollutant.

Although superceded by the later report, the June 1998 report remains highly relevant to the climate policy debate.

A Stunning Regulatory Burden was a direct response to the April 1998 Memorandum by then EPA General Counsel Jonathan Z. Cannon asserting EPA’s authority under the Clean Air Act to regulate CO2 and other greenhouse gases (GHGs). Petitioners in Massachusetts v. EPA partly relied on the Cannon memorandum to press their claim that EPA had a statutory obligation to issue an endangerment finding and regulate GHG emissions from new motor vehicles under Sec. 202 of the Act.

Most importantly, the June 1998 Mills study reminds us that EPA had to know all along that a victory for petitioners in Massachusetts v. EPA would dramatically expand its regulatory reach beyond any plausible delegation of regulatory authority from Congress.

Yet during all the years when the case was being litigated (Sep. 2004 – April 2007), EPA never pointed out the regulatory ramifications of a victory for petitioners. Only long after losing case, in its Advanced Notice of Proposed Rulemaking (July 2008) and Tailoring Rule (October 2009), did EPA acknowledge that the endangerment finding tees up the very sorts of regulatory excesses Mills warned about a decade earlier.

The 5-4 majority in Mass v. EPA decided in favor of petitioners partly in the belief that an endangerment finding would not lead to ”extreme measures” (p. 531). But according to the Tailoring Rule, unless EPA “tailors” — that is, amends — the CAA, the endangerment finding will lead inexorably to a host of “absurd results” that conflict with and undermine congressional intent.

The question arises: Why didn’t EPA explain this when it really mattered? Why did EPA pull its punches in Mass. v. EPA? Why didn’t EPA make the case that the endangerment finding sought by petitioners would lead a regulatory cascade that Congress never intended and would not approve?

I think the answer is obvious. For EPA, losing the Massachusetts case meant gaining the power to regulate fuel economy for the auto industry and, more importantly, the power to determine climate and energy policy for the nation. Strong circumstantial evidence suggests that EPA wanted to be thrown into the greenhouse briar patch all along.

Kerry-Boxer’s not-so-hidden fangs

by Marlo Lewis on October 23, 2009 · 1 comment

in Global Warming, Legal

Next week, the Senate Environment and Public Works Committee will hold three hearings on S. 1733, the Clean Energy Jobs and American Power Act,” also known as Kerry-Boxer after its co-sponsors Senators John Kerry (D-MA) and Barbara Boxer (D-CA). Kerry-Boxer is the Senate companion bill to H.R. 2454, the American Clean Energy and Security Act (ACESA), also known as Waxman-Markey after its co-sponsors Reps. Henry Waxman (D-CA) and Ed Markey (D-MA).

Part A of Title VII of Kerry-Boxer sets forth the emission reduction targets and timetables of the bill’s proposed greenhouse gas emissions cap-and-trade program. It is nearly identical to the corresponding section of the Waxman-Markey bill, the main substantive difference being a tougher emissions reduction target for the year 2020. Waxman-Markey requires a 17% reduction below 2005 levels by 2020; Kerry-Boxer, a 20% reduction.

It would be a mistake, though, to suppose that those numbers reflect the full extent of the regulatory burdens Title VII Part A could impose on the U.S. economy. Identical language in both bills could (1) unleash a torrent of lawsuits against tens of thousands of relatively small emitters of carbon dioxide (CO2), and (2) put pressure on future presidents and congresses to adopt substantially tougher emission reduction targets.

Section 701 Findings: Setup for CO2 Tort Litigation

Under the Kerry-Boxer and Waxman-Markey bill, business entities would be subject to the cap-and-trade program only if they emit at least 25,000 metric tons per year of carbon dioxide-equivalent (CO2-e) greenhouse gas (GHG) emissions. So on superficial inspection, if you are small manufacturer or just about any type of non-industrial facility, you will have no emission reduction obligations. That perception helps the bills’ proponents divide-and-conquer the business community.

In reality, the Findings in Kerry-Boxer and Waxman-Markey are the setup for litigation demanding additional emission reductions beyond those specified in the bills’ cap-and-trade programs. This is particularly worrisome because state attorneys general and environmental groups are already suing energy companies under tort law for emitting CO2.

The Findings say that “each increment of emission … causes or contributes … to the acceleration and extent of global warming and its adverse effects,” and “accordingly, controlling emissions in small as well as large quantities is essential” to reduce “threats” and “injuries,” including disease, death, property damage, bad weather, business losses; harm to forest, plants, wildlife, water resources, and air quality; and – as if that list weren’t inclusive enough — “other harm.”

Worse, the Findings go on to equate risk of harm with actual harm: “the fact that some of the adverse and potentially catastrophic effects of global warming are at risk of occurring and not a certainty does not negate the harm persons suffer from actions that increase the likelihood, extent, and severity of future impacts.” Get that? All plaintiffs will need is some remote, speculative possibility of catastrophic impacts — and of course that’s what the global warming scare is all about — and voila, harm has been done, injuries cry out for redress.

If the language in the Findings becomes the law of the land, there will be no stopping the flood of common law nuisance suits. Any increment of emissions, no matter how small, will be deemed to cause or contribute to global warming and its harmful effects. And even if no harm can be proved, the risk of harm will count as actual injury.

Bottom line: Although EPA, initially, may only regulate entities emitting at least 25,000 tons of CO2-e per year, the Findings implicitly authorize litigation targeting vast numbers of small entities.

Section 705 Review and Program Recommendations: Setup for Moving Goal Posts

There’s a lot of mischief in this section, too. To begin with, Sec. 705 requires the EPA Administrator, every four years, to address “existing scientific information and reports, considering, to the greatest extent possible, the most recent assessment report of the Intergovernmental Panel on Climate Change, reports by the United States Global Change Research Program … ” This provision will turn EPA into an even more uncritical rubber stamp for the IPCC and USGCRP than it already is. More than ever, IPCC and USGCRP will write their reports to influence U.S. policy (i.e. they will be even more politicized) and their influence will increase. Cheer if you like agenda-driven science!

Sec. 705 also requires EPA to report on annual emissions and annual per-capita emissions by country. Not a word, though, about tracking emission intensity (greenhouse gas emissions per dollar of output) by country. In other words, the metrics have been selected to paint the United States in the worst possible light.

Also, as you’d expect, the Administrator is required to assess the impacts of climate change on everything under the Sun — populations, health, livelihoods, tribal culture, weather, fresh water, ecosystems, agriculture, etc. — but there is no requirement to assess the impacts of climate policy on anything. This despite a requirement that the Administrator use a “risk management framework.”

Similarly, the Administrator is supposed to assess the potential non-linear, abrupt, or essentially irreversible changes in the climate system but he is under no corresponding obligation to assess factors that might stabilize the climate and counteract the forcing effects of greenhouse gases.

Now here’s where it gets serious. The Administrator is also required to assess what terrible things won’t be prevented by limiting CO2 equivalent emissions to 450 ppm or global warming to 2°C (3.6°F) beyond pre-industrial temperatures. This sets up the Administrator to advocate 350 as the new 450. It specifically requires the Administrator to identify “alternative thresholds or targets that may more effectively limit the risks” of climate change.

