Energy Policy

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This is a light-spirited Reggae tune that incorporates R&B and Jazz elements.  The song is driven by solid rhythmic cross stick drum techniques and strong accents from the toms.  The distinctive sound of a Hammond B-3 imbues the piece with a choppy “bubble feel” which is in turn punctuated with witty Caribbean influences between verses.  Improvised guitar and bass embellishments expand traditional patterns to weave a more complex exploration of the genre.  And, the distinctive Jamaican vocals are light and inviting with friendly harmonies.

Reggae lyrics often feature social criticism mixed with humor, and Energy Policy relies on this tradition as well.  As its name suggests, this tune speaks to deficiencies in the U.S. energy policy.  It highlights the facts that the current policy favors political cronies, does not prioritize energy affordability, and negatively impacts just about everyone else, especially those of us who must fill our gas tanks “once a week”.

We are a society invested in a two party system.  Far too often, we are Republican or Democrat, red or blue.  We align ourselves with our political party, sometimes blind to our own leaders’ shortcomings and abuse.  Why?  Psychologically, it is human nature to defend “our team” or what we perceive to be “our team”.  Unfortunately, such “political party protectionism” distracts us from examining the abuse of political power we have vested in our own party’s leaders.

Energy Policy is chocked full of examples of such abuse of power.  Consider the first verse:

“…Our energy secretary named “Chu”,

is laying it on really thick.

Congress asked him to grade his performance.

And he’s giving himself an “A”.

He responded with

arrogant, self-serving words,

‘Cause most people would grade him with “F”

And others would add a …”

With biting sarcasm, this verse refers to Secretary of Energy Steven Chu’s laughable response to Congress when asked how he’d grade his performance. He said:  “There’s always room for improvement, maybe an A-.”  Come again?  With gasoline prices doubling, and over $500 million in then suspiciously sour Solyndra deals, Chu gives himself an A-?  Any intellectually honest person, regardless of their political affiliation, would certainly have to give Chu a big, fat “F”.

Chu’s reply should go down in history with other famous quotes that reflect a leader’s obliviousness to the terrible condition of the people governed such as Marie Antoinette’s purported statement “Let them eat cake” when she was told the peasants didn’t have bread or the ancient Chinese emperor’s puzzled response “Why don’t they eat meat?” when told the peasants don’t have rice.

The DOE has an abysmal track record.  The Administration was clueless when it comes to making sound business investments because it tends to support its political “corporate cronies”.  But maybe the Administration wasn’t completely “clueless”.  George Kaiser, a major campaign fundraiser who had invested $400 million in Solyndra, influenced how the Administration handled the company’s financial problems.  In addition to disguise the failure, the Administration wanted to delay Solyndra layoff announcements until after the midterm elections.  In another investment, $465 million went to Tesla Motors to make a luxury electric car costing $100,000.  The affluent few who would be able to afford a Tesla car would receive a $10,000 tax subsidy.

Based on the amounts of “stimulus” money the Administration spent, they could have purchased and installed enough solar panels to virtually eliminate the electrical energy requirement for every low income single family dwelling in America.  That would have created jobs, reduced dependence on foreign oil, helped move people out of poverty, and it would have paid for itself year after year, every year thereafter.  But that was not their objective.  They were focused on the schemes of campaign fund raisers and their own pockets.

There are plenty more DOE disasters to point to.  For example, with billions of taxpayer dollars being handed out as “stimulus”, Franklin Rusco of the GAO elaborated on the problem, “When we looked at the 10 loans that had been committed to as of summer 2010, we found that fully five of those loans had been committed to without having gone through the full battery of independent analyses that are required in the due diligence process. That’s a problem.”

As another example, Fisker is another venture anointed by the DOE.  It is a company whose cars are designed in the U.S. but built in Finland.  Fisker is part-owned by the Qatar Investment Authority.  Senator Chuck Grassley and Senator John Thune wrote a letter to DOE Secretary Steven Chu asking, “Why should the American taxpayer have to accept the credit risk of a company owned by a foreign government?”

