The Chinese Navy's Somali Cruise, by J. Peter Pham, Ph.D.
World Defense Review, Mar 12, 2009
Since the beginning of January, three vessels of China's People's Liberation Army Navy (PLAN) – the Guangzhou-class destroyer Wuhan, the Lanzhou-class destroyer Haikou, and the Qiandahou-class supply ship Weishanhu – have been operating in the Gulf of Aden and other waters off as part of a worldwide naval mobilization against the Somali pirates whose attacks, as I warned in this column three weeks ago, are more likely to increase in the coming months, notwithstanding the attention which the international community has focused on the problem. The piracy certainly provides the People's Republic of China (PRC) with a legitimate reason for dispatching the flotilla. At the end of December, Chinese Foreign Ministry spokesman Liu Jianchao told the International Herald Tribune's Mark McDonald that seven of the 1,265 Chinese vessels which passed through those waters in 2008 had been attacked; one of them, the Tianyu No. 8, a Chinese fishing boat whose capture along with its crew of twenty-four (including sixteen Chinese nationals) I reported here last November, was only released last month after its owners paid an undisclosed ransom.
Thus, on the face of it, the dispatch of the PLAN flotilla is completely understandable. Six months ago in a column attempting to draw attention to the crisis before the hijacking of the MV Faina with its cargo of thirty-three refurbished Russian-designed T-72 tanks, grenade launchers, anti-aircraft guns, and other armaments made it front-page news worldwide, I observed that "in addition to other commerce, some 11 percent of world's seaborne petroleum – some 3.3 million barrels – must pass through the very waters currently infested with the Somali pirates." China, however, is even more vulnerable to this threat. As I likewise reported here last year, "the PRC sources about one-third of all its energy needs to Africa, with perhaps one-quarter of its African oil imports originating in Sudan's oilfields" – and all of this is exported via the Marsa al-Bashair terminal near Port Sudan, from whence it must transit on tankers down the Red Sea and through the narrow Bab-el-Mandab straits – 2-mile-wide Bab Iskender and 16-mile-wide Dact-el-Mayun – into the Gulf of Aden, where the pirates await them. And even if vessels do not need to pass through this choke point, the seizure in November of a supertanker loaded with two million barrels of Saudi oil, the Liberian-registered MV Sirius Star, simply underscores a different Chinese vulnerability: Saudi Arabia is China's top supplier of petroleum, exporting 720,000 barrels a day to the PRC in 2008, a figure that will more than double to 1.5 million barrels a day by 2015, according to a study last month by John Sfakianakis, chief economist at the Saudi British Bank.
However, as I argued here two weeks ago, "while the two dozen or so cruisers, destroyers, frigates, and other surface combat vessels which various countries have dispatched to the region ... have made for great political theater and may have even proven useful in escort duty along narrowly defined sea lanes, there are simply not enough of them to make a real dent in the operations of the pirates." Hence there must be considerations, political and otherwise, beyond any marginal tactical utility motivating the launching of the PLAN's first major operation abroad. As the annual threat assessment of the U.S. intelligence community which Director of National Intelligence Dennis Blair delivered to the Senate Select Committee on Intelligence last month: "China's international behavior is driven by a combination of domestic priorities, primarily maintaining economic prosperity and domestic stability, and a longstanding ambition to see China play the role of a great power in East Asia and globally."
First, there are domestic political considerations. While the Chinese military establishment does not have to worry about the public accountability that its counterparts in democracies must concern themselves with, nonetheless high-profile missions like the deployment to the strategic waterways of the western Indian Ocean can help it to justify to the civilian leadership spending increases like the 14.9 percent jump in the official military budget for 2009 over last year's spending in the current global economic climate. In fact, as Reuters reported last week, in presenting the budget before the opening of the annual session of the National People's Congress, parliamentary spokesman Li Zhaoxing, a former foreign minister, specifically cited "enhancing the military's emergency response capabilities in disaster relief, fighting terrorism, maintaining stability and other non-warfare military operations" like the counter-piracy deployment as reasons for the double-digit rise at a time when, as The Economist recently observed, thousands of factories on the mainland were shutting down for want of business and, as the Brookings Institution's Cheng Li writes in the current issue of Foreign Policy, President Hu Jintao and other senior leaders are worried that "if China is no longer able to maintain a high growth rate or provide jobs for its ever growing labor force, massive public dissatisfaction and social unrest could erupt."
Second, China's leaders are constrained to maintain appearances abroad. With the navies of a number of other reemerging or rising powers, including Russia, India, and the first-ever joint European Union naval operation away from Europe, heading for the Gulf of Aden, the PLAN's absence would have conspicuous, especially since the PRC occupies a permanent seat on the United Nations Security Council which, in no fewer than four resolutions last year, called upon "States interested in the security of maritime activities to take part actively in the fight against piracy on the high seas off the coast of Somalia." While it is well and fine for President Hu to visit four African nations – Mali, Senegal, Tanzania, and Mauritius – during his first trip abroad this year (he also stopped in Saudi Arabia), the African partners Beijing has been assiduously cultivating also want to see concrete commitments to their security priorities. Moreover, as the commander of Chinese naval forces, Admiral Wu Shengli, acknowledged in an interview with the official Xinhua news agency before the send-off for the flotilla: "The expedition will show China's active attitude in maintaining the world's peace and safety. It could also embody the Navy's resolution and capacity to accomplish diversified military missions to deal with multiple threats to national security." And, reiterating China's commitment to the specific mission off Somalia, the People's Daily reported this week that PLAN deputy chief of staff Rear Admiral Zhang Deshun disclosed for the first time that the deployment would be ongoing with the current flotilla, which had completed 110 patrols as of this past weekend, being relieved in late April or early May: "We feel this is not a short mission. The length of the mission depends on the Somali political situation and whether Somali pirates can be eventually kept away." Admiral Zhang also some officers and sailors from the first deployment would stay over to transfer their experience to their replacements.
Third, the deployment has also given the PRC an opportunity to assert its military umbrella not only over its recently reclaimed territories of Hong Kong and Macau, but also over what Beijing views as the breakaway province of Taiwan. According to the Chinese Communist Party's official newspaper, China Daily, "the fleet will protect Chinese vessels and crews, including those from Hong Kong, Macao, and Taiwan, that seek protection when passing through the area, as well as foreign ships on request." As could have anticipated, the declaration caused no little consternation on Taiwan, to say the least, especially after it became public that a boat own by the Formosa Plastics Group, a Taiwanese conglomerate with interests in biotechnology, petrochemical processing, and the manufacture of electronics, had received an escort from the PLAN flotilla.
Fourth, the vessels dispatched on the mission – respectively, a Guangzhou-class multirole missile destroyer launched in 2004, a Lanzhou-class destroyer launched in 2003, and a Qiandahou-class supply ship launched in 2004 – represent the modern PLAN as well as China's domestic naval industry at their best. The captains and crews all have experience in the international spotlight. For example, two years ago, the supply ship currently accompanying the Somali flotilla, the Weishanhu, accompanied the destroyer Guangzhou on port calls to Russia, Great Britain, Spain, and France. The State Council defense white paper, China's National Defense in 2008, released in January, declared that: "Since the beginning of the new century, in view of the characteristics and laws of local maritime wars in conditions of informationization [sic], the Navy has been striving to improve in an all round way its capabilities of integrated offshore operations, strategic deterrence and strategic counterattacks, and to gradually develop its capabilities of conducting cooperation in distant waters and countering non-traditional security threats, so as to push forward the overall transformation of the service." The deployment, in a certain respect, is a demonstration to the world of how far China has come in meeting these objectives.