Similarly, the Administrator must assess whether the Kerry-Boxer bill, taking into account international actions and commitments, is sufficient to limit GHG concentrations to 450 ppm and global warming to 2°C above pre-industrial temperatures, or whether ”other temperature or greenhouse gas thresholds identified” by the Administrator would be more protective.

So the U.S. Climate Action Partnership gang are naive if they think the Kerry-Boxer and Waxman-Markey emission reduction targets, once enacted, will be set in stone. These bills are just the framework for more aggressive emission reduction requirements to come. Regulatory certainty is an illusion.

Perhaps because some people just don’t trust EPA — imagine that! — Kerry-Boxer requires the National Academy of Science (NAS) to undertake a similar four-year review of climate science and policy. If the NAS concludes that the United States will not meet the Kerry-Boxer targets, or that 450 ppm and 2°C are not sufficiently protective, the President “shall” submit a plan to Congress identifying the domestic and international actions that will achieve the additional reductions. This language implicitly makes the president a handmaid of the National Academy. Once Jim Hansen and his NAS buddies decide that 350 is the new 450, the president “shall” submit a plan explaining how we get there.

Much of the debate on Kerry-Boxer and Waxman-Markey has centered on the bills’ emission reduction targets. Meeting those targets could destroy millions of jobs. The not-so-hidden fangs lurking in Sections 701 and 705 pose additional significant threats to the economy — and provide additional reasons to oppose such legislation.

Taking the heat and defending free enterprise

by Fran Smith on October 14, 2009

in Economy, Environment, Global Warming, Sanctimony

It’s about time that business groups started defending free enterprise, and the U. S. Chamber of Commerce is off to a good start – a bit belatedly – with its “American Free Enterprise. Dream Big” campaign. Launched on October 14, the campaign features national TV and print ad campaigns, a video contest, small business awards, and other outreach.

Here’s the underlying message, as shown on their website:

At the U.S. Chamber, we believe that the values of individual initiative, hard work, freedom of choice, and the free exchange of trade, capital, and ideas can lead America back to prosperity. Only free enterprise will create the innovation, the opportunities, and the jobs our nation needs. That is why we are launching this campaign.

The Chamber has been under a lot of pressure recently to cave in to the rent-seekers on global warming policy. Some members of the Climate Action Partnership seeking to profit from cap-and-trade legislation – the utilities Pacific Gas & Electric, PNM Resources and Exelon — bowed out of their Chamber membership. Then, Nike and Apple sanctimoniously dropped their membership. But as the Wall Street Journal noted today, both of those companies would escape onerous energy taxes from global warming legislation because most of their manufacturing is done in countries that don’t yet suppress energy use.

The WSJ points out how short-sighted these companies are:

If companies are going to dump the Chamber over a single dispute, then the overall influence of business in Washington is likely to decline. The Chamber’s job isn’t to favor one company’s agenda over another but to stand broadly for free trade, low taxes and limited regulation-principles that help U.S. business as a whole.
Having abandoned their business allies on climate change, Apple and Nike might wake up one day to discover they need those friends on one of their crucial issues. It will serve them right if they find themselves alone in the Beltway square.

The Chamber deserves kudos for standing firm on principle and coming out loud and clear in its support of free enterprise.

Secy. Chu crosses the line; he should resign

by Marlo Lewis on October 9, 2009

in Global Warming, Sanctimony

Yesterday, energy secretary Steven Chu told reporters at a solar energy conference in Washington, D.C. “it’s wonderful“ that Apple Inc., Exelon, Nike, PG&E, and PNM Resources have quit the U.S. Chamber of Commerce or its board. He also encouraged other companies to leave, according to Reuters.

This crosses the line. The Secretary of Energy is not supposed to use the authority of his taxpayer-funded office to advocate the breakup of the Chamber of Commerce, or of any lawful private association, for that matter.

Chu is of course free to criticize the Chamber’s positions on climate policy. Even then, however, such criticism should be generic, focused on the positions, not on the organization, lest it have a chilling effect.

But when Chu praises companies for leaving the Chamber, he is not only injecting himself into a quarrel that is none of his business; he is taking hostile action against the organization.

Imagine the outcry from congressional Democrats, the liberal media, and the environmental community if Bush energy secretary Samuel Bodman had urged companies to quit U.S. CAP, or if Bush EPA Administrator Steven Johnson told Sierra Club members to cancel their memberships.

Chu has been in office too long to still think of himself as an academic free to spout off on any topic he likes. He is a cabinet secretary, and unless we’re now living in a banana republic, cabinet heads are not authorized to threaten people over policy differences.

Threaten how? DOE does business with Chamber members. DOE therefore has the power to affect the bottom lines of Chamber companies.

Let’s also not put blinders on here. Environmental lobbying groups are waging a campaign of intimidation against the Chamber because it refuses to put the short-term special interest of energy-rationing profiteers ahead of the long-term general interest of business in limited government, economic growth, and affordable energy. Chu’s remarks make him a de-facto partner in this intimidation campaign.

Most importantly, when Chu speaks, he speaks for the Obama administration, which wields vast regulatory and prosecutorial powers over the business community. It is precisely because the executive branch is inherently coercive that we expect cabinet secretaries to avoid even the appearance of trying to suppress political dissent.

Chu should apologize to the Chamber and then do the decent thing: resign.

EPA “Tailoring Rule” confirms Mass v. EPA set the stage for administrative quagmire and economic disaster

by Marlo Lewis on October 1, 2009 · 1 comment

in Features, Global Warming, Legal, Zeitgeist

Updated at 10/1/09 4:47 PM

I’ve just begun reading EPA’s proposed Tailoring Rule to establish a new 25,000 tons per year (TPY) ”major stationary source” applicability threshold for greenhouse gas (GHG) emissions under the Clean Air Act’s Prevention of Significant Deterioration (PSD) pre-construction permitting program and Title V operating permits program. I’ll blog about this again later on, but for now I just want to say, “We told ya so!”

Attorney Peter Glaser, the U.S. Chamber of Commerce, CEI and a host of other free market groups warned repeatedly that regulating GHG emissions from new motor vehicles — the immediate policy objective of plaintiffs in the Supreme Court global warming case, Massachusetts v. EPA – would have the following consequences:

CO2 would automatically become an air pollutant “subject to regulation” under the PSD and Title V programs.
Millions of previously unregulated entities — big box stores, enclosed malls, hotels, apartment complexes, mid-sized office buildings, even commercial kitchens — would be vulnerable to new controls, paperwork, penalties, and litigation.
The volume of permit applications would create an administrative quagmire for EPA and state environmental permitting agencies.
The new costs, uncertainties, and delays would create an unprecedented roadblock to new construction and economic development, turning the Clean Air Act into a gigantic Anti-Stimulus program.

Predictably, global warming activists, such as Sierra Club climate council David Bookbinder, a plaintiff in Massachusetts v. EPA, derided these concerns as a “bugaboo,” a “red herring,” and a “pure scare tactic” by industry foes of regulatory climate policy. (See segments 1:47 – 1:48 and 2:03 – 2:05 of the Senate Environment and Public Works Committee’s Archived Webcast).

