Coyote Blog

Cameron Scott argues this when he says:

It's funny how green-haters accuse greens of being catastrophists, and then argue that cutting carbon emissions will destroy our economy and send us back to the Dark Ages. (See the trailer of Phelem McAleer's Not Evil Just Wrong for a prime example.)

Well, the last pooh-pooh is on them: It turns out we're already cutting emissions in the United States. Sure, some of that is due to a sluggish economy. But negative economic circumstances don't account for the 9 percent reduction in carbon emissions since 2007. In fact, the amount of carbon dioxide produced for every dollar of economic output declined by 3.8 percent in 2008.

I responded:

I really wish you would apply your analytical abilities to equities so I would have some way to bet against you.

Had you looked, you would see that the US has been reducing the CO2 intensity for a unit of economic output for decades. Here is the first source I found online but there are zillions.  In terms of improvement, the US has done better on this metric in the last 20 years than nearly any other country in the world, and just as well as the best (e.g. Germany)

So what you tell is not a new story, and has nothing to do with recent governmental dictats or pleas by environmentalists and everything to do with the ongoing incentives of individuals and businesses to reduce costs and be more efficient.

The reason our total Co2 output has not decreased is that while CO2 per unit of GDP (I will call this CO2 efficiency) has improved 2-4 percent per year, our GDP has grown the same rate or faster. So our overall CO2 output is flat to up (and has actually been down the last few years). One of the main reasons Europe has done better than the US in total CO2 reductions is not improvements in CO2 efficiency, but because their economies have lagged. They bent over backwards in Kyoto to make 1990 the baseline year, so they could include the horrible economies of Russia and East Germany which were in the process of crashing, thus giving them an automatic CO2 reduction for nothing.

Anyway, just look at your own numbers. In the year before, we got about 3% improvement in Co2 efficiency and had about 3% economic growth so CO2 output was flat to down. Last year we had about 3% improvement in Co2 efficiency and the economy was down a lot and thus CO2 was down a lot. When there are two variables in a function, and only one is changing, most logical people attribute the change in output of the function (ie changes in total CO2 output) to the variable that changed (ie economic growth). You, for some reason, attribute changes in the output to the variable (co2 efficiency improvements) which basically remained unchanged. Nice analysis.

You can even see it in your numbers. If CO2 efficiency is up 3.8 percent and Co2 output is down 9 percent, then that means the economic growth/size component has to be down 5.4% (.91/.962 - 1). So almost 60% of the "improvement" is due to a very bad recession and 10% unemployment, but you attribute it to the unchanging 40% piece.

Did anyone in the environmental movement study math or economics?

Remember this -- a climate bill will have impact on CO2 emissions in direct proportion to how much it raises fossil-fuel-related energy prices.  When supporters of the bill say things like "it won't raise prices very much" they are in effect declaring "this bill will not solve the intended problem."

Below is a map of some of the climate actions being proposed.  As portrayed here, the current cap-and-trade bill is perhaps the worst of all choices, realizing limited gains (as demonstrated by programs in Europe and their supporters own estimates) combined with high costs.  The program is expensive to administer and much of the higher costs to consumers end up as subsidies to large corporations and green pork.

The combination plan of a large carbon tax offset by payroll tax reductions was discussed here.

The WSJ on new EPA CO2 rules under the Clean Air Act:

Usually it takes an act of Congress to change an act of Congress, but Team Obama isn't about to let democratic"”or even Democratic"”consent interfere with its carbon extortion racket. To avoid the political firestorm of regulating the neighborhood coffee shop, the EPA is justifying its invented rule on the basis of what it calls the "absurd results" doctrine. That's not a bad moniker for this whole exercise.

The EPA admits that it is "departing from the literal application of statutory provisions." But it says the courts will accept its revision because literal application will produce results that are "so illogical or contrary to sensible policy as to be beyond anything that Congress could reasonably have intended."

Well, well. Shouldn't the same "absurd results" theory pertain to shoehorning carbon into rules that were written in the 1970s and whose primary drafter"”Michigan Democrat John Dingell"”says were never intended to apply?

It is interesting to see the Obama administration using the exact same logic to limit the reach of the Clean Air Act vis a vis Co2 emissions as the Bush Administration did to say the Clean Air Act should have not applicability to CO2 emissions.

Yet one not-so-minor legal problem is that the Clean Air Act's statutory language states unequivocally that the EPA must regulate any "major source" that emits more than 250 tons of a pollutant annually, not 25,000. The EPA's Ms. Jackson made up the higher number out of whole cloth because the lower legal threshold"”which was intended to cover traditional pollutants, not ubiquitous carbon"”would sweep up farms, restaurants, hospitals, schools, churches and other businesses. Sources that would be required to install pricey "best available control technology" would increase to 41,000 per year, up from 300 today, while those subject to the EPA's construction permitting would jump to 6.1 million from 14,000.

So the Bush Administration argues that the Clean Air Act applies to 0% of CO2 sources and they are accused of breaking the law.  But the Obama Administration argues the Clean Air Act applies to 0.2% - 0.7% of sources and this is somehow a vastly superior legal argument?  The courts rejected 0.0% as non-compliant but they will accept 0.2%?

From the comments of this post, which wondered why Americans are so opposed to the climate bill when Europeans seem to want even more regulation.  Leaving out the difference in subservience to authority between Europeans and Americans, I wrote this in the comments:

I will just say:   Because it's a bad bill. And not because it is unnecessary, though I would tend to argue that way, but for the same reason that people don't like the health care bill - its a big freaking expensive mess that doesn't even clearly solve the problem it sets out to attack. Somehow, on climate change, the House has crafted a bill that both is expensive, cumbersome, and does little to really reduce CO2 emissions. All it does successfully is subsidize a bunch of questionable schemes whose investors have good lobbyists.

If you really want to pass a bill, toss the mess in the House out. Do this:

1. Implement a carbon tax on fuels. It would need to be high, probably in the range of dollars and not cents per gallon of gas to achieve kinds of reductions that global warming alarmists think are necessary. This is made palatable by the next step....
2. Cut payroll taxes by an amount to offset the revenue from #1. Make the whole plan revenue neutral.
3. Reevaluate tax levels every 4 years, and increase if necessary to hit scientifically determined targets for CO2 production.

Done. Advantages:

1. no loopholes, no exceptions, no lobbyists, no pork. Keep the legislation under a hundred pages.
2. Congress lets individuals decide how best to reduce Co2 by steadily increasing the price of carbon. Price signals rather than command and control or bureaucrats do the work. Most liberty-conserving solution
3. Progressives are happy - one regressive tax increase is offset by reduction of another regressive tax
4. Unemployed are happy - the cost of employing people goes down
5. Conservatives are happy - no net tax increase
6. Climate skeptics are mostly happy -- the cost of the insurance policy against climate change that we suspect is unnecessary is never-the-less made very cheap. I would be willing to accept it on that basis.
7. You lose the good feelings of having hard CO2 targets, but if there is anything European cap-and-trade experiments have taught, good feelings is all you get. Hard limits are an illusion. Raise the price of carbon based fuels, people will conserve more and seek substitutes.
8. People will freak at higher gas prices, but if cap and trade is going to work, gas prices must rise by an equal amount. Legislators need to develop a spine and stop trying to hide the tax.
9. Much, much easier to administer. Already is infrastructure in place to collect fuel excise taxes. The cap and trade bureaucracy would be huge, not to mention the cost to individuals and businesses of a lot of stupid new reporting requirements.
10. Gore used to back this, before he took on the job of managing billions of investments in carbon trading firms whose net worth depends on a complex and politically manipulable cap and trade and offset schemes rather than a simple carbon tax.

Payroll taxes are basically a sales tax on labor.  I am fairly indifferent in substituting one sales tax for another, and would support this shift, particularly if it heads of much more expensive and dangerous legislation.

Update: Left out plan plank #4:  Streamline regulatory approval process for nuclear reactors.

Update #2: Readers of TJIC wonder if this is effective, calling it just a rebate of the tax.  I answered in the comments as follows:

I think "rebate" is the wrong way to think of it. Of COURSE if you paid a higher price and then had the exactly that amount rebated to you, then it would not be a very powerful incentive. But that is not what is being proposed.

I think things are easier if you consider payroll taxes to be a sales tax on labor, which they are in effect. So we have a sales tax regime, with differing tax levels on different types of products. If we raise taxes on one item, but drop taxes on the others, then sales of that one item are certainly going to suffer. Its price just went up relative to all the other things we buy. Let's imagine a simplified world where we can buy any of 10 items (call them A, B, C, etc), each priced at $10, and we have $100 in income. Now imagine the same world tilted such that we have $105 of income and all items are $10 except "A" which now costs $20 each. On average, most people will buy less "A" and more of other stuff.

