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Trump may sign new UN dictate banning air conditioning coolants

Industry groups are ramping up efforts to have President Donald Trump send the Kigali Amendment—a change to the Montreal Protocol—to the Senate for ratification. The Amendment would phase out affordable refrigerants used in air conditioners and refrigerators for much pricier ones.

That’s good news for the patent holders of the new refrigerants and the heating and cooling industry, but bad news for you, the consumer.

The reality is the Kigali Amendment is a United Nations-imposed regulation that would take choices away from the customer while lining the pockets of special interests that have been gearing up for the change.

The 1987 Montreal Protocol was an U.N. agreement to phase out production of chlorofluorocarbons, believed harmful to the ozone layer. The Kigali Amendment is a U.N. treaty that would ban CFC’s replacement: hydrofluorocarbons (HFCs) and hydrofluoro-olefins (HFOs).

The new ban has hardly anything to do with protecting the ozone layer but instead is eliminating HFCs because of their potential impact on global warming.

Proponents of the Amendment have hailed the phase-out as a predictable path forward that will create jobs and give American manufacturers a competitive edge. They point to a study prepared for the Air-Conditioning, Heating, & Refrigeration Institute and the Alliance for Responsible Atmospheric Policy that new regulations will create 57,000 manufacturing jobs and an additional 33,000 if the U.S. ratifies Kigali.

Don’t believe the hype. Claiming that a U.N. mandate is an economic stimulus ignores the broken window fallacy.

In his essay “That Which Is Seen and That Which Is Not Seen,” French economist Frederic Bastiat outlines a scenario in which a shopkeeper breaks a window. He pays money to fix the window, creating a supposed “economic benefit” that circulates through the economy.

What is not seen, however, is what the shopkeeper could have spent that money on if the window hadn’t broken—for instance, a new pair of shoes. If the window wasn’t broken in the first place, the shopkeeper would have a window and new shoes.

Likewise, when the government subsidizes biofuels, what is not seen is that labor and capital could have been invested elsewhere in the economy, but are not. Private-sector investment that is not the result of regulations, subsidies, or mandates is the true root of economic growth and prosperity.

Another problem with the industry study is that it relies on a flawed input-output economic model.

First, there is the wrong assumption that regulation creates jobs. Sure, forcing a new refrigerant on consumers means businesses will have to comply with the new regulation. As households and businesses are forced to purchase new air-conditioning and refrigeration systems that use new alternative coolants, HFO manufacturers, equipment manufacturers, and maintenance and repair industries will all stand to benefit.

What the industry study ignores is the opportunity cost of the regulation. HFC alternatives are significantly more expensive. Even if the costs for HFOs or other alternatives fall over time with more widespread use, that’s hundreds of dollars more for a family to fix or replace an air conditioner. Alternatively, the family could have spent that money on a vacation or at the grocery store.

On the other hand, the regulation will prevent the hotel from hiring a new employee, or a restaurant from expanding its kitchen—or consumers will just bear the added costs as room rates and menu prices increase. Regulations force businesses to spend money that could have otherwise been spent elsewhere in the economy.

On net, the economic costs of the Kigali Amendment will outweigh the benefits. After all, if a newer, more energy-efficient technology were going to replace an older one, it would occur without a mandate from the U.N.

The input-output model makes the case that Kigali would produce economic gains by including “induced output,” which “represents the additional demand generated by the disposable income earned in the industry.” In other words, the those who work in the industry that would benefit from the regulation would receive higher incomes, and they’ll spend that money elsewhere, creating a positive ripple effect throughout the economy.

But again, an input-output economic analysis ignores where a family could have spent their money absent the regulation, and the ripple effect that spending would have had. If instead of paying for an exorbitantly more expensive A/C unit, the family took a vacation to Florida, the disposable incomes of the resort employees would similarly increase and they would spend their higher paychecks on a new bike and so on.

The difference is, one scenario is the market allowing for choice while the other involves an international body forcing decisions on households and businesses. One involves wealth creation, the other involves wealth erosion.

