Clumsy Deception

This is the picture of ANWR that environmentalists would like people to believe is the small area where drilling would take place.  “Environmentalists … say the site is a critical habitat for hundreds of animal species, including foxes, polar bears, and caribou, and therefore in need of protection”, according to an article in Mother Jones.  The article goes on the quote a representative from the Natural Resources Defense Council who said, “The Arctic National Wildlife Refuge is one of the crowned jewels of our public lands. Drilling there would totally mar this beautiful place.”

 

The truth is almost the exact opposite.  The area designated for potential drilling, called 1002, is about 100 miles from the Brooks Range that is shown is this picture and can best be described as frozen tundra.  It is located on Alaska’s  coastal plain, close to the eskimo village of Katovik and the Beaufort Sea.. The picture below is more a more realistic representation.

 

 

ANWR, as I indicated in an earlier post, is about the size of South Carolina—32,000 square miles while the 1002 area is approximately 19 square miles.  Drilling in 1002 equivalent to putting Dulles Airport on an undeveloped South Carolina.  There is no, no, compelling logic or science to show how the development of 1002, if commercial quantities of oil are discovered, would disrupt ANWR’s environment or the wildlife that live there.  The same arguments were used 40 years ago when Prudhoe Bay was developed.  Then, they represented environmental hyperventilating; now they are just not just fake news and very deceptive at that. The media should know that.

The papers that print trash like the Mother Jones article have only one use, as a former Governor of Louisiana once said of a national newspaper, to line the bottom of bird cages.

 

The War on the Internal Combustion Engine

Environmentalists have been waging a war on gasoline and diesel powered vehicles for decades.  The Clinton and Obama Administrations and the state of California have been in the forefront by increasing CAFÉ standards and imposing ever more stringent tailpipe standards as a way to drive up the cost of gasoline and diesel powered vehicles.  After the Kyoto Treaty in 1997, climate change became the major justification for pushing hybrids and electric vehicles and making climate change the justification for ever more stringent regulations and subsidies for hybrids and EVs.

So far, that strategy has not worked.  Gasoline prices peaked in July 2008 at $4.09 per gallon and have been lower since then providing the incentive to buy larger cars, SUVs, and pickups.  Last week, the national average was $2.57 a gallon.  The market for hybrids and EVs, which is not great, has been kept afloat by subsidies and tax credits, which were promoted by George W. Bush in 2007 to achieve energy security.  Even with that help, DOT data show only about 500,000 hybrids and EVs being sold from 2000-2015.

While advocates continue to promise a rosy future for electric vehicles, the challenge is daunting because subsidies will begin to phase out once a manufacturer has sold 200,000 vehicles.  As an example, EV sales were growing briskly in Georgia until the state cut its $5000 per vehicle tax credit, causing sales to drop from 1400 EVs per month to less than 100.

Subsidy phase-outs are not the only challenge. While battery costs per KHW have dropped, the cost of battery packs is still not commercially viable.  In spite of spending billions of dollars on battery research, the lithium ion battery remains the main source of EV electrical power.  And, its many limitations remain as well.  Those include range limits, charging times, and performance in hot and cold weather.  EVs may become viable when there is a technological breakthrough that solves these problem without the helping handout from government.

Although Obama EPA regulations were intended to further tilt the scales in favor of hybrids and EVs, the new philosophy at EPA is sending a different message.  So now, it is California that is the driving force with its zero emission requirements and Clean Air Act provisions that allow other states to opt-in to the California program.  So far 11 have.  Because California represents 10% of the domestic auto market, manufacturers continue to invest in battery powered vehicles.  But their main emphasis continues to be improvements in the performance and efficiency of the internal combustion engine.  Variable speed transmissions, turbocharged engines, improved engine oil lubricity, and direct injection.  Improvements in lubricants have been estimated potential efficiency gains of up to 15% while optimizing how internal combustion engines function could add another 25%. The bottom line is the engine efficiency has not reached its limits.

EPA would serve consumer interests by revising current tailpipe and emission standards so that they are based on real science, as opposed to ideological science, and on real environmental benefits.  Actual data show that air quality continues to improve.  Since 1980, carbon monoxide emissions are down84%, NOX 60%, and ozone 32% according to EPA data.  Those improvements will continue.  Analyses have demonstrated that any benefits from carbon dioxide reductions would be infinitesimal at best.

