Howard Rich's Blog

June 30, 2009

Waxman-Markey Is Our Smoot-Hawley

From Investor’s Business Daily

Following is the floor speech that Republican Rep. Tom McClintock of California’s fourth congressional district gave last Friday in opposition to the cap and trade legislation that passed that day.

I had a strange sense of deja vu as I watched the self-congratulatory rhetoric on the House floor tonight, and I feel compelled to offer this warning from the Left Coast.

Three years ago, I stood on the floor of the California Senate and watched a similar celebration over a similar bill, Assembly Bill 32. And I have spent the last three years watching as that law has dangerously deepened California’s recession. It uses a different mechanism than cap and trade, but the objective is the same: to force a dramatic reduction in carbon dioxide emissions.

Until that bill took effect, California’s unemployment numbers tracked very closely with the national unemployment rate. But then, in January of 2007, California’s unemployment rate began a steady upward divergence from the national jobless figures. Today, California’s unemployment rate is more than two points above the national rate, and at its highest point since 1941.

What is it that happened in January 2007? AB 32 took effect and began shutting down entire segments of California’s economy. Let me give you one example from my district.

The city of Truckee, Calif., was about to sign a long-term power contract to get its electricity from a new, EPA-approved coal-fired electricity plant in Utah. AB 32 and companion legislation caused them to abandon that contract. The replacement power they acquired literally doubled their electricity costs.

So when economists warn that we can expect electricity prices to double under the cap and trade bill, I can tell you from bitter experience that in my district, that’s not a future prediction, that is a historical fact.

Gov. Schwarzenegger assured us that AB 32 would mean an explosion of new, green jobs — exactly the same promises we’re hearing from cap and trade supporters. In California, exactly the opposite has happened. We have lost so many jobs the UC Santa Barbara economic forecast is now using the D-word — depression — to discuss California’s job market.

Madam Speaker, the cap and trade bill proposes what amounts to endlessly increasing taxes on any enterprises that produce carbon dioxide or other so-called greenhouse gas emissions. We need to understand what that means.

It has profound implications for agriculture, construction, cargo and passenger transportation, energy production, baking and brewing — all of which produce enormous quantities of this innocuous and ubiquitous compound. In fact, every human being produces 2.2 pounds of carbon dioxide every day — just by breathing.

So applying a tax to the economy designed to radically constrict carbon dioxide emissions means radically constricting the economy.

And this brings us to the fine point of it.

When you discuss the folly of the Hoover administration — how it turned the recession of 1929 into the depression of the 1930s, the first thing that economists point to is the Smoot-Hawley Tariff Act that imposed new taxes on more than 20,000 imported products.

Waxman-Markey is our generation’s Smoot-Hawley. In fact, it’s worse, because it imposes new taxes on an infinitely larger number of domestic products on a scale that utterly dwarfs Smoot-Hawley.

Let’s ignore for the moment the fact that the planet’s climate is constantly changing and that long-term global warming has been going on since the last ice age.

Let’s ignore the fact that within recorded history we know of periods when the earth’s climate has been much warmer than it is today and others when it has been much cooler.

Let’s ignore the thousands of climate scientists and meteorologists who have concluded that human-produced greenhouse gases are a negligible factor in global warming or climate change.

Ignore all of that and still we are left with one lousy sense of timing. In the most serious recession since the Great Depression — why would members of this House want to repeat the same mistakes that produced that Great Depression? Watching how California has just wrecked its economy and destroyed its finances, why would they want to do the same thing to our nation?

Madam Speaker, this is deadly serious stuff. It transcends ideology and politics. This House has just made the biggest economic mistake since the days of Herbert Hoover.

If this measure becomes law, two things are certain. First, our planet will continue to warm and cool as it has been doing for billions of years. Second, Congress will have delivered a staggering blow to our nation’s economy at precisely that moment when that economy was the most vulnerable.

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May 13, 2009

Memo exposes global warming dispute

From the Washington Times

A memo released Tuesday shows an agency within the Obama administration objected to a landmark Environmental Protection Agency ruling on global warming, arguing that it was not based on sound science and could prove costly to businesses.

The dispute concerns the EPA’s so-called “endangerment finding,” in which the agency has tentatively found carbon dioxide is dangerous enough as a greenhouse gas to warrant regulation under the Clean Air Act – a ruling that could force federal action to address climate change even if Congress fails to act.

Critics, including some within the administration, argue that the Clean Air Act is not an appropriate vehicle to deal with climate change and say the finding sets the stage for harmful regulations on businesses and industry.

Republicans seized upon the memo as evidence that President Obama has broken his pledge to follow science rather than politics in making policy. But an administration official said the objection came from a single office that is headed by a Bush administration holdover.

Sen. John Barrasso, Wyoming Republican, revealed the memo at a Senate hearing where he waving a copy at EPA Administrator Lisa P. Jackson. “It’s here, nine pages. This is a smoking gun,” he said.

The memo has comments from several federal agencies that reviewed the EPA’s decision. It includes a complaint that the EPA’s finding “rests heavily on the precautionary principle, but the amount of acknowledged lack of understanding about basic facts surrounding [greenhouse gases] seem to stretch the precautionary principle to providing for regulation in the face of unprecedented uncertainty.”

The White House defended the science EPA used and denied there was a policy split within the administration. The comments were compiled by the White House Office of Management and Budget as part of a standard interagency review process, and OMB Director Peter R. Orszag said that OMB agreed with EPA’s initial finding.

“The bottom line is that OMB would have not concluded [the] review, which allows the finding to move forward, if we had concerns about whether EPA’s finding was consistent with either the law or the underlying science,” he wrote.