The point is that massive government intervention in capital markets sometimes unintentionally stifles innovation by inhibiting the flow of private capital to competing companies.  How would you feel when you had to lay off your loyal employees because you couldn’t financially compete with the financial inequity created by the DOE?  If you worked for a company struggling to compete with another company that obtained DOE funding because it had connections with political insiders, how would you feel when your employer laid you off?

Many of us feel it is unfair to fund only “politically favored” companies while ignoring others.  Government intervention is simply unfair in an open market system.  Funding from the government creates an artificial financial advantage for the politically favored company and limits the outside funding for that industry from private capital markets.  Of course, in almost every such politically motivated deal, the real motivations are for the individuals who benefit from the transactions.  If you follow the money in these deals, you will find that the crony system is alive and well in our country.  Naturally, those who benefited and the politicians who facilitated the transactions really don’t care if others in the industry are adversely affected, or whose children will pay the resulting government debt.

The second verse of Energy Policy highlights another of Chu’s missteps:

“…So I turn off the TV in disgust and

I remembered Chu’s previous stance.

He wanted gas prices to rise,

‘cause Solar will make more sense

When our gas costs the same as in France…”

In 2008, Chu told The Wall Street Journal that to effectively switch over to clean energy sources, “Somehow we have to figure out how to boost the price of gasoline [in the U.S.] to the levels in Europe.”  After he took office in 2009, the price of a gallon of gasoline skyrocketed from $1.85 to $3.87, but Chu insisted there was little the Administration could do about it.  Chu was criticized for not prioritizing energy affordability.  But Chu had other priorities.  It has been said that Chu and the DOE weren’t operating a stimulus program for America; rather the Department was running a stimulus program for political donors with ties to the Administration.  Unfortunately, the whole crooked fiasco gave both a bad name and a new meaning to “Green Energy”.

The fourth verse of the song adds yet another breach of trust to the list of dirty deeds:

“..And you know Solyndra didn’t pass the smell test,

There were lots of people who knew.

And while China’s buying up the world’s oil reserves,

We’re closing down our coal

And ethanol doesn’t help clean air”,

It grows a Senator’s bank roll,

No it’s not just about Chu

Man, all the unbelievable things that they do…”

Close examination of these lyrics reveal Chu’s blatant abuse of power.

“..And you know Solyndra didn’t pass the smell test,

There were lots of people who knew…”

The private sector has rightfully been working on green energy for more than twenty years.  This is evidenced in part by the fact that the cost of solar panels has come down steadily, making the photovoltaic technology more economically viable every year.  Any student with a computer could have researched the historical downward trend of the cost of photovoltaic panels before the very first meeting about Solyndra and identified potential problems with the deal because of market dynamics.  Normally, sophisticated investors would never continue past the first day of due diligence on the Solyndra transaction.  It is obvious that it wasn’t a mistake, it wasn’t negligence, and it wasn’t stupidity.  Business professionals involved in financial transactions at that level are not stupid.  Finance, legal and business professionals are trained to evaluate the health of a company that is the subject of a financial transaction of this magnitude.  This deal was completed knowingly as a sham.  It has tarnished the image of green energy and shone a light on political cronyism and corruption.  If it is not comprehensively investigated and prosecuted, we should all be ashamed.

 “…And while China’s buying up the world’s oil reserves,…”

According to the U.S. Energy Information Administration (EIA), “the global supply of crude oil, other liquid hydrocarbons, and biofuels is expected to be adequate to meet the world’s demand for liquid fuels for at least the next 25 years. There is, of course, substantial uncertainty about the levels of future oil supply and demand….”

“An often cited, although misleading, measurement of future resource availability is the reserves-to-production ratio, which given the current rate of consumption and total proved reserves is about 50 years. However, proved reserves are an accounting concept that is based on known projects and is not an appropriate measure for judging total resource availability in the long-term. Over time, numerous additional projects will be developed, which will add to global reserves. Furthermore, reserve estimates at known projects are likely to increase as new technologies are developed.”