EPA’s July 30, 2008 Advanced Notice of Proposed Rulemaking: Regulating Greenhouse Gas Emissions under the Clean Air Act (ANPR) acknowledged that applying PSD to CO2 might increase the volume of permit applications by an “order of magnitude” (p. 44499), might “overwhelm” the administrative resources of permitting authorities (p. 44507), and might subject sources to new costs, uncertainties, and delays (p. 44502). However, the ANPR considerably understated the risks, Glaser, the Chamber, and CEI argued.

Well, you can now get the lowdown straight from the horse’s mouth. Here’s what EPA’s Tailoring Rule says:

If PSD and Title V requirements apply at the applicability levels provided under the CAA, state permitting authorities would be paralyzed by permit applications in numbers that are orders of magnitude [not a mere "order of magnitude," as in the ANPR] greater than their current administrative resources could accomodate [p. 1].
* * *
If PSD and Title V requirements apply at the applicability levels provided under the CAA, many small sources would be burdened by the costs of individualized PSD control technology requirements and permit applications. In addition, state permitting authorities would be paralyzed by enormous numbers of these permit applications; the numbers are orders of magnitude greater than the current inventory of permits and would vastly exceed the current administrative resources of the permitting authorities [pp. 15-16]
* * *
In short, without this tailoring rule, the administrative burdens would be immense, and they would immediately and completely overwhelm the permitting authorities. Without this tailoring rule, permitting authorities would receive approximately 40,000 PSD permit applications each year — currently, they receive approximately 300 — and they would be required to issue Title V permits for approximately some six million sources — currently, their Title V inventory is some 15,000 sources [p. 19].
* * *
Based on our GHG threshold data analyis, we estimate that almost 41,000 new and modified facilities per year would be subject to PSD review, based on the current rate of modifications at major sources, if a GHG major sourcee threshold of 250 TPY CO2e [carbon dioxide equivalent] were applied. Compared to the 280 PSD permits currently issued last year, this would be an increase in permits of more than 140-fold [p. 50].
* * *
Based on these assumptions [permitting agency costs in time and money to process a PSD permit for a commercial or residential GHG source would be only 20% of the time and money required to process a permit for an industrial GHG source], the additional annual permitting burden for permitting authorities, on a national basis, is estimated to be 3.3 million hours at a cost of $257 million to include all GHG emitters above the 250-TPY threshold [pp. 51-52].
* * *
Most significant [of new Title V obligations triggered by GHG regulation of new motor vehicles] are the more than six million sources of GHGs that would become newly subject to Title V requirements because they exceed the 100-TPY threshold for GHG but did not for previously regulated pollutants. Although there are generally not applicable requirements for GHGs that apply to such sources [a gross understatement -- although there are generally no Clean Air Act requirements, period, that apply to such sources], these six million sources would be required to submit a Title V permit application within 1 year [pp. 56-57].
* * *
Obviously, this massive influx of permit applications would overwhelm permitting authorities’ administrative resources. Indeed, permitting authorities report that they currently are having difficulty keeping up with their existing permit workloads. The Tite V Operating Permits System database, which tracks permit issuance, confirms that issuance of many permits is already delayed. By increasing the volume of permits by over 400 times, the administrative burden would be unmanageable [p. 58].
* * *
We estimate that for permitting authorities, the average new commercial or residential [Title V] permit would require 43 hours to process, which is 10 percent of the time needed for the average industrial permit . . . We estimate that the total nationwide additional burden for permitting authorities for Title V permits from adding GHG emissions at the 100-TPY threshold would be 340 imllion hours, which would cost over $15 billion [p. 59].

These burdens are “absurd,” EPA argues, because they are “inconsistent” with “congressional intent,” indeed would “undermine congressional purposes” (p. 19). Hence, EPA concludes, it is justified in effectively amending the statute, upping the PSD and Title V applicability thresholds for major sources from 100/250 TPY to 25,000 TPY.

Well, somebody needs to point out the obvious. The looming threat of an economy-chilling administrative quagmire didn’t just happen. The absurdity of agencies spending 340 million hours and $15 billion to process hollow operating permits didn’t suddenly spring forth from the text of Title V. Nothing in the Clean Air Act has changed since it was amended in 1977 and 1990 to turn it into an economic wrecking ball. Congress is still debating cap-and-trade, and never signed off on EPA using the Clean Air Act to control CO2 emissions from stationary sources. No, the absurd results are entirely a product of Mass. v. EPA. So is the necessity for EPA now to amend clear and unambiguous statutory language, violating the separation of powers.

When a court decision leads to absurd results, there are only two possibilities. (1) The absurdity was lurking in the statute all along and the court simply brought it to light; or (2) the court messed up, manufacturing absurdity in an otherwise sane and reasonably coherent law. My comment on EPA’s proposed endangerment finding (especially pp. 28-33) argues the blame lies with the Court, not those who drafted and enacted the Clean Air Act.

PG&E, Exelon, Duke — progressive companies or energy-rationing profiteers?

by Marlo Lewis on September 29, 2009

in Global Warming

Divide et Impera — divide and conquer — is perhaps the oldest strategic maxim of war, politics, and diplomacy. Businesses succumb to it time and time again. Why?

It is in the general interest of business to preserve an open and competitive marketplace, and to limit tax and regulatory burdens. However, it is often in the special interest of particular firms to expand the size and scope of government in order to collect political “rents” – windfall profits created by market-rigging subsidies, preferences, or mandates.

When only a few firms engage in rent-seeking, the rent seeker’s concentrated benefits will far outweigh his portion of the diffuse costs imposed on the economy as a whole. But each rent seeker’s success encourages others to get in the game. In time, the costs of government adversely affect millions of bottom lines. Worse, interventionist policies (for example, subsidized lending via Freddie Mac and Fannie May) can create systemic risk and crash entire economies.

V.I. Lenin basically viewed all capitalists as rent seekers. Capitalists are so fixated on short-term gain, he mused, that they will “sell the rope” by which their enemies will hang them. This much is clear — there is no honor among thieves. The more businesses depend on political predation, the easier it is for anti-market interventionists to divide and conquer.

This brings us to the topic of cap-and-trade, a form of energy rationing. There’s money to be made in energy rationing — OPEC proves it! The emission permits in a cap-and-trade program are like the oil production quota in OPEC, the only difference being that they’re tradable. The cap makes the permits a valuable commodity, and Waxman-Markey in the early years would distribute about 85% of all permits free of charge to various industries and interest groups.

So it should come as no surprise that some corporations love Waxman-Markey. Indeed, the corporate coalition known as the United States Climate Action Partnership (US CAP) outlined the main features of the Waxman-Markey bill months before it was introduced in a January 2009 report titled A Blueprint for Legislative Action. US CAP members don’t worry that Waxman-Markey might destroy millions of jobs and trillions of dollars in cumulative GDP. They expect to get a bigger piece of a smaller pie.

US CAP member PG&E pulled out of the U.S. Chamber of Commerce last week citing “irreconcilable differences” over climate change policy. Today’s Bloomberg.Com reports that US CAP member Exelon has announced it will not renew its membership in the Chamber, and that US CAP member Duke Energy will not renew its membership in the National Association of Manufacturers (NAM).