Note that even if the U.S. does not ratify the Kigali Amendment, U.S. companies will still be able to sell Kigali-compliant products to other countries that have chosen to phase out HFCs. So long as a domestic company chooses to produce HFOs or a different alternative compliant with the stipulations in Kigali, they could sell their product to any of those countries, including within the U.S.

By refusing to ratify Kigali, the Senate would ensure that Americans enjoy more choices and lower-cost options. Homeowners or businesses who need to purchase or repair an air conditioner or commercial unit will have the option of purchasing HFCs or costlier HFOs. Fixing or replacing an A/C unit or a refrigerator when it needs to be fixed will still create jobs, but it will be driven by the consumer’s actual needs—not regulatory dictate.

We’ve heard the “regulations create jobs” argument before from companies who stand to benefit from policies hatched by bureaucrats. Proponents of the energy-efficiency mandates like the incandescent light bulb ban, or excessive regulations on power plants, have similarly argued regulations will stimulate investment in these industries.

But these arguments always ignore the consumer, who will be made much worse off through higher prices and fewer choices.

The economic growth argument for Kigali is more of the same stale thinking.

Commentary by Nicolas Loris. Originally published at The Daily Signal.

This Bill Eases ‘Recovered’ Species Off Endangered List

It will be easier to take wildlife off the endangered and threatened lists if Congress passes a bill introduced by Rep. Andy Biggs, R-Ariz.

“The Endangered Species Act has been used as a sword instead of a shield,” Biggs told The Daily Signal in a phone interview.

His bill would streamline the process of removing a species from the endangered list if the nation’s secretary of the interior “receives an objective, measurable, and scientific study demonstrating a species has recovered,” the Arizona Republican said in a press release.

Enacted in 1973, the Endangered Species Act provides a “framework to conserve and protect endangered and threatened species and their habitats,” according to the U.S. Fish and Wildlife Service.

Biggs’ bill is one of several measures introduced last week by House Republicans aimed at updating the Endangered Species Act.

His legislation includes provisions addressing the issue of a species being “wrongfully listed,” as well as penalizing those who “intentionally submit false or fraudulent data in order to cause a species listing.”

The bill would also provide a way for the U.S. Fish and Wildlife Service to “promptly take action when a species is wrongfully listed, rather than letting the problem linger in federal bureaucracy,” according to the press release.

“This will allow us to focus resources to protect species that actually need it,” Biggs said in a written statement.

The Fish and Wildlife Service currently lists 1,459 species of wildlife considered at risk of extinction in the United States, from the red wolf to the Kemp’s ridley sea turtle to the Northern sea otter. Classifications include endangered, threatened, and experimental populations.

Biggs so far has 23 co-sponsors, predominantly from Midwestern states. No Democrat has signed on as yet.

The Trump administration has begun to push related reforms through the Interior Department. The Western Governors Association, meeting last month, advanced its own version of bipartisan reforms. Wyoming Gov. Matthew Mead, a Republican, has been a leader in the effort.

Biggs told The Daily Signal that some environmental groups want to take control of private property and economic activity in the name of defending a species, and that such groups “don’t want to delist species that have come back.”

Some colleagues on the other side of the aisle have given the “usual diatribe” about proposed reforms, Biggs said, arguing that he and other Republicans are “out for the big bucks and don’t care about animals.”

But Rep. Kurt Schrader, D-Ore., has co-sponsored certain measures in the package of bills.

Other Democrats “don’t want to give in on environmental issues at all,” Biggs said.

Kevin Mooney contributed to this report.

Report by Jeremiah Poff. Originally published at The Daily Signal.

More Power to the States Will Enhance US Energy Dominance

In the midst of a growing global economy, the world’s demand for energy is booming.

In 2017, global demand for energy grew by 2.1 percent, more than double the previous year’s rate. Oil, gas, and coal accounted for about 80 percent of global energy consumption with oil alone accounting for 32 percent of global consumption.

Producers in the United States have stepped up to meet that demand. The U.S. has been the world’s leading natural gas producer for nearly a decade. Domestic oil and gas production has increased 60 percent since 2008.