I'm a libertarian, so I grit my teeth at such games. I don't like the taxes in the first place. I don't like the government playing outcomes games with taxes. But my point is that if we are going to insist on doing something to limit CO2, then shifting the sales tax burden so that total taxes are the same but taxes on fuels are higher while taxes on labor are lower strikes me as a substantially lower cost solution than any of the other alternatives being suggested.

I realize I did not comment on the Joe Romm oil price bet per se.  Here are two reasons I don't like the bet:

1.  Romm is making a catastrophic forecast (ie oil >$200) but wins his bet at $41, what one might consider a fairly normal current oil price.  This is very equivalent to Romm forecasting a 15F increase in world temperatures in the next century (which he has) but making a bet that he would win if temperatures go up by only 0.1F.  Clearly, a 0.1F increase over the next century would be considered by all a thorough repudiation of catastrophic anthropogenic global warming forecasts.  So why should he win the bet at this level?

2.  The bet, particularly in the next few years, has more to do with the current government's actions than Exxon's or Saudi Arabia's.  To bet that oil prices will stay low in nominal dollars, one must bet that Obama's deficits won't destroy the value of the dollar, that the Fed's expansionist monetary policy won't lead to inflation, that Congress won't pass some kind of legislative restrictions making oil production more expensive, and that the world won't sign a treaty to restrict carbon.  In short, Congress will have more effect in the near term on oil prices than flow rates in Saudi fields, and I am certainly not going to make a bet in favor of Congressional or Presidential restraint.

Postscript: Here is what you have to believe to accept Romm's 15F global warming forecast.   Here is how I opened that post.  It is interesting how similar the forecasting issues are:

For several years, there was an absolute spate of lawsuits charging sudden acceleration of a motor vehicle "” you probably saw such a story:  Some person claims they hardly touched the accelerator and the car leaped ahead at enormous speed and crashed into the house or the dog or telephone pole or whatever.  Many folks have been skeptical that cars were really subject to such positive feedback effects where small taps on the accelerator led to enormous speeds, particularly when almost all the plaintiffs in these cases turned out to be over 70 years old.  It seemed that a rational society might consider other causes than unexplained positive feedback, but there was too much money on the line to do so.

Many of you know that I consider questions around positive feedback in the climate system to be the key issue in global warming, the one that separates a nuisance from a catastrophe.  Is the Earth's climate similar to most other complex, long-term stable natural systems in that it is dominated by negative feedback effects that tend to damp perturbations?  Or is the Earth's climate an exception to most other physical processes, is it in fact dominated by positive feedback effects that, like the sudden acceleration in grandma's car, apparently rockets the car forward into the house with only the lightest tap of the accelerator?

Sent to me by a bunch of readers, from the Atlantic interview with Thomas Schelling:

I sometimes wish that we could have, over the next five or ten years, a lot of horrid things happening -- you know, like tornadoes in the Midwest and so forth -- that would get people very concerned about climate change. But I don't think that's going to happen.

This reminds me of a post from way back, when Kevin Drum wrote:

Seeking to shape legislation before Congress, three major energy trade
associations have shifted their stances and decided to back mandatory
federal curbs on carbon dioxide and other man-made emissions that could
accelerate climate change.

I responded:

Having some Washington lobbying organizations switch which side of this incredibly difficult trade off they support is not "good news."  Good news is finding out that this trade off may not be as stark as we think it is.  Good news is finding some new technology that reduces emissions and which private citizens are willing to adopt without government coercion (e.g. sheets of solar cells that can be run out of factories like carpet from Dalton, Georgia).  Or, good news is finding out that man's CO2 production has less of an effect on world climate than once thought.  Oddly enough, this latter category of good news, surely the best possible news we could get on the topic, is seldom treated as good news by global warming activists.  In fact, scientists with this message are called Holocaust deniers.

Postscript: It is particularly telling of a certain mindset that Schelling specifically wishes bad things to occur in the Midwest.   By most leftish standards, people in flyover country (except maybe Ohio since it is a key swing state) don't really count.

Usually an article like this would blame the US:

Global carbon dioxide emissions in 2008 rose 1.94 percent year-on-year to 31.5 billion tonnes, German renewable energy industry institute IWR said on Monday, based on official information and its own research.

Several other leftish / alarmist sites picked up the story, but still didn't hammer the US, saying only that the US is the largest contributor to total emissions but not whether it contributed significantly to last year's rise.  It turns out there is a reason for this.  US emissions were actually way down, falling far faster than the drop in economic growth:  (from the EIA)

The story tries to put a positive spin on Europe  (again, the preferred story line is always Europe-good-America-bad):

Carbon dioxide emissions from heavy industry participating in the European Union's Emissions Trading Scheme fell 3.1 percent last year compared with 2007, the EU's executive Commission said in mid-May

This is a carefully worded cherry-picking on one sector of the economy.  I would be willing to bet almost any amount of money that the rest of Europe's economy saw less of a drop or even an increase.  Even so, the cherry-picked sector, the one subject to cap-and-trade, still underperformed the US.  Overall, US emissions have fallen since 2000 without any real regulatory program and just the normal incentives of economic efficiency at work.

The US is NOT the problem when it comes to future emissions growth.

I have already written before about carbon offset companies apparently double or even triple counting carbon credits or offsets.  Here is another example, sent by a reader:

Reilly and Herrgesell, the company's president and project manager, respectively, have been trying to develop a way to "incentivize the consumer" for nearly two years. What they came up with was a model for selling personal carbon credits.

"(It's) a new idea," said Herrgesell, "but a very powerful idea."

To get started, you create a personal profile with usage data from your utility bills over the last year at My Emissions Exchange. Then, you reduce your energy consumption. My Emissions Exchange certifies your personal carbon credits, and sells them for you in the global voluntary carbon market.

The carbon credits are equal to a one-ton reduction in carbon emission, and are currently trading between $10 and $25, according to the site.

"This is the only effort out there that can align green activity with financial benefit," said Reilly.

First, I have looked at the site in question, and find no differentiation for how one's power is generated.  My power in Phoenix comes from a big honking non-CO2-emitting nuclear plant, so my actual carbon credits for reduction in electricity use are theoretically more complex.  Is the clean nuclear power I didn't used sold so it substitutes for fossil fuel power?  Did I cut my power peak or off-peak?  And does it substitute for gas (not much CO2) or coal ( a lot of CO2)?  Its amazing that there are real markets that will accept such soft savings as real credits to be paid for.

Second, in the proposed Waxman-Markey bill, utilities get counted directly on their CO2 output, so either this program will have to go away or else it will represent a double counting of the same benefit (as at the utility level your reduction in electricity use will also "count").

Third, the economic knowledge of the author quoted above is just staggeringly low.  I mean, all this time I thought electricity prices were how consumers were "incentivized" [sic] to use less power.  The implication is that somehow incentives are out of alignment and this is the "only effort" aimed at aligning them.  But consumers already save money by reducing their utility use (does anyone have a utility contract that reads the opposite?)  One might argue that these guys can provide an additional financial incentive that will create incentives for more conservation at the margin, but that's about it.

As I wrote before, Waxman-Markey puts most of the onus for CO2 reduction on refiners and transportation fuels, so that is the area we will see the most price increase if the bill passes.

So I ask you, after putting this huge effective tax on refiners, which will also in some cases force refiners to shut down capacity and produce less fuel, how long will it be before a politician starts to demagogue oil companies for rising gasoline prices and/or fuel shortages?

This is at the end of the day why Congress wanted cap-and-trade rather than a carbon tax.  By putting the tax on unsympathetic targets like oil companies, Congress and Obama can pretend that inevitable consumer price increases are the oil companies greedy fault, and not related to the actions in Washington.

The whole point of cap-and-trade (or a carbon tax) is to set broad costs of emissions or broad tradeable limits, and then let millions of individual consumers and industries figure out the most effective way for each of them to meet these costs or limits.  For example, if I were to have a personal cap, changes in my car's MPG would be meaningless, because my work is 1.9 miles from my house.  I would probably start with putting the film coating on my windows of my house I have been considering.  They guy in New Jersey who drives 45 miles to work and has a small house might have a different solution.

But this whole philosophy of letting individuals drive the bus flies in the face of everything Congress believes in.  They believe they are smarter than you or I, and thus they should pick the solutions, not us.  And allowing for individual action doesn't generate campaign contributions like picking winners does.

So despite being a cap-and-trade bill, Waxman-Markey essentially picks winners.  One way is through targeted investments of taxpayer money in technologies whose owners have lobbied hard before Congress.  Another is this:

The legislation will drive up individual and commercial consumer's fuel prices because it inequitably distributes free emissions "allowances" to various sectors.  Electricity suppliers are responsible for about 40% of the emissions covered by the bill and receive approximately 44% of the allowances "“ specifically to protect power consumers from price increases.  However the bill holds refiners responsible for their own emissions plus the emissions from the use of petroleum products.  In total refiners are responsible for 44% of all covered emissions, yet the legislation grants them only 2% of the free allowances.