PG&E, Exelon, and Duke preen themselves as progressive companies who put principle (planetary rescue) ahead of profit. In reality, they seek political rents at the expense of the public interest in limited government, economic growth, and affordable energy. Waxman-Markey sets aside the biggest chunk of free emission permits — 35% — for electric utilities. And their industry representative, the Edison Electric Institute (EEI), is lobbying the Senate to increase the booty to 40%.

How much boodle can a rent seeker make these days? A recently leaked non-public report reveals that Exelon expects Waxman-Markey to generate hundreds of millions of dollars annually for the company.

On June 9, 2009, four days after Waxman-Markey was marked up in the House Energy and Commerce Committee, Hugh Wynne, a senior analyst with BernsteinResearch, led a group of investors to meet with Exelon’s senior management at the company’s headquarters in Chicago. Wynne summarized Exelon’s thinking in a non-public report prepared for Bernstein’s clients:

If passed, [Exelon Chairman] John Rowe calculates the Waxman-Markey bill will add $700 to $750 million to Exelon’s annual revenues for every $10 per metric ton (Mt) increase in the price of CO2 allowances. Such a revenue increase would contribute $0.67-0.72 to earnings per share. Exelon estimates that the price of CO2 allowances, when the law takes effect in 2012, will range from $15 to $18/Mt, implying a positive earnings impact of $1.00 to $1.30 per share.

The Chamber and NAM oppose Waxman-Markey because they promote the general interest of business in a free and healthy economy. Green groups are putting pressure on other companies to leave Chamber and NAM, my colleague Christopher Horner notes. Divide and conquer is, alas, a pathetically easy game to play in an era of big government and climate hysteria.

The real story is that so many Chamber and NAM members are standing firm, and that most observers do not expect the Senate to pass a cap-and-trade bill this year.

John Broder’s spin job on Alan Carlin

by Marlo Lewis on September 25, 2009 · 1 comment

in Global Warming

In today’s New York Times, John Broder strains to belittle Alan Carlin, the “whistle blower” whose skeptical comments on EPA’s proposed endangerment finding the Agency tried to suppress. Most of the piece is larded with innuendo and spin.

Below is the text of Broder’s article and my running commentary in bold italics.

Behind the Furor Over a Climate Change Skeptic
By JOHN M. BRODER

WASHINGTON — Alan Carlin, a 72-year-old analyst and economist, had labored in obscurity in a little-known office at the Environmental Protection Agency since the Nixon administration.

Slant from the get-go. Why not be factual and say Carlin has worked at EPA since 1971, or since shortly after the Agency opened its doors? Why instead associate him with the tainted Nixon Administration? Also, what’s this bit about Carlin “laboring in obscurity”? That raises suspicion that Carlin is a disgruntled employee.

In June, however, he became a sudden celebrity with the surfacing of a few e-mail messages that seemed to show that his contrarian views on global warming had been suppressed by his superiors because they were inconvenient to the Obama administration’s climate change policy.

Broder hints that Carlin may be a ”celebrity” seeker trying to break out of the “obscurity” in which he “labored.” Such cynical innuendo ignores an obvious fact: Carlin would never have come to anyone’s attention outside of EPA had the Agency not traduced its own professed commitment to “overwhelming transparency” in science-based policymaking.

Conservative commentators and Congressional Republicans said he had been muzzled because he did not toe the liberal line.

Yup, they said that — because it’s true!

But a closer look at his case and a broader set of internal E.P.A. documents obtained by The New York Times under the Freedom of Information Act paint a more complicated picture.

Actually, the New York Times set of EPA documents is “broader” by only one document, an email from Dr. Carlin to Dr. Al McGartland dated 03/13/2009 10:17 AM. It does “complicate” the picture somewhat, but in a way that undercuts the contrarian image of Carlin that Broder is trying to paint.

In this email, Carlin says, “I suggest you forward our comments, perhaps removing the name NCEE [National Center for Environmental Economics] from the cover page, to Paul and OAR [Office of Air and Radiation] with a note that at the very least this represents a summary of the principal viewpoints that OAR is likely to encounter to their TSD [Technical Support Document], and therefore would appear to be useful in revising the TSD to try to meet these arguments ahead of time.”

This email raises the distinct possibility that Carlin was attempting to strengthen EPA’s endangerment proceeding. As he goes on to explain: “It is unbelievable that John and I have been able to poke so many holes in the orthodox view in so short a time with so little manpower.”

It is true that Dr. Carlin’s supervisor refused to accept his comments on a proposed E.P.A. finding, since adopted, that greenhouse gases endangered health and the environment, and that he did so in a dismissive way.

Hold on there! Carlin’s superior (Al McGartland) did not merely refuse to “accept his comments,” he forbade Carlin to discuss endangerment with anyone outside their immediate office, refused to transmit Carlin’s comment to EPA’s Office of Air and Radiation, and forbade Carlin to spend any more time on climate change.

But the newly obtained documents show that Dr. Carlin’s highly skeptical views on global warming, which have been known for more than a decade within the small unit where he works, have been repeatedly challenged by scientists inside and outside the E.P.A.;

There’s a whole lot of misinformation in this sentence fragment.

(1) The newly obtained documents say nothing about Carlin’s views being “repeatedly challenged.”

(2) Even if they did, so what? Most opinions about climate science and climate policy have been “repeatedly challenged” by someone. It is expected that people commenting on proposed agency actions will disagree on many issues big and small. That’s the reason for inviting public comment in the first place!

(3) Nothing in these documents suggests that Carlin has been a skeptic for “more than a decade.” Carlin’s skepticism appears to be of recent vintage. For example, in a 2007 Penn Law Review article, Carlin argued that the most effective and efficient way to control climate change is with geo-engineering strategies, not emission-control regulations. The article presupposes that anthropogenic global warming is a serious problem.

that he holds a doctorate in economics, not in atmospheric science or climatology;

We needed newly-released “EPA documents” to find out that Carlin’s Ph.D. is in economics, not climate science? Nonsense. The documents say nothing about Carlin’s educational credentials. Besides, Carlin has never pretended to have a Ph.D. in climate science.

Broder overlooks several obvious points here.

(1) Carlin holds a B.S. in physics from Cal Tech. So, even if a science credential were a prerequisite for commenting on endangerment — it manifestly is not, since the vast majority of the 20,000 or so unique comments EPA has received were not submitted by scientists — Carlin meets that standard by virtue of his Cal Tech degree.

(2) Whatever happened to ‘lifelong learning’? Carlin has been analyzing environmental issues at EPA for 38 years. During at least 7 of those years Carlin did research in the physical sciences and supervised the production of reports similar to EPA’s Technical Support Document. Broder has no business suggesting that Carlin is unqualified to offer comment on the endangerment proposal.

(3) Most importantly, Carlin’s job at EPA is to analyze the economics of environmental issues. That means evaluating the costs and benefits of environmental policies. There is no way to evaluate the benefits of an environmental policy without understanding the relevant science.

For example, what are the benefits of reducing greenhouse gas emissions by X number of tons over Y number of years? The answer to that question depends on a host of assumptions about various scientific issues (e.g. climate sensitivity). A drone might accept somebody else’s assumptions as “settled science,” but a conscientious analyst with degrees in physics and economics would do exactly what Carlin did — try to provide the Agency with a genuinely independent assessment.

that he has never been assigned to work on climate change;

Actually, Dr. Carlin’s FY2009 performance standards, which were signed by Dr. McGartland, explicitly require work on climate change.

and that his comments on the endangerment finding were a product of rushed and at times shoddy scholarship, as he acknowledged Thursday in an interview.

