Sunday, July 05, 2009

A garden of piggish delights

Two main things to understand about Waxman-Markey: First, it will not reduce greenhouse-gas emissions, at least not at any point in the near future. The inclusion of carbon offsets, which can be manufactured out of thin air and political imagination, will eliminate most of the demands that the legislation puts on industry, though in doing so it will manage to drive up the prices consumers pay for every product that requires energy for its manufacture — which is to say, for everything. Second, it represents a worse abuse of the public trust and purse than the stimulus and the bailouts put together. Waxman-Markey creates a permanent new regime in which environmental romanticism and corporate welfare are mixed together to form political poison. From comic bureaucratic power grabs (check out the section of the bill on candelabras) to the creation of new welfare programs for Democratic constituencies to, above all, massive giveaways for every financial, industrial, and political lobby imaginable, this bill would permanently deform American politics and economic life.

The stimulus bill was the legislative equivalent of the famous cantina scene from Star Wars, an eye-popping collection of the freakish and exotic, gathered for dubious purposes. The Waxman-Markey cap-and-trade bill, known as ACES (the American Clean Energy and Security Act), is more like the third panel in Hieronymus Bosch’s Garden of Earthly Delights — a hellscape that disturbs the sleep of anybody who contemplates it carefully.

Two main things to understand about Waxman-Markey: First, it will not reduce greenhouse-gas emissions, at least not at any point in the near future. The inclusion of carbon offsets, which can be manufactured out of thin air and political imagination, will eliminate most of the demands that the legislation puts on industry, though in doing so it will manage to drive up the prices consumers pay for every product that requires energy for its manufacture — which is to say, for everything. Second, it represents a worse abuse of the public trust and purse than the stimulus and the bailouts put together. Waxman-Markey creates a permanent new regime in which environmental romanticism and corporate welfare are mixed together to form political poison. From comic bureaucratic power grabs (check out the section of the bill on candelabras) to the creation of new welfare programs for Democratic constituencies to, above all, massive giveaways for every financial, industrial, and political lobby imaginable, this bill would permanently deform American politics and economic life.

The House of Representatives, famously, did not read this bill before passing it, which is testament to either Nancy Pelosi’s managerial incompetency or her political wile, or possibly both. If you take the time to read the legislation, you’ll discover four major themes: special-interest giveaways, regulatory mandates unrelated to climate change, fanciful technological programs worthy of The Jetsons, and assorted left-wing wish fulfillment. We cannot cover every swirl and brushstroke of this masterpiece of misgovernance, but here’s a breakdown of its 50 most outrageous features.


1. The big doozy: Eighty-five percent of the carbon permits will not be sold at auction — they will be given away to utility companies, petroleum interests, refineries, and a coterie of politically connected businesses. If you’re wondering why Big Business supports cap-and-trade, that’s why. Free money for business, but higher energy prices for you.

2. The sale of carbon permits will enrich the Wall Street investment bankers whose money put Obama in the White House. Top of the list: Goldman Sachs, which is invested in carbon-offset development and carbon permissions. CNN reports: "Less than two weeks after the investment bank announced it would be laying off 10 percent of its staff, ***Goldman Sachs confirmed that it has taken a minority stake in Utah-based carbon offset project developer Blue Source LLC. . . . “Interest in the pre-compliance carbon market in the U.S. is growing rapidly,” said Leslie Biddle, Head of Commodity Sales at Goldman, “and we are excited to be able to offer our clients immediate access to a diverse selection of emission reductions to manage their carbon risk.”

3. With its rich menu of corporate subsidies and special set-asides for politically connected industries, Waxman-Markey has inspired a new corporate interest group, USCAP, the United States Climate Action Partnership — the group largely responsible for the fact that carbon permits are being given away like candy at Christmas rather than auctioned. And who is lined up to receive a piece of the massive wealth transfer that Waxman-Markey will mandate? Canada Free Press lists:

Alcoa, American International Group (AIG) which withdrew after accepting government bailout money, Boston Scientific Corporation, BP America Inc., Caterpillar Inc., Chrysler LLC (which continues to lobby with taxpayer dollars), ConocoPhillips, Deere & Company, The Dow Chemical Company, Duke Energy, DuPont, Environmental Defense, Exelon Corporation, Ford Motor Company, FPL Group, Inc., General Electric, General Motors Corp. (now owned by the Obama administration), Johnson & Johnson, Marsh, Inc., National Wildlife Federation, Natural Resources Defense Council, The Nature Conservancy, NRG Energy, Inc., Pepsico, Pew Center on Global Climate Change, PG&E Corporation, PNM Resources, Rio Tinto, Shell, Siemens Corporation, World Resources Institute, Xerox Corporation.

