A Free-Market Energy Blog


By Robert Bradley Jr. -- May 12, 2010

[Editor note: The following post, “Cap-and-Trade: The Temple of Enron,” appeared one year ago in MasterResource.  It is being reprinted in conjunction with the release of the outlines of the Senate energy/climate proposal. Robert Bradley, formerly with Enron, further documents Enron’s cap-and-trade shenanigans in other MasterResource articles listed at the end of this post. Two press releases from the Competitive Enterprise Institute and the Institute for Energy Research on the Senate outline are reproduced as well.]

“Since 1976, Enron [and predecessor company] employees have been at the forefront of developing air credit trading policies for governments and businesses…. Enron today is the largest and most sophisticated air emissions credit and allowance trading organization in the United States. Since 1990, Enron has participated in over 80 SOx allowance transactions and has also been active in establishing policies for trading NOx in the United States and carbon [dioxide] world-wide.”

– “Enron Corp.’s Participation in Air Trading,” Enron Capital & Trade Resources, November 4, 1996 (copy in files).

“If implemented, [the Kyoto Protocol] will do more to promote Enron’s business than will almost any other regulatory initiative…. The endorsement of [CO2] emissions trading was another victory for us…. This agreement will be good for Enron stock!”

– John Palmisano (December 12, 1997) from Kyoto, Japan. Quoted in Bradley, Capitalism at Work, p. 307.

“If anyone has environmental credit needs, that’s what we do. We want to be to be the clearing house to monetize available credits or to manage risk.”

– Kevin McGowan, director of coal and emissions trading, Enron Corp., Enron Biz, November 29, 2000 (copy in files)

“We are a green company, but the green stands for money.”

– Jeff Skilling, CEO, Enron Corp., quoted in Capitalism at Work, p. 310.

Enron is Exhibit A against Waxman/Markey’s [Kerry-Graham-Lieberman’s] cap-and-trade proposal. Enron was poised to make money coming and going by being the nation’s and the world’s largest market-maker in CO2 permits, and the “smartest guys in the room” were ready to game and game for incremental dollars (remember California?).

Enron’s business model, in retrospect, had to do with regulatory complexity, as I note in the introduction to my book Capitalism at Work. Enron gamed the highly prescriptive accounting rules (GAAP), tax system (the corporate tax division was actually a profit center as told in an exposé in the Washington Post), and energy regulatory rules.

And happy-be-it that, in the words of a Ken Lay (with Roger Sant) editorial, “Controlling Climate Change: It Is Not a Sprint, It Is a Marathon” (Energy Daily: September 1, 1998). Such a “marathon” (and add complexity) is what Enron wanted and needed—to make money month after month, year after year in a political-market setting.

Enron, remember, was a green ( “we want cap-and-trade”) company, but the green stood for money, as Jeff Skilling deadpanned to a perplexed coal executive who complained about a “green” Enron memo on his first day on the job. (Enron quietly got into coal in its last years.)

All this confirms the fears and disdain of uber-vocal NASA scientist James Hansen, who complains in his recent commentary,  Worshipping the Temple of Doom:

“Governments are retreating to feckless ‘cap-and-trade’, a minor tweak to business-as-usual….

“Why is this cap-and-trade temple of doom worshipped?  The 648-page cap-and-trade monstrosity that is being foisted on the U.S. Congress provides the answer.  Not a single Congressperson has read it.  They don’t need to – they just need to add more paragraphs to support their own special interests.  By the way, the Congress people do not write most of those paragraphs—they are ‘ suggested’ by people in alligator shoes.”

Enron Lives! in Waxman-Markey. The sooner the public, media, and intelligentsia realize this, the faster cap-and-trade can be put in the dustbin of bad ideas.

The current debate has proven one thing very clearly. The U.S. climate debate is not about saving the climate.* It is about regulation for its own sake in the name of “saving the climate.” This fact should give pause to everyone who really cares about human welfare. Cap-and-trade is at odds with the economic wealth needed to adapt to a future that cannot be centrally planned by politicos.

* With Waxman-Markey’s aspirational goal of an 83% reduction of U.S. emissions of greenhouse gas emissions by 2050 reversing out only about 3 percent of the human influence on climate (according to IPCC model projections), equating to about 0.09°F, this is an insurance policy with virtually no redemption value.

[13 comments followed this post from May 14, 2009]


Other MasterResource posts on Enron and cap-and-trade:

Power Politics: Enron Lives (From Ken Lay’s Natural Gas Standard to Today’s Cap-and-Trade) (December 5, 2009)

Who Was Ken Lay? (The Senate Should Know the Father of U.S.-Side Cap-and-Trade) (July 7, 2009)

Enron and Waxman-Markey: Response of Joe Romm (July 2, 2009)

Appendix A: CEI Press Release, Kerry-(Graham)-Lieberman Bill a Huge Payoff to Big Business (Will BP and Goldman Sachs Be at Kerry’s Press Conference?)