Yes, of course, the product was rushed, and not ready for publication in an academic journal. Broder makes it sound as if Carlin confessed to an embarrassing fact in the Thursday interview. In fact, Carlin’s comment states that it was written in haste, does not meet normal scholarly standards, and was barely edited. Shame on Broder for suggesting that Carlin kept this hidden until the New York Times dragged it out of him, or that Carlin rather than the ridiculously short deadline (4.5 days) was to blame for the work’s defects.

Dr. Carlin remains on the job and free to talk to the news media, and since the furor his comments on the finding have been posted on the E.P.A.’s Web site. Further, his supervisor, Al McGartland, also a career employee of the agency, received a reprimand in July for the way he had handled Dr. Carlin.

Puh-leaze! Carlin remains free to talk because of the furor over his previous muzzling! EPA posted the comment to appease public and congressional anger at the comment’s being suppressed in the first place. Broder suggests that EPA damage-control efforts mean there was no problem in the first place. Is he a reporter, or a flak-catcher for EPA?

Dr. McGartland, also an economist, declined to comment on the matter. But top officials of the agency said his decision not to forward Dr. Carlin’s comments to the E.P.A. office that would be writing the final report had been his own and not directed by anyone higher up in the agency.

That top officials might be using McGartland as a scapegoat to protect their jobs, avoid a bigger scandal, and keep the endangerment proceeding on track is a possibility Broder never considers.

Of course, McGartland may well have acted without the knowledge of his higher-ups. But that just raises another question: What is it about the political culture of EPA in the age of Gorethodoxy that prompted McGartland to suppress an analysis relevant to an important Agency action and censor a colleague at the NCEE? Broder does not seem at all curious to find out.

Adora Andy, the agency’s chief spokeswoman, called the accusation that Dr. Carlin had been muzzled for political reasons “ridiculous.”

But Carlin was, in fact, muzzled from March 12 through June 23, and although the reasons have never been made clear, the political points stated in McGartland’s email of 03/17/09 08:12 AM could be the reason: “The administrator and the administration has [sic] decided to move forward on endangerment, and your comments do not help the legal or policy case for this decision.”

“There was no predetermined position on endangerment, and Dr. Carlin’s work was not suppressed,” Ms. Andy said in an e-mail response to questions.

Preposterous. McGartland’s email of 3/12/09 02:40 PM specifically forbade Carlin to discuss endangerment with anyone outside of their office. Since McGartland later declined to submit Carlin’s comment with OAR, he did his best to send it down the memory hole.

“There was no predetermined position on endangerment, and Dr. Carlin’s work was not suppressed,” Ms. Andy said in an e-mail response to questions. “This administration has always welcomed varying scientific points of view, and we received much of it over this process.”

EPA’s proposed endangerment finding is nothing but a “predetermined position on endangerment.” The main point of Carlin’s comment is that EPA’s proposal and associated Technical Support Document do not even acknowledge data and scientific research inconsistent with EPA’s assumptions.

Dr. Carlin said he was concerned less about how he had been treated than about what he described as the agency’s unwillingness to hear the arguments of climate change skeptics. He said there was an obvious “imbalance” between the billions of dollars the government had spent building a case for dangerous climate change and the lack of attention to a handful of skeptics like him.

Finally, some real reporting. Well, almost. The “handful” of skeptics comment is editorializing, and grossly inaccurate.

The affair began in March as the E.P.A. was rushing to document the scientific justification for its proposed finding that emissions of carbon dioxide and five other greenhouse gases endangered public health and the environment. The finding was largely an updated version of a similar report, prepared last year under the Bush administration, that came to the same conclusion. But the Bush administration never acted on the research or issued an actual finding.

The agency’s officials were acting in March under severe time constraints to prepare the finding for the E.P.A. administrator, Lisa P. Jackson, who was planning to issue it in mid-April, fulfilling a presidential campaign pledge by Barack Obama.

Broder neglects to note that these severe time constraints were entirely self-imposed, not ordered by the Supreme Court. Because the Agency was rushing to get its proposal out the door, Carlin had to rush to apprise the Agency of his concerns. So again, why bother mentioning that Carlin’s 93-page comment was in no shape to be published in an academic journal?

The finding set the stage for the government to regulate greenhouse gases for the first time, an initiative that will resonate through the economy for decades.

Dr. Carlin, long known as a skeptic on global warming, was not invited to submit comments on the document. But he was determined that his views be heard.

Two points here. (1) Earlier Broder said Carlin “labored in obscurity.” So how could he be “long known” as a skeptic? Also, as noted above, Carlin’s first published work on climate policy — in 2007 — assumes the seriousness of anthropogenic global warming. (2) According to Dr. Carlin, he attended a meeting where everybody in the room was “invited” to comment on the endangerment proposal.

He rushed out a 93-page report that cited a variety of sources in raising questions about global warming and the usefulness of government action to combat it. In an accompanying e-mail message to superiors, he said the belief in global warming was “more religion than science” and warned that regulating carbon dioxide would be “the worst mistake that E.P.A. has ever made.”

Hear, hear!

Agency officials and outside experts who reviewed his report as a result of the outcry over the episode have said they found it wanting in a number of ways. It included unverified information from blog posts, they found, quoted selectively from journal articles, failed to acknowledge contradictory information and may have borrowed passages verbatim from the blog of a well-known climate change doubter.

This misses the point. EPA shirked its duty, under Sec. 202 of the Clean Air Act, to exercise its “judgment” in deciding endangerment. Instead, the Agency uncritically accepted the judgment of two externally-produced literature reviews — the 2007 IPCC Fourth Assessment Report and the work of the U.S. Climate Change Science Program (see the U.S. Chamber of Commerce’s explanation of this problem). Carlin’s comment was designed to summarize data and research that EPA’s endangerment proposal and Technical Support Document did not even address. To call it “selective” is thus to take it entirely out of context. The comment was not meant to be a comprehensive overview of climate science but a corrective to EPA’s one-sided assessment.

In the interview Thursday, Dr. Carlin admitted that his report had been poorly sourced and written. He blamed the tight deadline.

“There are numerous problems with it,” he said. “I wouldn’t dream of sending it to a journal in its current form. It is totally unacceptable for that type of thing. But it was either do it in four and a half days or don’t do it. I had to take some shortcuts.”

Does Broder dispute that Carlin had 4.5 days to complete his comment? If not, then why bother comparing the comment to a scientific paper prepared for a refereed journal?

According to e-mail messages that were among the documents obtained this week under the Freedom of Information Act, Dr. McGartland had earlier tried to discourage Dr. Carlin from filing comments on the proposed finding and told him that whatever he submitted was not likely to affect the final report, implying that the decision had already been made. After receiving Dr. Carlin’s comments, Dr. McGartland told him that he would not forward them to the office preparing the final report.

Two things to notice here.