Revising the standards would force California to seek a new waiver, which should be denied.  Auto manufacturers should be freed from mandates that force them to make and sell cars at a loss so that technology, innovation, and market forces can determine what type of engine systems consumers want to buy.

Tax Reform: Class Warfare Bamboozle

Opponents of the tax reform bills working their way through Congress claim that they are a sell out to the rich, will increases taxes on the poor, and increase the deficit.  These criticisms come from the same folks who like a big government that grows bigger and who think they can spend other peoples’ money more wisely than people can spend it themselves.

Part of the claims about the rich are the proposal to eliminate the estate tax and the alternative minimum tax.  The estate tax actually applies to a very small number of tax payers.  They have the wealth to hire tax specialists who know how to use the tax code for tax payers to avoid the estate tax.   Setting up foundations and trusts have become two favorites avoidance techniques.  More basically, it is difficult to come up with a sound public policy reason for taxing assets of the dead when their assets or the money that acquired them has already been taxed.

The alternative minimum tax—AMT–was added to the tax code in the 1970s when some companies found ways to avoid paying any taxes. The provision was not limited to companies so in time it has captured a growing number of individual tax payers because the threshold for being subject to the AMT was not indexed.  Since it was intended to apply to companies, eliminating it frees individuals from a potential tax that never was intended to apply to them.

The Tax Foundation published a report, putting a Face on America’s Tax Returns, that provides statistics clearly showing that tax reform is not going to harm middle and lower class tax payers. Here’s why.   The top 10% of taxpayers pay 70% of taxes while the bottom 50% pay 2.4%.  The percentage of Americans who pay no federal income tax is a startling 45%. Those statistics explain why tax payers in the top income groups benefit the most from tax reform. It also explains why polls show only luke warm support for tax reform. If you don’t pay taxes, you really don’t care whether or not there is reform.

Reductions in tax rates are only going to benefit those who actually pay taxes. Those who claim otherwise are engaged in a major case of misleading the public. It is unfortunate that so many in the main stream media have not taken the time to expose this scam.  They also have not taken the time to point out the major cause of deficit spending and increases in the national debt are entitlement programs, primarily Medicare, Medicaid, and Social Security, which together account for 62% of government spending.  Until politicians have the courage to reform those programs, the debt and deficit are just going to grow larger.

Tax reform will allow companies and individuals to keep more of their own money.  Since they will spend it more efficiently than the government will, the economy will benefit.  This has little or nothing to do with “trickle down” which is another ruse that opponents of tax reform raise in a pejorative manner.

Give Steve Koonin a Sunlight Award

In 1913, Louis Brandeis, later to be Justice Brandeis, wrote “Sunlight is said to the best of disinfectants; electric light the most efficient policeman.”  He was referring to the banking business back then but his insight offers a strong principle in support of openness and transparency.  On November 2 in the Wall Street Journal, Steve Koonin, a well respected physicist and former deputy secretary of energy. critiqued the most recent U.S. GLOBAL CHANGE RESEARCH PROGRAM CLIMATE SCIENCE SPECIAL REPORT.

His basic criticism is that the Congressionally mandated report reinforces alarmism and the narrative that human activities are mainly responsible for climate change since the mid 20th Century. The charter for the research program is to conduct a “comprehensive and integrated United States research program which will assist the Nation and the world to understand, assess, predict, and respond to human-induced and natural processes of global change.” Koonis’s opinion piece explains the failure of the just released report to do that.  It is advocacy masked as science.

The alarmist tone in the  report is not really surprising since the agencies that are involved in and managing the program have been populated by bureaucrats and scientists who operate in a structure and system created by Al Gore when he was Vice President.  During the early 2000s, the Bush Administration attempted to get control of the process but was thwarted by the bureaucracy, especially as the Administration’s priorities changed dramatically after 9-11.  Bureaucrats know that political appointees come and go every couple of years but they stay for what seems like forever.  What is especially alarming is the complicity of the National Academies of Science in endorsing it.