Despite America’s energy dominance and the economic benefits that accompany it, an abundance of natural resource potential in the U.S. remains untapped.

Why? A key reason is the federal government owns and manages those resources. Federal regulations and federal land ownership have rendered vast quantities of recoverable oil and natural gas onshore and offshore either inaccessible or costlier to extract.

The current leasing and permitting process has frustrated people of all political beliefs. On average, the federal processing of an application for permit to drill in the last year of the Obama administration was 257 days, while state processing has typically been 30 days or fewer.

While the Interior Department is working tirelessly to reduce permitting delays, this massive time disparity prevents market forces from working effectively. When prospective drillers have to wait many months to get approval, the prospect of drilling in a timely manner can often be implausible.

Even though many federal proposals are approved, fluctuations in the price of oil combined with a long waiting period create the type of uncertainty that often prevent prospective drillers from even attempting the process. Authorizing states to manage onshore and offshore resource production for a greater percentage of the revenue than the current system will create a new and better system that permits industry to better respond to changing market conditions.

Last week, the House Natural Resources Committee held a hearing to discuss enhancing state management of natural resources on federal lands and waters. Draft legislation introduced by the committee would empower states to have more control over the leasing, permitting, and regulations of oil and gas production.

It would also authorize a state to approve or disapprove of each lease sale offered in federal waters if the area is within the state’s administrative boundaries. The amount of royalty revenue a state would collect would depend on how many lease blocks a state approved.

State control, local governance, and private-sector participation would result in more accountable, effective management. While the federal government can simply shift the costs of mismanagement to federal taxpayers, states have powerful incentives for better management of resources on federal lands. State governments can be more accountable to the people who will directly benefit from wise management decisions or suffer from poor ones.

Opponents of the proposed legislation said this bill would give oil and gas priority over other economic interests a state may have. For instance, coastal states have stated concerns that offshore drilling would possibly hurt their tourism and fishing industries.

But states like Louisiana have proven you can have your oil and seafood, too. In 2014, the Louisiana oil industry generated $44 billion for the state economy and another $36 billion when including related infrastructure and refining activity.

In addition to energy production, seafood and tourism industries stand out as significant contributors to Louisiana’s economy. Louisiana represents 30 percent of the commercial fishing for the continental United States and are substantial producers of shrimp, oysters, crawfish, and crabs. Annually, the industry creates $2.4 billion in economic growth for Louisiana.

These industries work hand-in-hand for the economic benefit of the state.

Opponents of the draft legislation have also held inconsistent views on the principles of federalism. The proposed legislation would empower states with a choice that, under the current system, they simply do not have.

Under current law, the Department of Interior could easily make choices for all states and allow for energy exploration in federal waters, regardless of whether those states want it or not. The proposed legislation would at the very least give states a say in the decision.

As Chairman of the Natural Resources Committee Rob Bishop, R-Utah, pointed out during the hearing, Democrats seem to only want federalism in certain cases. The same Democrats who now want federalism in the case of coastal states did not want federalism in the recently reversed case of the Bears Ears Monument issue in Utah. They’ve opposed empowering states to oversee natural resource production and other land use decisions on federal lands.

Bishop noted the hypocrisy of the Democrats specifically by contrasting their rejection of the wishes of local citizens in the Utah case with their support of the wishes of citizens who opposed drilling on federal waters. Federalism seems to have been lost to the Democrats and their current stance is, at best, inconsistent.

A Washington-centric approach to management stifles creative, collaborative solutions to competing interests that could be resolved at local, state, or regional levels without the added baggage of national political battles and federal regulatory processes. While states and local communities may not always make perfect decisions, the best environmental policies are site-specific and situation-specific and emanate from liberty.

The Natural Resources Committee should be commended for introducing draft legislation that would improve the current process by engaging the appropriate stakeholders and better aligning incentives for economic development and environmental protection.

Commentary by Nicolas Loris and Bryan Cosby. Originally published at The Daily Signal.

Is Green Energy Competitive?