Just a little over 20 years ago, China was not even in the top ten economies of the world.  Our big-box superstores gave it our manufacturing.  Now, it makes most of our “stuff”.  But that’s another story.  China is the world’s most populous country and the world’s second largest oil consumer.  It is one of the fastest growing economies in the world.  China’s oil consumption grows seven times faster than the U.S., and its growth projections are off the charts.  Sustaining an extremely high level of economic growth may be necessary to contain civil unrest in China.

China has more people than any other country on the planet.  There are 1.3 billion Chinese and about 90 of them are billionaires.  Additionally, today, millions of Chinese experience modest affluence.  They are transitioning from bicycles to cars.  In the next few decades, China will have more cars on its roads than there are cars on the planet today.  Consequently, Chinese oil consumption has increased.  In 1993, China became a net oil importer and is now dependent on foreign oil.  China’s need for energy is projected to increase with its growth, and to sustain its growth, China requires increasing amounts of oil.

So there’s only so much oil left, and the Chinese want it.  The Chinese company whose mission is to acquire and control oil resources outside of China’s borders is Cnooc.  Rest assured, Cnooc isn’t going to stop buying up crude reserves.  China’s growing dependence on imports has obliged it to acquire crude reserves in places like Canada, Iran, Kazakhstan, Russia, Saudi Arabia, Sudan, Venezuela, and West Africa.  Clearly, Cnooc is unconstrained by geography or financial wherewithal.  Simply put, Cnooc is going to buy oil everywhere it can.

Right down the street in our own neighborhood, China completed oil and gas acquisitions with Argentina, Brazil, Ecuador and Peru.  China is also very interested in our neighbor just across the street, Venezuela, the fourth largest oil supplier to the U.S.  Chinese companies are exploring for oil and gas and will set up refineries in Venezuela.  Companies controlled by the Chinese government are working on oil deals in Canada, the U.S.’s major petroleum supplier on our northern border.  China’s continued acquisitions in North America could have serious economic implications for our future.  Since both the United States and Mexico’s crude production are declining, the U.S. cannot afford to lose the crude produced by the two neighboring countries that supply almost a third of its oil imports.

With China continuing to buy oil reserves in the American market, the U.S. will be forced to seek oil from the Middle East.  But China also wants a foothold in the Middle East and has made attempts to build up strategic links with countries hostile to the U.S.  At the same time, China’s increasing thirst for imported energy has drawn it closer to countries supporting terrorism like Iran, Iraq and Sudan.  China’s arms sales to the region and its support of state sponsors of terrorism are highly troubling.  With radical Islamic ideologies gaining a controlling foothold and anti-American violence threatening American presence in the Middle East, the price of oil is going up.

No other nation on the planet can do the damage that we can do to ourselves, or that our own leadership can do to us through the creation of laws, subsidies and policies designed only to benefit their own special interests.  America’s misdirected, dysfunctional energy policy has been “practicality challenged” by China’s pursuit of oil which is undercutting U.S. security interests and our economic future on multiple fronts.  And yet our leadership appears to be too busy lining the pockets of political cronies to notice or to care.

 “…We’re closing down our coal…”

Coal provides over 30% of global energy needs and generates 42% of the world’s electricity.  In 2011, coal was the one of the fastest growing forms of energy.  Total global coal production (in millions of metric tons) exceeds 7,670 Mt.  America contributes about 1,000Mt, with China producing over three times that of America and in addition importing about twice the amount the U.S. exports.

Demand for energy is rising globally, especially in the developing nations.

According to the German Federal Institute for Geosciences and Natural Resources (BGR) there are 1004 billion tons of coal reserves left, or about 130 years of global coal output as of 2011. Coal reserves reported by World Energy Council (WEC) are much lower – 861 billion tons, or about 112 years of coal output.

Historically, electric utilities have been big consumers of coal.  More than 100 of about 500 coal-burning power plants in the United States are expected to be shut down in the next few years.  Although coal still provides about a third of our power, just four years ago it was providing nearly half.