One major group of recipients of the free money being given to industry in the form of carbon permits are the electric utilities, represented in Washington by the Edison Electric Institute. Along with the coal and steel businesses, the utilities are positioned to receive a huge portion of the carbon permits — some of which will be disguised as measures for consumers — and have become one of the nation’s highest-spending lobbies, working to ensure that their interests are served by cap-and-trade.


Energy Leninism

"The worse, the better," Vladimir Lenin is said to have observed. What Lenin meant was that the worse social conditions became in Russia, the more likely he and the Bolsheviks could foment a communist revolution. President Barack Obama's White House Chief of Staff Rahm Emanuel recently updated Lenin's maxim, saying, "Never allow a crisis to go to waste."

Last Friday, the Democratic leadership in the House of Representatives took those maxims to heart when they pushed through their 1,200-page American Clean Energy and Security (ACES) Act by a vote 219 to 212. The bill is supposed to address the twin crises of economic recession and climate change by creating millions of new "green" jobs. Instead of an old-fashioned Soviet-style five-year plan, ACES can be thought of as 50-year plan to radically transform how Americans produce and use energy.

The new climate and energy bill would create a convoluted cap-and-trade scheme that aims to curb the emissions of carbon dioxide by American consumers and businesses. Why? Because the extra carbon dioxide emitted into the air from burning fossil fuels like coal and oil to produce energy is heating up the atmosphere. That additional heat will melt glaciers, raise sea levels, change rainfall patterns, cause plants and animals to shift their habitats, and so forth. To avoid these consequences, argue congressional Democrats, it is necessary for Americans to shift from cheap fossil fuels to expensive renewable energy fuels.

So the 1,200-page House bill would set a declining cap on carbon dioxide emissions that, by 2020, reduces them by 17 percent below 2005 levels and by 83 percent below by 2050. Each year the Environmental Protection Agency would issue a lower number of carbon dioxide emissions permits. Under the House bill 85 percent of the permits would be given away for free to various energy producers and users while the remaining 15 percent would be auctioned off. A company must have a permit for each ton of carbon dioxide it emits. The idea is that some companies will be more efficient in reducing their emissions and so will have some permits left over that they can sell to other, less-efficent emitters.

Trading permits in the market will set a price on carbon dioxide emissions. This means that electricity and automobile fuels produced using coal and oil will become more expensive. Higher electricity and gasoline prices are intended to encourage consumers to buy more fuel-efficient automobiles and appliances and to cut back on home heating and cooling. These higher energy prices will also boost what Americans pay for most goods and services. Finally, higher prices are supposed to incentivize inventors and entrepreneurs to develop and deploy lower carbon energy sources like solar and wind power. Sounds simple, but ACES is anything but simple.

The bill is replete with tax breaks, subsidies, and mandates aimed at buying off various special interest groups and industries. For example, it authorizes $60 billion for carbon capture and sequestration projects, $15 billion in subsidies to small and medium sized businesses to finance the cost of clean energy manufacturing products, and $2.5 billion for residential energy efficiency block grant programs to states. The bill also puts $150 million in an Energy Efficiency and Renewable Energy Worker Training Fund, and so on.

The new 50-year energy plan leaves little to chance. Congress has issued a flood of mandates large and small. For example, utilities must purchase 20 percent of their energy from renewable sources by 2020, states and utilities are obliged to build regional infrastructures to support plug-in electric vehicles, new homes have to be 30 percent more energy efficient and—since no detail is too small to escape congressional notice—requires rising energy efficiency standards for outdoor lighting.

Will Americans tolerate such sweeping interventions into their lives and workplaces? Perhaps not. The American Clean Energy and Security Act is even bigger in scope and complexity than President Bill Clinton's 1993 Health Security Act. Clinton's 1,364-page bill would have created over 100 new federal bureaucracies, hundreds of new regulations, and massive changes in the tax code. At the same time, President Clinton in 1993 proposed a tax on the heat content of various fuels, known as the BTU (British Thermal Units) tax. This tax aimed to reduce pollution and encourage conservation. It was estimated that the BTU tax would increase energy costs for the typical household by 4.5 percent or about $105 in 1996. The price of gasoline would have risen by 7.5 cents per gallon. Public and business opposition effectively killed both the health care scheme and the BTU in 1994. Even supporters of ACES, who are eager to low-ball its costs, admit that it will eventually boost gasoline prices by 25 cents per gallon and household energy bills by $175 per year. Other estimates suggest that ACES will force energy prices far higher.