Washington, D.C., May 11, 2010—As Senators John Kerry (D-MA) and Joseph Lieberman (I-CT) prepare to introduce their long-delayed energy-rationing legislation, the Competitive Enterprise Institute calls on Americans to remember what is really at stake: government control over energy use and massive kickbacks to favored corporations.

“The bill crafted by Kerry and Lieberman – and sometimes Lindsey Graham (R-SC) – manages to have something to harm everyone except big business special interests,” said Competitive Enterprise Institute Director of Energy Policy Myron Ebell. “Environmentalists know it will have no discernible impact on the climate, but it will reward favored companies with massive windfall profits.”

Senator Kerry has admitted that the bill was written in close consultation with the companies and industries to be regulated, including the Edison Electric Institute and major oil companies. Kerry recently remarked “Ironically, we’ve been working very closely with some of these oil companies in the last months,” referring to BP, Conoco Phillips, and Shell. This process could only be considered “ironic” by someone unacquainted with the history of special interest lobbying in Washington, D.C.

“Cap and trade regulation, far from disciplining the energy sector, is poised to become one of the greatest wealth transfers from consumers to private corporations in the nation’s history,” said Ebell. “General Electric, Exelon, BP, Goldman Sachs, and Duke Energy will make out like bandits because of provisions they have written. That’s not democracy or capitalism. It’s political corruption and crony capitalism.” 

As public awareness of what cap and trade would cost American consumers has grown, the bill’s sponsors have responded not by amending their proposals, but by trying to fool the public with shifting terminology. Senator Kerry at one point renamed gasoline taxes “linked fees.” Sen. Lieberman remarked in April that he was dropping the phrase “cap and trade” in favor of “emissions reduction targets,” going so far as to joke about the in-name-only difference by asking a reporter “Remember the Artist Previously Known as Prince?”

“Lieberman is not the only one playing word games,” said CEI Senior Fellow Marlo Lewis. On-again, off-again co-sponsor Lindsey Graham recently said in an interview that he no longer considers the Kerry-Lieberman legislation either a cap-and-trade bill or a global warming bill because “There is no bipartisan support for a cap-and-trade bill based on global warming.”

“So, because climate alarm and cap-and-tax are no longer polling well, Graham now pretends he can change the bill’s nature simply by rebranding it. I’ve got news for these guys,” said Lewis. “Everybody knew it was Prince even before the Artist Formerly Known As changed his name back to plain old Prince. An energy tax by any other name is just as foul.”

Appendix B: IER Press Release, “Wall Street Wins with Cap-and-Trade, Consumers Lose”

 Washington, DC As Senators John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.) prepare to unveil their much-awaited global warming legislation, many Americans find themselves wondering who will benefit from the proposal. Well, after a quick search of newspapers from the past few years, it’s obvious who wins and who loses: Wall Street wins, consumers lose. Following are a few selected articles that paint an abundantly clear picture of what’s at stake and why specific rent-seeking corporations are aggressively lobbying for implementation of energy rationing legislation.

It’s also important to note that while this trio of senators has been working for months—over six to be exact—behind closed doors with many of the companies and trade associations mentioned below, the American consumer, who will inevitably foot the bill through higher energy and electricity prices, was absent from the negotiating table.

While Sens. Kerry, Graham and Lieberman have publicly distanced themselves and their legislation from the House-passed Waxman-Markey legislation, their proposal, at its core, will achieve the same goal: it will artificially increase the price of coal, oil and natural gas through added legislation and regulation.