The decline is largely because new pollution regulations have made coal burning plants more costly in the U.S.  Additionally, a surge in production of natural gas through hydraulic fracturing has reduced prices.  Together, these actions have collapsed the economics of coal as a cheap energy source for the production of electricity and consequently devastated the U.S. coal mining industry.

Environmental groups, funded on this issue by millions in contributions from natural gas companies, have been targeting coal plants as leading sources of air pollution for several years.  The environmentalists believe that if they can shut down a third of the nation’s coal burning plants, emissions in the United States could be considerably reduced; thus, they have lobbied Washington to impose more stringent regulations.  So, do you think in the near future your electricity bill is going down and the “greenhouse gas” emissions from the coal China (and every other country) burns will stop at their borders?  Again, China produces over three times the coal that America does, and in addition, imports about twice the amount of coal the U.S. exports.  They must burn a lot of coal to generate enough electricity to make all the products we buy from them.

Surprisingly (or not), Warren Buffett-owned railroads have benefited from the Administration’s new regulations and the very industry contributing to the decline in coal shipments.  The recent boom in hydraulic fracturing has resulted in railroads transporting more equipment and petroleum products to and from shale formations for energy companies.  Warren Buffett-owned Burlington Northern Santa Fe railroad has profited from a 75 percent increase in petroleum carloads.  Some rail industry analysts believe that this is a whole industry that just sprung up on all the rail properties.  Wow, what luck those Warren Buffet guys had, huh?

In the past, high energy prices in the U.S. have come during good economic times, making them less damaging to family budgets.  Now prices are high despite slow economic growth in the U.S. and resulting weak demand.

“…And ethanol doesn’t help clean air,

It grows a Senator’s bank roll,…”

The Wall Street Journal published the following editorial on Dec. 30, 2011.

Congress created ethanol subsidies in 1978, expanded them in a 1980 bill and then rinsed and repeated in 1982, 1984, 1988, 1990, 1992, 1998, 2004, 2005 and 2007. But now, wonderful to relate, this 30-year adventure in corporate welfare might finally be going into reverse.

Congress adjourned without extending the $6 billion annual tax subsidy for blending corn ethanol into gasoline and the steep import tariffs on the industry’s foreign competitors. Both government giveaways turned into pumpkins at the stroke of the New Year.

The Senate voted overwhelmingly against continuing the 45-cent-a-gallon ethanol credit in July, and an extension was not slipped into the final budget deal. Deliberate neglect is not the Viking funeral the ethanol lobby deserves, but given its many political clients, this is a minor policy watershed all the same.

The left-right coalition against corn ethanol has been growing for some time, and the latest outfit to lend its voice to what is now a not-so-lost cause is none other than the National Academy of Sciences. In an October report, academy researchers concluded that grain ethanol “could not compete with fossil fuels in the U.S. marketplace without mandates, subsidies, tax exemptions, and tariffs. … This lack of competitiveness raises questions about the use of government resources to support bio-fuels.”

The liberal revelation has been the growing evidence that biofuels increase net carbon emissions. Pumping energy-intensive row crops into gas tanks leads to land-use changes in world agricultural markets that increase greenhouse gases.

The irony is that a fuel that was sold as a global-warming palliative — the industry will use any argument to justify its government lucre — is now being hoisted on its own cornstalk. Green carbon fuel standards regulations from the Environmental Protection Agency and in California credit sugar ethanol produced in Brazil with better climate benefits than corn ethanol.

So South American makers have been shipping their product to the West Coast, paying the tariff and selling it at a premium. U.S. makers then send their product south to backfill the Brazilian market. So much for “energy independence,” another example of false ethanol political marketing.

Ending ethanol protectionism will at least help lower U.S. costs, but the tragedy is that no one would ever buy it at the pump without Congress’ mandate, which, alas, will continue.

The National Academy’s summary is apt: “Without biofuel tax credits … the cost of biofuel programs is borne directly by consumers, as they are forced to pay a higher cost for the blended renewable fuel than for petroleum-based products. Otherwise, consumers bear the cost of biofuel programs indirectly through taxes paid.”