The declining cost of solar panels and the widespread adoption of rooftop solar in California lead to many cocktail party discussions about the competitiveness of green energy. While at first glance it may seem that solar power and other renewable energy sources are able to compete with conventional resources, a closer examination of the characteristics and costs of electricity systems demonstrates that current renewable technologies are not economically competitive.

The fixed costs of electricity systems, the capital costs of transmission and distribution systems, are large. Actual electricity tariffs do not typically recover fixed costs explicitly and separately from electricity use. Instead they recover them through use charges per kWh. If electricity pricing were more efficient, customers would pay a large fee for the use of the transmission and distribution systems disconnected from the amount of electricity they use and would be charged a separate variable fee based on actual consumption. (See this article by Ahmad Faruqui and Mariko Geronimo Aydin in the Fall 2017 issue of Regulation for a more thorough discussion of electricity pricing.) Thus, current bills do not inform consumers about how high the fixed costs of the system really are.

Understanding the significance and recovery of fixed costs is important because of the manner through which customers with solar panels on their roof are reimbursed for the power they generate.  Solar production in many states, especially California, is reimbursed at full retail rates. But when a household produces solar power and reduces the use of system-generated electricity, the system saves only the marginal costs of the power that it did not have to produce, which is usually much less than the retail rate. None of the large fixed costs are saved.

In California, because of its tiered retail rate structure, the discrepancy between the retail rate and the amount the system saves because of rooftop solar production is large. The marginal cost of power generation is about 6-10 cents per kWh, but customers are reimbursed at full retail rates (many at over 30 cents per kWh) rather than the lower marginal costs of system generation. Reimbursement at full retail rates shifts the fixed costs of the electric system from solar panel households to other users. Without the excessive payments, decentralized solar would not be competitive.

Other renewable generation sources would appear to be competitive with natural gas generation. According to estimates of the total costs of various generation technologies over their operating lifetime, large-scale centralized solar generation in the deserts of the American southwest and large-scale onshore wind generation both have costs that are competitive with new natural gas generation. (Offshore wind is much more costly. See my blog on Cape Wind, a failed plan to build a wind farm off the coast of Massachusetts.)

However, even if the lifetime average costs of wind and solar are the same as coal or natural gas, the equivalence needs to be qualified. Different electricity generation technologies are very imperfect substitutes. The marginal value of electricity varies across time because demand varies by time of day and space because of transmission constraints. For example, wind power supply is greatest during winter nights, when demand is low, and lowest during summer when demand is highest. Wind is also most plentiful far from where people live and consume electricity, meaning it incurs additional costs to transport the electricity to people. At least solar output is large during the summer afternoon peak demand period. But both solar and wind are not dispatchable. That is, their output cannot be made to vary up or down.

Until cost-competitive green energy that is dispatchable is available, renewable sources of electricity require backup conventional generation. Because the sun eventually sets, and the wind stops blowing, natural gas generation whose output can be varied (sometimes quickly) must be available as backup. The fixed and variable costs of the backup must be paid by someone. These hidden costs need to be considered in any calculation of “cost competitiveness.”

Future technological breakthroughs, such as more efficient batteries to store electricity and more cost effective dispatchable solar power sources, may make green energy a better substitute for conventional generators. But for the time being, without governments putting their thumbs on the scale, green energy is not competitive. 

Written with research assistance from David Kemp.

Article by Peter Van Doren. Originally published at Cato At Liberty.

Investigation: US green groups illegally operating as agents of Chinese regime

Environmental advocacy groups that take the Defense Department to court appear to operate as foreign agents working to help China and undermine the U.S. Navy and America’s military readiness in the Asia-Pacific region, congressional leaders suggest.

Rep. Rob Bishop, R-Utah, chairman of the House Committee on Natural Resources, and Rep. Bruce Westerman, R-Ark., chairman of the oversight and investigations subcommittee,  called on two environmental groups to submit documents that “identify any policies or procedures” the groups took to ensure compliance with the Foreign Agents Registration Act.

Bishop and Westerman last month wrote the two groups, the Natural Resources Defense Council and the Center for Biological Diversity.