In 2009, a Democratic president and Democratic Congress are once again proposing costly and intrusive changes in both health care and energy supplies. The 1994 mid-term election became a referendum on big government and ushered in Republican control of both the Senate and House of Representatives for the first time since the early 1950s. Given the Republican Party's current disarray, it's unlikely that 2010 will see another "Republican Revolution." However, as the new energy policies slow economic growth and impose vast new costs on consumers, it will be the Republicans who are quietly saying, "The worse, the better."


More tax oppression

Why did a bare majority (219-212) of the members of the U.S. Congress vote for the largest tax increase in American history this past Friday, under the claim it was a vote to save the climate?

Before you answer the question, consider the following facts. The proponents claim this tax bill will reduce U.S. carbon dioxide emissions, which are purported to cause global warming. First, despite the claims of President Obama, House Speaker Nancy Pelosi and many in the media, there is no consensus in the scientific community about how much climate change, other than the normal cycles, is taking place, nor how severe it will be, and how much man-made CO2 is responsible. None of the climate models predicted the unexpected global cooling of the last decade.

It is known that the legislation will have a negligible effect on global CO2 emissions, particularly since the big polluters, such as China and India, are not playing ball. It is also known that the "cap and trade" system that the legislation calls for has been a failure in Europe, where it has been in operation for the last few years, in that it has proven to be far more costly than envisioned, has not met the CO2 reduction targets, and has been highly susceptible to corruption and abuse.

In addition, because the legislation requires Americans to use more inefficient energy (wind and solar) sources, it cannot help but raise costs for American businesses and citizens, and hence will kill jobs rather than create them (as contrasted to what Mr. Obama and Mrs. Pelosi have incorrectly claimed).

In sum, serious people understand the legislation will hurt the U.S. economy, reduce the standard of living and yet not accomplish its claimed intent; therefore, why were so many members of Congress willing to vote for it?

Are they idiots, or do they have another agenda? Yes, a few are not that bright, but many more see this as an opportunity to extract wealth from one group of Americans, give it to other groups of Americans they favor, and to their political cronies who will reward them in campaign contributions and in other ways — both seen and unseen. They are willing to engage in more tax oppression in exchange for more political power to themselves.

The tendency for political leaders — even those fairly elected — to look out more for their own personal interests rather than the greater good is not confined to America. The Organization for Cooperation and Development (OECD), whose 30 members are the major industrialized democratic countries, was formed half a century ago to promote policies to increase economic growth and free trade.

Unfortunately, political leaders in high-tax states (notably France and Germany) have captured part of the OECD and are using it as an instrument — by creating "black" and "gray" lists — to squash tax competition from low-tax-rate countries and financial freedom and privacy (which are important for global economic growth).

A European economic policy organization, Institut Constant de Rebecque, has just published an important study, "Tax burden and individual rights in the OECD: an international comparison." As part of the study, the author, Pierre Bessard, created a Tax Oppression Index by using OECD and World Bank data to measure the overall tax burden, public governance, and taxpayer rights. Italy and Turkey were judged to have the most tax oppression, while Austria, Luxembourg and Switzerland were judged to have the least oppressive tax systems. A sample of the major countries in the index can be seen in the accompanying table.

Those who advocate bigger governments and more repressive tax systems claim that the additional tax revenue is needed to promote the common good. In 2007, the government spending in Switzerland was equal to 35.7 percent of GDP (very close to the government share of GDP in the United States of 37.4 percent) while the Italians had a government sector equal to 48.5 percent of GDP.

The Italians and the Swiss share a long peaceful border, but Italy is far richer in natural resources and access to the sea than land locked Switzerland. Yet the Swiss are far more prosperous and do a much better job in delivering government services than do the Italians (or French with 52.4 percent of government spending) while, at the same time, engage in far less tax repression. The Austrian government spends 48.2 of its GDP, which is almost equal the size of the Italian government spending, but manages to raise the necessary tax money in a far less oppressive way.

The United States is in about the middle of the pack, but could have a lower score if it improved its public governance by reducing the corruption and inefficiency in Washington, and did a much better job in protecting taxpayer rights. (The U.S. Constitution explicitly gives citizens the presumption of innocence, but the Internal Revenue Service chooses to ignore the Constitution in this and many other matters.)