This means that Congress has decided to extract all of the CO2 reduction from transportation and other refined fuel users, rather than from electrical power generation.  Is this because they have some study in hand that shows the best bang for the buck in reducing CO2 comes from transportation?  Of course not, and even if they did, it would be hard to believe given the number of large coal plants in this country that generate far more CO2 than even a fleet of Escalades.

No, the reason for this is purely political -- every representative has an electric utility in their district lobbying and paying campaign contributions, but few have organized lobbies of automobile drivers.   And so, rather than pushing for fuel shifts from coal to gas or nuclear in power generation, this bill will primarily achieve its meager results from making it more expensive for people to drive.

I have generally rejected comparisons of global warming activism to religion as unproductive.  But I give up.  Apparently global warming activists are digging into the Catholic playbook and stealing shamelessly.  Not satisfied with token acts of faith (e.g. sorting the recycling), indulgences (carbon offsets), and refusing to tolerate heresy, they have now adopted meat-free days of the week, switching only the day, from Friday to Monday.   I can see the Catholic bumper sticker now --  "the Catholic Church:  Fighting Global Warming Since the Year 858".

When purchasing some Amtrak tickets earlier today, I encountered a link to an organization selling carbon offsets.  Does anyone else think, after looking at this organization's logo, that they have decided to hitch their wagon to Obama's coattails?  I guess there is an "O" in their name, but groups seldom adopt the fifth letter of a ten-letter word as their initial.

Don't miss some of my past criticisms of double and triple counting in the offset world here and here and here and here.

A month or two back, I was participating in the California Regional Council of Rural Counties annual meeting.  At this conference, I was there to have a sort of informal debate on climate change with Joe Nation, a former California State legislator and currently a private consultant on climate issues.

To some extent my role was frustrating for the audience, because they were already stuck with complying with California's AB32 (a sort of state CO2 cap and trade system) and arguing that such legislation was pointless only served to upset them  (my presentation, both in powerpoint and video is here).  By the way, we often lump "government" together, but I can tell you that while the governor and the legislature of California may be 100% behind CO2 alarmism, the county commissioners were very sympathetic to the skeptic position.

Anyway, towards the end of my presentation I made a plea for a carbon tax over cap-and-trade, and said in fact that California's AB32 was living proof of my argument.  The California Air Resources Board (CARB), which is tasked with implementing the plan, has already added hundreds of people to its staff and worked for over two years, is still no where near finished with rule-making.  The complexity, and the battling political constituencies, is simply mind-boggling.  It is already clear that the result is going to be a Byzantine, Rube Goldberg structure of detailed industry-specific reporting and permitting rules.  Nearly 100% of CARB's time is taken up today with various groups running to them begging for some sort of special treatment (think "carbon bailout" and you will get the idea).  No one thinks the process is fair or rational.

Under cap-and-trade, every single industry will report greenhouse gasses, have industry and firm-specific limits, myriads of permits, etc.  For example, we had detailed discussions that day of how cattle flatulence will be treated and measured.  The alternative is a carbon tax, which is dead simple.  There is one single rate to set - the tax per weight of carbon in fuel.  Fuels with more carbon per BTU, like coal, thereby get higher taxes.  The system works like a sales tax, and could be administered by the BOE (who runs the California sales tax system) in its sleep.

The cap-and-trade system is far more expensive than a carbon tax.  By the basic laws of supply and demand, both systems have to raise the cost of burning certain fuels by about the same amount to get about the same reduction in use.  But the cap-and-trade system brings a huge overhead burden, both in government bureaucracy as well as compliance costs, that make it far, far more expensive for the same amount of benefit.  Until he started sitting on the boards of companies who depend on these inefficiencies in the cap and trade system to make money, Al Gore advocated a straight carbon tax over cap-and-trade.

But we had an opportunity that day.  Because the man who claims to be the author of AB32 is none other than Joe Nation, who was right there in the room.  So we asked him why he took this approach.  Here is what he said, really a civics lesson in one sentence:

I tried pass a carbon tax first, but there was absolutely no support for it among legislators [the same ones who overwhelmingly supported AB32]

If you can understand why this is, you can understand a lot about government.   Because all these concerns that you and I might have about crafting rational public policy are not important to legislators.  Here is how they think about it:

• Private implementation and compliance costs are meaningless to legislators.  There is no public measurement or accountability for these costs, and most of these costs fall on businesses, who can be ignored as unsympathetic in political discourse.  I operate in Mono County, California, and they put out a new set of reporting requirements driven, they said, by the needs to save a few hours a year of their auditors' time.  But compliance with these new rules costs our company 10-20 hours, at least, a year.  And we are just one of many, many companies reporting.  I complained that it was crazy for them to ask taxpayers to spend hundreds of hours of labor to save them just a few, but they could not have cared less.

• For legislators, particularly in California, creating large new bureaucracies is good.  It creates a patronage relationship between the legislators and these new government employees that is almost quasi-feudal.  Public employees are an enormous source of support for incumbent politicians, and these bureaucracies also offer future employment opportunities for legislators once they leave office (nice article here).

• First, last, and always, the vast majority of politicians are gutless.  That means if they can pass the same tax in a way that is more hidden (ie cap-and-trade vs. carbon tax) they will prefer this approach, even if it means the tax is substantially less efficient.  In the case of cap-and-trade, since costs are hidden and spread around like peanut butter rather than easily identifiable, they can pretend the costs don't exist and, if someone starts worrying about rising electricity costs that result, simply blame the rising costs on the evil power/oil/coal/etc companies.  Obama has brilliantly taken this one step further, by outrageously claiming, in the broken windows fallacy of all time, that cap-and-trade will actually boost the economy through green job creation.

• A carbon tax gives politicians very little room to extract personal value from the electorate.  Really, there is only one number for everyone to argue over.  But cap-and-trade is a Disneyland for lobbyists.  There can be special exemptions, industry specific caps, firm-specific caps, geography-specific caps.  Once everyone sees the first few guys giving campaign donations and parading into CARB for special treatment, everyone feels like they have to in order to avoid being the one guy left out.  My guess is that cap-and-trade will spawn more lobbying than any other legislation in US history.  And politicians, no matter what their public stance, love lobbying, because everyone who comes to ask them for something knows there has to be a quid pro quo.

Update:  A number of related thoughts and posts here, at Reason.

... then it would be much easier to reduce CO2 production, because we could just shut down stupid-inefficient boneheaded and outdated Soviet-era industry, like Poland has:

Polish Prime Minister reminded that the economy of Poland, who has cut carbon emissions by about 30 percent since 1988, relies on coal for up to 90 percent of its energy needs. This, he argued, entitles Poland to encourage other countries, for whom climate protection is a hard nut to crack.

Amount of Polish CO2 reduction that would not have happened anyway in the course of modernizing their economy and is instead due to focus on CO2:  Zero.

More on how the vast majority of European progress towards Kyoto goals is due to the shutdown of Soviet industry, and how this is the primary reason the 1990 benchmark date was chosen, here.

Technocrats love to pick winners.  Leftish technocrats, in particular, love to believe that the complex operations of the entire economy choose technologies that are inferior to those the technocrat would have imposed on the economy had she been in charge.  But here is what happens when they try, in a cautionary tail that is particularly relevant given the number of specific technologies Barack Obama has said he would promote (e.g. a million plug-in hybrids by 2015) (via Tom Nelson)

The federal government has invested billions of dollars over the past 16 years, building a fleet of 112,000 alternative-fuel vehicles to serve as a model for a national movement away from fossil fuels.
But the costly effort to put more workers into vehicles powered by ethanol and other fuel alternatives has been fraught with problems, many of them caused by buying vehicles before fuel stations were in
place to support them, a Washington Post analysis of federal records shows.

"I call it the 'Field of Dreams' plan. If you buy them, they will come," said Wayne Corey, vehicle operations manager with the U.S. Postal Service. "It hasn't happened."

Under a mandate from Congress, federal agencies have gradually increased their fleets of alternative-fuel vehicles, a majority of them "flex-fuel," capable of running on either gasoline or ethanol-based E85 fuel. But many of the vehicles were sent to locations hundreds of miles from any alternative fueling sites, the analysis shows.

As a result, more than 92 percent of the fuel used in the government's alternative-fuel fleet continues to be standard gasoline. A 2005 law -- meant to align the vehicles with alternative-fuel stations -- now requires agencies to seek waivers when a vehicle is more than five miles or 15 minutes from an ethanol pump.

The latest generations of alternative vehicles have compounded the problem. Often, the vehicles come only with larger engines than the ones they replaced in the fleet. Consequently, the federal program --
known as EPAct -- has sometimes increased gasoline consumption and emission rates, the opposite of what was intended....