In a letter to Rhea Suh, president of the Natural Resources Defense Council, the two Republican lawmakers expressed concern about China’s “extensive perception-management campaign” and the “NRDC’s role” in assisting these efforts.

The environmental group’s press releases and other written correspondence “consistently praise the Chinese government’s environmental initiatives and promote the image of China as a global environmental leader,” their letter says.

An aide to the House committee told The Daily Signal in a phone interview that there is “a significant level of engagement between the NRDC and Chinese government officials.”

And, the aide said, “the American people should know about the group’s relationship with foreign governments whether or not the connection is direct or indirect.”

The New York-based Natural Resources Defense Council, a nonprofit advocacy group founded in 1970, has $306.2 million in net assets, according to tax records. The group’s website says it “works to safeguard the earth” and has more than 3 million members and “online activists.”

The nonprofit Center for Biological Diversity, based in Tucson, Arizona, was founded in 1989 and has $18.3 million in net assets, tax records show.  The group’s mission is “to secure a future for all species, great and small, hovering on the brink of extinction,” and it has about 1.6 million members, according to its website.

The Foreign Agents Registration Act requires anyone who acts as an agent of foreign principals “in a political or quasi-political capacity” to disclose that relationship periodically, as well as all “activities, receipts, and disbursements in support of those activities,” according to the Justice Department.

The law, which predates World War II, is the subject of legislation from Rep. Mike Johnson, R-La., that he says “corrects long-standing loopholes exploited by lobbyists of foreign entities to conceal their work to influence U.S. government activities.” The bill also clarifies reporting requirements, authorizes investigative tools, and establishes enforcement safeguards, according to Johnson’s office.

Both the Natural Resources Defense Council and the Center for Biological Diversity complied with June deadlines set by Bishop’s House committee to submit information detailing compliance with the law.

Neither group is registered as a foreign agent, and both maintain they operate in America’s national interest despite their close ties to foreign governments and litigation against the U.S. military.

A second committee aide told The Daily Signal that up until now the requirements of the Foreign Agents Registration Act have not been as strictly enforced as they should be.

“Historically, the Justice Department has not utilized FARA, and there’s limited case law and a need for clarity,” the second aide said.

The House Judiciary Committee approved Johnson’s bill in January, but the full House has not taken it up. Senate Judiciary Chairman Chuck Grassley, R-Iowa, introduced a companion bill.

Lawsuits Against Navy Draw Scrutiny

The political activism of the Natural Resources Defense Council continues to coincide with China’s geopolitical interests, while it regularly files lawsuits against the Pentagon aimed at constraining military exercises vital to national security, Bishop and Westerman say in their letter to the NRDC.

The organization “collaborates with Chinese government entities deeply involved in Chinese efforts to assert sovereignty over the South China Sea in contravention of international law,” the two Republicans say. It also works to “discredit those skeptical of China’s commitment to pollution reduction targets” who seek to report honestly on environmental data, their letter says:

When engaging on environmental issues concerning China, the NRDC appears to practice self-censorship, issue selection bias, and generally refrains from criticizing Chinese officials. … Of note, the NRDC collaborates with Chinese government entities that are deeply involved in Chinese efforts to assert sovereignty over the South China Sea in contravention of international law.

By contrast, the NRDC takes an adversarial approach to its advocacy practices in the United States. In fundraising materials, the NRDC claims to have ‘sued the [U.S. government] about once every 10 days’ since President Trump was inaugurated. Over the last two decades your organization has also sued the U.S. Navy multiple times to stop or drastically limited naval training exercises in the Pacific arguing that navy sonar and anti-submarine warfare drills harm marine life. We are unaware of the NRDC having made similar efforts to curtail naval exercises by the Chinese People’s Liberation Army Navy.

Although China is “actually the world’s top polluter,” the first committee aide told The Daily Signal, the NRDC goes to great lengths to avoid criticizing the Beijing government’s actual environmental record.