Fifth, even as it shows itself off to other navies, the deployment gives the PLAN an unparalleled opportunity to observe the operations and tactics of other fleets up close in relatively tight quarters. U.S.-led coalition vessels in Combined Task Force 151 (CTF 151), which was stood up in mid-January with the mandate of focusing solely on counter-piracy operations in and around the Gulf of Aden, currently include the Ticonderoga-class Aegis guided missile cruiser USS Vella Gulf, the Arleigh Burke-class destroyer USS Mahan, and the Royal Navy's Type 23-frigate HMS Portland. These ships will soon be joined by the Eisenhower Carrier Strike Group – the Nimitz-class nuclear supercarrier USS Dwight D. Eisenhower, Ticonderoga-class guided missile cruisers USS Gettysburg and USS Vicksburg, the Arleigh Burke-class guided-missile destroyer USS Bainbridge, the Oliver Hazard Perry-class frigate USS Halyburton, the Henry J. Kaiser-class replenishment oiler USNS Big Horn, and the Lewis and Clark-class dry cargo ship USNS Sacagawea – and its eight air squadrons. Russia has the nuclear-powered Kirov-class battlecruiser RFS Pyotr Velikiy ("Peter the Great"), flagship of the North Fleet, deployed to the area. And naval elements from some of China's East Asian neighbors, including South Korea and Japan, may be coming soon.
Sixth, the Chinese navy now has a reason to do in the maritime environment off the east coast of Africa what the 1,636 PLA personnel assigned to six UN peacekeeping missions in Africa – more than the four other permanent members of the Security Council combined – have been doing: achieving a level of tactical and operational familiarity with the African environment that few other outside countries have mastered since the end of the colonial period. (See my October 25, 2007 analysis on Chinese participation in peacekeeping missions in Africa.)
Seventh, while it is far from the most pressing reason for sending a flotilla to the waters off Somalia, Chinese leaders and others will not be unaware of the stake the state-owned China National Offshore Oil Corporation (CNOOC) has attempted to acquire in the country's potential petroleum deposits through a deal struck with Abdullahi Yusuf Ahmed, then head of the faltering "Transitional Federal Government" (see my August 14, 2007 report on the affair). While there is no question of trying to pursue any claims, much less attempting any further explorations given, as I chronicled last month, the current state of anarchy and slow collapse of the shaking remnants of the interim authority, now under Sheikh Sharif Sheikh Ahmed, of the Somali deployment is a success, what is to say that another Chinese naval force could not return one day in a different show of force to "facilitate" recognition of the earlier accord?
Eighth, while the deployment can be interpreted as proof of the PRC's increasing willingness to bear its share of the burden for the maintenance of the freedom of the seas and other global commons – American policymakers have long complained about China's "free ride" on the security framework which the United States provides – that same engagement might also signal something not quite as benign. Two years ago, referring to a 1993 incident when the U.S. Navy stopped and detained a Chinese container ship thought to be carrying chemical weapons materials to Iran (none were ultimately found after a three week stand-off), one of China's most influential strategists, Zhang Wenmu, made a case for a globally-deployed, assertive naval capacity which deserves to be quoted in full:
Wherever China's interests lead, there too must follow China's capabilities to protect those interests. And as the nation's economic interests expand into the global market, China must consider the problem of safeguarding its global and regional interests. The most crucial conduit connecting China with the region and with the rest of the world is the sea lanes, and therefore, China must have a powerful navy. The oil imports that China consumes from Africa, the Middle East and Central Asia will mainly pass through these sea lanes. China's trade is also 90 percent dependent on sea lane transport. If all goes well and other nations behave fairly, China will certainly act in accordance with WTO rules. But what if others don't act so fairly? It is not difficult for the West to find a pretext to impose sanctions on China. The Yinhe incident in 1993 is a classic case of how the United States has attempted to make an issue out of nothing. Precisely because China's navy did not have the capability to resist, China had little choice but to let them board the ship to make the so-called inspections. In an era when development is the core national interest, China would secure nothing if it did not have a strong navy.
The determining factor shaping the rise and fall of a country ultimately is not just the size of its total economic volume but also the strategic ability of the country; that is, the ability to use national forces to achieve political goals. Many cases in history have shown that the main reason for a country to be strong is more than a rise in prosperity or technological advancement but the effective application of such technology and wealth in national politics, especially military power ...
In the current era, where maritime transportation is a key factor to success of the flow of goods and commodities for the globalized economy, a powerful navy able to effectively control the sea passages will receive increasingly greater attention by all nations, particularly China.
The incident earlier this week whereby five Chinese ships, including a (PLAN) intelligence vessel, shadowed and blocked an unarmed civilian-manned American oceanographic ship, USNS Impeccable, operating in international waters south under the authority of the Military Sealift Command, is disconcerting, following as it does on the harassment, again in international waters, of another unarmed U.S. civilian ship, USNS Victorious, just last week by a Chinese patrol boat. These incidents are a reminder of the challenges that the United States and its allies can expect from a resurgent China shaking off what it views as the humiliating stain of colonialism on what is otherwise a millennial history of imperial glory. While alarmism contributes nothing to strategic analysis, neither is reflexive irenicism a particularly useful policy perspective. Hence, occasioned by these unfortunate incidents, American policymakers and analysts need to take another closer look at the recent deployment of a PLAN flotilla to the already crowded waters off the eastern coast of Africa, trying to understand China's strategic calculus and discerning its implications for American interests, both in the region and beyond. Hysteria may be out of order, but prudent caution is still called for.
— J. Peter Pham is Director of the Nelson Institute for International and Public Affairs at James Madison University in Harrisonburg, Virginia. He is a Senior Fellow at the Foundation for the Defense of Democracies in Washington, D.C., as well as Vice President of the Association for the Study of the Middle East and Africa (ASMEA). In addition to the study of terrorism and political violence, his research interests lie at the intersection of international relations, international law, political theory, and ethics, with particular concentrations on the implications for United States foreign policy and African states as well as religion and global politics.
Dr. Pham is the author of over two hundred essays and reviews on a wide variety of subjects in scholarly and opinion journals on both sides of the Atlantic and the author, editor, or translator of over a dozen books. Among his recent publications are Liberia: Portrait of a Failed State (Reed Press, 2004), which has been critically acclaimed by Foreign Affairs, Worldview, Wilson Quarterly, American Foreign Policy Interests, and other scholarly publications, and Child Soldiers, Adult Interests: The Global Dimensions of the Sierra Leonean Tragedy (Nova Science Publishers, 2005).
In addition to serving on the boards of several international and national think tanks and journals, Dr. Pham has testified before the U.S. Congress and conducted briefings or consulted for both Congressional and Executive agencies. He is also a frequent contributor to National Review Online's military blog, The Tank.
Thursday, March 12, 2009
Are the Chinese people alone now? On Chas Freeman, Commerce Nominee Locke and State Sec Clinton
The Administration Kowtows, by Ethan Gutmann
Are the Chinese people alone now?
The Weekly Standard, Mar 16, 2009, Volume 014, Issue 25
Over the last three weeks, the Obama administration has sent three clear signals to the Chinese leadership.
First came the news that Chas Freeman would chair the National Intelligence Council. The former U.S. ambassador to Saudi Arabia and an adviser to CNOOC (the state-owned Chinese oil company), Freeman clearly fits the Chinese Communist party's idea of a four-year plan for American intelligence oversight. Just note Freeman's curious 2006 statement about the Tiananmen massacre. It is unacceptable "for any country to allow the heart of its national capital to be occupied by dissidents intent on disrupting the normal functions of government, however appealing to foreigners their propaganda may be." That particular trope was originally laid down by Henry Kissinger, and it's considered safe for public use. Freeman, though, took the argument to its logical conclusion, condemning the "ill-conceived restraint" and "overly cautious behavior" of the party leadership.
It's not hard to predict what line the intelligence community will take on China's military buildup (or another Tiananmen) under Freeman's leadership.