  • Exelon, the nation’s largest nuclear power company, stands to rake in roughly an extra $1 billion to $1.5 billion a year if the House climate change bill passes, according to the company’s own estimates. The House is expected to vote on the bill on Friday… Exelon CEO John Rowe recently told a gathering of investors and senior executives that the energy 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.” Prices will range between $15 and $18 per metric ton, the report estimates, “implying a positive earnings impact of $1 to $1.30 per share.” (Huffington Post, 7.24.09)   
  • Banks: Gearing Up for Carbon Trading…while U.S. policymakers continue to squabble over the details of the “cap-and-trade” proposal, big banks are gearing up for what they see as a new profit center. “U.S. carbon trading is coming,” says Louis Redshaw, head of environmental markets at Barclays’ (BCS) investment bank. “You have to be in it to win it.” Analysts figure rules will be in place by 2013, and carbon trading could top $1 trillion a year by 2020, according to research firm New Carbon Finance. At that size, carbon would rival oil as one of the largest commodity markets… The biggest banks in the U.S. and Europe are quietly preparing for the potential payoff in trading. France’s Société Générale (SCGLY) has set up a U.S. group devoted to carbon. Morgan Stanley, which already is active on the U.S. regional exchanges, says it will expand its unit once policymakers finalize the rules. (Business Week, 5.28.09)  
  • Behind the Green Doerr… In essence, Doerr is helping to create the biggest new market the world has seen since the dawn of the oil industry—and asking for taxpayer dollars to do it. Doerr regularly trots out chum Al Gore to run through his Inconvenient Truth slide show in front of influential audiences of businesspeople and politicians. Doerr has an unlikely solution to the tech-bubble problem: He denies there ever was one. “People think of it as a bubble,” he says, gesticulating enthusiastically. “I prefer to think of it as a boom. The payoff on some of these innovations was longer term.” Asked if greentech could repeat the dotcom crash, Doerr admits, “It’s possible.” He pauses and rubs his forehead before repeating, “It’s possible.” Kleiner Perkins partner Ray Lane… goes further. “A bubble? You can almost count on it…” “Bubbles are common. They end badly for those who come in late. For those who come in early, it’s not that bad.” But he predicts that alternative energy will get overheated and others will undoubtedly go up in flames. “If the bubble develops out of a whim,’’ he says, “then shame on investors. They need to get burned.”  (Forbes, 4.16.07 )   
  • Chemical Makers Poised to Gain In New Cap-and-Trade System…     DuPont Co. expects that by 2015 its sales from renewable materials that displace fossil fuels will nearly double to $8 billion. That could include sales of ethanol made from corn cobs and switchgrass that the company is developing in a joint venture with food-ingredient company Danisco AS. German chemical maker BASF SE sees big business opportunities in the weatherproofing of residential homes, which typically contain an average $17,000 worth of chemical products, according to the chemistry council. There’s room to raise that to up to $30,000 per house, says BASF. Among its weatherizing products: tiny wax-filled capsules that can be embedded in plaster, wall board and insulation. The wax absorbs heat when it melts and releases it when it solidifies.  (Wall Street Journal, 6.5.09)       
  • Industries Hope for a Feather in Their ‘Cap and Trade’ Emissions Plan…      Robert Stavins, a professor of business and government at Harvard University, said a cap and trade program would be fantastic for GE and other companies that sell products that consume power. He said that if energy costs go up as a result of the regulation — something he believes is likely — a wide array of products from appliances to power plants would become prematurely obsolete and need to be replaced with greener models.  (Politico, 2.28.07)   
  • 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.  (National Review, 7.2.09)  
  • Rio Tinto to Congress: Get going on carbon pricing  … Not only is Rio Tinto concerned about higher costs for energy required to run its business, but it also sees opportunities to sell more commodities, such as copper and aluminum, that could be used in climate-control technologies.  (Salt Lake Tribune, 4.12.10)   
  • Imagine a Google executive demanding a tax on software, or General Mills asking for a tax on wheat.     That’s where we now are in the U.S. auto industry, with Ford CEO Alan Mulally believing he has little choice but to seek a tax on the very fuel that powers his products… Michael Jackson, CEO of AutoNation, the largest auto dealer in the country, was more explicit: “Mr. Mulally said it very elegantly last night and I will say it more straightforward. We need more expensive gasoline.” He figures a tax that guarantees a gas-price floor of $4 a gallon is a “good start.” Mr. Mulally, for his part, talked about how good Ford’s sales of small cars were in Europe, and that “one of the reasons is that gasoline and diesel is somewhere between seven and nine dollars a gallon.” So: The U.S. government mandates fuel-economy standards that force Detroit to make cars Americans don’t want to drive. When Detroit loses money on those cars, Washington throws taxpayer dollars at its mistake, and the car makers demand a tax increase that would prod Americans to buy the unpopular cars that Washington mandates. As for what the American consumer or taxpayer wants — or can afford in today’s economy — who cares? Welcome to government-run energy policy.  (Wall Street Journal, 3.17.09)     
  • Randy Zwirn heads Siemens Energy Americas, part of a 19 billion euro revenue business that accounted for 25% of the German conglomerate’s revenue in 2008. Siemens Energy’s fortunes are intertwined with the development of the global green energy industry, and often hinge on government policy that would support the development of renewable energy. Siemens produces wind turbines, photovoltaics and has developed a new generation of efficient large natural gas-fired turbines, in addition to its coal-fired generation and nuclear businesses. (Forbes, 6.11.09)

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