The Postal Service illustrates the problem. It estimates that its 37,000 newer alternative-fuel delivery vans, which can run on high-grade ethanol, consumed 1.5 million additional gallons of gasoline last fiscal year because of the larger engines.

The article does not even mention that E85 ethanol made mostly from corn does absolutely nothing to reduce total CO2 production (it just shifts it around, due to the amount of energy required to grow corn and convert it to ethanol) while raising food prices.

California did something like this years ago, putting the force of subsidies and state law behind zero-emission vehicles.  This wasted a lot of money on electric and hydrogen vehicles that were not yet technologically mature enough to prosper, while missing out on low (but now zero) emissions approaches that could have had much more impact because they were technologically ready (e.g. CNG for fleet vehicles).

Y'all know where I stand on the dangers of CO2.  But if we really have to do "something", then the only efficient way to do it is with a carbon tax.  But politicians hate this idea, because they don't want to be associated with a tax.  But the fact is, that every other action they are proposing is a tax of some sort too, but just hidden and likely less efficient.  There is no magic free lunch that Barack Obama and his folks can think of and impose, no matter how smart they are.  In fact, to some extent, smarts are a hindrance, because it tempts people into the hubris of thinking that they are smart enough to pick winners.

Postscript: If you are reading this and thinking "well, if I were in charge, I would not be that stupid and I could make it work" then you don't get it.  1)  No one can make it work, for the same reasons the Soviets could not plan their economy from the top -- its just too complex.  At best, policy-makers are choosing between a handful of alternatives to back.  In contrast, every individual has a slate of opportunities to reduce his/her CO2 production at the least cost, and when you add up all these individual portfolios, that means there are hundreds of millions of individual opportunities that must get prioritized.  That is what pricing signals do, but government bureaucrats cannot.  2) The morons and knaves ALWAYS take over.  Even if you are brilliant and well-motivated, your successor likely will not be. For years, folks have generally been comfortable with the outsized role of the Federal Reserve because they thought Greenspan  (and Volker before him) ran it brilliantly.  Well, there are arguments to be made about this, but even if we accept this judgment, what happens when the next guy is in charge and is not brilliant?

Postscript #2: If you want a specific example, let's take plug-in hybrids.  How can anyone be against these?  I personally like the concept of cars being driven by electric traction motors (I like the performance profile of them) and would love a good plug-in hybrid.  But what happens when we find out that many of these cars were bought in coal-burning areas where electricity is particularly cheap, and discover coal-fired electricity pollutes more than an internal combustion engine?  Or when we use a cap and trade system to cut back on coal fired plants, and find that the huge number of plug-in hybrids are exacerbating brown-outs and electricity shortages?  Or we find that the billions of dollars of capital diverted by the government to expanding plug-in hybrids could have easily yielded far more CO2 reduciton had it been applied in another area?  That is why a carbon tax is the only way to go (if we are going to do anything) because it allows individuals to make capital expenditure decisions to reduce CO2 based on their vastly higher knowlege of the opportunities and the pricing signal of the tax.

A while back, in relation to a company called Terrapass that sells carbon offset certificates (or smugness coupons, as I called them) I observed:

My guess is that TerraPass, when it sells the electricity from these
projects to customers, is selling it on the basis that it is
earth-friendly and causes no CO2 emissions.  This lack of emissions is
likely part of the "bundle" sold to electricity customers.  But note
that this would be selling the same lack of emissions twice -- once to
TerraPass certificate holders, and once to the electricity customers.
I am sure they are both told they are avoiding X tons of emissions, but
it is the same X tons, sold twice (at least).

We are starting to see this all over now.  From the WSJ, via Tom Nelson:

America's garbage dumps are reaping a windfall from the fight against
global warming. But their payday might not be doing much to reduce
greenhouse-gas emissions.

For more than a decade, the landfill
here has made extra profit simply by collecting methane given off by
rotting trash, and selling it as fuel. Last year, the landfill learned
that doing this also qualified it to earn hundreds of thousands of
dollars via a new program that pays companies to cut their
greenhouse-gas emissions.

Eliminating methane lets dumps sell
"carbon credits" to environmentally conscious people and companies. The
long-term goal of trading credits -- basically, vouchers representing
reductions in carbon dioxide and other greenhouse gases -- is to reduce
global pollution by encouraging others to cut emissions when the buyers
of the credits can't or won't cut their own.

"It seemed a little suspicious that we could get money for doing nothing,"
says Charles Norkis, executive director of the Cape May County
Municipal Utilities Authority, which has raised $427,475 selling
credits since February, or 3% of the authority's projected solid-waste
revenue for the year.

The sale of credits by these landfills
undermines a premise of the global fight against climate change. The
credit system was designed to encourage pollution cuts that wouldn't
have happened without a financial incentive. But the credits aren't helping the environment if they're merely providing extra profit for cleanups already made. And dumps already have an incentive to capture methane because selling it can be profitable.

More on this same carbon offset issue in the European / UN system here.

Why a carbon tax, if we really feel we must limit CO2, is better than cap-and-trade / offset system here.

There are a lot of incredibly good reasons to favor a carbon tax over cap-and-trade if we simply most reduce CO2 emissions.  Even a minor inspection of the inner workings of the California Air Resources Board under their AB32 cap-and-trade style program provides lists of examples of abuses, rent-seeking, inefficiency, etc. under cap-and-trade.  But Joe Nation, one of the California legislators who authored AB32, told me that he could not get even a 5-cent gasoline tax through a legislature that enthusiastically embraced the 100x (or more) expensive AB32.  Why?  Silly rabbit, because public costs of cap-and-trade can be fudged, hidden, ignored, and, when they absolutely have to be recognized, blamed on private companies.

Via a reader, here is our Arizona governor discussing the costs of cap-and-trade in Arizona:

Napolitano brushed aside questions of what effect the plan will have on utility rates.

"First of all, that it may increase electric bills doesn't mean it will increase them now," Napolitano said.

Brave, isn't she?  They are already preparing the story line to blame private industry for future price increases:

Napolitano said there is "lots of data" to suggest that utilities
eventually will be able to save money "by moving to a system of 'green'
energy."...

Fox said that, on a long-term basis, there may be cost savings.

You get that?  We smart government guys conducted a lot of really high-power circle jerks among graduate students and the consensus was that forcing the electrical industry to obsolete much of its current capacity and rebuild with some other uproven but more expensive technology would save them money in the long term.  If utilities raise prices, it's because they were not smart enough to figure out what we already know and they are just greedy capitalist pigs so blame them for the price increases, not use faithful public servants.  You see?  Cap-and-trade is like money laundering for taxes.  The tax is there, but its hidden well enough that a lazy media will not bother to trace it back to its owner.

But I wouldn't want you to take my assertion on faith (as Obama does with his 5 million green jobs promise), so lets look at what will have to happen.

The exact goals are hazy, but it appears our governor has committed the state to cutting CO2 emissions by 15% over the next 10 years.  One of the main ways that calling CO2 "pollution" is misleading is to imply it is some kind of combustion by-product, like soot or SO2, that could be scrubbed out.  But it is not.  It is fundamental to combustion.  So a 15% cut in CO2 emissions is 10-15% cut in power generation  (we likely get numbers lower than 15% by assuming cuts in production are preferentially from higher carbon sources like coal plants). 

So, basically this law requires the state's electrical utilities to obsolete 10% of its installed capacity, and either a) have tons of rolling blackouts; b) raise prices enough to force a large cut in demand  (remember, demand must be cut 10% AND all future growth must be halted); or c) the industry must spend hundreds of billions of dollars to build a ton of capacity in some other technology.  Option a will never fly politically.  Option c is almost sure to fail as well.  The permitting and construction processes can take decades.  From a cold start, I don't think its possible to rebuild 10+% of the states generation capacity in 10 years, either in nuclear or some other not-yet-ready technology.  The numbers simply don't work.  The only possible way I can imagine is maybe to install a zillion natural gas turbines, but to make the CO2 balance work out, you probably would have to rebuild 15% or more of the capacity, not just 10%, because there would still be some carbon emissions. 

Really, realistically, one is left with option b.  Prices are going to go up (just they would have to in option c to pay for replacement production capacity).  The price increases would be about as much as the carbon tax would have had to be to get the same effect, but price increases are corporation's fault while taxes are politicians' fault.  See?  The only good news is that the price increase will go to private players rather than the government.  That is until someone thinks to put in a windfall profits tax on utilities that are making lots of money on the government-enforced shortage.

After having time to think more about the current crisis, I think the reason it is confusing is that it is the result of two parallel but largely independent causes that worked together to create this mess.  I told my mother-in-law in an email last week that the financial crisis would likely be a Rorschach test where everyone sees the crisis caused by all the things they opposed before the crisis.  Conservatives will see government intervention, liberals will see greed and deregulation.