The Chinese will score their number two victory with Gary Locke, former governor of Washington, becoming our new commerce secretary. Locke's been a very--very!--good Friend of China: making public displays of affection for the party's brilliant stewardship, carrying a torch for China in the Beijing Olympics relay, and easily straddling his public and private interests to make a deal. Locke has paraded his guanxi--his connections--and, indeed, his numerous meetings with Hu Jintao are real. As are the campaign funds he got in the 1990s through Buddhist temple fundraisers, Chinese cut-outs, and confessed felon John Huang. This may have knocked Locke out of contention for a spot on the Gore 2000 ticket, but apparently it was of little interest to Obama's third-time-lucky vetting staff in 2009.
To complete the hat trick, Secretary of State Hillary Clinton made a seemingly offhand comment on the eve of her recent trip to Beijing. Discussion of Taiwan, Tibet, and human rights would be "on the agenda," she said. But "We pretty much know what they are going to say." Some commentators have labored to present those words as refreshingly plainspoken. Bringing up human rights to the Chinese government is just an empty ritual the argument goes, and America has larger interests at the moment--China's purchase of treasury bonds, a "partnership" on green technologies--which speak to a much broader, "global" definition of human rights.
But rituals, and the spirit in which they are carried out, matter very much to the Chinese leadership. Chinese citizens, particularly those who dissent, pay close attention as well. Even if Clinton has tired of Chinese human rights (in the old-fashioned definition, where people are tortured to death and so on), the act of unilaterally agreeing to ignore an actual source of tension between our two societies represents a notable change in U.S. policy. The repercussions will extend far into Taiwan, China, and America.
Taiwan, in particular, faces trouble. China's internal crisis of collapsing exports and exploding unemployment would squelch any tendency toward foreign adventurism in most societies. But the Chinese government remains perfectly willing to go to war if they can unify the population and extend the party's control. Its objectives are clear. It wants to prevent Taiwan from being becoming the locus of the Chinese diaspora's resistance. The Chinese reward Taiwanese single-party rule with economic favors to prevent any onset of the democracy cancer when Taiwan is absorbed into the Chinese bloodstream. The current Taiwanese leadership is playing into the scenario by expanding economic contacts, attempting to wring the last Renminbi from the mainland, while intently working over their discredited opposition party to the last man.
As the first viable Chinese democracy in history drifts into genuine peril, it cannot rely on the U.S. president who appears to dislike even using the D-word and needs Chinese cash for his own internal adventurism. The Chinese have an estimated $2 trillion in foreign exchange reserves.
On the mainland, the Obama administration is giving the party a free hand exactly when they need it. The party must keep disparate forces--labor groups, Falun Gong, Christians, democracy advocates--isolated from one another. The tool is surveillance--using the Internet, phones, indeed, any electronic device that can track humans. (Many of these technologies originally came from American companies.) Once dissenters are arrested, the party needs to squelch any legal defense. Dissident lawyer Gao Zhisheng, freshly out of detention after severe torture, recently disappeared again.
Organ harvesting--particularly if the liver, kidneys, and corneas are surgically removed while a prisoner is alive--creates a foreign currency stream for the military. For the Chinese state it also solves a problem: Approximately 100,000 incarcerated Falun Gong, and an unspecified number of Eastern Lightning (Christians) will not give up their beliefs. Release is impossible; they are dangerous enemies of the state. In the marriage of the New China's capitalism and the party's unchanging authoritarianism, organ harvesting has become a profitable form of barbarism.
The last time an administration gave such an explicit green light to the Chinese leadership was three weeks after the Tiananmen Square massacre. George H.W. Bush sent National Security Adviser Brent Scowcroft and Deputy Secretary of State Lawrence Eagleburger to Beijing to reassure the Chinese. Again, the message was that human rights and democracy didn't really matter, only business, only partnership. (That Scowcroft had to deliver it in secret, though, is another sign of how far things have deteriorated.) When this became public some months later, many conservatives broke ranks and some liberals joined them in creating a firestorm of criticism for the administration's policy.
And today? Nancy Pelosi cut her teeth on China human rights, but she won't break ranks without sustained pressure. Amnesty International has made some noises about Clinton's comments. To a lesser extent, so have Freedom House, Reporters Without Borders, and Human Rights Watch. But it's not nearly enough. And where are the AFL-CIO, the academy, and the sweatshop coalitions?
Human rights in China. Democracy in China. These are things that the Obama administration wants nothing to do with. Are the Chinese people on their own now?
Ethan Gutmann, an adjunct fellow at the Foundation for Defense of Democracies, is completing a book on the conflict between the Chinese state and Falun Gong.
Are the Chinese people alone now?
The Weekly Standard, Mar 16, 2009, Volume 014, Issue 25
Over the last three weeks, the Obama administration has sent three clear signals to the Chinese leadership.
First came the news that Chas Freeman would chair the National Intelligence Council. The former U.S. ambassador to Saudi Arabia and an adviser to CNOOC (the state-owned Chinese oil company), Freeman clearly fits the Chinese Communist party's idea of a four-year plan for American intelligence oversight. Just note Freeman's curious 2006 statement about the Tiananmen massacre. It is unacceptable "for any country to allow the heart of its national capital to be occupied by dissidents intent on disrupting the normal functions of government, however appealing to foreigners their propaganda may be." That particular trope was originally laid down by Henry Kissinger, and it's considered safe for public use. Freeman, though, took the argument to its logical conclusion, condemning the "ill-conceived restraint" and "overly cautious behavior" of the party leadership.
I thus share the hope of the majority in China that no Chinese government will
repeat the mistakes of Zhao Ziyang's dilatory tactics of appeasement in dealing
with domestic protesters in China.
It's not hard to predict what line the intelligence community will take on China's military buildup (or another Tiananmen) under Freeman's leadership.
The Chinese will score their number two victory with Gary Locke, former governor of Washington, becoming our new commerce secretary. Locke's been a very--very!--good Friend of China: making public displays of affection for the party's brilliant stewardship, carrying a torch for China in the Beijing Olympics relay, and easily straddling his public and private interests to make a deal. Locke has paraded his guanxi--his connections--and, indeed, his numerous meetings with Hu Jintao are real. As are the campaign funds he got in the 1990s through Buddhist temple fundraisers, Chinese cut-outs, and confessed felon John Huang. This may have knocked Locke out of contention for a spot on the Gore 2000 ticket, but apparently it was of little interest to Obama's third-time-lucky vetting staff in 2009.
To complete the hat trick, Secretary of State Hillary Clinton made a seemingly offhand comment on the eve of her recent trip to Beijing. Discussion of Taiwan, Tibet, and human rights would be "on the agenda," she said. But "We pretty much know what they are going to say." Some commentators have labored to present those words as refreshingly plainspoken. Bringing up human rights to the Chinese government is just an empty ritual the argument goes, and America has larger interests at the moment--China's purchase of treasury bonds, a "partnership" on green technologies--which speak to a much broader, "global" definition of human rights.
But rituals, and the spirit in which they are carried out, matter very much to the Chinese leadership. Chinese citizens, particularly those who dissent, pay close attention as well. Even if Clinton has tired of Chinese human rights (in the old-fashioned definition, where people are tortured to death and so on), the act of unilaterally agreeing to ignore an actual source of tension between our two societies represents a notable change in U.S. policy. The repercussions will extend far into Taiwan, China, and America.
Taiwan, in particular, faces trouble. China's internal crisis of collapsing exports and exploding unemployment would squelch any tendency toward foreign adventurism in most societies. But the Chinese government remains perfectly willing to go to war if they can unify the population and extend the party's control. Its objectives are clear. It wants to prevent Taiwan from being becoming the locus of the Chinese diaspora's resistance. The Chinese reward Taiwanese single-party rule with economic favors to prevent any onset of the democracy cancer when Taiwan is absorbed into the Chinese bloodstream. The current Taiwanese leadership is playing into the scenario by expanding economic contacts, attempting to wring the last Renminbi from the mainland, while intently working over their discredited opposition party to the last man.
