'Bipartisan' NCEP Seeks Government Energy Takeover

How do you win a policy debate? First, be sure you set the terms of the debate. Then develop your arguments cautiously and methodically to suggest that your only purpose is to discover objective facts. To be taken seriously, keep your prose steady and your sources respectable. You are above the fray — and beyond partisan strife. If the assumptions in your reasoning are controversial, don’t acknowledge the controversy. Instead, suggest that your premises are bipartisan. That will mean your policy conclusions must be acceptable because they are the outgrowth of a political consensus.

In discussing energy policy, drop names of important people in politics, academia and the corporate world. Your conclusions must surely be right, because a panel of distinguished scholars and statesmen endorses them. Even calling the panel members a “commission” suggests that the participants are commissioned — pulled with reluctance from their busy lives to solve an urgent world-class problem. Their findings are sure to be top-notch and their policy prescriptions sensible and balanced, forged in the crucible of bipartisanship.
This is the modus operandi of the National Commission on Energy Policy (NCEP).
To win the trust of the public and policymakers, NCEP never deviates from its mien of objectivity. To the public, the organization seems like an independent commission, perhaps set up by Congress. In fact, it’s a pressure group funded by liberal ideological foundations and partisan policy groups. Make no mistake, NCEP is a skillful activist group that has a singular goal: It aims to overhaul the energy business using the heavy hand of government.

Writing Legislation

In July, NCEP praised as “ecologically sound and politically smart” the energy bill introduced by Senate Energy and Natural Resources Chairman Jeff Bingaman (D.-N.M.) and Sen. Arlen Specter (R.-Pa.). The Bingaman-Specter bill aims to fight global warming by mandating a reduction in carbon dioxide (CO2) emissions. And no wonder it received high praise from NCEP. It was written by NCEP, according to the website “Hill Heat,” which monitors global-warming legislation on Capitol Hill.

In many respects, Bingaman-Specter appears more “moderate” than its three Senate al
ternatives, known as McCain-Lieberman, Kerry-Snowe, and Sanders-Boxer. They propose to cut carbon emissions 40% by the year 2020 and 60% by the year 2030. In contrast, Bingaman-Specter cuts emissions by only 7.6% by 2020 and 22% by 2030, and at a much lower cost to the economy.

Bingaman-Specter is a “cap-and-trade” proposal like all the others. It regulates all industries that emit CO2 by creating an artificial scarcity, allowing industries to buy and sell the “right” to emit carbon dioxide. Oil refineries, natural-gas plants, manufacturers and coal-burning power plants all fall under the bill’s provisions. While automobiles and airlines are not covered, these industries would pass on to consumers the higher fuel prices passed on by the regulated oil and gas companies.

Cap-and-trade legislation like the Bingaman-Specter bill is no doubt politically smart, because it silently shifts the cost burden to consumers in the form of higher prices while distributing carbon allowances worth “tens or hundreds of billions of dollars” to companies that emit CO2, according to a July 9 letter from Congressional Budget Office (CBO) Director Peter Orszag to Bingaman. The letter, a response to Bingaman’s reaction to a highly critical April 25 issue brief by the CBO, observes that whether or not the cap-and-trade program cuts carbon emissions, it will impose huge costs on energy and energy -intensive users. Indeed, that is its purpose. Instead of relying on the marketplace, policymakers will have the discretion to decide who will bear those costs.

NCEP’s Founding Fathers

On its website, NCEP says it is one of three projects of the “new” Bipartisan Policy Center (BCP). In March 2007, BCP held an inaugural luncheon in Washington, D.C., hosted by its supposed leaders, four former U.S. Senate majority leaders, two from each party — Howard Baker (R.-Tenn.), Bob Dole (R.-Kan.), George Mitchell (D.-Maine) and Tom Daschle (D.-S.D.). Initially, the center proposes to tackle three issues: energy, agriculture and national security. The senators say their purpose is to promote civility and improve the tone of political discourse and to show that “evidence-based collaborative approaches can gain the public and political momentum needed to forge political consensus.”

News reports say that the center has a 2007 budget of $7 million provided by the William and Flora Hewlett Foundation “and its partners.” The 20 BCP staff members are led by Executive Director Jason Grumet.