Yogi Berra is erroneously attributed with the observation that in theory, theory and practice are the same but in practice they are not.  The wisdom of this insight is proven by the fact that while the transparency with which the special report was prepared and reviewed should have been an incentive for those involved to honestly do their jobs, that was not the case for those who promote the climate orthodoxy.  Climate change for over two decades has been dominated by environmental zealots, GroupThink,  actions that reinforce it, and confirmation bias. Changing the current situation will not happen quickly but it needs changing for the sake of sound policy and the integrity of the scientific establishment.

Members of the Academy should demand a review of why and how its review process failed and openly admit that failure while withdrawing support for the Special Report.  Koonin has been calling for Red/Blue process for at least a year.  Although his call has gotten support from the EPA Administrator, it clearly is not one of his highest priorities.  Congress should step in and initiate an independent review of the Global Change Research Program, including a mandate for the Red/Blue Team review of the Special Report, and mandate corrective changes to enhance the integrity of the program, if it concludes that it should continue, which is not a foregone conclusion. Investing in climate science is a worthwhile activity but not the way it has been pursued since the early 1990s.

So, Steve Koonin began the application of the disinfectant and his initiative needs a great deal of support from others.  He deserves a Brandeis.

 

 

 

Filling the Swamp Isn’t Draining it!

President Trump may be a teetotaler but when it comes to corn alcohol he is all in and in a big way.  Instead of draining the swamp, he is filling it with ethanol by pandering to corn state senators by backing off from abolishing the renewable fuel standard.

The ethanol mandate originated in the 1990 Clean Air Amendments and was added as a way of buying agriculture’s support.  It was not needed for clean air purposes then and it is not needed for greenhouse emission reductions now.  It’s only benefit is to enrich corn farmers and ethanol manufacturers. At the time of the Clean Air debate, the oil and auto industries urged Congress to set tailpipe emission standards and let the two industries work together to meet them.  Instead, Congress wrote a formula for gasoline into legislation.  When the ethanol mandate switched from being about clean air to climate change, advocates claimed that it would result in lower greenhouse gas emissions.  The evidence demonstrates the opposite.

In 2005 when gasoline demand was rising, Congress tried to deal with complaints about the ethanol tax credit by mandating annual volumetric requirements.  Of course, shortly thereafter gasoline demand peaked.  EPA attempted to raise the current 10% per gallon limit which would have voided many new car warranties and later attempted to reduce the annual volume requirement but was rebuffed by a court.  Congress could have simply ended the volumetric requirement but the ethanol lobby has proven too powerful. No matter which party controls Congress, it needs support from agricultural representatives and the environmental lobby to pass legislation, so nothing happens.

With 40% of the domestic corn crop being dedicated to ethanol production, the effect has been to drive up the prices of food products that are based on corn.  The ripple effect of higher prices has an especially harmful impact on people in countries where corn based food is a basic commodity.  In addition, the ethanol mandate also means higher gasoline prices, especially in the summer when congressionally mandate reformulated gasoline is required.

To ensure compliance with the renewable fuel standard, EPA created a tracking system of renewable identification numbers—RINs—that are assigned to each gallon of biofuel.  Blenders of gasoline are required to have enough RIN credits for each gallon of gasoline they sell.  If they don’t have enough credits, they have to buy them.  And, since in recent years the volumetric mandate has exceeded the demand for gasoline, refiners have had to buy additional credits for fuels that did not exist, driving up the price of credits and gasoline.  Hence, regulatory compliance created a market in credits that would increase in value.

Anytime there is a trading market, Wall Street speculators will find a way to become involved and make money in the process.  Credits created for compliance purposes quickly became a commodity that could be bought and sold like any other commodity.

This is a classic example of the Bootlegger and Baptist theory of public choice.  Farmers, ethanol manufacturers, and now traders align themselves with environmentalists who are wedded to biofuels to  enriched themselves by selling a product that is not needed.

 

The End of the Internal Combustion Engine, But Just Not Yet

A wave of prospective bans on gasoline and diesel engines seems to be sweeping through Europe and is on the drawing board in China.  The bans announced by France and Britain are decades off but not in Norway or India.  China will probably pick a target far enough off that it will have no near term effects.