As the first viable Chinese democracy in history drifts into genuine peril, it cannot rely on the U.S. president who appears to dislike even using the D-word and needs Chinese cash for his own internal adventurism. The Chinese have an estimated $2 trillion in foreign exchange reserves.
On the mainland, the Obama administration is giving the party a free hand exactly when they need it. The party must keep disparate forces--labor groups, Falun Gong, Christians, democracy advocates--isolated from one another. The tool is surveillance--using the Internet, phones, indeed, any electronic device that can track humans. (Many of these technologies originally came from American companies.) Once dissenters are arrested, the party needs to squelch any legal defense. Dissident lawyer Gao Zhisheng, freshly out of detention after severe torture, recently disappeared again.
Organ harvesting--particularly if the liver, kidneys, and corneas are surgically removed while a prisoner is alive--creates a foreign currency stream for the military. For the Chinese state it also solves a problem: Approximately 100,000 incarcerated Falun Gong, and an unspecified number of Eastern Lightning (Christians) will not give up their beliefs. Release is impossible; they are dangerous enemies of the state. In the marriage of the New China's capitalism and the party's unchanging authoritarianism, organ harvesting has become a profitable form of barbarism.
The last time an administration gave such an explicit green light to the Chinese leadership was three weeks after the Tiananmen Square massacre. George H.W. Bush sent National Security Adviser Brent Scowcroft and Deputy Secretary of State Lawrence Eagleburger to Beijing to reassure the Chinese. Again, the message was that human rights and democracy didn't really matter, only business, only partnership. (That Scowcroft had to deliver it in secret, though, is another sign of how far things have deteriorated.) When this became public some months later, many conservatives broke ranks and some liberals joined them in creating a firestorm of criticism for the administration's policy.
And today? Nancy Pelosi cut her teeth on China human rights, but she won't break ranks without sustained pressure. Amnesty International has made some noises about Clinton's comments. To a lesser extent, so have Freedom House, Reporters Without Borders, and Human Rights Watch. But it's not nearly enough. And where are the AFL-CIO, the academy, and the sweatshop coalitions?
Human rights in China. Democracy in China. These are things that the Obama administration wants nothing to do with. Are the Chinese people on their own now?
Ethan Gutmann, an adjunct fellow at the Foundation for Defense of Democracies, is completing a book on the conflict between the Chinese state and Falun Gong.
Why President Obama Should Not Attend the Alliance of Civilizations Forum
Why President Obama Should Not Attend the Alliance of Civilizations Forum. By Brett D. Schaefer
Heritage WebMemo #2339, March 11, 2009
See full article w/notes at the link above:
A Turkish newspaper is reporting that President Barack Obama will attend the second annual United Nations Alliance of Civilizations (AoC) forum in early April during his visit to Turkey.[1]
The AoC is an attempt by the U.N. to quell perceived tensions between Muslim and Western nations by promoting dialogue. Although well-intentioned, the effort has little prospect for success due to bias and objectionable proposals to freedom of expression. The base document for the Alliance of Civilizations focused on the supposed failings of Western countries while largely ignoring the faults of Muslim nations. It also endorsed the idea of constraining freedom of media, speech, and expression in order to combat "Islamophobia." This is an agenda similar to the effort by Muslim countries to prohibit "defamation of religion" that the U.S. has opposed in other U.N. forums. Rather than attend a U.N. talkfest wedded to objectionable ideas, President Obama should spend his time in the region more constructively, for instance discussing with the Turkish Prime Minister how Turkey can work with the U.S. on mutual concerns like bringing pressure on Iran to halt its nuclear program.
A Less Than Useful Forum
A successor to the Iranian-proposed Dialogue of Civilizations and brainchild of former U.N. Secretary-General Kofi Annan, the Alliance of Civilizations aims to improve relations between Western and Muslim countries by responding "to the need for a committed effort by the international community—both at the institutional and civil society levels—to bridge divides and overcome prejudice, misconceptions, misperceptions, and polarization which potentially threaten world peace."[2]
The 2006 report from the High-Level Group for an Alliance of Civilizations fell far short of this goal. Indeed, the report often simply endorsed ongoing initiatives like the multilateral peace process to resolve the Israeli–Palestinian conflict or repackaged calls for increased assistance from Western countries. When it did offer analysis and recommendations, they were burdened by biased perspectives and a list of objectives—instead of a strategy—to revive the economic performance of Middle Eastern and North African nations.[3]
Among the worst of the recommendations was the report's support for constraining media content and coverage in Western countries "including the use of terms such as 'Islamic terrorism' and 'Islamic fascism'—[which] have contributed to an alarming increase in Islamophobia which further exacerbates Muslim fears of the West."[4] The report virtually ignored the pervasive constraints, official or otherwise, on freedom of speech, expression, and the press in many Islamic countries.
Despite its problems, U.N. Secretary-General Ban Ki-moon appointed the former president of Portugal, Jorge Sampaio, as the High Representative for the Alliance of Civilizations in April 2007, giving him the task of promoting "the Alliance of Civilizations as a credible and viable attempt to diminish the dangerous tensions between diverse societies and their threat to international stability"[5] and established a voluntary Trust Fund in September 2007 to support the Alliance of Civilizations.
Not unexpectedly, the report of the first annual Alliance of Civilizations forum in Madrid in January 2008 illustrated that the AoC continues to support constraints on freedom of expression and speech in order to combat "Islamophobia":
One of the biggest challenges in engaging "Muslim" and "Western" societies is the rise of "Islamophobia." Constantly, Muslims and Islam are on the defensive. The point of departure for discussions on Islam is often that it is not a violent religion. In the non-Muslim world it is thought that it is the responsibility of mainstream Muslims to differentiate themselves from extremists. The non-Muslim world also has a part to play in actively differentiating between the religion and acts of terror.
Stereotyping is often a product of intended ignorance. There are resources being constantly deployed to spread disinformation and misperceptions of others. This can be described as an industry of ignorance. To counter this, it was proposed that a human right to be understood should be promoted as a mutual obligation for all societies and cultures. Additionally, education around this right should be incorporated into school curricula and textbooks, such that it can become the basis of interaction between cultures and societies.[6]
To accomplish the objectives of the AoC, which, presumably, include taking action to help combat negative "stereotyping" by the media and establishing an indefinable "human right to be understood," the AoC has created:
Pushing Back Freedom
There is remarkably little information on exactly what the AoC has accomplished aside from holding meetings and establishing Alliance-approved databases of experts and organizations who can discuss youth, education, media, and migration issues.
There is major cause for concern considering the AoC's ongoing support of constraints on freedom of expression and speech. As U.N. High Representative for the Alliance of Civilizations Jorge Sampaio announced at a 2008 press conference in Iran, "There is a balance to be found between freedom of expression and respect for religion and for religious feelings and principles."[11] These types of platitudes are unworthy of a true effort to promote frank dialogue. Freedom of expression means little if it is subject to the sensitivities and feelings of those who may be offended by personal statements on, or media coverage of, religious matters. After all, non-controversial statements and views are rarely subject to censorship. Discussions stilted and constrained by censorship are unlikely to "promote understanding and reconciliation among cultures globally and, in particular, between Muslim and Western societies."[12]
In U.N. debates, the balance between freedom of expression and "respect for religion and for religious feelings and principles" is increasingly tilting against freedom of expression and speech. The Organization of the Islamic Conference, for instance, has convinced the U.N. Human Rights Council and the U.N. General Assembly to pass resolutions that limit freedom of speech in the name of opposing "defamation of religions" and "Islamophobia."[13]
Only weeks ago, the Obama Administration announced that it would not participate in the upcoming Durban Review Conference (Durban II) on racism, in part because the conference's resulting draft document embraced the troubling concept of "defamation of religion."[14] It would send mixed signals, to say the least, for the U.S. to boycott Durban II in protest over the concept of "defamation of religion" while simultaneously embracing the idea of constraints on freedom of expression and speech through President Obama's attendance at the Alliance of Civilizations forum.