“The NRDC is totally in the tank for China, and they are the MSNBC news for China,” the aide said. “The NRDC is developing the notion that China is an environmental leader and promotes the idea that China can be trusted to reduce emissions. When you see the NRDC photos of China, they show how beautiful and clean China is, but they don’t say anything about all the pollution. Instead, we get this heavenly, angelic portrayal of China.”

The Republican lawmakers’ letter to Kieran Suckling, executive director of the Center for Biological Diversity, focuses on a lawsuit the group filed against the Defense Department in concert with a coalition of environmental groups in Japan and the U.S. The suit calls for halting the planned relocation of the Marine Corps Air Station Futenma to a less-populated part of the Japanese island of Okinawa.  

The Center for Biological Diversity “appears to have engaged in political activities within the United States on behalf of the government of the Japanese Prefecture of Okinawa and other foreign entities to influence plans regarding [Marine Corps Air Station] Futenma’s relocation,” the letter says.

Both the U.S. and the central government in Japan have made relocation of Futenma a priority, the letter explains.

“The committee seeks clarification about the nature of CBD’s close relationship with Okinawan government officials and foreign environmental groups,” the congressmen write.

Green Activists Deny Being Foreign Agents

In their letters to the two environmental groups, Bishop and Westerman make the point that the Foreign Agents Registration Act “is clear about registration requirements for a person or group acting in the political or public interests of a foreign entity, even when done through intermediaries.”

They also highlight the penalties attached to the law, which include fines that could reach as high as $10,000 and imprisonment of up to five years.

The Daily Signal emailed both environmental groups to ask their response to the committee’s letters and seek comment on the allegations that they operate as foreign agents.

Suckling, executive director of the Center for Biological Diversity, released a statement lashing out at Bishop:

Rob Bishop is the one working against American interests, first by trashing our national monuments and now its democratic principles at the behest of the fossil fuel industry. He’s abusing his position, tarnishing the House of Representatives and making a fool of himself with these amateurish McCarthy tactics.

The green group also provided The Daily Signal with a copy of the letter it sent to the committee, disputing the allegations.

The letter focuses on the center’s efforts to conserve the Okinawa dugong, a sea creature closely related to the manatee. The U.S. Fish and Wildlife Service has listed the species as “endangered” under the Endangered Species Act.

The center’s efforts on behalf of the dugong are “controlled and directed” by its board of directors and executive director, not any foreign interest, the letter says. Thus its activities on Okinawa “are exempt” from the law, the letter argues.

“If Reps. Bishop and Westerman are truly confused about the center’s motivation and control, it is perhaps because they abuse their position of power so regularly, and are so deeply influenced by powerful corporate donors, that they are unable to conceive of people being motivated by empathy, public interest and respect for the rule of law and democracy.”

On its website, the Center for Biological Diversity describes how it has used “innovative legal tactics to secure new protections for the dugong,” which involves litigation against U.S. military operations.  

China’s Use of ‘Lawfare’

The Natural Resources Defense Council released two statements in response to the committee.

In the first, the NRDC says it works to advance American values, and that its activities in China are to ensure “a more sustainable future for everyone.”

In the second, the group addresses a June 13 letter Bishop and Westerman sent to Defense Secretary James Mattis asking for information about the impact of environmental litigation on military readiness.

The congressmen called Mattis’ attention to already-identified acts of Chinese espionage inside the U.S. They also pointed out that “China’s employment of lawfare is inherently more difficult to detect” because the Chinese can conceal political motives behind the actions of seemingly sympathetic causes such as environmentalism.

The Republican lawmakers suggested that China may be exploiting America’s legal system as part of a larger strategy to “erode” the U.S. military advantage in the Asia-Pacific region.

“For example, the impact of marine life from the U.S. Navy’s use of active sonar and underwater explosives has been the subject of several lawsuits led by the Natural Resources Defense Council dating back to the 1990s,” Bishop and Westerman wrote Mattis.

The congressmen also cited information from the Navy describing how environmental litigation “unreasonably restricted Navy training and testing activities.”

Although the Supreme Court has concluded there hasn’t been a “documented episode of harm to a marine mammal caused by naval sonar,” their letter to Mattis notes, lower courts continue to rule otherwise with decisions that restrict naval exercises.

