Category — Corporate Governance

Last week, at the first Senate Environment and Public Works Committee hearing on S. 1733, the Kerry-Boxer “Clean Energy Jobs and American Power Act,” Department of Energy Secretary Steven Chu explained the economic rationale for adopting a Kyoto-style cap-and-trade program.

His argument, in a nutshell, goes like this:

1. Reducing emissions globally will require a massive investment in “clean technologies” — an estimated $2.1 trillion in wind turbines and $1.5 trillion in solar voltaic panels by 2030. These investments will create many green jobs.
2. “The only question is — which countries will invent, manufacture, and export these clean technologies and which will become dependent on foreign products.”
3. The United States is falling behind. “The world’s largest turbine manufacturing company is headquartered in Denmark. 99 percent of the batteries that power America’s hybrid cars are made in Japan. We manufactured more than 40 percent of the world’s solar cells as recently as the mid-1990s; today we produce just 7 percent.”
4. To seize the opportunity of clean tech and keep from falling farther behind, “we must enact comprehensive climate legislation,” the most important element of which is a “cap on carbon emissions that ratchets down over time. That critical step will drive investment decisions towards clean energy.”

There is so much silliness packed into Chu’s testimony that it’s hard to know where to begin. [Read more →]

Editor note: This piece is reproduced from the website www.politicalcaptitalism.org with the permission of the author. This post, the first in a series, is germane to the current debate over climate/energy legislation that is backed by a number of large U.S. corporations (Enron then; GE, Duke, DuPont, etc. now).

Political capitalism is a private-property, market-oriented system that is compromised by business-sponsored government intervention. It is a socioeconomic system in which many or most regulations, subsidies, and tax-code provisions result from the lobbying efforts of directly affected businesses and their allies.

Today in the United States, there is greater political transparency and competition between political elites than was evident in the business-dominated past (the 19th and most of the 20th centuries). Interventions routinely result from non-business special interests representing education, the environment, labor, minorities, religion, retirees, science, and taxpayers, among others. Still, business interests—unified or in opposition—are arguably the most important of the elites that compete for special government favor in American politics today.

There are two avenues to business success under a private-property, profit-and-loss system. When using the economic means, or free-market means, businessmen provide goods or services in an open market and rely on voluntary consumer patronage. When using the political means, businessmen obtain a governmental restriction or favor that provides the margin of success beyond what consumer preference alone would give. Market entrepreneurship is the way of capitalism; political entrepreneurship, or rent-seeking as it is known in the economics literature, is the way of political capitalism.

Business interests welcome competition for the things they buy (to minimize costs) far more than for things they sell. They may profess support for free enterprise in general but not in their particular area. There, competition is disparaged as “unbridled,” “cut-throat,” “excessive,” or “unfair,” and calls are made to constrain the free market.

Historian Gabriel Kolko has defined political capitalism as “the utilization of political outlets to attain conditions of stability, predictability, and security—to attain rationalization—in the economy.” [Read more →]

“Waxman-Markey is largely top-down regulation dressed in cap-and-trade clothing.”

David Schoenbrod and Richard Stewart, “The Cap-and-Trade Bait and Switch“, Wall Street Journal, August 24, 2009.

The Environmental Left is pushing hard to provoke a civil war between natural gas industry (its “friend”) against the coal (and oil) industry. John Podesta (Center for American Progress) and Tim Wirth (UN Foundation) have cooked up a menu of bribes (taxes, a.k.a. “incentives,” “credits,” “allowances,” and “expand”) as follows:

Electricity

• Establish incentives to retire aging, inefficient, dirty coal-fired power plants, and replace them with renewable and low-carbon electricity.

• Create a renewables integration credit to offset specific costs associated with producing high levels of renewable energy and to reward those who go beyond the renewable electricity standard.

• Establish a dedicated incentive for development and deployment of “dispatchable” renewable energy to build markets for electricity storage technology.

• Require that the carbon price and other costs are included when determining the dispatch order for moving electricity onto the grid in order to prioritize natural gas and other clean electricity.

• Expand carbon capture-and-storage provisions to include other permanent storage technologies in addition to geologic sequestration. Ensure that carbon capture and storage research and deployment efforts include retrofitting existing coal- and gas-fired power plants.

Transportation

• Expand the market for natural gas as a heavy-duty transportation fuel by increasing incentives for gas-powered buses and heavy trucks.

• Create incentives for communities to develop mass transit systems that employ buses fueled by natural gas.

Decision-makers in the gas production, transmission, and distribution businesses should reject this Trojan Horse. Obama energy policy spanks natural gas, the predominant swing fuel in electric generation, by forcing renewables and conservation (conservationism) in the market. And fair warning: the more natural gas gains in market share relative to oil and coal, the less friendly the environmentalist movement will be. (Take note of the hydraulic fracturing debate between environmentalists and the oil and gas production sector.)