A Better Use of Time
President Obama is right to recognize that not all Muslims are extremists, and he is right to express his hopes that Western nations and moderate Muslims can work together to confront Islamic extremism, which threatens them both. Such sentiments are logical and echo those of President George W. Bush, who also sought to reach out to moderate Muslims and work with them to combat extremism.
Such objectives are not likely to be advanced by the AoC. A dialogue subject to censorship, regardless of intent, is unlikely to be productive or fruitful. Instead, President Obama should express, unequivocally, his commitment to freedom of speech and expression—even if it leads to statements deemed unacceptable by the AoC. Rather than attend the AoC forum in Turkey, the President should dedicate his time to soliciting Turkey's cooperation on serious foreign policy objectives, such as halting Iran's nuclear program.
Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs in the Margaret Thatcher Center for Freedom, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation.
Heritage WebMemo #2339, March 11, 2009
See full article w/notes at the link above:
A Turkish newspaper is reporting that President Barack Obama will attend the second annual United Nations Alliance of Civilizations (AoC) forum in early April during his visit to Turkey.[1]
The AoC is an attempt by the U.N. to quell perceived tensions between Muslim and Western nations by promoting dialogue. Although well-intentioned, the effort has little prospect for success due to bias and objectionable proposals to freedom of expression. The base document for the Alliance of Civilizations focused on the supposed failings of Western countries while largely ignoring the faults of Muslim nations. It also endorsed the idea of constraining freedom of media, speech, and expression in order to combat "Islamophobia." This is an agenda similar to the effort by Muslim countries to prohibit "defamation of religion" that the U.S. has opposed in other U.N. forums. Rather than attend a U.N. talkfest wedded to objectionable ideas, President Obama should spend his time in the region more constructively, for instance discussing with the Turkish Prime Minister how Turkey can work with the U.S. on mutual concerns like bringing pressure on Iran to halt its nuclear program.
A Less Than Useful Forum
A successor to the Iranian-proposed Dialogue of Civilizations and brainchild of former U.N. Secretary-General Kofi Annan, the Alliance of Civilizations aims to improve relations between Western and Muslim countries by responding "to the need for a committed effort by the international community—both at the institutional and civil society levels—to bridge divides and overcome prejudice, misconceptions, misperceptions, and polarization which potentially threaten world peace."[2]
The 2006 report from the High-Level Group for an Alliance of Civilizations fell far short of this goal. Indeed, the report often simply endorsed ongoing initiatives like the multilateral peace process to resolve the Israeli–Palestinian conflict or repackaged calls for increased assistance from Western countries. When it did offer analysis and recommendations, they were burdened by biased perspectives and a list of objectives—instead of a strategy—to revive the economic performance of Middle Eastern and North African nations.[3]
Among the worst of the recommendations was the report's support for constraining media content and coverage in Western countries "including the use of terms such as 'Islamic terrorism' and 'Islamic fascism'—[which] have contributed to an alarming increase in Islamophobia which further exacerbates Muslim fears of the West."[4] The report virtually ignored the pervasive constraints, official or otherwise, on freedom of speech, expression, and the press in many Islamic countries.
Despite its problems, U.N. Secretary-General Ban Ki-moon appointed the former president of Portugal, Jorge Sampaio, as the High Representative for the Alliance of Civilizations in April 2007, giving him the task of promoting "the Alliance of Civilizations as a credible and viable attempt to diminish the dangerous tensions between diverse societies and their threat to international stability"[5] and established a voluntary Trust Fund in September 2007 to support the Alliance of Civilizations.
Not unexpectedly, the report of the first annual Alliance of Civilizations forum in Madrid in January 2008 illustrated that the AoC continues to support constraints on freedom of expression and speech in order to combat "Islamophobia":
One of the biggest challenges in engaging "Muslim" and "Western" societies is the rise of "Islamophobia." Constantly, Muslims and Islam are on the defensive. The point of departure for discussions on Islam is often that it is not a violent religion. In the non-Muslim world it is thought that it is the responsibility of mainstream Muslims to differentiate themselves from extremists. The non-Muslim world also has a part to play in actively differentiating between the religion and acts of terror.
Stereotyping is often a product of intended ignorance. There are resources being constantly deployed to spread disinformation and misperceptions of others. This can be described as an industry of ignorance. To counter this, it was proposed that a human right to be understood should be promoted as a mutual obligation for all societies and cultures. Additionally, education around this right should be incorporated into school curricula and textbooks, such that it can become the basis of interaction between cultures and societies.[6]
To accomplish the objectives of the AoC, which, presumably, include taking action to help combat negative "stereotyping" by the media and establishing an indefinable "human right to be understood," the AoC has created:
- A Media Literacy Education Clearinghouse to create a "participatory global repository of information, resources, and good practices relevant to Media Literacy Education, Media Education Policy and Youth Media"[7];
- An Education About Religions and Beliefs Clearinghouse to offer "consensus guidelines about teaching about religions and belief in elementary and secondary education; collections of curricula about religions and beliefs in elementary and secondary education, and where possible, evaluations of curricular outcomes; links to relevant associations, institutions and organizations; and events of interest to researchers, policy-makers and educators working in this area"[8];
- A Rapid Response Media Mechanism to "provide a platform for voices that can help reduce tensions in times of cross-cultural crises" and establish a "network of experts to develop messages (i.e. op-ed articles, audio and video statements and interviews) that help frame contentious issues in less polarizing terms and offer insightful and nuanced perspectives on complex debates"[9]; and
- A multi-million dollar Alliance of Civilizations Media Fund "aimed at financing mainstream film productions that help promote cross-cultural understanding and combat stereotypes."[10]
It is easy to imagine how a tyranny of relativism could govern the information collected, since the countries involved do not share the same values or philosophies.
Pushing Back Freedom
There is remarkably little information on exactly what the AoC has accomplished aside from holding meetings and establishing Alliance-approved databases of experts and organizations who can discuss youth, education, media, and migration issues.
There is major cause for concern considering the AoC's ongoing support of constraints on freedom of expression and speech. As U.N. High Representative for the Alliance of Civilizations Jorge Sampaio announced at a 2008 press conference in Iran, "There is a balance to be found between freedom of expression and respect for religion and for religious feelings and principles."[11] These types of platitudes are unworthy of a true effort to promote frank dialogue. Freedom of expression means little if it is subject to the sensitivities and feelings of those who may be offended by personal statements on, or media coverage of, religious matters. After all, non-controversial statements and views are rarely subject to censorship. Discussions stilted and constrained by censorship are unlikely to "promote understanding and reconciliation among cultures globally and, in particular, between Muslim and Western societies."[12]
In U.N. debates, the balance between freedom of expression and "respect for religion and for religious feelings and principles" is increasingly tilting against freedom of expression and speech. The Organization of the Islamic Conference, for instance, has convinced the U.N. Human Rights Council and the U.N. General Assembly to pass resolutions that limit freedom of speech in the name of opposing "defamation of religions" and "Islamophobia."[13]
Only weeks ago, the Obama Administration announced that it would not participate in the upcoming Durban Review Conference (Durban II) on racism, in part because the conference's resulting draft document embraced the troubling concept of "defamation of religion."[14] It would send mixed signals, to say the least, for the U.S. to boycott Durban II in protest over the concept of "defamation of religion" while simultaneously embracing the idea of constraints on freedom of expression and speech through President Obama's attendance at the Alliance of Civilizations forum.
A Better Use of Time
President Obama is right to recognize that not all Muslims are extremists, and he is right to express his hopes that Western nations and moderate Muslims can work together to confront Islamic extremism, which threatens them both. Such sentiments are logical and echo those of President George W. Bush, who also sought to reach out to moderate Muslims and work with them to combat extremism.