What makes this situation particularly confusing is that of the two causes I believe led to the crisis, each has been embraced by one of the two parties as the only cause.  It's a case where everyone is half right, but the other half is important too.  It's a two part recipe, with neither active ingredient causing much of an explosion until mixed with the other. (special thanks to the folks at Q&O who have had a lot of good posts on these issues).

Cause 1:  Creating the Asset Bubble

The first thing that had to happen for the crisis was the creation of an asset bubble.  We need some type of over-valued asset whose prices crash to earth to spark the crisis.  So we begin with housing.

Home prices have gone through boom-bust cycles for years, just as have many commodities.  There is a whole body of literature on such cycles, so we will leave that aside and accept their existence as a feature of markets and human behavior. 

But this housing bubble had a strong accelerant, in the form of the Federal government.  For years, this nation has made increasing home ownership a national goal and many laws and tax policies have been aimed at this goal.  The mortgage interest deduction on personal income taxes is just one example.

Starting in 1992, Fannie Mae and Freddie Mac, which were strange quasi-public / quasi-private entities, came under pressure from the Congress (e.g. Barney Frank) and the Clinton administration to add increasing home ownership to poorer people part of their missions.

Fannie Mae, the
nation's biggest underwriter of home mortgages, has been under
increasing pressure from the Clinton Administration to expand mortgage
loans among low and moderate income people and felt pressure from stock
holders to maintain its phenomenal growth in profits.

In
addition, banks, thrift institutions and mortgage companies have been
pressing Fannie Mae to help them make more loans to so-called subprime
borrowers. These borrowers whose incomes, credit ratings and savings
are not good enough to qualify for conventional loans, can only get
loans from finance companies that charge much higher interest rates --
anywhere from three to four percentage points higher than conventional
loans.

''Fannie Mae has expanded home ownership for millions of
families in the 1990's by reducing down payment requirements,'' said
Franklin D. Raines, Fannie Mae's chairman and chief executive officer.
''Yet there remain too many borrowers whose credit is just a notch
below what our underwriting has

The results were astonishing:

Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to
increase their purchases of mortgages going to low and moderate income
borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target "” 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.

For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005,
Fannie and Freddie met those goals every year, funding hundreds of
billions of dollars worth of loans, many of them subprime and
adjustable-rate loans, and made to borrowers who bought houses with
less than 10% down.

Fannie and Freddie also purchased hundreds
of billions of subprime securities for their own portfolios to make
money and to help satisfy HUD affordable housing goals. Fannie and
Freddie were important contributors to the demand for subprime
securities.

Simultaneously, the 1977 Community Reinvestment Act was pushing private banks to make more loans to less qualified borrowers:

The Community Reinvestment Act (CRA) did the same thing with
traditional banks. It encouraged banks to serve two masters "” their
bottom line and the so-called common good. First passed in 1977, the
CRA was "strengthened" in 1995, causing an increase of 80% in the
number of bank loans going to low- and moderate-income families.

These actions had a double whammy on the current crisis.  First, by pushing up housing demand, they inflated the housing pricing bubble.  Second, it meant that these inflated-price homes were being bought with lower and lower down payments.  In effect, individuals were taking on much more leverage  (leverage is a term that I will use to mean the percentage of debt used to finance a set of assets -- more leverage means more debt and less equity.  The term comes from the physics of a mechanical lever, in that more debt, like a lever, can magnify force.  Profits from assets are multiplied by leverage, but, alas, so are losses.) 

When the economy softened and the housing bubble started to burst, these new mortgage customers the government went out of its way to bring into the system did not have any resources to handle the changes -- they did not have the down payment to cushion them (or the banks) against falls in asset value and did not have the cash flow to cushion them against falling income in the recession and/or rising interest rates. 

The result:  Huge portfolios of failing loans with rapidly falling collateral values.

Cause 2:  Over-leverage of Risky Assets and Related De-regulation of Capital Requirements

I think the word "greed" was used about a zillion times last night in the Vice-Presidential debate.  But what does it mean in this context?  After all, we are all greedy in one way or another, if one equates greed with looking after one's self-interest.

So I will translate "greed" for you:  When you hear "greed on Wall Street", think leverage.  Remember, we said above that as long as the underlying asset values are going up, leverage (ie more debt) multiplies profitability.  [Quick example:  Assume a stock that goes from $100 to $110 in a year.  Assume you pay 5% interest on money.  No leverage, you make $10 on a $100 investment.  With 95% leverage -- ie buying $2000 worth of the stock with $100 equity and $1900 debt -- you would make $105 on the same $100 equity investment.  Leverage multiplied your returns by more than a factor of 10]

Remember that around the year 2000 we had the Internet bubble burst in a big way.  A lot of companies not only dropped, but went to $0 in value.  This was painful, but we did not have a cascading problem.  Why?  In part because most of the folks who invested in Internet companies did not do so in a highly leveraged way.  The loss was the loss, time to move on.  Similarly in this case, if these mortgage packages had been held as a piece of a un-leveraged portfolio, like a pension fund our an annuity, the loss would not have been fun to write off but it would not have cascaded as it has.  The government would have had to bail out Fannie and Freddie, a few banks would have failed, but the disaster would have been limited.

One reason this problem has cascaded (leaving aside blame for Henry Paulson's almost criminal chicken-little proclamations of doom to the world) is that many of these mortgage packages or securities got stuck in to highly leveraged portfolios.  The insurance contracts that brought down AIG were structured differently but in the end were also highly leveraged bets on the values of mortgage securities in that small changes in values could result in huge losses or gains for the contracts.   (Some folks have pointed to actual securitization of the loans as a problem.  I don't see that.  Securitization is a fabulous tool.  Without it, we would be seeing a ton more main street bank failures, as they would have had to keep many more of these on their books.) 

If this all sounds a bit like cause #1 above, ie buying inflated assets with more and more debt, then you are right.  There is an interesting parallel that no one wants to delve into between the incentives of home buyers trying to jump into hot housing markets with interest-only loans and Wall Street bankers putting risky securities into highly leveraged portfolios.  Leverage is really the key theme here.  In a sense, houses were double-leveraged, bought the first time around with smaller and smaller down payments, and then leveraged again as these mortgages were tossed into highly-leveraged portfolios.  Sometimes they were leveraged even further via oddball derivatives and insurance contracts whose exact operation are still opaque to many.

Those who have read me for a while know that I am in the "let them die" camp.  These Wall Street guys have been living high on the extra profits from this leverage in the good times.  They knew perfectly well that leverage is a two-edged sword, and that it would magnify their losses in a bad time.  But their hubris pushed them into doing crazy things for more profit, and I am all for a Greek-tragedy-like downfall for their hubris.  The sub-prime, first-time home buyer can claim ignorance or unsophistication, but not these guys.

During the Bush Administration, these bankers came to the SEC trumpeting their own brilliance, and begged to be allowed to leverage themselves even more via a relaxation of capital requirement rules.  And, in 2004, without too much discussion or scrutiny, the SEC gave them what they wanted:

Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis
since the 1930s. But decisions made at a brief meeting on April 28,
2004, explain why the problems could spin out of control. The agency's
failure to follow through on those decisions also explains why
Washington regulators did not see what was coming.

On that
bright spring afternoon, the five members of the Securities and
Exchange Commission met in a basement hearing room to consider an
urgent plea by the big investment banks.

They wanted an
exemption for their brokerage units from an old regulation that limited
the amount of debt they could take on. The exemption would unshackle
billions of dollars held in reserve as a cushion against losses on
their investments. Those funds could then flow up to the parent
company, enabling it to invest in the fast-growing but opaque world of
mortgage-backed securities; credit derivatives, a form of insurance for
bond holders; and other exotic instruments.

In part they traded capital requirements for computer models, a very dubious decision in the first place, made worse by the fact that most of the banks were gaming the models to reduce the apparent risk.  The crazy thing is that, in gaming the models, they really weren't trying to fool regulators, who pretty much were not watching anyway, but they were fooling themselves!  Certainly I would not expect government regulators to do a better job of risk assessment in this environment, which argues for a return to the old bright-line capital requirements that are fairly simple to monitor.  Investment banks played a game of Russian Roulette, and eventually blew their own brains out.  Which begs the question of whether the government's job is to protect consumers at large or to protect financial institutions from themselves.

"We foolishly believed that the firms had a strong culture of
self-preservation and responsibility and would have the discipline not
to be excessively borrowing," said Professor James D. Cox, an expert on
securities law and accounting at Duke School of Law (and no
relationship to Christopher Cox).

The Dog that Didn't Bark:  Ratings Agencies

Clearly, ratings agencies have really failed in their mission during this fiasco.  Right up to the last minute, they were giving top ratings to highly risky securities.  But I think folks who want to lay primary blame on the rating agencies go to far.   Ratings agencies are for individuals and state pension funds and the like -- I have a hard time imagining Goldman or Lehman depending on them for risk assessment.  Its a nice excuse, and we may well have very different companies rating securities five years form now, but its just a small contributor.