Environmentalists are obviously cheering but you have to ask how serious are these prospective bans?  If they are mainly aspirational, they will undoubtedly slip as they confront reality.  If they are serious deadlines, you have to wonder if there has been any serious analysis of the economic impact that a mandated shift to electric vehicles would have?

While some of these bans may reflect deeply held beliefs by ruling elites, it is hard not to conclude that they are driven by politics in the hope that the fervor driving the climate lobby will have dissipated by 2040.  Making commitments for a relatively far off period makes it easier to avoid tough actions now.

Advocates for electric vehicles make claims about falling costs and their being almost competitive with internal combustion vehicles but if that is true why would bans be needed?  If the stated optimism was genuine then advocates should believe that market forces would bring about the transition from gasoline and diesel more efficiently and faster.

In 2016, global auto sales were close to 90 million with EVs and PHEVs were about 1.5million.  Until recently, most forecasts for EVs showed steady but very optimistic growth over the next couple of decades with estimates ranging from one-third to over fifty percent of vehicles sold in 2040. But, the IMF has raised the outlook to an incredible 90%. IMF clearly shows life in an ivory tower and the  wonders of assumptions, equations, and extrapolation!

Auto manufacturers have been playing the EV game because of the effect of subsidies and for branding purposes.  All plan to roll out an increasing number of EV/PHEVs in the coming years with GM stating that it will have 20 all-electric vehicles by 2023 while Volvo plans of manufacture only EV/PHEVs beginning in 2019.  As long as subsidies are in place manufacturers will continue to produce these vehicles and continue to monitor and participate in advancing technology in case there is a breakthrough.  But, there is no evidence that any manufacturer except Volvo is shifting its emphasis from the internal combustion engine and advancing its technology.

After all of the hype and optimism, reality and economics will rule the day.  Electric vehicles cost more to manufacture than internal combustion engine cars, as documented by a comparative analysis by ADL.  While lithium battery costs have been dropping they have not dropped enough to offset higher manufacturing costs of EVs and PHEVsA.  Without a major breakthrough in battery technology, EV/PHEV potential will continue to be limited.  A 2015 article in MIT’s technology Review made this point very clear, “… while countless breakthroughs have been announced over the last decade, time and again these advances have failed to translate into commercial batteries with anything like the promised improvements in cost and energy storage … One difficult thing about developing better batteries is that the technology is still poorly understood. Changing one part of a battery … can produce unforeseen problems, some of which can’t be detected without years of testing”.

And, until that breakthrough takes place, range will be a serious limitation.  There is also the issue of charging.  How much additional power plant capacity will be needed, what will it costs, and how much will it add to the GHGs that EVs avoid?

Hype and hope are not substitutes for needed large scale capital investments and actual advances in technology which cannot be mandated to meet a political time frame.  In the meantime, the world does not face any near term shortage in oil and actual advances in internal combustion engine technology are providing increased efficiency and lower emissions.

 

 

Three Cheers for Ending Sue and Settle and Goodbye Bre’r Rabbit

EPA Administrator Pruitt’s decision to end “sue and settle” is a step in restoring the rule of law at EPA. And as expected, environmental groups howled in protest, and with good reason.

For too many years, democrat administrators have taken settlement agreements, which can be a good resolution, a step too far by agreeing to terms that imposed regulatory burdens outside of the rule making process.

Several years ago, the Washington Examiner ran an article describing how sue and settle had become a “cottage industry”. It described it this way “First, the private environmental group sues the EPA in federal court seeking to force it to issue new regulations by a date certain. Then agency and group officials meet behind closed doors to hammer out a deal. Typically in the deal, the government agrees to do whatever the activists want. The last step occurs when the judge issues a consent decree that makes the deal the law of the land. No messy congressional hearings. No public comment period. No opportunity for anybody outside the privileged few to know how government regulatory policy is being shaped until it’s too late.” And, too add insult to injury, the government would have to pay the plaintiffs legal fees which in turn are used to sue the government to achieve more settlements. According to a GAO study, between 1998 and 2010, the government shelled out $16million in tax payer dollars.