Such objectives are not likely to be advanced by the AoC. A dialogue subject to censorship, regardless of intent, is unlikely to be productive or fruitful. Instead, President Obama should express, unequivocally, his commitment to freedom of speech and expression—even if it leads to statements deemed unacceptable by the AoC. Rather than attend the AoC forum in Turkey, the President should dedicate his time to soliciting Turkey's cooperation on serious foreign policy objectives, such as halting Iran's nuclear program.
Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs in the Margaret Thatcher Center for Freedom, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation.
WaPo on Chas Freeman: The Obama administration's latest failed nominee peddles a conspiracy theory
Blame the 'Lobby'. WaPo Editorial
The Obama administration's latest failed nominee peddles a conspiracy theory.
WaPo, Thursday, March 12, 2009; A18
FORMER ambassador Charles W. Freeman Jr. looked like a poor choice to chair the Obama administration's National Intelligence Council. A former envoy to Saudi Arabia and China, he suffered from an extreme case of clientitis on both accounts. In addition to chiding Beijing for not crushing the Tiananmen Square democracy protests sooner and offering sycophantic paeans to Saudi King "Abdullah the Great," Mr. Freeman headed a Saudi-funded Middle East advocacy group in Washington and served on the advisory board of a state-owned Chinese oil company. It was only reasonable to ask -- as numerous members of Congress had begun to do -- whether such an actor was the right person to oversee the preparation of National Intelligence Estimates.
It wasn't until Mr. Freeman withdrew from consideration for the job, however, that it became clear just how bad a selection Director of National Intelligence Dennis C. Blair had made. Mr. Freeman issued a two-page screed on Tuesday in which he described himself as the victim of a shadowy and sinister "Lobby" whose "tactics plumb the depths of dishonor and indecency" and which is "intent on enforcing adherence to the policies of a foreign government." Yes, Mr. Freeman was referring to Americans who support Israel -- and his statement was a grotesque libel.
For the record, the American Israel Public Affairs Committee says that it took no formal position on Mr. Freeman's appointment and undertook no lobbying against him. If there was a campaign, its leaders didn't bother to contact the Post editorial board. According to a report by Newsweek, Mr. Freeman's most formidable critic -- House Speaker Nancy Pelosi -- was incensed by his position on dissent in China.
But let's consider the ambassador's broader charge: He describes "an inability of the American public to discuss, or the government to consider, any option for U.S. policies in the Middle East opposed by the ruling faction in Israeli politics." That will certainly be news to Israel's "ruling faction," which in the past few years alone has seen the U.S. government promote a Palestinian election that it opposed; refuse it weapons it might have used for an attack on Iran's nuclear facilities; and adopt a policy of direct negotiations with a regime that denies the Holocaust and that promises to wipe Israel off the map. Two Israeli governments have been forced from office since the early 1990s after open clashes with Washington over matters such as settlement construction in the occupied territories.
What's striking about the charges by Mr. Freeman and like-minded conspiracy theorists is their blatant disregard for such established facts. Mr. Freeman darkly claims that "it is not permitted for anyone in the United States" to describe Israel's nefarious influence. But several of his allies have made themselves famous (and advanced their careers) by making such charges -- and no doubt Mr. Freeman himself will now win plenty of admiring attention. Crackpot tirades such as his have always had an eager audience here and around the world. The real question is why an administration that says it aims to depoliticize U.S. intelligence estimates would have chosen such a man to oversee them.
The Obama administration's latest failed nominee peddles a conspiracy theory.
WaPo, Thursday, March 12, 2009; A18
FORMER ambassador Charles W. Freeman Jr. looked like a poor choice to chair the Obama administration's National Intelligence Council. A former envoy to Saudi Arabia and China, he suffered from an extreme case of clientitis on both accounts. In addition to chiding Beijing for not crushing the Tiananmen Square democracy protests sooner and offering sycophantic paeans to Saudi King "Abdullah the Great," Mr. Freeman headed a Saudi-funded Middle East advocacy group in Washington and served on the advisory board of a state-owned Chinese oil company. It was only reasonable to ask -- as numerous members of Congress had begun to do -- whether such an actor was the right person to oversee the preparation of National Intelligence Estimates.
It wasn't until Mr. Freeman withdrew from consideration for the job, however, that it became clear just how bad a selection Director of National Intelligence Dennis C. Blair had made. Mr. Freeman issued a two-page screed on Tuesday in which he described himself as the victim of a shadowy and sinister "Lobby" whose "tactics plumb the depths of dishonor and indecency" and which is "intent on enforcing adherence to the policies of a foreign government." Yes, Mr. Freeman was referring to Americans who support Israel -- and his statement was a grotesque libel.
For the record, the American Israel Public Affairs Committee says that it took no formal position on Mr. Freeman's appointment and undertook no lobbying against him. If there was a campaign, its leaders didn't bother to contact the Post editorial board. According to a report by Newsweek, Mr. Freeman's most formidable critic -- House Speaker Nancy Pelosi -- was incensed by his position on dissent in China.
But let's consider the ambassador's broader charge: He describes "an inability of the American public to discuss, or the government to consider, any option for U.S. policies in the Middle East opposed by the ruling faction in Israeli politics." That will certainly be news to Israel's "ruling faction," which in the past few years alone has seen the U.S. government promote a Palestinian election that it opposed; refuse it weapons it might have used for an attack on Iran's nuclear facilities; and adopt a policy of direct negotiations with a regime that denies the Holocaust and that promises to wipe Israel off the map. Two Israeli governments have been forced from office since the early 1990s after open clashes with Washington over matters such as settlement construction in the occupied territories.
What's striking about the charges by Mr. Freeman and like-minded conspiracy theorists is their blatant disregard for such established facts. Mr. Freeman darkly claims that "it is not permitted for anyone in the United States" to describe Israel's nefarious influence. But several of his allies have made themselves famous (and advanced their careers) by making such charges -- and no doubt Mr. Freeman himself will now win plenty of admiring attention. Crackpot tirades such as his have always had an eager audience here and around the world. The real question is why an administration that says it aims to depoliticize U.S. intelligence estimates would have chosen such a man to oversee them.
Three Libertarian Women and Energy
Three Libertarian Women and Energy, by Robert Bradley
Master Resource, March 11, 2009
Excerpts:
March is women’s history month. In recognition, the Cato Institute’s post, “Three Women Who Launched a Movement: Celebrating Liberty in Women’s History Month,” brings attention to Isabel Paterson, Rose Wilder Lane, and Ayn Rand–each of whom wrote a powerful book in the 1940’s that helped launch the modern libertarian movement.
Each recognized energy as the master resource in different ways. [...]
Rose Wilder Lane begins The Discovery of Freedom (1943) with this memorable prose:
Here is a planet, whirling in sunlit space. The planet is energy. Every apparent substance composing it is energy. The envelope of gases surrounding it is energy. Energy pours forth from the sun upon this air and earth.
Isabel Paterson develops the analogy of “the energy circuit” in her 1943 book, The God of the Machine:
Personal liberty is the pre-condition of the release of energy. Private property is the inductor which initiates the flow…. An empire is merely a long circuit energy-system. The possibility of a short circuit, ensuing leakage, and breakdown or explosion, occurs in the hook-up of political organization to the productive processes.
Ayn Rand’s The Fountainhead (1943) did not have any direct or indirect energy themes, but Atlas Shrugged (1957) certainly did. A whole essay could be written on her creative, even prophetic, use of energy, but here is a partial summation:
Energy Comes from the Mind
But the iron ore and all those other things were there all the time. Why didn’t anybody else make that Metal, but Mr. Reardon did?
Potential of Energy
[Galt’s motor would add] about ten years added to the life of every person in this country—if you consider how many things it would have easier and cheaper to produce, how many hours of human labor it would have released for other work, and how much more anyone’s work would have brought him.