An administration official, speaking on the condition of anonymity to discuss the internal review process, said the comments challenging the science came from a single office, the Small Business Administration’s Office of Advocacy.

The office, an independent arm of the administration whose current chief was named by President George W. Bush, is charged with looking out for small-business interests as the federal government writes rules and regulations.

Still, Republicans said the memo exposed a rift inside the administration.

“The disclosure of this OMB memo suggests that a political decision was made to put special interests ahead of middle-class families and small businesses struggling in this recession,” said House Minority Leader John A. Boehner, Ohio Republican.

“It is unacceptable that this critical information was withheld and the regulatory process was abused in this fashion.”

At the hearing, before the Senate Environment and Public Works Committee, Mrs. Jackson disputed Mr. Barrasso’s characterizations, saying the EPA finding had been drafted under the Bush administration but held under lock and key until Mr. Obama took the White House. She said she reviewed and approved the finding.

She also said the finding doesn’t guarantee carbon dioxide would be capped under the Clean Air Act.

“It does not mean regulation,” Mrs. Jackson said. “I have said over and over, as has the president, that we do understand that there are costs to the economy of addressing global warming emissions and the best way to address them is through a gradual move to a market-based program like cap-and-trade.”

The cap-and-trade proposal would set an overall ceiling for greenhouse-gas emissions and allow businesses and other polluters to trade emission permits under the cap.

An EPA spokeswoman said Mrs. Jackson would consider the dissenting views from within the administration when drafting a final “endangerment finding.”

“As we do with any proposed rule, EPA takes these interagency comments under advisement,” said EPA spokeswoman Adora Andy.

In making the initial finding, EPA acted in accordance with a court order, which said the agency must determine whether carbon dioxide was dangerous enough to deserve regulation under the Clean Air Act.

The Obama administration has walked a fine line with the finding – playing down its potential for regulating carbon dioxide while supporters have heralded it as a backup plan should climate legislation fail. Mr. Obama’s team has consistently said EPA regulations would be a dull tool and prefers that Congress come up with a solution.

House lawmakers are weighing a plan to address climate change through the “cap-and-trade” system, but the proposal is facing early opposition in a House committee.

The memo was first reported by Dow Jones Newswire, and the intra-administration dispute could give opponents ammunition for a legal challenge to EPA’s finding.

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April 24, 2009

When Expenses Outweigh Benefits

From Investor’s Business Daily:

Regulation: Should the Environmental Protection Agency place limits on carbon dioxide emissions, the costs to the oil industry, its customers and consumers in general will be stiff. Fighting global warming is not cheap.

For now, we’ll forget that there’s no reason to go to war against a mythical enemy that has been created through vain imaginings and focus on the expenses humanity will incur in the battle to keep man from heating his planet. Because either through EPA regulation or by legislative initiative, there’s a better than even chance carbon emissions will one day be regulated in America, and those rules won’t come without costs.

But before the rules are carved into the cornerstone of the Washington Monument, it’s policymakers’ duty to take a sober look at the price and determine if demon carbon is worth the prohibition crusade.

U.S. petroleum refineries discharge hundreds of million of tons of CO2 into the sky each year. Oil companies don’t spew carbon into the air out of malice toward the environment or through a misanthropic negligence. They do it to make products, in particular motor fuels, the world demands and the global economy needs if it is to continue growing.

The oil industry employs a complex finishing process for crude and will not be able to simply flip a switch that will reduce its carbon dioxide discharges. It will have to make expensive changes in its operations if it is to keep providing the market with energy. The power it uses to run its refineries and light its buildings will cost more. To comply with regulations, oil companies will likely have to sink resources into new equipment that is not as cost-effective as what they are running now.

At the production level, costs will increase as the industry will no longer have the same economies of scale that keep prices down. With demand being lowered by regulation, the volume that oil companies will be able to spread their costs over will shrink, making each unit more expensive to produce.

Karen Campbell, a macroeconomic policy analyst at the Heritage Foundation, says that to operate within the government-imposed limits oil companies will have to cut their production by “about 2.2% below where it would be in the baseline scenario.” In terms of costs to the industry, “Producers of refined petroleum would see their price index (costs) grow 81% more than the baseline.”

Congressional Democrats and agitators on the left would have the public believe that the additional expenses incurred by the oil industry will come out of the pockets of the obscenely (in their minds) wealthy Big Oil executives. Some of it will. If the companies become less profitable, workers at all levels will lose income.

But consumers, some of whom support CO2 caps, will take a hit, as prices are expected to increase by 28% over the next 20 years. Oil industry workers will be affected, as well, with as many as 14,000 in both the oil and coal industries losing their jobs, Campbell reckons.

Meanwhile, investors, some of whom also support CO2 caps, will find that their investments in the oil industry will lose strength.

“The increase in prices and decline in operations is not only bad for consumers and employees, but also bad for all the owners of these stocks — pension funds, mutual funds, 401(k)s, etc. — who would get an average 3.25 percentage points lower return on their equity — about 11%,” said Campbell.

“The power of compounding makes this loss in return, year over year, significant. A $1 million investment would grow at a slower rate over the 20 years resulting in about $20 million less wealth accumulated for the saver or fund that invested in the petroleum industry.”

It’s hard to see how this trade-off could ever be of any real benefit. In exchange for a decrease in anthropogenic emissions of carbon dioxide, American jobs must be sacrificed; investors will have to expect — and receive — lower returns; capital in an essential sector that needs investment to find and produce new sources will be depressed; and consumers will have no choice but to use a greater share of their incomes for energy.

Washington, as is too often the case, has it wrong on CO2 emissions. It is treating speculation as if it were a genuine emergency. The political leadership needs to stop, take a deep breath and rethink the trendy position on carbon.

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