Sue and settle provides a way for environmental groups to short circuit the Administrative Practices Act which lays out a required process that allows all interested and affected parties to participate in the rule making process. Regulations that flow from this process are supposed to be based on existing law and an objective review of all comments on a proposed regulation. As the Examiner piece and others have documented, the process doesn’t work this way with sue and settle.

To make matters worse, many regulatory analysts have pointed to instances where there was apparent collusion between EPA and environmental organizations on potential litigation by agreeing on the terms of a settlement agreement. This became a classic example of using a piece of fiction, Uncle Remus, to do what Bre’r Rabbit did—get authority figures to act against what should be their own best interests, which is the public interest.
Now Bre’r Rabbit will be retired if the Administrator’s action is followed up by passage of the Sunshine for Regulatory Decrees and Settlements Act of 2017.

 

 

Rebuilding Puerto Rico—The Marshall Plan Model

The devastation to Puerto Rico from Hurricane Maria has left this bankrupt island with no functioning infrastructure or means of economic recovery.  Although steps are being taken to get food and water to Puerto Rico citizens as well as to restore its electrical grid, it will take months to restore basic services and capabilities and much longer to rebuild its economy and infrastructure.

Puerto Rico’s economic conditions severely limit its ability to raise the funds for rebuilding, which was true of western European countries after World War II.  The Marshall Plan provided the needed resources under clear but strict requirements, including repayment.  The same approach could be used with Puerto Rico.

Restoring electricity is the highest priority after saving lives.  Without electricity, Puerto Rico’s economy cannot recover and its citizens’ quality of life will be among the worst in the developed world.  There should be a two-step process to restoring the electrical grid, even if that is more expensive.  The first step is to restore basic electric service throughout the commonwealth as quickly as possible.  Presently, only about 6% of electrical service has been restored.  The second step and the far more ambitious, expensive and time-consuming one  involves building a grid for the future that is hardened and has the resilience to quickly recover from hurricanes or any other event that can disrupt power.

The destroyed grid was comprised of 15 power plants of various sizes.  In 2016, 47% of Puerto Rico’s electricity came from petroleum, 34% from natural gas, 17% from coal, and 2% from renewable energy. Two wind farms provided half of the renewable energy and four solar facilities provided the other 1%.  According to the L.A. Times, Puerto Rico Electric Power Authority (PREPA) “appears to be running on fumes, and … desperately requires an infusion of capital — monetary, human and intellectual — to restore a functional utility.”  However, the utility has a history of poor maintenance, poor staffing, and allegations of corruption on top of a mountain of debt.  Given that history, PREPA is not the vehicle for rebuilding Puerto Rico’s electrical system and simply restoring the existing system would be foolhardy, as the residents of the U.S. Virgin Islands can attest.  Four times over the past 30 years, hurricanes have destroyed their electrical systems.

A grid for the future should minimize above-ground poles and transmission lines to the extent feasible and, where not feasible, the poles and lines to be hardened to the extent possible.  Generating facilities that were not made uneconomic will also need to be reinforced and perhaps converted from oil and coal to natural gas.  Because of the population distribution outside of major cities, dispersed areas could plan on microgrids when they become economical and reliable. These are localized electric grids that allow communities to keep power if centralized power plants stop functioning. They incorporate small-scale power plants as well as energy storage like batteries to maintain electrical power.  When central power is lost, microgrids would provide resiliency by becoming the primary source of power.  Microgrid development is being supported by DOE and also by DOD for use by the military in remote locations.

While solar and wind power can play a role in a rebuilt electric power system, it would be a serious mistake to count on them (as some environmental advocates do) for more than minor and back-up roles.  Category 4 and 5 hurricanes are too strong for wind turbines and can uproot solar panels which also can be damaged to excessive rain and debris.

Rebuilding a robust electrical power system can provide Puerto Rico a solid foundation for rebuilding its economy and becoming a model for the Caribbean region.

 

Politics and the Bankruptcy of Truth

As soon as the White House released its framework for tax reform, democrats who like to get media attention condemned it as a sell out that will mainly benefit the rich.  This gives validity to what use to be a political joke but no longer is—How do you know when a politician is lying?  When he/she starts moving his/her lips.