(1) McGartland’s statement implying that EPA’s decision “had already been made” calls into question top officials’ denials that the outcome of EPA’s endangerment proceeding is ”predetermined.”

(2) McGartland did not merely imply that endangerment was a done deal, he also implied that people upstairs might be upset with comments that “do not help the legal or policy case for this decision.”

“The time for such discussion of fundamental issues has passed for this round,” he wrote on March 17. “The administrator and the administration has decided to move forward on endangerment, and your comments do not help the legal or policy case for this decision.”

Finally a relevant quotation, but Broder offers no analysis.

A few minutes later, he instructed Dr. Carlin to “move on to other issues and subjects.” He also told Dr. Carlin not to discuss climate change with anyone outside his immediate office.

The e-mail messages most embarrassing to the E.P.A. came to light in late June, when someone sympathetic to Dr. Carlin leaked them to the Competitive Enterprise Institute, a conservative group that regularly produces studies critical of research that advances a case for climate change and government actions to address it.

For the record, CEI is a free-market or libertarian public policy group. We also do not publish studies critical of climate change but of climate change alarmism.

The institute distributed the material widely, and a number of conservative commentators and Republican lawmakers seized on it as an example of what they called Democratic suppression of science.

Dr. McGartland was “counseled” by his superior “to assure that professional differences are expressed in appropriate and considered ways,” according to one of the newly released documents.

I do not find this statement in the documents linked to Broder’s column.

Dr. Carlin said he and Dr. McGartland had not spoken to each other since June.

The new documents linked to Broder’s column are not newsworthy. They do not advance public understanding of the issues one iota. I can only conclude that Broder published them in order to have a hook to engage in pro-EPA apologetics at the expense of a courageous and learned civil servant.

EPA proposes illegal rule

by Marlo Lewis on September 2, 2009 · 2 comments

in Global Warming

Yesterday, the U.S. Environmental Protection Agency (EPA) sent a draft proposed rule to the Office of Management and Budget (OMB) that would exempt small emitters of carbon dioxide (CO2) from Clean Air Act (CAA) pre-construction permitting requirement, Greenwire reports.

The proposed rule, as described in Greenwire, is blatantly illegal. It is a tacit admission that the Supreme Court decision in Massachusetts v. EPA set the stage for an economic disaster. It is additional evidence that Mass v. EPA was wrongly decided. It confirms CEI’s warning that the Court’s ruling imperils a core constitutional principle — the separation of powers.

In Mass. v. EPA, the Supreme Court, by a narrow 5-4 majority, decided that CO2 and other greenhouse gases (GHG) are “air pollutants” within the meaning of CAA, and gave EPA three options: (1) issue a finding that GHG-related “air pollution” “may reasonably be anticipated to endanger public health or welfare,” (2) issue a finding of no endangerment, or (3) provide a “reasonable explanation” why the agency cannot or will not exercise its discretion to make such a determination.

The Court further held that if EPA makes a finding of endangerment, then it has a duty, under CAA Sec. 202, to develop and adopt GHG emission standards for new motor vehicles.

EPA picked option (1), and last month, it sent OMB a draft proposed rule to establish GHG emission standards for new motor vehicles.

Although the Court majority asserted that an endangerment finding could not lead to “extreme measures” and would only require a cost-constrained adjustment of existing federal fuel-economy standards (see. p. 28 of the decision), in fact the endangerment finding will trigger a chain reaction throughout the CAA — a regulatory cascade potentially exceeding in cost, scope, and intrusiveness the Kyoto Protocol and many other GHG-control schemes Congress has never seen fit to pass.

For starters, establishing GHG emission standards for new motor vehicles will by definition make CO2 a CAA-regulated air pollutant. As such, CO2 would automatically be ”subject to regulation” under the Act’s Prevention of Significant Deterioration (PSD) pre-construction permitting program (CAA Sec. 165). Under the CAA, any firm that plans to build a new “major” stationary source, or modify an existing major source in a way that would significantly increase emissions, must first obtain a PSD permit from EPA or a state environmental agency.

A PSD source is “major” if it is in one of 28 listed categories and has a potential to emit 100 tons per year (TPY) of an air pollutant, or if it is any other type of establishment and has a potential to emit 250 TPY (CAA Sec. 169).

And there’s the rub. Whereas only large industrial facilities have a potential to emit 250 TPY of air contaminants such as sulfur dioxide or particulate matter, an immense number and variety of entities – office buildings, hotels, big box stores, enclosed malls, small manufacturing firms, even commercial kitchens – have a potential to emit 250 TPY of CO2. A September 2008 report commissioned by the U.S. Chamber of Commerce estimates that 1.2 million buildings and facilities – most of them currently unregulated under the CAA – actually emit 250 TPY of CO2. All would be vulnerable to new PSD regulation, controls, paperwork, penalties, and litigation.

To obtain a PSD permit, firms must document their compliance with ”best available control technology” (BACT) standards. Even apart from any technology investments needed to comply with BACT, the PSD permitting process is costly and time-consuming. In a recent year, each permit on average cost $125,120 and 866 burden hours for a source to obtain, EPA estimates. No small business could operate subject to the PSD administrative burden.

The costs, uncertainties, and delays from applying PSD and BACT to CO2 would have a chilling effect on economic development and construction activity. It would turn the CAA into a gigantic Anti-Stimulus Package in a period of financial crisis and high unemployment. Definitely not something the Obama administration wants on its record in the 2010 election season.

EPA’s July 2008 Advanced Notice of Proposed Rulemaking (ANPR) outlined several administrative remedies to shield small entities from PSD requirements, all of doubtful legality. But if the Greenwire article is accurate, EPA is opting for the most brazenly illegal option of all. It proposes to revise, on its own authority, the PSD threshold from 250 TPY to 25,000 TPY.

Now friends, under the 1984 Supreme Court case of Chevron v. NRDC, EPA has considerable discretionary authority in interpreting the CAA where the statute is “silent or ambiguous with respect to the specific issue.” But there is nothing ambiguous about the number 250. No matter how you squint at the page, 250 is 100 times smaller than the threshold EPA proposes to put in its place.

According to Greenwire, Sierra Club’s David Bookbinder, a counsel for petitioners in Mass. v. EPA, “said the rule would also deflect claims from Republican lawmakers and industry groups that the Obama administration is seeking to regulate small emission sources such as doughnut shops, schools, and nursing homes.” But the Obama administration’s intent is not the issue. The issue is whether EPA, as a matter of law, must apply PSD requirements to doughnut shops, etc. once it starts regulating CO2 under Sec. 202.

Greenwire then quotes Bookbinder: “Putting this rule in place deflates a lot of political rhetoric about regulating CO2.” Well, I hope industry and the GOP are not so naive as to put their trust in an illegal rule. A rule that flouts clear statutory language of the CAA can provide no durable protection from the regulatory cascade that an endangerment finding and EPA adoption of motor vehicle GHG emission standards would unleash.

EPA’s proposed draft rule is a tacit admission of what CEI has said all along: EPA cannot regulate CO2 under the CAA without endangering the U.S. economy — unless EPA plays lawmaker, amends the Act, and violates the separation of powers. When the Supreme Court handed down the Mass. v. EPA decision, it set the stage for a constitutional crisis.