The world would be richer and more just if the low-tax-rate countries that protect taxpayer rights and privacy could penalize the states that engage in high levels of tax oppression, rather than vice versa, which is now the case.

The empirical evidence from the new Institut Constant study clearly shows (as have many other studies) that it is not necessary to have high tax rates or deny taxpayers basic rights and financial privacy for the government to obtain all of the revenue it legitimately needs. But as the vote on the "climate" (tax) bill in the Congress clearly showed last week, for all too many politicians, tax policy is not about revenue but political power and control.


A right to pollute being enacted

The House passage of the American Clean Energy and Security Act Friday was billed as a narrow victory for President Obama and the green lobby. But was it a victory for real environmentalism? Sadly, no. The legislation's many loopholes that had to be added to secure its passage will make it far less effective -- to be charitable. The "cap and trade" regime that the bill would create promises to ratchet down carbon emissions over time but creates a dangerous precedent for the environment.

Cap and trade essentially creates a property right out of polluting. Once Company A has an emissions permit, it can release a certain amount of carbon dioxide into the atmosphere. Or it can sell its permit rights to Company Z. The bright idea is to create an incentive to decrease carbon emissions so that a company can profit off its excessive permits. In reality, what it does is create an enforceable right to pollute.

In the past, pollution was seen as a sort of "necessary evil" that could be regulated or rescinded if necessary. Now companies will have a right to pollute because they were already in the polluting business and were grandfathered in, or because they paid good money for that right. Cap and trade guarantees the right to pollute over a certain, fixed amount of time. The bill ratchets down the amount of carbon emissions allowed over time by a schedule. That sounds like a win for environmentalism. However, the percentages and dates create expectations that go along with these permits being sold.

Companies will purchase permits from each other with the expectation that they will be able to emit a specific amount of carbon over a specific time period. These percentages and dates are political goals and are not based on solid scientific research. That could lead to unexpectedly bad results. For example, the amount of carbon emissions allowed could turn out to be incredibly dangerous to the public. Under a cap and trade regime, if the government attempts to "fix" the problem the action would amount to a "taking." Lawyers would then tie it up in court for years.

And the "cap" part of cap and trade is hardly set in stone. The bill allows companies to offset their carbon emissions beyond their permitted use by "helping the environment" in some other politically favored way. For example, if a company pays to preserve an acre of rain forest, it secures the right to release more carbon emissions. That might superficially seem to maintain the balance between carbon producers and carbon reducers, but that balance is a convenient myth.

Forget for a moment that the generous offsets allowed by the bill were crafted in response to industry prodding. There is no hard evidence that carbon offsets actually work.

And, remember, the environment is far bigger than the United States. Companies can often go elsewhere. Congress has to take into consideration that pushing companies out of the United States into other, less regulated areas, would have the opposite effect of the bill's intention.

Politicians need to realize there is a difference between doing "something" to help combat global warming and doing "anything" on that front. It's unwise to ram a 1,500-page bill through the House in the dead of the night -- with a last minute 300-page amendment tacked on to buy needed votes -- and expect that to work.

All it amounts to now is a "feel good" bill with no realistic environmental benefits at a huge cost to individuals.



The last time global warming came to the Andes it produced the Inca Empire. A team of English and U.S. scientists has analyzed pollen, seeds and isotopes in core samples taken from the deep mud of a small lake not far from Machu Picchu and their report says that "the success of the Inca was underpinned by a period of warming that lasted more than four centuries."

The four centuries coincided directly with the rise of this startling, hyper-productive culture that at its zenith was bigger than the Ming Dynasty China and the Ottoman Empire, the two most powerful contemporaries of the Inca.

"This period of increased temperatures," the scientists say, "allowed the Inca and their predecessors to expand, from AD 1150 onwards, their agricultural zones by moving up the mountains to build a massive system of terraces fed frequently by glacial water, as well as planting trees to reduce erosion and increase soil fertility.

"They re-created the landscape and produced the huge surpluses of maize, potatoes, quinua and other crops that freed a rapidly growing population to build roads, scores of palaces like Machu Picchu and in particular the development of a large standing army."

No World Bank, no NGOs.

