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Going to Extremes

by Discovery Newsletter 7/1/2009

Environmental stewardship – which includes eliminating waste and the careful use of all resources – has been a longstanding tradition across Koch Industries.

From ranches to refineries, Koch companies have worked hard to create real value while respecting our environment. 

Our co-workers and communities care deeply about the environment.   

That’s one reason why pursuing environmental excellence has become engrained in our culture and is specifically mentioned in our Guiding Principles.

We believe environmental stewardship is vitally important and complying with environmental regulations is non-negotiable. 

We also believe over-zealous environmental regulation can be destructive, especially when such policies are taken to the extreme.  

Warning signs

Of all the threats to our future prosperity, one of the most devastating is the push for extremist environmental regulation. 

These enormous regulatory schemes – usually promoted as necessary for “saving the planet” – come in many forms, including controls, mandates, subsidies and taxes. 

The bigger the program, the bigger the cost.  But the bigger the cost, the greater the chance for criticism. 

Perhaps that’s why many advocates of overly aggressive environmental policies prefer to focus on hopes for environmental benefits and the prospects for job creation. This can help deflect criticism over the invasive nature and enormously high cost of new regulations.    

Jolly green jobs

Many environmental activists, as well as their political and media allies, claim new “green jobs” will save the environment and the economy. 

In July, for example, government ministers in the U.K. predicted a “green revolution” will create 400,000 environmental jobs in eight years. 

In the United States, the Obama administration has even higher hopes, claiming five million clean energy jobs will be created thanks to its comprehensive energy plan.   

Environmental activists have said the Waxman-Markey energy bill, passed by the U.S. House of Representatives and now up for debate in the Senate, “is an essential first step to policies that will accelerate economic recovery and achieve long-term growth.”  

In other words, losses of traditional manufacturing and energy production jobs can be offset by new “green” jobs that will leave the world and its workers better off.

Unfortunately for those who promote such plans, the evidence against them is already substantial…and growing.  

The pain in Spain

According to Gabriel Calzada Alvarez and researchers at King Juan Carlos University in Spain, each new job in that country’s renewable energy sector came at an extremely high cost, financially and socially. 

They estimate that for every green job created during the past 10 years, 2.2 jobs were lost elsewhere in the Spanish economy. 

As former President Clinton, speaking at a university in Madrid, recently admitted, Spain’s renewable energy program “has cost many jobs.” 

To make matters even worse, only one out of every 10 green jobs was permanent.  

And the bad news doesn’t stop there.  Each new green job cost Spanish taxpayers an estimated €570,000 (more than $790,000 per job) in subsidies.   

To help pay for all this, the Spanish government forced customers to pay as much as ten times the market rate for energy from renewable resources.   

Even so, after more than a decade of effort and $40 billion in public investment in solar energy, Spain still gets less than 1 percent of its power from solar. 

So, in a nutshell, Spain spent billions creating temporary new jobs that displaced more than twice as many permanent jobs, and did so without delivering any significant benefit to the economy or the environment.  

And yet, despite these withering costs and disappointing results, President Obama has repeatedly pointed to Spain as a model for energy policy. 

“Will America watch,” asked Obama, “as the clean energy jobs and industry of the future flourish in countries like Spain, Germany and Japan?”  

Root cause

If the environmental benefits of this sort of regulatory activism are negligible and the costs enormous, why bother?   

The answer, more often than not, is focused on revenues (better known as taxes).   

Overblown environmental concerns not only give governments the opportunity to create new bureaucracies, they provide a rationale for imposing new taxes.

In fact, more often than not, taxes are at the very heart of most new energy policies.   

There is, for example, already an emissions trading scheme (also known as a “cap and trade” system) in place across the European Union.   

In the United States, an even bigger cap and trade proposal, worth hundreds of billions in new revenues for the government, has been proposed.   

Interestingly enough, many environmental activists are willing to admit what most politicians won’t: that “cap and trade” programs are really just a new form of tax that is ultimately passed on to consumers.

The Carbon Tax Center – launched two years ago to encourage taxation of carbon dioxide as a way to prevent global warming – said it best: “No masterstroke of framing by CTC or anyone else can recast a fee on carbon emissions as anything but a tax.” 

Global grab

Back in the 1990s, several Scandinavian countries imposed extra energy taxes in hopes of lowering emissions.  Norway, for example, levies a tax equivalent to about $6 per gallon of gasoline. 

Have emissions gone down thanks to such high taxes?  Not in Norway, where per capita CO2 emissions are now up 43 percent.   

This summer, Italy raised corporate income tax rates for energy companies (again) to 6.5 percent above that country’s supposedly maximum corporate tax rate.   

This is an increasingly popular idea among government leaders struggling with the consequences of the global economic downturn.   

The chairman of the U.S. Senate Budget Committee has said energy taxes may be a good “option” – not because such taxes would help the environment, but because they might help pay the massive costs of proposed healthcare reforms. 

What makes costly environmental regulatory efforts even less likely to succeed is the reluctance of many nations to go along with such plans.   

China and India – the world’s two most populous countries – have already disavowed any binding commitments to cut their CO2 emissions.   

President Obama’s new Council of Economic Advisors has made it clear that if China and India do not participate in emissions reduction programs, global CO2 concentrations will be “almost unaffected,” no matter how much the U.S. cuts back.  

China and India are certainly not the only holdouts on this issue.  

Russia’s top economic advisor, speaking after July’s G8 summit in Italy, flatly stated: “We won’t sacrifice economic growth for the sake of emission reduction.” 

What to do

The true measure of any job, green or otherwise, is how much value it creates.  This can be measured in many ways, not just financially. 

Jobs that are heavily subsidized, mandated or otherwise forced upon society seldom create value.  More often than not they destroy value, wasting resources and harming society in the process. 

The most important first step in avoiding such mistakes can be agreeing what not to do. 

In the U.S., for example, there is a growing bipartisan concern over the true costs of unprecedented government interventions during a time of economic distress. 

Bill Archer and Charlie Stenholm are examples of this way of thinking.  Both are former U.S. Congressmen from Texas.  One is a Republican and the other a Democrat.   

Both of these representatives are united in their belief that the push for massive new energy regulations is wrong, especially now. 

“Curbing global greenhouse gases is worthy in its intent,” they recently wrote, “but a system that will tax and penalize American families and businesses during these uniquely tough economic times is simply not the right approach.” 

Similarly, dozens of fiscally conservative Democrats in the House have joined Republican colleagues in expressing deep concern over proposed tax increases intended to pay for multi-trillion-dollar healthcare reforms.  

Perhaps if we can convince our leaders to slow down the runaway train of environmental regulation, we can begin a rational discussion of what really creates the best value for the planet – and everyone on it. 

This article originally appeared in Discovery Newsletter. To read the entire edition, click here.

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