‘Weaponization’ of Environmental Law

Green groups typically invoke the National Environmental Policy Act of 1969 in legal actions against the U.S. military. That law requires federal agencies to assess the environmental impact before implementing projects.

The House Natural Resources Committee held a hearing in April on what it called “Weaponization of the National Environmental Policy Act and the Implications of Environmental Lawfare.”

The committee defines lawfare as “an attempt to use the courts to damage or delegitimize projects that litigants oppose, or to distract time and resources that would otherwise go to implementing the project, or to win a public relations victory.”

The environmental law was “originally intended to increase awareness regarding the effects of federal actions on the environment,” a committee memo says, but its “vague and ambiguous language has exposed the federal government to excessive litigation and resulted in perverse outcomes for agencies, the environment and taxpayers.”

The last time reforms were made to the National Environmental Policy Act was in 1986, committee aides told The Daily Signal. Since serious national security implications are attached to environmental lawsuits against the military that cite the law, lawmakers can make a strong case for a new round of reforms, they said.

“It would be a good idea to link NEPA reform with national security, but the Department of Defense has not been helpful here,” the first aide said. “Defense Department officials won’t come right out and say NEPA is a terrible law, they will just say it’s a problem that they can work around.”

“But the Defense Department has a lot to gain from NEPA reforms, the aide added. “They would not be so bogged down in court.”

Report by Kevin Mooney. Originally published at The Daily Signal.

How ‘Green’ Energy Subsidies Transfer Wealth to the Rich

When the Golden State Warriors, who won three of the last four NBA championships, signed All-Star Demarcus Cousins, sports pundits across the country offered the same opinion: The rich just got richer.

In many respects, the same holds true for energy subsidies.

Federal energy programs promise ambiguous policy goals such as abating climate change, spurring innovation, or reducing dependence on foreign sources of energy. But they often lead to situations that help the rich at the expense of middle- and lower-income Americans. That’s because when the federal government gets involved in the energy business, it transfers billions of dollars to the production and consumption of politically preferred sources and technologies—and many of those involve the poor transferring money to the rich.

For instance, a recent study by the Pacific Research Institute found that more than 99 percent of subsidies for electrical vehicles go to households with incomes of $50,000 or higher, and nearly three-quarters go to households with an annual income of $100,000 or more.

Poorer Americans can’t access the $7,500 tax credits because of the high prices of electric vehicles, even after accounting for the generous subsidies, which means they help pay for the subsidies through their taxes but can’t themselves get eligible for the subsidies or other benefits, such as carpool lanes.

To make matters worse, some major car companies are forced to sell electric vehicles at a loss to comply with state mandates and regulations. As Wayne Winegarden of the Pacific Research Institute explains:

California, along with the nine states that have adopted California’s policy, mandates that zero-emission vehicles (ZEVs) comprise a set percentage of the automobile market. The mandated minimum market share for ZEVs is currently scheduled to grow from 4.5 percent of sales in 2018, to 22 percent of the market by 2025; and Gov. Jerry Brown is even contemplating a complete ban on sales of cars with internal combustion engines after 2040.

Complying with these mandates requires companies to maintain ZEV credits that equal their share of the mandate, based on the company’s specific sales. Acquiring sufficient credits requires manufacturers that do not sell enough ZEVs to either sell ZEVs in California at a loss, purchase credits from companies whose ZEV sales exceed their credit requirements, or pay a $5,000 fine per credit that the company is short.

Consequently, the sales mandate has become a subsidy to companies, such as Tesla, that sell more ZEV-qualified vehicles than required by the mandate; and, a penalty on companies whose ZEV sales fall short of the required mandate. The $700 million earned by Tesla via these credit sales, which does not even account for all the credits Tesla has amassed, exemplifies that these subsidies and penalties can be substantial.

Energy subsidies benefit not only wealthy individuals, but also wealthy companies in the form of blatant corporate welfare. The federal government’s loan guarantee program is another subsidy program where government-backed loans have, time and again, gone to companies that simply don’t need any support from the taxpayer.