The fight for economic rationality goes on.

It seems, however, that we seem to be losing the battle for economic rationality.  Consider, for example, the following excerpt from a Cato Policy Analysis No 241 September 26, 1995 titled “Policy Analysis Archer Daniels Midland A Case Study in Corporate Welfare” by James Bovard.  James Bovard is an associate policy analyst with the Cato Institute. He is the author of the book “Shakedown: How the Government Screws You from A to Z” (Viking, 1995).

The Archer Daniels Midland Corporation (ADM) has been the most prominent recipient of corporate welfare in recent U.S. history. ADM and its chairman Dwayne Andreas have lavishly fertilized both political parties with millions of dollars in handouts and in return have reaped billion-dollar windfalls from taxpayers and consumers. Thanks to federal protection of the domestic sugar industry, ethanol subsidies, subsidized grain exports, and various other programs, ADM has cost the American economy billions of dollars since 1980 and has indirectly cost Americans tens of billions of dollars in higher prices and higher taxes over that same period. At least 43 percent of ADM’s annual profits are from products heavily subsidized or protected by the American government. Moreover, every $1 of profits earned by ADM’s corn sweetener operation costs consumers $10, and every $1 of profits earned by its ethanol operation costs taxpayers $30.

One of the most politically charged debates in Washington revolves around business subsidies known as “corporate welfare.” A number of policy organizations have published studies examining the corporate welfare phenomenon: what qualifies as corporate welfare, how much it costs taxpayers, and how much it damages the economy. This study examines the dynamics of corporate welfare somewhat differently by investigating ADM as a classic case study of how those subsidies are obtained, how the welfare state encourages such “rent seeking,” and how such practices fundamentally corrupt the political life of a nation. Congress’s expressed desire to foster a free marketplace cannot be taken seriously until ADM’s corporate hand is removed from the federal till.

* * *

ADM is certainly the nation’s most arrogant welfare recipient. And it is one of the few welfare recipients that spend millions of dollars each year advertising on Sunday morning television shows populated and watched by politicians. Chairman Dwayne Andreas’s and ADM’s success in farming Washington represents the rational result of contemporary government policies that turn elections into “an advanced auction of stolen goods,” as H. L. Mencken quipped. Thanks to its multi-million-dollar hustling in Washington, a company that lives and dies on the generosity of the American taxpayer has managed to get itself revered as a great public servant. Although ADM is not the only corporation with its hand out in Washington, it is easily one of the most successful beggars on the block.(1)

Andreas recently told a reporter for Mother Jones, “There isn’t one grain of anything in the world that is sold in a free market. Not one! The only place you see a free market is in the speeches of politicians. People who are not in the Midwest do not understand that this is a socialist country.”(2) Andreas’s comment about “no free markets” is like the old joke about the son who murdered his parents and then asked for the court’s mercy because he was an orphan. ADM champions political control over markets and then invokes that control as an excuse for its continued political manipulation. Andreas has exerted his influence in Washington to ensure that the U.S. form of “socialism” resembles 1930s’ Italian corporate statism: the government plunders the citizenry for the benefit of politically connected corporations. And, though Andreas does not like to admit it, there are many markets in the world for agricultural products that are not controlled by politicians.

So where does this all leave us?  In 1875, the Supreme Court stated, “To lay with one hand the power of the government on the property of the citizen and with the other to bestow it upon favored individuals to aid private enterprises and build up private fortunes is none the less a robbery because it is done under the forms of law and is called taxation.”