The Fix

So you see what is going on.  Republicans are running around saying "the government caused it with the CRA" and Democrats are saying "it was greed and deregulation."  Incredibly, both parties seem to come to the conclusion that sickly mortgage securities need to be pulled out of the hands of the folks who created and bought them and put in ... my hands.  I had smugly thought that I had avoided buying a home with zero-down at the peak of the market, but I was wrong.  Via the federal government, I have bought a lot of them!

I personally would let the whole thing sort itself out, and live with the consequences.  My hypothesis is that much of the current credit squeeze in the money markets is due to Henry Paulson's clumsy public statements and the Fed's busting open the door to overnight borrowing.  Everyone is frozen not by the crisis, but by the prospect of some sort of government action.  Short term borrowers and lenders are doing their business with the Fed, as the government crowds out the private short term markets and causes the very problem it is trying to prevent. 

Without the government bending over backwards to take in short term money from lenders, private firms would be forced to find private options.  Lenders have to lend to stay alive financially, just as much as borrowers have to borrow.  Money may go into the mattresses for a week or two or three, but it can't stay there forever.

I do know that the fix is NOT. 

Fixing these financial problems listed above does not include:

Sec. 101. Renewable energy credit.
Sec. 102. Production credit for electricity produced from marine renewables.
Sec. 103. Energy credit.
Sec. 104. Energy credit for small wind property.
Sec. 105. Energy credit for geothermal heat pump systems.
Sec. 106. Credit for residential energy efficient property.
Sec. 107. New clean renewable energy bonds.
Sec. 108. Credit for steel industry fuel.
Sec. 109. Special rule to implement FERC and State electric restructuring policy.
Sec. 111. Expansion and modification of advanced coal project investment credit.
Sec. 112. Expansion and modification of coal gasification investment credit.
Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability
Trust Fund.
Sec. 114. Special rules for refund of the coal excise tax to certain coal producers
and exporters.
Sec. 115. Tax credit for carbon dioxide sequestration.
Sec. 116. Certain income and gains relating to industrial source carbon
dioxide treated as qualifying income for publicly traded partnerships.
Sec. 117. Carbon audit of the tax code. Sec. 111. Expansion and modification of advanced coal project investment credit. Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability Trust Fund. Sec. 115. Tax credit for carbon dioxide sequestration. Sec. 205. Credit for new qualified plug-in electric drive motor vehicles. Sec. 405. Increase and extension of Oil Spill Liability Trust Fund tax.Sec. 306. Accelerated recovery period for depreciation of smart meters and
smart grid systems. Sec. 309. Extension of economic development credit for American Samoa. Sec. 317. Seven-year cost recovery period for motorsports racing track facility. Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit.

And, of course, the big one:

Sec. 503 Exemption from excise tax for certain wooden arrows designed for use by children.

All of these, however, are part of the bailout bill approved by the Senate.  Sources here and here.

Here are some of the provisions in the bailout that converted "no" votes to "yes." Unbelievable.

Andrew Leonard goes digging in the Senate's bailout package and finds a bunch of "sweeteners" added to lure in votes.  Among them:

* Sec. 105. Energy credit for geothermal heat pump systems. * Sec. 111. Expansion and modification of advanced coal project investment credit. * Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability Trust Fund. * Sec. 115. Tax credit for carbon dioxide sequestration. * Sec. 205. Credit for new qualified plug-in electric drive motor vehicles. * Sec. 405. Increase and extension of Oil Spill Liability Trust Fund tax. * Sec. 309. Extension of economic development credit for American Samoa. * Sec. 317. Seven-year cost recovery period for motorsports racing track facility. * Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit. * Sec. 503 Exemption from excise tax for certain wooden arrows designed for use by children.

There
are also tax credits for solar and wind power, and a very expensive
requirement that health insurance companies cover mental health the
same way they cover physical health.

Via TJIC:

Harvard plans to sharply reduce its greenhouse gas emissions in the
next eight years, Drew Faust, the university president, said.

The initial, short-term goal for the university will be to
reduce greenhouse gas emissions by 30 percent from a 2006 baseline by
2016, Faust said yesterday in a statement.

In the winter of 1990, my Harvard-owned apartment had its heating fail.  I called the administration for weeks before anyone would show up to look at it.  By this time, I actually had ice on the inside of my window panes.  Walking into my freezing apartment, a maintenance guy placed a thermometer in the center of my room, and then just stood there staring at it for 5 minutes.  At this point he had not asked me about my problem, nor looked at anything remotely connected with the heating system.

He suddenly sprung into action, looked at the thermometer, and started to walk out of the room.  "Wait," I said.  "What is wrong?  Do you know how to fix it?"  The Harvard maintenance guy says "Your room is only 53 degrees -- by state law we don't have to do anything unless it is below 50.*"  And then he walked out, with me screaming at his back.  Only when I sent a letter to the University, copied to the fire marshal, explaining that all was well because I found the room stayed pretty warm if I kept the oven on "broil" 24 hours a day and left the oven door open all the time, did I get any action to fix my heating.

It is scary to think that a university so reluctant to spend any money on heating rooms even 20 years go now wants to reduce its energy use by 30%. 

Of course, we all know how these things work:  creative accounting.  The Enron guys were saints compared to the accounting games played in the carbon accounting and offset world.  Harvard will probably say that "Well, we were planning to build a massive coal-powered electricity plant right in the middle of Harvard Yard, and by cancelling the project, we have reduced our emissions 30% over what they would have been and therefore made our goal.  Don't laugh - the UN and EU are doing EXACTLY this every day.

* Note that I cannot remember the exact legal standard quoted to me, but I think it was 50.

First, it was the National Recovery Act, where FDR explicitly tried to creat an economic system modelled on Mussolini-style fascism.  This was killed by the Supreme Court.  But the will of government to create an economic system where private companies win and lose based on how well connected they are to politicians never goes away.  The lastest attempt to set up such a managed system was via the Lieberman-Warner climate bill:

But perhaps even more pernicious is the way that "carbon credits" are distributed.

The credits are best described as a pulled-out-of-thin-air government-created fiat currency,
that is accepted only by the government in exchange for the
government's permission to let you emit CO2. (If ever a system was perfectly set up to be abused and politicized by politicians, this is it.)

Government bureaucrats will decide
sector by sector and industry by industry which companies get the
credits. Implicitly, that same decision by government regulators also
determines which companies will need to buy credits from the politically-connected companies who could get their carbon credits for free.

For quite a while, I have been arguing that cap-and-trade schemes are inferior to straight carbon taxes because of their susceptibility to rent-seeking and manipulation.  At the top of the list of problems is the carbon offset issue, the notion that someone can create and sell an offset to cap limits by reducing CO2 emissions in some novel way.  The offset products that exist to day are tremendously suspicious, as I wrote here and here.  In particular, the ability to resell the same emission reduction multiple times is a real danger.

The Guardian has an interesting look at the offsets being created by that bastion of good governance and management science, the United Nations.

The world's biggest carbon offset market, the Kyoto Protocol's clean
development mechanism (CDM), is run by the UN, administered by the
World Bank, and is intended to reduce emissions by rewarding developing
countries that invest in clean technologies. In fact, evidence is
accumulating that it is increasing greenhouse gas emissions behind the
guise of promoting sustainable development. The misguided mechanism is
handing out billions of dollars to chemical, coal and oil corporations
and the developers of destructive dams - in many cases for projects
they would have built anyway.

According to David Victor, a
leading carbon trading analyst at Stanford University in the US, as
many as two-thirds of the supposed "emission reduction" credits being
produced by the CDM from projects in developing countries are not
backed by real reductions in pollution. Those pollution cuts that have
been generated by the CDM, he argues, have often been achieved at a
stunningly high cost: billions of pounds could have been saved by
cutting the emissions through international funds, rather than through
the CDM's supposedly efficient market mechanism.

The key problem, as I have pointed out before, is how do you know the reduction is truly incremental?  How do you know that it would not have occured anyway:

The world's biggest carbon offset market, the Kyoto Protocol's clean
development mechanism (CDM), is run by the UN, administered by the
World Bank, and is intended to reduce emissions by rewarding developing
countries that invest in clean technologies. In fact, evidence is
accumulating that it is increasing greenhouse gas emissions behind the
guise of promoting sustainable development. The misguided mechanism is
handing out billions of dollars to chemical, coal and oil corporations
and the developers of destructive dams - in many cases for projects
they would have built anyway.

According to David Victor, a
leading carbon trading analyst at Stanford University in the US, as
many as two-thirds of the supposed "emission reduction" credits being
produced by the CDM from projects in developing countries are not
backed by real reductions in pollution. Those pollution cuts that have
been generated by the CDM, he argues, have often been achieved at a
stunningly high cost: billions of pounds could have been saved by
cutting the emissions through international funds, rather than through
the CDM's supposedly efficient market mechanism....