Energy Poverty
Far below in the valley, in the gathering night, there trembled a few pale smears which were the lights of tallow candles.
Energy Moves the World
“‘Motive power—you can’t imagine how important that is. That’s the heart of everything.’”
Energy as a Supreme Good
He was the man of extravagant energy … who knew … that ingenuity of his mind is his noblest and most joyous power.
Rand’s fictional account of a deteriorating society contains an interventionist dynamic of growing government control of the vital energy economy. There is the Bureau of Economic Planning and Natural Resources. There are price controls, conservation mandates, and an excess profits tax. (She had seen all this during World War II.) There are shortages and breakdowns (what Ludwig von Mises called “planned chaos). Regulators play the blame game on private industry.
The Cato essay ends:
Surveying the disheartening intellectual climate of the 40s [and add the intellectual climate of today], F. A. Hayek wrote:
We must make the building of a free society once more an intellectual adventure, a deed of courage…. Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds, the prospects of freedom are indeed dark. But if we can regain that belief in the power of ideas which was the mark of liberalism at its best, the battle is not lost.
The battle, history has since shown, is not yet lost, and this is due in no small part to Rand, Paterson, and Lane’s belief in the power of ideas. Unconstrained by conventional political categories, they savaged the collectivist economic nostrums of the left even while, in their lives and careers, they exploded the rigid gender roles seen as sacrosanct by so many on the right. In the process, they laid the foundations of the modern libertarian movement. This Women’s History Month, on the sixty-sixth anniversary of their monumental triple achievement, the Cato Institute pays homage to three women without whom it would not exist.
Cato senior fellow Jim Powell’s full essay on the role of Lane, Paterson, and Rand on the modern libertarian movement, published in The Freeman in May 1996, is available here.
Master Resource, March 11, 2009
Excerpts:
March is women’s history month. In recognition, the Cato Institute’s post, “Three Women Who Launched a Movement: Celebrating Liberty in Women’s History Month,” brings attention to Isabel Paterson, Rose Wilder Lane, and Ayn Rand–each of whom wrote a powerful book in the 1940’s that helped launch the modern libertarian movement.
Each recognized energy as the master resource in different ways. [...]
Rose Wilder Lane begins The Discovery of Freedom (1943) with this memorable prose:
Here is a planet, whirling in sunlit space. The planet is energy. Every apparent substance composing it is energy. The envelope of gases surrounding it is energy. Energy pours forth from the sun upon this air and earth.
Isabel Paterson develops the analogy of “the energy circuit” in her 1943 book, The God of the Machine:
Personal liberty is the pre-condition of the release of energy. Private property is the inductor which initiates the flow…. An empire is merely a long circuit energy-system. The possibility of a short circuit, ensuing leakage, and breakdown or explosion, occurs in the hook-up of political organization to the productive processes.
Ayn Rand’s The Fountainhead (1943) did not have any direct or indirect energy themes, but Atlas Shrugged (1957) certainly did. A whole essay could be written on her creative, even prophetic, use of energy, but here is a partial summation:
Energy Comes from the Mind
But the iron ore and all those other things were there all the time. Why didn’t anybody else make that Metal, but Mr. Reardon did?
Potential of Energy
[Galt’s motor would add] about ten years added to the life of every person in this country—if you consider how many things it would have easier and cheaper to produce, how many hours of human labor it would have released for other work, and how much more anyone’s work would have brought him.
Energy Poverty
Far below in the valley, in the gathering night, there trembled a few pale smears which were the lights of tallow candles.
Energy Moves the World
“‘Motive power—you can’t imagine how important that is. That’s the heart of everything.’”
Energy as a Supreme Good
He was the man of extravagant energy … who knew … that ingenuity of his mind is his noblest and most joyous power.
Rand’s fictional account of a deteriorating society contains an interventionist dynamic of growing government control of the vital energy economy. There is the Bureau of Economic Planning and Natural Resources. There are price controls, conservation mandates, and an excess profits tax. (She had seen all this during World War II.) There are shortages and breakdowns (what Ludwig von Mises called “planned chaos). Regulators play the blame game on private industry.
The Cato essay ends:
Surveying the disheartening intellectual climate of the 40s [and add the intellectual climate of today], F. A. Hayek wrote:
We must make the building of a free society once more an intellectual adventure, a deed of courage…. Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds, the prospects of freedom are indeed dark. But if we can regain that belief in the power of ideas which was the mark of liberalism at its best, the battle is not lost.
The battle, history has since shown, is not yet lost, and this is due in no small part to Rand, Paterson, and Lane’s belief in the power of ideas. Unconstrained by conventional political categories, they savaged the collectivist economic nostrums of the left even while, in their lives and careers, they exploded the rigid gender roles seen as sacrosanct by so many on the right. In the process, they laid the foundations of the modern libertarian movement. This Women’s History Month, on the sixty-sixth anniversary of their monumental triple achievement, the Cato Institute pays homage to three women without whom it would not exist.
Cato senior fellow Jim Powell’s full essay on the role of Lane, Paterson, and Rand on the modern libertarian movement, published in The Freeman in May 1996, is available here.
President Obama and signing statements
Congrats, President Obama. By Ed Whelan
Bench Memos/NRO, Wednesday, March 11, 2009
Candidate Obama made it clear on the campaign trail that he rejected the ABA’s risible conclusion that a president may not properly use signing statements to state his constitutional objections to provisions in laws that he is signing:
Given that the ABA is pigheadedly sticking to its position, I’m glad to see this report that President Obama, in signing the omnibus spending bill today, “released a ‘signing statement’ in which he said several of the bill’s provisions raised constitutional concerns.” (As for the omnibus bill itself, I doubt very much that it is to be welcomed.)
Bench Memos/NRO, Wednesday, March 11, 2009
Candidate Obama made it clear on the campaign trail that he rejected the ABA’s risible conclusion that a president may not properly use signing statements to state his constitutional objections to provisions in laws that he is signing:
“No one doubts that it is appropriate to use signing statements to protect a president's constitutional prerogatives.”Well, no one other than the members of the ABA’s task force that produced its ridiculous report. (For various of my criticisms of the ABA’s report, see here, here, here, and here.)
Given that the ABA is pigheadedly sticking to its position, I’m glad to see this report that President Obama, in signing the omnibus spending bill today, “released a ‘signing statement’ in which he said several of the bill’s provisions raised constitutional concerns.” (As for the omnibus bill itself, I doubt very much that it is to be welcomed.)
Industry Views: The Dangers of a “Carbon Fed”
The Dangers of a “Carbon Fed”
IER, March 11, 2009
The Federal Reserve was established in 1913 as the central bank of the United States. It acts as the “banker’s bank” and has the dual mission of smoothing out the ups and downs of the business cycle and of containing price inflation. The Fed ultimately controls the U.S. money supply through its regulation of commercial banks, which are required by law to “back up” a fraction of their customers’ checking account balances with either cash in their vaults or reserves that the commercial banks themselves hold on deposit with the Fed. If the Fed thinks that inflation is too high, it “tightens” by siphoning reserves from the system which has the effect of raising interest rates and shrinking the money supply. On the other hand, if the Fed thinks the economy needs a shot in the arm, it pumps extra reserves into the banking system which causes interest rates to fall and increases the supply of dollars.
Though the Fed is supposed to create stability in the financial system, over the last year analysts have increasingly blamed the Fed for creating some of the current financial uncertainty. Business leaders must guess about Fed Chairman Ben Bernanke’s next moves. Will the Fed save large banks? Will Bernanke allow them to fail? No one knows. This uncertainty makes it more difficult to take large risks or make billion-dollar bets if the Fed will change the rules of the game. Not only have Bernanke’s actions caused some instability, but many analysts think Alan Greenspan’s ultra-low interest rates in the mid-2000s contributed to the housing boom and subsequent bust. While the Fed may have been created with the best of intentions, in the real world the Fed is not a perfect institution and its large economic powers can create a new set of financial problems.