Don’t Take ObamaBait

Low natural gas prices have created a desperate industry, but the answer is not quick-fix politics that create political dependence and hurt the general economy. The modus operandi of ‘Mr. Natural Gas’ Ken Lay back in Enron’s heyday, and Boone Pickens today, should be rejected–as should political (“rent seeking”) capitalism as a philosophy. [Read more →]

“No, I have to do this my way. You tell me what you know, and I’ll confirm. I’ll keep you in the right direction if I can, but that’s all. Just… follow the money.”

- Deep Throat to Bob Woodward, All The President’s Men (1976).

Yesterday’s post at MasterResource presented seven areas where the American Clean Energy and Security Act of 2009 (H.R. 2454, aka Waxman-Markey) bribed segments of the electric utility industry into support. So it should come as no surprise that there are specific companies and technologies that are well positioned to gain quick, big bucks by its legislative requirements should climate legislation become law  in its current form.

I have discussed carbon legislation with many of these companies that publicly declare their concern about anthropogenic climate change yet privately see this as the greatest money-making opportunity of their lifetimes. The Bootleggers and Baptist model of government intervention is in clear evidence. Adam Smith must be turning over in his grave given the enormous “invisible handout” that Waxman–Markey provides to a select few in the electricity generation market.

Five Link Chain

In “Federal Actions Will Greatly Affect the Viability of Carbon Capture and Storage as a Key Mitigation Option,” released September 30, 2008, the GAO found that a key technological barrier to carbon capture and storage (CCS) deployment was a lack of experience in capturing significant amounts of CO2 from commercial-scale power plants. The significant cost of retrofitting existing plants, which it deemed “the single-largest source of CO2 emissions in the U.S.,” also hampered deployment. The GAO also found that both the EPA and DOE had yet to comprehensively tackle the full range of issues that would require resolution for large-scale deployment. The GAO was spot-on in their conclusions. [Read more →]

“I expect all the bad consequences from the chambers of Commerce and manufacturers establishing in different parts of this country, which your Grace seems to foresee…. The regulations of Commerce are commonly dictated by those who are most interested to deceive and impose upon the Public.”

- Adam Smith, 1785 letter. In The Correspondence of Adam Smith. (1)

The American Clean Energy and Security Act of 2009 (H.R. 2454, aka Waxman–Markey) was narrowly adopted by the House of Representatives on June 26. As has become standard practice, few legislators were familiar with the final 1,428-page bill, given all the horse-trading hours before the final vote.

Waxman–Markey was a low point in the political process, but what made passage possible was worse: highly organized support from some quarters of the electric utility industry and a lack of protestation from much of the rest.

Some industry parties believe that their lobbyists successfully watered down an extremely disruptive legislative draft to the point that the final was merely distasteful. But compared to killing the bill, which could have been done had the industry been so minded, getting “a seat at the table” resulted in passage.

I remember when ”getting a seat” in legislative negotiations included infiltrating and defeating bad proposals. Today, it means ensuring your company gets a piece of the political pork. Such “rent-seeking” substitutes political capitalism for principled free-market capitalism and leaves virtually all of us poorer.

There are a variety of sections buried in the 1,428-page Waxman–Markey climate bill that clearly benefit a select few electric utilities. My post tomorrow will discuss which vendors and electric utilities are best positioned to greatly benefit by these legislative requirements should they become law.

The Winners (at our Expense)

A new study by the Energy Information Administration (EIA), Energy Market and Economic Impacts of H.R. 2454, reveals several very interesting, perhaps unintended, consequences that Waxman–Markey will have on the electric power industry. [Read more →]

A calm has descended over the federal government’s initiatives in energy amid the furor over health insurance legislation. The respite is welcome, but the sturm und drang of clashing interests will resume in earnest after Congress’s summer recess. There is too much money on the table–our money–for the favor-seekers to ignore.

A Banana Republic?

Increasingly, it is clear that the initial cap-and-trade legislation was insufficiently opaque. Numerous analyses of Waxman-Markey (HR 2454) on this site and others have shown that the proposed cap-and-trade legislation will cost consumers dearly by raising the prices of electricity and gasoline, while ignoring viable sources of clean energy that have not yet found the key to the federal treasury.

With so much money at stake, each of the contestants (call them rent-seekers, some of them reluctant players in the political capitalism game) will attempt to gather up as much of the pot as possible. The only people not at the table, those of us who will pay for this orgy of confiscation, wonder just what it is that we will receive in return for our cash.

Rent-seeking is defined as follows in Wikipedia: [Read more →]

Some environmental leaders have said that I am naïve to think that there is an alternative to cap-and-trade, and they suggest that I should stick to climate modeling. Their contention is that it is better to pass any bill now and improve it later. Their belief that they, as opposed to the fossil interests, have more effect on the bill’s eventual shape seems to be the pinnacle of naïveté.

- James Hansen, “Strategies to Address Global Warming,” July 2009.