One glaring signal that many of the projects being approved by the
CDM's executive board are non-additional is that almost three-quarters
of projects were already complete at the time of approval. It would
seem clear that a project that is already built cannot need extra
income in order to be built.

LOL, yes that might be a good indicator something is amiss.  The other problem, beyond the staggering amount of outright corruption one would expect from any UN-operated enterprise, is this oddity:

Any type of technology other than nuclear power can apply for credits.
Even new coal plants, if these can be shown to be even a marginal
improvement upon existing plants, can receive offset income. A massive
4,000MW coal plant on the coast of Gujarat, India, is expected soon to
apply for CERs. The plant will spew into the atmosphere 26m tonnes of
CO2 per year for at least 25 years. It will be India's third - and the
world's 16th - largest source of CO2 emissions.

So nuclear plants, the one proven economic and scalable power technology that is free of CO2 emissions is the one technology that is excluded from the program?  But 4,000MW coal plants that can proves they are marginally more efficient than they might have been are A-OK?

Here is something I didn't know:  Way back in the 1990's, Enron was lobbying hard for cap and trade legislation to create a lucrative new trading profit center for the company (HT Tom Nelson)

In the early 1990s Enron had helped establish the market for, and
became the major trader in, EPA's $20 billion-per-year sulphur dioxide
cap-and-trade program, the forerunner of today's proposed carbon credit
trade. This commodity exchange of emission allowances caused Enron's
stock to rapidly rise.

Then came the inevitable question, what
next? How about a carbon dioxide cap-and-trade program? The problem was
that CO2 is not a pollutant, and therefore the EPA had no authority to
cap its emission. Al Gore took office in 1993 and almost immediately
became infatuated with the idea of an international environmental
regulatory regime. He led a U.S. initiative to review new projects
around the world and issue "˜credits' of so many tons of annual CO2
emission reduction. Under law a tradeable system was required, which
was exactly what Enron also wanted because they were already trading
pollutant credits.

Thence Enron vigorously lobbied Clinton and
Congress, seeking EPA regulatory authority over CO2. From 1994 to 1996,
the Enron Foundation contributed nearly $1 million dollars - $990,000 -
to the Nature Conservancy, whose Climate Change Project promotes global
warming theories. Enron philanthropists lavished almost $1.5 million on
environmental groups that support international energy controls to
"reduce" global warming. Executives at Enron worked closely with the
Clinton administration to help create a scaremongering climate science
environment because the company believed the treaty could provide it
with a monstrous financial windfall. The plan was that once the problem
was in place the solution would be trotted out.

With Enron out of the picture, the way is clear for new players to dominate this multi-billion dollar new business.  And look who is ready to take over from Enron:

The investment
vehicle headed by Al Gore has closed a new $683m fund to invest in
early-stage environmental companies and has mounted a robust defence of
green investing.

The Climate Solutions Fund will be one of the biggest in the growing market for investment funds with an environmental slant.

The fund
will be focused on equity investments in small companies in four
sectors: renewable energy; energy efficiency technologies; energy from
biofuels and biomass; and the carbon trading markets.

This is
the second fund from Generation Investment Management, chaired by the
former vice-president of the US and managed by David Blood, former head
of Goldman Sachs Asset Management.

The first, the Global Equity
Strategy Fund, has $2.2bn invested in large companies the company
judges have "sustainable" businesses, from an environmental, social and
economic viewpoint. Mr Blood said he expected that fund to be worth
$5bn within two years, based on commitments from interested investors.

Going green indeed.

Cross-posted from Climate Skeptic.  I believe this to be an extremely important issue.  Catastrophic global warming forecasts are driven not by greenhouse gas theory, but by the theory that the Earth's climate is dominated by positive feedback.  This post discusses these issues:

It is silly to argue whether CO2 in the atmosphere can cause global warming: It clearly does.  The issue is not "if" but "how much".  The warming from man's CO2 might be 8 degrees in a century, as Al Gore might argue, in which case man's CO2 would be incredibly disruptive.  Or it might cause just a few tenths of a degree of warming, which might be unnoticeable within the noise of natural climate variation.

Interestingly, the key to understanding this issue of the amount of warming does not actually lie in greenhouse gas theory.  Most scientists, skeptics and alarmists alike, peg the warming directly from CO2 at between 0.3 and 1.0 degrees Celsius for a doubling in CO2 levels  (this notion of how much temperatures would increase for a doubling of CO2 levels is called climate sensitivity).  If this greenhouse gas warming was the only phenomenon at work, we would expect man-made warming over the next century even using the most dire assumptions to be less than 1C, or about the same amount we have seen (non-catastrophically) over the last century.  Warming forecasts of this magnitude would not in any way, shape, or form justify the draconian economic impacts of many current government carbon reduction proposals.

The key, as I have written before (and here), lies not in greenhouse gas theory itself but in the theory that the earth's climate is dominated by positive feedback.  This theory hypothesizes that small changes in temperature from greenhouse gas increases would be multiplied 3,4,5 times or more by positive feedback effects, from changes in atmospheric water vapor to changing surface albedo.

Let me emphasize again:  The catastrophe results not from greenhouse gas theory, but from the theory of extreme climactic positive feedback.  In a large sense, all the debate in the media is about the wrong thing!  When was the last time you saw the words "positive feedback" in a media article about climate?

Christopher Monckton has an absolutely dead-on post at Roger Pielke's blog about this feedback theory that I want to excerpt in depth.

This chart is a good place to start.  It shows the changes in the IPCC's estimate for climate sensitivity to CO2 and how it has changed over the course of the reports.  More importantly, he splits the forecast between the amount due directly to Co2, and the amount due to the multiplicative effect of positive feedback.  The green bar is the direct contribution of Co2, and the pink is the feedback.

We can observe a couple of things.  First, the IPCC's estimate of the amount of warming due to CO2 directly via the greenhouse gas effect has actually been going down over time.  (Note that there are those, like Richard Lindzen, who suggest these numbers are still three times too high given that we have not observed a difference in surface and lower troposphere warming that greenhouse gas theory seems to predict).

Second, you will see that the IPCC's overall forecasts of climate sensitivity have been going up only because their estimates of positive feedback effects have gone way up.  The IPCC assumes that feedback effects multiply warming from CO2 by three.  And note that the IPCC's forecasts of feedback effects trail those of folks like James Hansen and Al Gore. 

So how confident are we in these feedback effects?  Well, it turns out we are not even sure of the sign!  As Monckton writes:

The feedback factor f accounts for at least two-thirds of all radiative forcing in IPCC (2007); yet it is not expressly quantified, and no "Level Of Scientific Understanding" is assigned either to f or to the two variables b and κ upon which it is dependent....

Indeed, in IPCC (2007) the stated values for the feedbacks that account for more than two-thirds of humankind's imagined effect on global temperatures are taken from a single paper. The value of the coefficient z in the CO₂ forcing equation likewise depends on only one paper. The implicit value of the crucial parameter κ depends upon only two papers, one of which had been written by a lead author of the chapter in question, and neither of which provides any theoretical or empirical justification for the IPCC's chosen value. The notion that the IPCC has drawn on thousands of published, peer-reviewed papers to support its central estimates for the variables from which climate sensitivity is calculated is not supported by the evidence.

Given the importance of feedback to their forecasts, the treatment in the latest IPCC report of feedback borders on the criminal.  I have read the relevant sections and it is nearly impossible to find any kind of discussion of these issues.  A cynical mind might describe the thousands of pages of the IPCC report as the magician grabbing your attention with his left hand to hide what is in his right hand.  And what is being hidden is that ... there is nothing there!  Feedback is the pivotal point on which the whole discussion of drastic carbon abatement should turn and there is nothing there. 

Monckton goes further, to point out that hidden in the IPCC numbers lies an absurdity:

if the upper estimates of each of the climate-relevant feedbacks listed in IPCC (2007) are summed, an instability arises. The maxima are -

Water vapor 1.98, lapse rate -0.58, surface albedo 0.34, cloud albedo 1.07, CO₂ 0.57, total 3.38 W m^-2 K^-1.

The equation f = (1 - bκ)^-1 becomes unstable as b → κ^-1 = 3.2 W m^-2 K^-1. Yet, if each of the individual feedbacks imagined by the IPCC is increased to less than the IPCC's maximum, an instability or "runaway greenhouse effect" is reached.

Yet it is reliably inferred from palaeoclimatological data that no "runaway greenhouse effect" has occurred in the half billion years since the Cambrian era, when atmospheric CO₂ concentration peaked at almost 20 times today's value

Positive feedback can be weird and unstable.  If there is enough of it, processes tend to run away (e.g. nuclear fission), which is what Monckton is arguing that some of the IPCC assumptions lead to.  Even when feedback is less positive, it still can cause processes to fluctuate wildly.  In fact, it is fairly unusual for long-term stable processes like climate to be dominated by positive feedback.  Most scientists, when then meet a new process, would probably assume negative feedback until proven otherwise.  This is a particular issue in climate, where folks like Michael Mann have gone out of their way to argue that the world temperature history over the last 1000 years before man began burning fossil fuels is incredibly stable and unchanging.  If so, how can this be consistent with strong positive feedback?