The new study is called "Putting the Rise of the Inca within a Climatic and Land Management Context" and was prepared by Alex Chepstow-Lusty, an English paleo-biologist working for the French Institute of Andean Studies, in Lima. Alex led a team that includes Brian Bauer, of the University of Illinois, one of today's top Inca-ologists. The study is being published in Climate of the Past, an online academic journal.

Alex spends a lot of time in Cuzco and he told me the other day that the report "raises the question of whether today's global warming may be another opportunity for the Andes."

The core samples from the sediment of the little lake, Marcacocha, in the Patakancha valley above Ollantaytambo, show that there was a major cold drought in the southern Andes beginning in 880 AD lasting for a devastating century-plus through into 1000AD. This cold snap finished off both the Wari and the Tiahuanaco cultures which had between them dominated the southern Andes for more than a millennium.

It was at this same time that the Classic Maya disappeared in Yucatan. It was also a time, on the other side of the Pacific when major migrations from East Asia took place into Polynesia, an indication of a major Niño event; a Niño sees western Pacific currents switch to flow from West to East.

Core samples from glaciers and from the mud beneath lakes in the Andes, the Amazon and elsewhere have built up a history of the world's climate and the message is crystal clear. It is that changes have taken place in the past, during the six or seven thousand years of our agriculture-based civilizations, that are just as big as the ones we are facing from today's CO2 warming.


Australia: "Green" investment options a flop

Real Greenies probably have no money left to invest after they have spent all their money on solar panels, water tanks and "organic" food etc.

A decade ago, a fresh wave of interest in sustainable investing broke out in Australia — and elsewhere — but things have not turned out quite as the sector's advocates expected. Howard government changes to allow a choice of super funds would let people dictate how their money was invested. This democratisation would translate into greener, more human financial markets.

Mainstream institutions such as Westpac, AMP and Perpetual launched funds into a niche market — call it ethical, socially responsible or sustainable investing — that had been held by principled specialists such as Australian Ethical Investment and Hunter Hall, who did nothing else. Real money was expected to flow into this niche, then worth about $1.4 billion. Big companies such as BHP may not have cared what a few tiny green fund managers did with their money, but failure to pass a sniff test backed by powerful financial institutions with billions to invest posed a different reputational risk.

After the Dow Jones Sustainability Index was launched in 1999, for example, everybody wanted to make the cut. But the fund managers had a dilemma: how to offer investment-grade sustainable funds that conformed with industry rules about diversification? Get too green and you limit your investment options and your chance of beating the market. No trustee or their consultant would endorse a fund likely to underperform. Not green enough and you get shot down for hypocrisy and lose your marketing edge — the offer of a true alternative — as well as any upside from green investing that might exist.

A crop of funds were launched that balanced performance against integrity to varying degrees. Slowly money trickled in, except most super fund members almost never chose the sustainability option offered by their fund. Most mandates were wholesale. By the end of last year, according to Super Ratings managing director Jeff Bresnahan, take-up of the sustainable options offered by super funds was "pitiful".

A recent Super Ratings survey, answered by 76 funds with 15 million members and $370 billion in assets, found that for 90 per cent of respondents, sustainable investments — now offered by almost two-thirds of funds — represented well under 5 per cent of net assets.

For example Vision Super, a $4 billion fund, had just $8.5 million invested in its sustainable options. The $28 billion Australian Super had just $29 million invested in its comparable green plan — that's only 0.1 per cent. "People just aren't voting with their feet with (these) options," Bresnahan says. "A lot of funds have done the research among their members, and it comes back with a resounding 'yes', but there's very little take-up."

It's not the performance that's a turn off. In fact there's nothing in it — sometimes they're ahead, sometimes behind, depending on the time period, asset allocation, research used, and so on. Super Ratings found that sustainable super options underperformed by a measly 33-38 basis points a year over the five years to the end of May, with the median option delivering annual returns of 4.37 per cent (balanced) or 6.72 per cent (shares) after tax and fees.

Morningstar data for retail (non-super) funds shows a similar underperformance of 45 basis points a year over the five years to May. That's also after fees, which is part of the explanation — the added research required to analyse sustainable investments costs fund members 1.81 per cent, or an extra 21 basis points, a year more than mainstream funds.



For more postings from me, see DISSECTING LEFTISM, TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, POLITICAL CORRECTNESS WATCH, FOOD & HEALTH SKEPTIC, GUN WATCH, SOCIALIZED MEDICINE, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL and EYE ON BRITAIN. My Home Pages are here or here or here. Email me (John Ray) here. For readers in China or for times when is playing up, there is a mirror of this site here.


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