Data show 2009 was a record year for lobbying on energy issues. 1747 clients (firms and groups) hired lobbyists to work in the area of energy and nuclear power. This is a stunning 93 percent increase from 2006.
This increase may be stunning, but it isn’t surprising. With literally trillions of dollars put into play by various cap-and-trade bills over the last three years, it would have been surprising if lobbying hadn’t grown by leaps and bounds.
Though initially offered as legislation to fight global-warming, the justifications for cap and trade followed the polls (from global warming to climate change to energy security to economic stimulus to green jobs to who knows what’s next) and the bills’ provisions followed the money. Effectively a huge energy tax, early proposals kept the trillions in new taxes for federal spending. In the end, the only bill to pass either house of Congress, the Waxman-Markey bill, gave virtually all of the revenue away to a grab bag of special interests.
This evolution perfectly fits the theory of Professors Gordon Tullock and Nobel Laureate James Buchanan who developed public choice theory—a sub discipline of economics that investigates the self-interested use of the political process. Public choice theory predicts the regulatory process will be bent toward the goals of private enrichment as politicians and rent-seekers (a term coined by Anne Krueger in her 1974 analysis of this behavior in India and Turkey) do what economists assume all business owners and consumers do—look out for themselves.
So legislation and regulations that promise billions in taxes for some energy companies (and their customers) and offer billions in benefits to others will get both sides excited and generate the demand for lobbyists that we have now seen.
For instance, the Climate Action Partnership strongly supports cap-and-trade legislation, especially if its members get big chunks of the tax revenue. Among the founding corporate members, Duke Energy, BP, Honeywell International, NRG Energy, Shell Oil, Dow Chemical, and Alcoa rank in the top 50 most active clients lobbying in the energy area.
As current and proposed policies offer billions in subsidies to both wind and nuclear power, it’s another dog-bites-man story when we find representatives of the wind and nuclear power industries in the top 50 as well. Of course those expecting big losses from the proposed regulations and taxes are lobbying hard to stave them off. So coal and refining interests are also well represented in the top 50.
Stricter rules on lobbying can change the form the lobbying takes (indeed the numbers above only reflect official use of registered lobbyists), but reducing government control of the economy reduces the root cause of the lobbying and is the one solution to controlling the growth of rent-seekers and their mouthpieces on K Street.
Rebecca Lefton, writing a report for the Center for American Progress, tries to debunk a study of the Boxer-Kerry bill published by The Heritage Foundation. Instead she demonstrates that she didn’t read the study or doesn’t understand the economic logic of the bill she supposedly supports. Further she offers as a substitute for Heritage’s work an analysis done by the Environmental Protection Agency. Either she didn’t read the EPA report, doesn’t understand it, or is willfully misrepresenting it.
The economic fallacies of Lefton’s review are many, but the primary one is her assertion that Heritage cost projections are “grossly overestimated.” In support of her assertion she claims the EPA projects an annual cost of between “$80 and $111 annually” per household. EPA’s actual, inflation-adjusted annual costs range up to $1,288 annually. Unlike Heritage, the EPA did not do a complete, new economic analysis of the Boxer-Kerry bill (S. 1733), but instead based their report on the economic analysis of the Waxman-Markey bill (H.R. 2454). So it is necessary to go to page 14 of EPA’s analysis of H.R. 2454 to find these inflation adjusted cost household cost projections. However, even these larger impacts would be an apples-to-oranges comparison next to the Heritage estimates.
Previously we have pointed out that converting from lost consumption per household to lost income per family of four (a more comprehensive and intuitive measure) would bump the range of EPA costs up to $2,700 or more per year. That’s a far cry from $111 dollars, but even this large number is dependent on several unreasonably generous assumptions concerning nuclear power, as yet undeveloped carbon capture-and-storage technology, and developing a world-wide market for offsets (paying others to cut CO2).
Lefton’s misunderstanding of what the $111 estimate actually represents is very common (though still mistaken) and was addressed here.
Lefton accuses Heritage of not adjusting the damaging economic impact of cap and trade to account for efficiency mandates. The implication being that such an adjustment would moderate the negative effects. In fact, the mandates add to the economic costs making the pain even greater.
Suppose your employer withheld your pay unless you shopped at a discount department store. This would be a mandate that might cut your consumption spending. Capping your pay at 20 percent of your current salary, like an energy or CO2 cap, would cut your consumption. However, telling you to shop at the discount store after you get the pay cut won’t lighten the burden of having 80 percent less income.
The Heritage report provides support for this clear result from multiple sources—including the current Congressional Budget Office, which said (pg. 4) the mandates would “result in a generally higher cost to the economy.”
Nevertheless, Lefton accuses us of failing to recognize the “key role” the mandates will play and with a quote implies the EPA analysis shows great savings from the mandates. What does the EPA actually say?
The resulting modeled economic impacts of the energy efficiency provisions [mandates] include modest reductions in allowance prices (~1.5%), fossil fuel prices (coal and natural gas ~1%), and electricity prices (<1%) from 2015-2050.
So, even according to the EPA the maximum effect of the mandates would be to moderate the higher energy prices by no more than one percent. The net impact of S. 1733, see page 17 of the EPA report, shows higher energy prices and higher total energy expenditure per household in 2030 and 2050.
In ignorance she shares with many others, Lefton asserts that electricity consumers will be protected from rate increases because “The pollution reduction program allocates 30 percent of revenues from the program to local electric distribution companies, which are required to ‘protect consumers from electricity price increases.’” It’s not clear what she is quoting but S. 1733 and H.R. 2454 contain identical language prohibiting the use of these revenues to lower consumer electric rates. The EPA even points out (pg. 49) that it would be counterproductive if the electric companies were to do so:
Returning the allowance value to consumers of electricity via local distribution companies in a non-lump sum fashion prevents electricity prices from rising but makes the cap-and-trade policy more costly overall.
–This form of redistribution makes the cap-and-trade more costly since greater emission reductions have to be achieved by other sectors of the economy.
–Resulting changes in prices of other energy-intensive goods also influence the overall distributional impacts of the policy.
In any event, the Heritage analysis assumed all the money designated was returned to citizens in cash, which gives the fullest restoration to any lost impacts on income.
Finally, Lefton brings out the decrepit green stimulus argument—pretending that cutting energy use can increase employment. Ignoring the EPA study she cites earlier, and similar studies from the Congressional Budget Office, and the U.S. Energy Information Administration, all of which show a negative economic impact of S.1733, she refers to analysis from her own organization showing 1.7 million green jobs coming from a costless transfer of $150 billion (which would be a good trick in itself). This policy is no part of S.1733 or H.R. 2454 and it has been thoroughly debunked already.
Perhaps CAP is desperate to ignore the flagging support for global-warming taxes, to ignore the embarrassing collapse of the supposed scientific consensus necessary for a climate imperative, and to ignore the extraordinary growth in taxation, national debt, unemployment, and regulatory burden their pet policy would create. But, desperation doesn’t justify ignoring economic reality.
And one last item. Whether she meant to or not, by lumping Heritage and the Milken Institute together she implies the Heritage report was commissioned by the National Association of Manufacturers. This is absolutely not the case. The Heritage Foundation does not do commissioned research and did not work with or for either the Milken Institute or the National Association of Manufacturers in preparing this or any other study.