Conservatives may scoff at warm and fuzzy stories of former senators’ urging lawmakers to play nice, but they aren’t learning the real story. The center’s tax forms tell a more complex tale about the origins of BPC. For one thing, BPC is an outgrowth of NCEP, not the other way around. The group hasn’t decided to focus its attention on energy policy. Instead, advocates of more government controls over the energy sector, funded by Hewlett, created a group to cover their real intentions with a bipartisan gloss.

NCEP’s origins go back five years. Formed in 2002 as a private operating foundation, NCEP is bankrolled primarily by the California-based William and Flora Hewlett Foundation (2006 assets: $8.2 billion). NCEP’s tax form 990-PF shows that Hewlett contributed $2 million (of $6.2 million in contributions) in 2002. NCEP also received
gifts of $1.3 million from the Energy Foundation and $200,000 each from the MacArthur and Packard foundations. The group’s stated mission is to, in the words of its principal report, “End the Energy Stalemate” and find “A Bipartisan Strategy to Meet Americ
a’s Energy Challenges.”

In 2003, NCEP reported no additional income, while expenses were $2.8 million. Then, in 2004, both NCEP revenues and expenses jumped to $3.9 million, while in 2005 (the last year publicly available), contributions were $2.4 million and expenses $3.6 million. The tax forms show the major donor once again was the Hewlett Foundation ($3.4 million in 2004 and $2 million in 2005). Other donors included the Pew Charitable Trusts ($300,000 in 2004 and 2005) and the David and Lucile Packard Foundation ($200,000 in 2004).

In 2005 NCEP changed its name to the Bipartisan Policy Center but retained Grumet as executive director. Grumet, who helped design NCEP’s mission, also helped recruit its members. NCEP’s ostensible cofounders are: President George H.W. Bush’s EPA head William K. Reilly; John Rowe, CEO of Exelon Corporation, a company that runs the country’s largest group of nuclear plants; and John Holdren, the Teresa and John Heinz professor of environmental policy at Harvard and director of the Woods Hole Research Center.

Other commission members represent a powerful mix of interest groups: Ralph Cavanagh, director of the energy program at the National Resources Defense Council; Robert E. Grady, managing partner for venture operations of the Carlyle Group, the well-connected private-equity firm; Leo Gerard, president of the United Steelworkers union; former Oklahoma Republican Gov. Frank Keating, now head of the insurers’ lobby; and former CIA Director James Woolsey, who backs more federal spending on fuel-efficiency research. Former Rep. Phil Sharp (D.-Ind.), now president of Resources for the Future, is the commission’s “congressional chair.”

Before joining NCEP in 2002, Grumet was executive director of the Clean Air Association of the Northeast States, an advocacy group representing the eight state air quality agencies of New England, New York and New Jersey.

The Commission’s Goals

If you need to read its tax forms to discover NCEP’s origins, you will have to cut through a jungle of rhetoric to learn how the group proposes to get what it wants. In essence, NCEP proposes to bridge the ideological divide separating conservatives from liberals by tapping into two fears that are unique to the 21st Century: terrorism and global warming.
The common factor linking terrorism and climate change is America’s so-called “dependency” or “addiction” to fossil fuels. NCEP is the purveyor of the new centrist wisdom: 1) If the terrorists win, they will use Middle East oil to threaten the U.S.; and 2) Fossil fuels are to blame for the release of CO2. Cutting oil production and consumption will solve both problems.

NCEP member James Woolsey, in an interview in the July-August 2007 issue of The Futurist, said he believes America’s dependence on foreign oil jeopardizes U.S. national security: “Saudi Arabia made $160 billion last year [2005] exporting oil. They give several billion per year to the Wahhabis, an Islamist sect that controls religion and education in Saudi Arabia, and other Wahhabi institutions in other parts of the world such as Pakistan. Those madrassas, for instance in Pakistan, teach Pakistani children to hate Shiites, Jews, Christians, anyone who can be counted as an infidel…. The result of [this] is that the War on Terror is the only war the United States has fought, with the obvious exception of the Civil War, in which we pay for both sides.”