So it seems that between 1978 and today, you and I, and the rest of the American people, spent between $50 and 200 billion more to fill our gas tanks than was needed – and this amount is just for starters—the total cost is much higher (and it continues!).    We were forced to do so under the ruse of gaining environmental benefits that were false.  The real reason was “redistribution of wealth”, ironically a phrase that politicians often use in their rhetoric to seduce the poor.  Too often, what we don’t realize is that the “wealth” is usually “redistributed” from our pockets to the politicians and their supporters.  And sadly, any impact the ethanol program had on the environment was actually negative.  Along with the growing evidence that the ethanol program increases net carbon emissions, below are a few environmental factors:

  1. Spills of gasoline containing ethanol from leaking storage tanks can create a benzene plume up to 150% larger than a spill from a non-ethanol fuel.
  2. For every gallon of ethanol produced, 1.4 gallons of energy is consumed in the process, compared to 0.15 gallons used to manufacture of gasoline, according to a study by Cornell University.
  3. It takes 1.5 gallons of ethanol to drive as many miles as one gallon of gasoline.
  4. Ethanol increases the vapor pressure of gasoline by 1 psi resulting in higher evaporative emissions of VOCs (Volatile Organic Compounds), while tailpipe emissions of Acetaldehyde increase 150%.
  5.  Environmentalists blame ethanol for contributing to fertilizer runoff that has created an algae bloom in the Gulf of Mexico.
  6. Ethanol is listed as a known human carcinogen by the International Agency for Research on Cancer.

In addition, there were other issues that shed light on the problem.  Livestock producers who rely on corn for feed and groups concerned about world food costs have become more vocal.  The United States is the world’s largest exporter of corn.  Now, the need to supply corn to satisfy the ethanol mandate competes with the need to supply food to eat.  Beef cattle eat corn, and the mandate has caused the cost of our meat to go up.  In times of drought, corn exports will go down and people may go hungry in other parts of the world (which can be a contributing factor leading to angry protests and mobs attacking US embassies).  The director-general of the Food and Agricultural Organization of the United Nations called for “an immediate, temporary suspension of the mandate” that would “allow more of the crop to be channeled towards food and feed uses.”

As an example of the ethanol debacle, let’s say that in 1978, we have a friend named Warren, and Warren makes a new “diet” ice cream that consumers don’t really want.

(1)Then Warren pays his buddies in government to create a law that requires other ice cream makers to blend his “diet” ice cream in about 10-15 percent of the nation’s total ice cream consumption per year.  Warren even gives his political buddies an excuse to pass the law that the public believes is good.  The reason Warren’s political buddies will use to pass the law is that this is going to help everybody lose weight and improve the nation’s health.  Warren will even pay for some studies to support the claim.

(2)Then Warren convinces his political buddies to pass a law to subsidize his “diet” ice cream so the other ice cream makers will blend it in to the nation’s ice cream.

(3)And Warren convinces his political friends to pass a government tariff to tax and essentially forbid imports from foreign companies who make the same “diet” ice cream as Warren’s at a lower cost.

(4)Warren and his buddies all make a lot of money for a long time and Warren contributes millions to both political parties for years so they can keep the game going.

(5)Then other studies emerge that reveal the truth about Warren’s “diet” ice cream.  It doesn’t actually make us lose weight and improve our health.  It actually makes us gain weight and damages our health.  (Are you feeling sick, fat, and stupid yet?  I am.)  Let’s say that in this example we find another disclosure that the ingredients Warren uses in his “diet” ice cream have increased in cost because of their mandated demand.  This has increased the costs of other groceries we have been buying.

(6)So Warren’s political buddies quickly repeal the laws before things begin to heat up.  But they leave the law in place which requires other ice cream makers to blend Warren’s “diet” ice cream in about 10-15 percent of the nation’s total ice cream consumption per year.  Now the ice cream blenders will just increase the cost of ice cream to the consumer.  That’s you and I.

So after making Warren and his political buddies’ rich, and paying for all Warren’s lousy, bad tasting “diet” ice cream that we didn’t want in the first place, we’re poorer, fatter, and less healthy.   And after that, we’re still required to consume it and pay for it?  But the cost doesn’t come out of our tax dollars any more.  We all each pay directly from our pockets.  And not only does the ice cream cost more, so do the groceries.

Most people cannot be anything but disgusted and aghast with the political cronyism and abuse of powers detailed in Energy Policy.  You can’t change the past.  But what are you going to do about the future?  Your power starts with being informed.  It continues with helping to inform others about what you have learned and helping to end these abuses.

 

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