Of course, the bigger constitutional crisis stemming from Mass. v. EPA is that we could end up with an energy suppression regime far more costly than Kyoto or Waxman-Markey, yet without the people’s elected representatives ever voting on it.

For the gory details, see my blog post on MasterResource.Org and my comment (pp. 28-56) on EPA’s proposed endangerment finding.

Policy Peril Segment 10: It’s a Moral Issue

by Marlo Lewis on August 24, 2009 · 2 comments

in Global Warming

Today’s excerpt from CEI’s film, Policy Peril: Why Global Warming Policies Are More Dangerous Than Global Warming Itself, offers a free-market perspective on Al Gore’s proclamation, at the end of An Inconvenient Truth, that global warming is “a moral issue.”

Considered in the abstract, apart from its context in movie, this is a completely unremarkable statement. Just about all public policy issues can be described as moral issues, because they directly or implicitly ask us to decide whether a proposed course of action is fair or unfair, honorable or dishonorable, good or bad.

However, when Gore says global warming is a “moral issue,” he means something more. He means that combatting global warming is the overriding moral imperative of our time. He implies that if you are decent, self-respecting person, you have no moral choice but to follow his lead and heed his call. He is trying to play a rhetorical trump card.

Gore is clever. In An Inconvenient Truth, he presents himself as an a-political Mr. Science – and then exploits the moral authority so contrived to bash the Bush Administration and other political opponents. Similarly, he presents as a moral imperative a policy agenda that — just by sheer coincidence, we’re supposed to believe – would empower him and his political allies to control the global economy. It’s all a little too convenient.

More importantly, what if the alleged imperative to decarbonize U.S. and global economy conflicts with other, arguably better-established imperatives, such as eradicating poverty? If Gore were a moral leader rather than a moralizing partisan, wouldn’t he at least acknowledge that his ”solutions” might have harmful side-effects?

To watch today’s film excerpt, click here. To watch Policy Peril from start to finish, click here. The text of today’s film clip follows. The footnotes are to additional commentary and supporting information.

Narrator: Now let’s look at the international side of climate policy. Al Gore and the European Union advocate a 50% cut in global emissions by 2050. [1] But most of the growth in global emissions between now and then will come from developing countries. [2] So those countries, too, will have to stop building coal plants. They, too, will have to limit their use of fossil fuel. [3] It would be a humanitarian disaster.
Globally, about 1.6 billion people lack access to electricity. About 2.4 billion still rely on traditional biomass–wood, crop waste, even dung–for cooking and heating. [4]
Tom Tanton (Pacific Research Institute): Look at developing countries. The thing they need most of all is commercial energy and electricity. People in developing countries spend most of their day collecting fuel. They don’t have time to go to school and get an education. It gets dark at night so there’s no studying at night, because there’s no electricity. Electricity is the essential commodity for any kind of growth and improvement in lifestyle. [5]
Narrator: A coal-fired power plant would improve the lives of those villagers in many ways. Women would be freed from backbreaking toil. People would be healthier because indoor air quality would improve. Refrigeration would make food preparation easier and safer. Electric lighting would allow people to read and study at night. The forests and the species dependent on them would be spared. [6]
Myron Ebell (Competitive Enterprise Institute): I agree with former Vice President Gore that global warming is a moral issue. I think it is preeminently a moral issue because we have a billion and a half people in the world who don’t have access to electricity, for example. The world is not energy rich, it’s energy poor. And if we’re going to put energy rationing policies on the backs of the world’s poorest people, they will have very little hope of ever achieving even a fraction of the well-being, the lifestyle that we have.
Narrator: India is an emerging industrial powerhouse. Yet even in India, energy poverty kills. India has the largest incidence of snake bites in the world. About 50,000 Indians die from snake bites each year. Doctors there have developed an anti-venom antidote. So why is the death toll so high?
Barun Mitra (Liberty Institute): The primary reason is that most Indian health centers, primarily in rural areas where the snakebites are more prevalent, have no electricity, no refrigeration, no way to store the anti-venom. The technology is there. We know how to generate electricity. The technology is there. We know how to make the anti-venom. Yet, 95% of Indians, or thereabouts, do not have access to it, because they stay in areas which cannot store anti-venom in a refrigerated environment.
Narrator: Let me state the obvious. Poverty is the number one cause of premature death and preventable disease in the world. [7] Global restrictions on fossil energy use would trap millions of people in poverty.
Al Gore and others don’t say exactly how they would stop poor countries from using coal. But some U.S. and European politicians want to impose carbon tariffs on goods from China and other developing countries that refuse to limit emissions. [8]
Iain Murray (Competitive Enterprise Institute; author The Really Inconvenient Truths): I think the question to ask here is: Can any of the potential effects of climate change be so great as to justify keeping the developing world in poverty. I think to ask that question is to answer it.

Commentary

[1] The goal of cutting global CO2 emissions 50%-85% by 2050 has become canonical for the global warming movement. Proponents of this viewpoint include the IPCC, the European Union, the G-8 (U.S., UK, France, Italy, Canada, Germany, Japan, Canada), and just about every environmental group. Supposedly, a 50%-85% cut would likely limit 21st century global warming to 2ºC (3.6ºF), which in turn would likely “avoid some of the worst effects” of climate change. All of this assumes that the climate is moderately-to-highly sensitive to increases in CO2 concentrations. Recent research contradicts that assumption.

[2] 80-90% of the increase in greenhouse gas emissions between now and 2050 is expected to come from developing countries, chiefly India, China, and SE Asia.

Figure source: James Connaughton, Chairman, White House Council on Environmental Quality (CEQ), Energy and Climate Policy, December 2007.

Figure source: Stephen Eule, U.S. Chamber of Commerce Institute for 21st Century Energy, Scale & Scope of the Challenge of Reducing Greenhouse Gas Emissions, February 2009

[3] Global CO2 emissions are projected to increase from 24 gigatons a year in 2000 to 50.6 gigatons a year in 2050. Thus, to achieve a 50% reduction, global emissions in 2050 will have decline to 12.3 gigatons — 76% below the baseline projection.

Figure source: Stephen Eule, Scale & Scope of the Challenge, Feb. 2009

This means that even if developed countries miraculously reduce their CO2 emissions to zero, global emissions cannot be cut by 50% unless developing countries cut their emissions 62% below baseline. Their per capita CO2 emissions will have to decline to 1.7 metric tons per year — less than current per-capita CO2 emissions in Central and South America.

If developed countries reduce their emissions by “only” 84% — approximately the Waxman-Markey target for 2050 — then developing countries will have to reduce their emissions 71% below baseline. They’ll have to hold their emissions almost flat between now and 2050. Their per-capita emissions will have to decline to 1.3 metric tons per year. That’s about what per-capita emissions are today in Africa, the most energy-starved continent on the planet.

Figure source: Stephen Eule, Scope & Scale of the Challenge, February 2009

Absent spectacular breakthroughs in the cost and performance of zero-emission energy, the minimal EU/UN/Al Gore goal of a 50% reduction in global CO2 emissions by 2050 cannot be achieved without dramatically limiting developing countries’ energy consumption and economic growth.

[4] 1.6 billion people have never flipped a light switch and 2.4 billion people depend on primitive biomass for heat and light — these figures come from chapter 13 (“Energy and Poverty”) of the International Energy Agency’s World Energy Outlook 2002.