John Adams two centuries ago said, “Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.”  He was absolutely right as was the late Daniel Patrick Moynihan who said that we are all entitled to our own opinions; just not our own facts.

The case for tax reform has been evident since the end of the great depression as the economy has grown less than 2% annually.  With an aging population and slow-down in productivity, achieving 4% growth would be quite a challenge but there is little doubt that we can do better.  We need more domestic investment, we need our companies to be more competitive, and we need more good paying jobs.

That is where tax reform comes into play.  Contrary to democrat assertions about only benefitting the wealthy.  There is a strong analytical case for reducing the corporate tax rate and simplifying the tax code.

The Heritage Foundation just released a paper that is a review of the economic literature on the impact of taxes on workers’ pay.  It starts with the seminal work of Arnold Harberger in 1962 and includes analyses in the 2000s.  The case is compelling: cutting corporate taxes will lead to higher wages.  Some analyses suggest that upwards of 75% of the benefits flow to workers.

These same democrat politicians also have a strange interpretation of fairness.  Demanding that the tax code be made fairer conveniently ignores the fact that according to the Tax Foundation, the top 10% of taxpayers pay 70% of the individual income tax while the bottom 50% pay 2%.  This does not mean that only democrats lie.  Distorting the truth and water boarding facts until they confess to anything and everything is bi-partisan.

The erosion of truth by blind adherence to political ideology and expediency helps to explain why respect for politicians and Congress is so low, 20% in the latest Gallup poll.  As a nation, we face a large number of serious problems, the economy being a major one.  Problems will multiply and get worse until those chosen to govern put the national interest ahead of self interest.
 

Arctic National Wildlife Refuge: The original Fake News

The New York Times reported earlier this month that the Department of Interior is proposing to lift restrictions on seismic studies in the Arctic National Wildlife Refuge (ANWR).  Predictably, this has caused the environmental community to become apoplectic.  One enviro called the decision, which only involves finding out how much oil and gas might exist in an area called 1002, “reckless and irresponsible.”  Another said “the arctic is the holy grail.”

Since the early 1980s, potential drilling in ANWR has been the equivalent of a casus belli for the environmental community.  The claims that they have made about damage and harm to wildlife have been extreme and not credible given the experience at Prudhoe Bay where wildlife has flourished.  Pictures of flowers, rabbits and other wildlife in fields of grass are designed to have an emotional impact by implying that is what is at risk from drilling. Those pictures are what Daniel Boorstin termed pseudo-events and what is now called fake news.  Those pictures are not of the area where drilling would take place.  They are of an area near the Brooks Range which is about 100 miles away.

 

ANWR is roughly 32,000 square miles in size.  The size of the 1002 area where drilling would take place is roughly 19 square miles.  To provide a clearer picture and comparison, ANWR is about the size of South Carolina and 1002 the size of Dulles Airport.  Can any reasonable person really believe that drilling in such a small area would be environmentally devastating?  Those assertions are mind boggling.

Drilling, if it eventually takes place, would be on the coastal plain which as anyone who has been there knows is a frozen desert.  Although Interior proposes seismic research, many may not know or recall that one well has already been drilled there.  In 2001, Chevron drilled an exploratory well at the edge of the coastal plain.  Very few know the results of that drilling.  It is one of our best kept secrets.  Even Wiki-Leaks doesn’t know.  That may suggest that the results were not encouraging but the results from one well are not conclusive.  Before the oil at Prudhoe Bay was discovered, a number of dry holes had been drilled and there was talk of abandoning the enterprise as a result.

Even if the seismic tests are promising, drilling would not be immediate, assuming Congressional approval.  Permitting and environmental impact analysis could take 7-12 years according to an EIA assessment in the early 2000s.  Companies interested in bidding for drilling rights would base their decision on their best estimates of crude oil prices over a 20-30 year period.  That is a tough calculus to make given the abundance of shale oil, potential advances in alternative energy technologies, and political risk.

Opposition to obtaining information represents a view that ignorance is better than knowledge. Indeed, it is always be better to err on the side of too much knowledge than too little.  Future energy policy will be better informed if we are smarter.