Anyway, there is a lot more numerical detail in Monckton's post if you want to dig into the equations.

I would add one thing to his analysis:  If you look at the last 100 years of history, the change in temperature given the observed change in CO2 levels comes no where close to a climate sensitivity of 3 or more, even when you assign all historical warming to CO2 rather than other effects like the sun.  In fact, as I showed in this analysis, climate sensitivity appears to be 1.2 when one assigns all past warming to CO2, and something well less than that if one accepts the sun and other effects also play a role.  These historical analyses would point to feedback that is either zero or negative rather than positive, more in line with what one would expect from complex natural systems.

You can see a discussion of many of these topics in the video below:

Yeah, I know they seem to care so much, but nearly every policy they actively advocate turns out to be a disaster for the poor.  Here is a great example:

In May 2002, in the midst of a severe food shortage in sub-Saharan
Africa, the government of Zimbabwe turned away 10,000 tons of corn from
the World Food Program (WFP). The WFP then diverted the food to other
countries, including Zambia, where 2.5 million people were in need. The
Zambian government locked away the corn, banned its distribution, and
stopped another shipment on its way to the country. "Simply because my
people are hungry," President Levy Mwanawasa later said, "is no
justification to give them poison."

The corn came from farms in the United States, where most corn
produced"”and consumed"”comes from seeds that have been engineered to
resist some pests, and thus qualifies as genetically modified.
Throughout the 90s, genetically modified foods were seen as holding
promise for the farmers of Africa, so long as multinationals would
invest in developing superior African crops rather than extend the
technology only to the rich. When Zambia and Zimbabwe turned away food
aid, simmering controversy over the crops themselves brimmed over and
seeped into almost every African state. Cast as toxic to humans,
destructive to the environment, and part of a corporate plot to
immiserate the poor, cutting edge farming technology is most feared
where it is most needed.

This is simply awful, and is driven by progressive politics in Europe that abhor GM food, despite reams of scientific evidence and years of experience that it has no demonstrable health effect.  (It is particularly ironic that GM corn should be the target, since corn as we know it is a man-made genetically modified food, albeit by the slow process of cross-breeding.  The very existence of corn is one of the great triumphs of pre-Columbian agriculture.)

A key element of progressive politics is to apply western middle class perspectives to Third World problems.  In this case, Europeans who are wealthy and well-fed have time and capacity to worry about problems at the margin, such as "might GM corn somehow have a negative health effect on one in a million people?"  I believe this concern is absurd even at the margin in western society, but it becomes criminally insane when applied to countries beset with abject poverty and starvation.  So we would rather let a million people starve than have one person face some hypothetical health risk?

This same approach can be seen in a myriad of other instances.  For example, progressive wish to prevent Nike from building factories in the Third World that hire locals for fifty cents a day.  Again, the middle class western perspective:  I would never take a job that paid $5 a day for ten hours of labor, so they should not either.  But this is in countries where more than half of the population makes less than $1 a day performing subsistence farming for perhaps 12-14 hours a day, and even then risk starvation when the crop fails.  The Nike factory represents incredible salvation for many.  Do we all hope they will do even better economically in the future?  Sure, but you can't step from unskilled subsistence farming for a dollar a day to middle manager at GE all in one step.

And then there is climate.  The climate change hysteria, and the associated calls for reductions 80% or higher in CO2 output, is the greatest threat to the world's poor that has existed since the bubonic plague.  And yes, I mean the hysteria, not climate change itself.  Because if the world gets warmer because of man's CO2  (an iffy proposition), the poor might or might not be worse off.  After all, it was during warm periods of the past that the poor thrived, such as the population boom in Europe during the Medieval warm period.  But if the world's governments agree to shut down fossil fuel production and reduce the size of economies, over a billion people who are set to emerge from poverty over the next few decades will instead be doomed to remain poor.  Progressive environmentalists are not even subtle about what they want -- they are seeking a poorer, lower-tech world.  They are selling poverty.

Brendan O'Neil writes in this vein:

In these various scandalous schemes,
we can glimpse the iron fist that lurks within environmentalism's green
velvet glove. "˜Cutting back carbon emissions' is the goal to which
virtually every Western politician, celebrity and youthful activist has
committed himself. Yet for the poorest people around the world,
"˜reducing carbon output' means saying no to machinery and instead
getting your family to do hard physical labour, or it involves
collecting cow dung and burning it in an eco-stove in order to keep
yourself warm.... Carbon-offsetting companies have encouraged Kenyans
to use dung-powered generators and Indians to replace kerosene lamps
with solar-powered lamps, while carbon-offsetting tree-planting
projects in Guatemala, Ecuador and Uganda have reportedly disrupted
local communities' water supplies, led to the eviction of thousands of
villagers from their land, and cheated local people of their promised
income for the upkeep of these Western conscience-salving trees....

Carbon
offsetting is not some cowboy activity, or an aberration, or a
distraction from "˜true environmentalist goals' - rather it expresses
the very essence of environmentalism. In its project of transforming
vast swathes of the developing world into guilt-massaging zones for
comfortable Westerners, where trees are planted or farmers' work is
made tougher and more time-consuming in order to offset the activities
of Americans and Europeans, carbon offsetting perfectly captures both
the narcissistic and anti-development underpinnings of the politics of
environmentalism. Where traditional imperialism conquered poor nations
in order to exploit their labour and resources, today's global
environmentalist consensus is increasingly using the Third World as a
place in which to work out the West's moral hang-ups....

Carbon-offsetting also shines a light on the dangerously anti-development sentiment in environmentalism....

In the near term, countries are already using global warming as an excuse for protectionism, and in particular are cutting off imports from poorer countries that are trying to make some economic progress:

There is little
that angers me more than disingenuous attempts to employ "˜global
warming' as an argument against trade, especially against trade from
the developing world. More often than not, blatant self-interest - that
is, old-fashioned protectionism by another name -  is being masked
beneath self-righteous, middle-class gobbledygook.               

               

Such a case is brilliantly exposed today by Dominic Lawson writing in The Independent ["˜Food
miles are just a form of protectionism. Middle-class neurosis is being
exploited to protect an archaic form of agriculture' (April 1)]:

               

"Was
Prince Charles' chum Patrick Holden, director of the Soil Association,
expecting the Kenyan High Commissioner to fall to his knees in
gratitude? It rather sounded like it yesterday morning, when the two of
them met in a BBC radio studio.

               

They
were there to discuss the Soil Association's proposals to discriminate
against the "˜organic food' which is air freighted into this country,
mostly from East Africa. "˜One option was to ban it altogether,'
declared Mr Holden, but instead he and his colleagues had decided that
such food would only be banned if it was "˜not produced ethically' -
whatever that means....

"On the whole it
is a "˜lifestyle choice' limited to middle-class mothers in the
South-east of England who are neurotic enough to believe the
insinuations of the Soil Association that little Henry and Caroline are
more likely to get cancer if mummy doesn't buy organic (at twice the
price).    

Now
another largely middle-class neurosis - we are all doomed unless
everybody stops flying! - is being exploited to protect an archaic form
of agriculture which could never feed this country, still less the
world. It
is, at best, an exercise in self-delusion. At worst, it is a way of
using food as the instrument of a deliberate policy of racial
discrimination."

Maxed Out Mamma has more on the global warming excuse for protectionism:

I am genuinely concerned
that environmental concerns are being used as a proxy for protectionist
economic legislation and may have severe consequences. I would like to
discuss this article from a Canadian source about carbon taxation:

Imposing
carbon tariffs on emerging economies with low manufacturing costs and
high greenhouse gas emissions could drive some manufacturers back to
Western countries, according to two economists.

Jeff
Rubin, chief strategist and economist at CIBC World Markets, thinks
such tariffs could emerge quickly. Countries in Europe are already
becoming publicly intolerant of emissions elsewhere and the next
president of the United States is expected to institute a cap on
greenhouse gas emissions alongside the trading of carbon credits.

...Europe is in an extremely
protectionist mood, and I believe one of the reasons for the
non-scientifically based focus on carbon is that it serves as a
justification for tariffs. If the next president does institute carbon
tariffs, the result will have a real impact on world trade.

I
believe that many politicians are being deeply dishonest about their
"environmental" concerns. I also believe that instituting a carbon
tariff will cause Asian growth to slow remarkably and further
destabilize the world economy. The rise in food prices is very
dangerous because it has an impact on the ability of emerging market
countries to support consumption increases necessary to rebalance
trade. If you add to the situation by doing something like this, you
could recreate the conditions which caused the Great Depression.