You don’t have to scratch too far beneath the surface to see that some of these projects have financial backing from giant tech firms, massive energy utilities, large investment banks, and other successful corporations.

The Department of Energy’s Advanced Technology Vehicles Manufacturing program granted more than $1 billion in loans for Nissan and Ford to retool their factories. This program is simply a transfer of wealth from taxpayers to these massive companies. These companies should have no trouble financing a project without government-backed loans if they find it is worth the investment.

Eliminating favoritism in markets will benefit all Americans—individuals and businesses alike—not just the privileged few.

Commentary by Nicolas Loris and Bryan Cosby. Originally published at The Daily Signal.

Why the Curbelo Carbon Tax Is a Non-Starter

It feels like beating a dead horse, but the “conservative” carbon tax proposal is still hanging around.

A number of conservative groups are so tired of the mislabeled carbon tax that they’re pushing Congress to take a nonbinding vote to help finally put the issue to rest. That vote—based on a nonbinding resolution introduced by Rep. Steve Scalise, R-La.—is scheduled for Tuesday in the House of Representatives “expressing the sense of Congress that a carbon tax would be detrimental to the United States economy.”

The proposed vote comes just after a new group, Americans for Carbon Dividends, is pitching a “conservative” carbon tax that would “put America in the driver’s seat of global climate policy.”

The plan developed last year by a group of notable conservatives like former Secretaries of State James Baker and George Shultz sets a gradually increasing tax on carbon dioxide emissions. To account for the inevitable increase in energy costs, the taxes would be redistributed to all Americans equally.

Ideally in their world, this would make carbon dioxide-heavy goods and activities more expensive, creating pressure to innovate or lose customers.

Because the tax would target energy, a basic building block of the economy, the plan tries to mitigate the hit to businesses with a border tax adjustment to prevent other countries from “free-riding” and help U.S. companies compete in countries that don’t tax carbon dioxide.

The final part of the plan calls for sweeping deregulation of what would be, when combined with the other parts of the plan, redundant climate regulation. This would include most or all of the Obama-era climate change regulations like the so-called Clean Power Plan.

The market-flavored approach of the Carbon Dividends Plan may seem like a great compromise to the creators. However, some fundamental flaws and unwelcome implications immediately become apparent. The plan lacks details precisely because those details would clearly reveal the negative implications of the plan’s implementation.

Levying a price on carbon dioxide will directly raise the cost of electricity, gasoline, diesel fuel, and home heating oil. The carbon tax itself would be regressive, affecting poor Americans who spend a larger share of their income on energy, over 80 percent of which in the U.S. comes from carbon-based resources.

Even assuming that Washington could keep its hands off a new revenue stream, the redistributed dividends would not remedy this problem either, as they would be equally distributed to all Americans, whether they’re Bill Gates or a low-income family struggling to pay their electricity bills.

Furthermore, a rebate check wouldn’t undo the economic damage caused by a carbon tax. Any carbon tax would weigh down on the economy. The direct impact on energy prices is just a part of the economic harm.

Energy is a necessary component for just about all of the goods and services consumed, so Americans would pay more for food, health care, education, clothes, cleaning supplies—you name it.

The real kicker is that if you take government models at their word, a carbon tax would have almost no impact on global temperatures. But with no specific global temperature reduction goal in mind, this particular carbon tax plan fails to have a clear purpose. So much for being in the driver’s seat.

Ironically, the U.S. has been on a sustained downward slide in carbon dioxide emissions without any carbon tax. Over the last four years (2014-2017), U.S. emissions of carbon dioxide have fallen; comparatively, Europe has increased emissions over the same four-year period. For nine of the last 18 years, the U.S. has led the world in carbon dioxide emissions reductions.

The carbon tax needs to be called out for what it really is: just another tax. A carbon tax would have massive implications on the American economy regardless of what the initial tax rate is set.

A centrally-planned taxation and wealth redistribution system is clearly not a good plan for Americans, let alone one sold as a truly conservative solution.

Commentary by Bryan Cosby and Katie Tubbs. Originally published at The Daily Signal.