[5] That electrification is a prerequisite for continual improvement in the human condition is obvious. Nonetheless, some scholars attempt via statistical techniques to demonstrate the importance of electricity to the physical quality of life. An October 2000 study by Alan Pasternak of the Lawrence Livermore Laboratory finds a strong association between per capita electricity consumption and the United Nation’s Human Development Index (HDI), a composite measure of human welfare taking into account GDP, life expectancy, and educational attainment.

Figure source: Alan Pasternak, Global Energy Futures and Human Development: A Framework of Analysis, Lawrence Livermore Laboratory, October 2000.

Although in 1997 four countries (South Korea, Russia, Saudi Arabia, and South Africa) with per capita annual electricity consumption somewhat above 4,000 kWh had an HDI below 0.9, no country with per capita annual electricity consumption below 4,000 kWh had an HDI of 0.9 or higher. Pasternak concludes that there is a “compelling need for increased energy and electricity supplies in the developing countries,” and that, “Neither the Human Development Index nor the Gross Domestic Product of developing countries will increase without an increase in electricity use.”

[6] For this formulation, I am indebted to University of Alabama-in-Huntsville atmospheric scientist John Christy. A former African missionary, Christy has seen first-hand the hardship and perils of life in an energy-poor country. When Christy testifies before Congress, he often includes a plea not to demonize energy, because “life without energy is brutal and short.”

[7] “A large proportion of illnesses in low-income countries are entirely avoidable or treatable with existing medicines or interventions,” observes Philip Stevens, Health Director for the International Policy Network (see p. 4 of this report). Such illnesses include tuberculosis, malaria, HIV/AIDS, childhood diseases (polio, measles, tetanus), diarrhoeal diseases from poor sanitation, respiratory infections from indoor air pollution, and malnutrition such as vitamin A deficiency. These eminently preventable and treatable illnesses kill millions people — a high proportion of them children — in developing countries each year. Although vaccines or treatments are inexpensive, poor countries lack the infrastructure to make them widely available.

[8] Cap-and-trade and protectionism are joined at the hip. You might not think so, judging from the oft-repeated assurances that Kyoto-style policies will spur innovation, efficiency, and “green job” creation, making us more competitive in the “economy of the future.” Yet European politicians warn (see here, here, and here) that they will impose border taxes (carbon tariffs) on goods from countries — chiefly China but also the United States — that refuse to limit emissions.

Most “trade-exposed, energy-intensive” firms call for additional free emission allowances to “level the playing field” rather than for carbon tariffs (see here, here, and here). However, the Sierra Club argues that carbon border taxes may be needed as a “backstop,” particularly as emission caps tighten and the supply of free allowances shrinks. It is telling that some experts are making the case that carbon tariffs are legal under WTO trade rules. (Other experts, however, warn that unilateral imposition of border taxes or counterveiling duties on carbon-intensive imports would violate WTO rules, engendering a long period of trade friction and uncertainty.)

Both free allowances and carbon tariffs are also touted as a cure for “carbon leakage” — the flight of capital, jobs, and emissions to developing countries in order to escape the high energy costs stemming from carbon controls in developed countries.

But beyond concerns about unfair competition and carbon leakage, there are more basic reasons why cap-and-trade depends on protectionism. First, how do you enforce a treaty like Kyoto over the long term? It’s a typical collective action problem. Even if one assumes it is in the common interest of all nations to mitigate global warming, it is in the individual interest of each nation to bear less than its negotiated share of the burden — to reap the climate benefits (if any) of other nations’ sacrifices and employ creative accounting on behalf of one’s own industries to give them a competitive edge. If cheating isn’t credibly punished, the number of “free riders” will grow, and the system will collapse.

How will the world’s nations punish cheaters? If military force is not an option, then trade penalties — carbon tariffs — are pretty much the only remedy.

Furthermore, how do you persuade major developing countries to get on board? They repeatedly refuse to accept binding limits on their emissions. Yet, as explained above, developing countries must make heroic efforts to decarbonize their economies if the world is to cut emissions 50%-85% by 2050, as demanded by Vice President Gore, the EU, and the UN.

One option is to bribe them with massive wealth and technology transfers. But building hundreds of new nuclear power plants or hundreds of futuristic zero-emission coal power plants in China, India, Brazil, and other developing countries would cost trillions of dollars. In the midst of a global financial crisis and high unemployment, it is unlikely that U.S. and EU taxpayers will agree export more jobs to China.

If carrots are out as an inducement to decarbonize, then sticks are what’s left. It would need to be a big stick — for example, a coordinated campaign of trade sanctions by the United States, the EU, Canada, Russia, and Japan.

More than likely, though, such a campaign would fail because developing countries would retaliate with trade sanctions of their own. We would get trade war, not compliance.

Nonetheless, if the major-emitting developing countries — China, India, Brazil, and Indonesia — continue to reject binding emission limits, advocates of CO2 controls will be continually tempted to rattle the trade sabers and demand carbon tariffs. Indeed, earlier this month, 10 Democratic U.S. Senators, in a letter to President Obama, indicated they would not support a cap-and-trade bill lacking a “border adjustment mechanism” (a.k.a. carbon tariff) to create a level playing field and pressure nations like China into adopting carbon controls.

Conclusion

Yes, global warming is a moral issue, but not for the reasons Al Gore supposes. As John Christy reminds us, human life without energy is brutal and short. Yet Gore would suppress the 85% of the world’s energy that comes from fossil fuels.

But there’s more to it than that. In a recent video commentary on CO2Science.Org, Christy offers both a personal insight and an analyst’s perspective on why abundant, affordable energy is one of the great blessings of modern civilization. I’ll conclude this blog post — the last in my series of posts on Policy Peril – with the text of Christy’s remarks.

John Christy: When people talk about the moral issue of controlling carbon dioxide emissions, I say yes, that’s right, it is a moral issue. In 1900, the energy technology of the day supported 56 billion human life years. Okay. That’s 1.6 billion people times 35 years’ life expectancy. 56 billion human life years. The average person lived to 35. Now, the energy technology supports about 450 billion human life years. That is an eight-fold increase in the experience of human life, and that is a spectacular achievement.
I am a grandfather now. And when my little grandson runs up and hugs me around the knees, I am experiencing something in human life that, a hundred years ago, the average person could not, at all. So this experience of human life that’s been granted to us by energy technology is tremendous and wonderful.
Therefore, the moral issue here is that we should provide people, who do not have it, energy, so that they can experience life that is safer, that is healthier, and that is longer. That’s the moral issue.

To read previous posts in this series, click on the links below:

Policy Peril: Looking for antidote to An Inconvenient Truth? Your search is over.

Policy Peril Segment 1: Heat Waves

Policy Peril Segment 2: Air Pollution

Policy Peril Segment 3: Hurricanes

Policy Peril Segment 4: Sea-Level Rise

Policy Peril Segment 5: Is the Science Debate Over?

Policy Peril Segment 6: Cap and Trade

Policy Peril Segment 7: Fuel Economy Standards

Policy Peril Segment 8: Coal

Policy Peril Segment 9: Big Business

← Previous Entries