Consider this “key challenge” from the introduction of NCEP’s flagship report “Ending the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges”: “Reliable access to the energy resources needed to support a healthy economy remains the core imperative, but in the 21st Century, energy security also means reducing the macroeconomic and terrorism-related vulnerabilities in the current geopolitical distribution of oil supply and demand and coming to grips with the environmental impacts of the current energy system.”

Terrorism and climate change threaten our security and prosperity, however, the commission assures Americans they can still get enough energy to keep the economy moving if they accept government interference in the energy markets. “Energy independence” is really a synonym for “alternative energy”– this is what NCEP wants.
The “Ending the Energy Stalemate” report gives a nod to the importance of energy security, energy independence, expanding energy supplies and creating new technologies, but look into its other publications and you discover that NCEP is preoccupied with climate change:

l “Allocating Allowances in a Greenhouse Trading System”

l “Potential Impacts of Climate Change on the United States”

l “CO2 and Non-CO2 Greenhouse Gases”

l “Adaptation as a Response to Climate Change”

l “Realizing the Benefits of Greenhouse Gas Offsets”

l “Design Issues for Market-based Reduction Strategies”

The quantity of NCEP climate-change-oriented materials far exceeds its research on energy independence and energy security. Indeed, most of NCEP’s work on conservation and energy supply is a supplement to this emphasis. Moreover, NCEP simply assumes
that global warming is “settled science” and is intent on planning a wholesale restructuring of the energy sector, as if it is in the power of technocratic elites to move around oil, natural gas, nuclear power and other energy sectors like pieces on a chessboard.

NCEP is imbued with what F.A. Hayek called the planner’s “fatal conceit”: It assumes energy markets can be designed by bureaucrats on high and that you can plan and regulate a highly complex market like the market for energy to produce an ideal re

The Fallacy of Central Planning

On its website, NCEP repeatedly refers to a paper by the National Resources Defense Council (NRDC) titled “How Biofuels Can Help End America’s Oil Dependence” in support of the idea that ethanol could some day be cost-competitive with gasoline. The NRDC authors believe a mature biofuels science will allow ethanol to be “produced at prices as low as $0.39 per gallon.”

But even if biofuels could be produced at this price, what kind of government subsidies would be required to create a biofuels industry in place of industry based on fossil fuels — and at what cost to the environment? We already know that ethanol/sugar cane subsidies in Brazil contribute to the destruction of the Amazon rainforest: Farmers must cut down forests to create arable land to plant sugar cane. Why shouldn’t agricultural subsidies and ethanol mandates in the U.S. have similar effects in destroying carbon-sequestering forests or creating a spike in the price of corn — something that’s happening now, causing shortages in the staple food of Mexico’s poor and raising the price of livestock fodder.

NCEP thinks biomass such as switchgrass eventually will produce most of the cellulosic ethanol. But no one knows whether the production costs of ethanol will be less than the cost of producing fossil fuels, particularly when measured over the life of the production cycle. The key question becomes: Does it cost more energy to produce ethanol than the value of the energy ethanol creates?

This is not an idle question. To date, many players in the environmental movement seem willing to abandon other items on their green policy agenda in order to slow global warming. Some tout Brazilian ethanol, even if it means increased clear-cutting of the Amazon rainforests. Others accept the introduction of new pollutants created by ethanol production. Some even support nuclear power as an energy alternative.

These and other unintended environmental consequences are what happens when you believe the fallacy that government planners can organize the production and use of energy. But there are unintended economic effects too. Let the planners loose and watch what happens:

“Opportunity Costs”: This is the economist’s term for the things your money can’t buy if your dollars are already committed elsewhere. Every tax dollar that goes to give energy producers an incentive to cut carbon emissions is a dollar that can’t be used for something that might be even more important. In this sense, government subsidies represent lost opportunities. Energy expert Rob Bradley refers to political advocacy and lobbying as “deadweight entrepreneurship,” a term describing the cost of diverting resources to attract and keep government subsidies. Spending on lobbying that increases the power of politicians is anopportunity cost for everyone.

Costs vs. Benefits: Government regulation has direct costs paid for with taxes. While energy planners insist that the benefits of planning outweigh its costs, a growing consensus of economists says that the benefit of energy planning is negligible. Regarding climate change, many argue that there may be no net benefits to mankind. Simply said: We would all be poorer.