Welcome to the science of politics, Dr. Hansen–and welcome to a tradition in political economy that is more than a century old. “I see no force in modern society which can cope with the power of capital handled by talent,” stated William Graham Summer in 1905, “and I cannot doubt that the greatest force will control the other forces.” And said George Will in our time: “The world is divided between those who do and do not understand that activist, interventionist, regulating, subsidizing government is generally a servant of the strong and entrenched against the weak and aspiring.”

The political hijacking of climate legislation is why the Left is now embarrassingly split on the issue. And just maybe this is the opening wedge to get the Left to reconsider climate alarmism in its wider dimensions. After all, higher energy costs disproportionately affect the poor and slow the drive to mass-electrify the developing world. And the climate crusade is  resurrecting (uneconomic) nuclear power–a Left no-no. And geoengineering–that too is an unwanted stepchild of climate exaggeration.

And there is even the spectre of Big Brotherism in this energy road to serfdom. Remember Jimmy Carter’s winter/summer thermostat regulations? [Read more →]

A death announcement last week in the Houston Chronicle caught my eye. I never met the late Stephen Simon, but what I read made me realize that the quiet heroes and heroines of free-market capitalism need to be saluted now and then. For they are the wealth creators and real philanthropists versus the political system’s wealth redistributionists and wealth destroyers.

Here is the essence of this man. An engineer. More than 40 years with a major energy company in a variety of advancing positions at home and abroad. Successful. Private sector philanthropist with his time and money.

And through it all, a ”heroic capitalist” in the Smith-Smiles-Rand tradition (see Part I of my Capitalism at Work). A practitioner of Principled Entrepreneurship ™.

Think of what Julian Simon would have said about Stephen Simon (no relation): He created more than he consumed to leave us resource richer. And he used that wealth to create still more wealth and advance civil society.

Finally, think of Mr. Simon and his company when you think about the names that made the news at the once rival of ExxonMobil, the late Enron. (Enron’s Ken Lay, in fact, joined Exxon two years before Simon as a corporate economist before going to Washington for various assignments and never really getting politics out of his blood.)

The obituary follows: [Read more →]

“If there is one thing I have been impressed with over the last decades, it is that when the environmental community defines a number one priority, something happens. Not always something good—but something.”1

Dr. Kenneth L. Lay, Chairman, Enron Corporation, June 1997 (1)

Who was the late Ken Lay, the architect and chairman of Enron throughout its 16-year history? All parties to the current legislative debate on a CO2 cap-and-trade bill should know. After all, Lay’s tireless efforts to promote CO2 regulation and enact renewable energy quotas make him a father figure for HR 2354, the Waxman-Markey climate bill, what I have called the Enron Revitalization Act of 2009.

In his lifetime, Lay did not win CO2 regulation, but he got a very damaging renewable energy mandate passed in his home state of Texas. I asked:

How has Texas, which consumer choice made the leading oil and gas state, become the second most politicized energy state in the nation (after California)?

The regulatory spiral can be traced back  to Enron, which in 1999 spearheaded a provision in the state electricity restructuring law (Senate Bill 7, signed by governor George W. Bush) establishing a statewide renewable-energy mandate. Enron’s lobbyists had in mind the special interest of Enron Wind Company, which is now part of General Electric.

It was a double win for the politically connected company. First, as the leading power marketer, and with its eyes on becoming the leading electricity retailer as well, Enron coveted mandatory open-access of electricity in the state. Secondly, it needed a big market for its money-losing Enron Wind. Cloaking both corporate-welfare goals in the guise of a renewable mandate got media-worshipped environmental groups on board to help push SB 7 across the finish line.

Whether it was hiring John Palmisano, writing op-ed’s, working with Clinton/Gore, contributing $1 million to Resources for the Future in appreciation of their cap-and-trade work, or a myriad other things, Ken Lay worked a mile a minute to promote CO2 legislation, all to help a variety of Enron profit centers (see below). [Read more →]

“We can push solar, and that’s great. But somebody’s got to pay for it. You can’t have those who can barely afford their energy bills subsidizing it.”

- Texas Rep. Sylvester Turner, quoted in the Houston Chronicle

The Houston Democrat made a national statement, not just statewide one, in reference to proposed legislation to surcharge ratepayers to subsidize solar roofs. Such sentiment beat back a well-funded effort by national environmental pressure groups and the solar industry. Has the decade-old Enron-launched artificial stimulus to uneconomic, unreliable renewables reached its apogee? Might existing and planned renewable programs enacted at the expense of ratepayers and taxpayers be reconsidered by the Public Utility Commission of Texas and the 82nd Texas Legislature in 2011?

Background

The Texas Legislature, which meets every two years, fell to Enron and environmental lobbyists back in 1999 when the nation’s strictest renewable energy mandate was passed and signed into law by then Gov. George W. Bush. In 2005, the renewable quota was increased again, making Texas the national leader in industrial wind parks–and energy liabilities parading as assets (see here). [Read more →]