Dr. Robert Whaples, an economist at Wake Forest University, asked 210 economists to gauge the impact of global warming. Whaples found that 19.6% agreed with the controversial Stern Review on the Economics of Climate Change, which predicted that U.S. Gross Domestic Product (GDP) per capita would be reduced by 5% or more by the end of the 21st Century if the world did nothing to address industrial greenhouse gas emissions. (The Stern Review, by Sir Nicholas Stern, a British economist, was carried out at the request of the British government. It is one of the most alarmist economic analyses of the potential economic impacts of climate change.)

Of the 210 economists surveyed by Whaples:

l 21.4% agreed with Yale economist William Nordhaus that GDP losses would be somewhere between 1% and 5%;

l 35.7% believed that warming would reduce GDP by less than 1% and may even incre
ase it as much as 1%;

l 16.1% believed that GDP would increase between 1% and 5% as a consequence of warming; and

l 7.1% thought GDP would increase by more than 5% because of warming.

In other words, more economists thought global warming would improve the U.S. economy than those who believed the Stern Review. Corporate Welfare and “Rent-seeking”: Government regulations create winners and losers. In the energy sector, the winners who benefit from carbon taxes and subsidies are the corporate lobbyists and left-wing activists who influence how politicians shape the energy economy. Instead of relying on market forces, a self-selected group of power brokers diverts resources to its coffers while hiding behind the moralistic rhetoric of saving planet Earth. This is what economist Bruce Yandle has described as the coalition of “Baptists and bootleggers” — the unlikely coalition of religious moralists and the economically motivated. In the 1920s, the coalition favored Prohibition — today it supports the Kyoto Protocol on Climate Change.

But the Kyoto Protocol is already a failure, Yandle argues: “It is highly likely that total carbon emissions will be larger in the future, not smaller, despite Kyoto.” Europe, despite its pious environmental rhetoric, is already violating the carbon-mitigation provisions of Kyoto. Developing countries such as China and India, also Kyoto signatories, are exempt from the treaty’s rules and will almost certainly continue to increase their carbon emissions in order to grow their respective economies.

According to Yandle: “This situation suggests that more is going on as a result of Kyoto than a commitment to reducing carbon emissions. The Kyoto Protocol creates a new and enhanced stage on which nations, groups, and companies can pursue their special interests. The treaty opens up opportunities for favor-seeking that were previously closed.

“Groups alarmed about global warming can still support the treaty on the grounds that carbon emissions may decline eventually. But others, including companies and countries who want bigger markets, appear to be paying more attention to the strategic here-and-now possibilities offered by regulation under the Kyoto Protocol. There will be winners and losers in the post-Kyoto struggle, and expectations about who will win and lose are guiding much of today’s political jockeying.”

Yandle’s predictions are coming true. Companies such as Archer Daniels Midland benefit from ethanol mandates and investment banking firms such as Goldman Sachs plan to benefit from carbon trading [see “The Money and Connections Behind Al Gore’s Carbon Crusade” by Deborah Corey Barnes, Human Events, October 1, page 19].

NCEP is the intellectual handmaiden for both the moralistic greens and the industries and financiers that will reap the rewards of carbon trading, taxes and offsets. It’s not hard to see why they want NCEP to develop arguments for an emerging “political consensus” in support of energy regulation. What economists call “rent-seeking” is simply lobbying and living off government policymaking.

The Façade of Bipartisanship

In order to maintain its façade of bipartisanship, NCEP argues that at least some of its climate-change proposals are market-driven solutions. For example, NCEP suggests lifting the U.S. moratorium on constructing nuclear power plants, which has contributed to our reliance on fossil fuels. For 30 years, the moratorium has implicitly subsidized oil companies. It’s no wonder that companies such as Exelon and Duke Energy, which have nuclear and natural gas interests, support the Bingaman-Specter bill.

Nonetheless, most NCEP prescriptions for our energy future are troubling. The NCEP political consensus uses the fear of international terrorism to win conservative support for national and international global-warming regulatory policies. These fears — and the policies they generate — are the basis of its grand bipartisan illusion. The illusion invites people across the political spectrum to let economic planners attempt the impossible — and force the rest of us to live with their inevitable failure.


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