The Fed’s role in our financial woes should give us pause. However, there are some people who promote extending the idea of a Federal Reserve to the regulation of carbon dioxide and greenhouse gases. Like the regulation of the money supply, this will likely lead to many problems.
The fundamental causes of our current financial mess would be amplified if we establish a new market for carbon permits, especially if such a market were regulated by an overseeing “carbon Fed,” as many academics propose. Although analysts disagree about who is responsible, clearly what happened during the housing boom was that investors began trading mortgage-related assets at prices that were not supported by the market fundamentals. Yet in a cap and trade regime, where firms must buy and sell permits giving them legal permission to emit carbon dioxide, the “assets” will have values entirely determined by government fiat. A simple change in government policy, such as changing the size of emission allowances, could cause a boom or bust in the permit market. This new source of uncertainty will make markets even more volatile, and will make long-term investment in the US economy even riskier.
Former Resources for the Future (RFF) researcher Daniel Hall recently left the think tank to join the Obama Administration as a Climate Policy Analyst. In his final post at the RFF website, Hall summarizes the issues he believes need to be hashed out in the upcoming debate on cap and trade. But Hall’s discussion of “allowance banking” and the proposed “carbon Fed” shows the danger that cap and trade legislation poses to the American economy. A “carbon Fed” that will target a “carbon price” will cause even more distortions in the economy and politicize markets even more.
In his summary of the unsettled cap and trade issues, Hall devotes a section to “Cost Containment.” He writes:
Cost containment is the central issue, the fulcrum on which legislators hope to balance the ambition of an emissions reduction program with its economic impact. It therefore intersects with the emissions target, the revenues that will be raised, and the impacts on domestic industries and households. Cost containment itself, however, is not well defined. In practice, it conflates two different (though related) issues. The first is how to manage short-term volatility in the price of emissions allowances. The second is how—or whether—to manage the long-term trajectory of allowance prices. Several policy mechanisms, outlined below, have been proposed to accomplish one or both of these goals.
So far, it sounds reasonable enough. The policymakers are considering that their efforts to reduce carbon dioxide emissions would adversely affect the economy. It sounds as if Hall is arguing for government to do the sensible thing and balance environmental goals against economic hardships. But when Hall discusses the various proposals for how businesses would actually receive relief, he does not reassure the alarmed reader. Two of the mechanisms to reduce short-term volatility in allowance prices are “banking and borrowing”:
Banking and borrowing provide intertemporal flexibility and prevent allowance prices from being driven by year-to-year fluctuations in unrelated factors (such as weather and economic growth). Banking of allowances is uncontroversial and will certainly be included in legislation. Borrowing is likely to be allowed but limited in both volume and duration because of concerns about default by heavily indebted firms.
Hall is saying that under a cap and trade system, the government will issue a given number of allowances entitling the bearer to emit a specified amount of carbon dioxide each year. But businesses will not have to use their allowances in the year of issue. If it proves more profitable, a business will be allowed to “bank” its current allowances so that they can be used in the future. (Academics argue over the proper “interest rate” the government should pay on these allowance deposits.)
The economic rationale for allowing “banking” of carbon permits is cost containment. Even in the computer simulations that yield the most worrisome projections of future climate change, the policy goal is to reduce emissions in the long-run. The precise timing of the emissions isn’t nearly as significant as the total amount of emissions over, say, a ten-year period. But differences in timing can have a significant impact on how costly it is for businesses to comply with the regulations. This is why Hall argues that allowance banking is “uncontroversial” and will certainly be included in legislation.
However, Hall points out that policymakers should be much more skeptical of allowing companies to borrow against future allowances. In theory, borrowing provides cost containment just as much as banking. For example, a particular factory owner might decide that it makes sense to completely revamp his operations, so that (say) in five years his factory emissions are much lower. On the other hand, if carbon dioxide-capturing technologically existed on a commercial scale, at a reasonable price, a factory owner could go for a hypothetically cheaper, quicker fix by installing these hypothetical filters on his smokestacks. Without the possibility of borrowing future allowances, the factory owner might not be able to afford the first approach, even though it would mean lower long-run emissions.
If a company borrows against future carbon allowances and uses them in the present, it means total U.S. emissions are higher in the present year than the amount actually allowed by the legislated cap. But in terms of reducing carbon dioxide emissions this outcome is acceptable, so long as the company remains in business and then pays back its “loan” in a future year by buying excess permits off the carbon market and returning them to the government, unused. That loan payback will ensure that total U.S. emissions are lower that year, than the number of permits actually issued.
What if a company borrows against future carbon permits—so that today’s emissions are higher than the legislated cap— then the company goes bankrupt before it pays back the “loan”? The government would then be in a bind. If it simply forgives the loan, then long-run emissions will exceed their legislated trajectory, because the company’s over-emission during its period of borrowing will not be counterbalanced by under-emission when the company pays back permits from the market. On the other hand, the government could adhere to the legislated (long-run) emission cap by reducing the total number of permits issued by the amount of the company’s default. For example, if the now-bankrupt company had been obligated to buy and deliver 500 tons worth of unused carbon dioxide emission permits, the government could instead auction 500 fewer permits in the first place. Under this approach, ultimately the taxpayers would eat the loss of the company’s default, because the Treasury would effectively be auctioning the 500 permits to the bankrupt company for free, rather than charging the market price.
With all of the shenanigans surrounding the recent bailouts of financial institutions, we should be very alarmed by Hall’s casual discussion of carbon banking, and the potential for corruption that such schemes would entail. Yet Hall’s discussion of a “carbon Fed” is even more disturbing:
Independent oversight bodies have been proposed to oversee and intervene in allowance markets (modeled in some ways on the Federal Reserve for monetary policy). This proposal is not so much a mechanism as an institutional structure through which various policy mechanisms could be applied.
Just as the Federal Reserve is given a two-pronged task of fighting inflation while ensuring economic stability, so too the “carbon Fed” would have the dual mandate of fighting carbon dioxide emissions increases while ensuring economic growth. During hard times, the Federal Reserve allows the money supply to increase more rapidly, and is willing to tolerate higher inflation if it helps get the economy out of recession.
By the same token, then, the carbon Fed would adjust its various rules—such as the total size of the cap, the interest rate charged on loans or earned by deposits of allowances, and the “credit limit” granted to various businesses—in order to ease the pain of carbon dioxide mitigation during recessions. On the other hand, if the economy is healthy and climate scientists bring alarming new projections to the attention of the carbon Fed governors, then they might decide to “raise the price of carbon dioxide emissions” the same way that today’s Fed raises the federal funds rate when it wants to tighten the money supply.
The scope for unintended consequences—as well as simple corruption—involved with the proposal for a carbon Fed is breathtaking. It would introduce yet another huge source of uncertainty for businesses. In addition to trying to anticipate their customers’ tastes, new regulatory and tax burdens, and the Fed’s stance on interest rates, businesses will also have to make forecasts about how loose or tight “carbon dioxide policy” will be. This extra uncertainty in the U.S. economy will cause investors to shift some of their funds to other countries.
As with any major new institution, a carbon Fed would almost certainly make enormous mistakes as it interacts with the economy and environment. Remember, the Federal Reserve was established in 1913 ostensibly to prevent the volatile financial panics that had periodically gripped the country, such as the then-most recent 1907 panic. And yet, fifteen years after the Federal Reserve banks opened their doors for business, the U.S. suffered the worst stock market crash in history, followed by the worst decade in U.S. economic history. (Clearly the Federal Reserve had a long learning curve when it came to its mission of ensuring stability.) In our own times, more and more analysts are blaming the housing boom and our current financial mess at least partly on Alan Greenspan’s ultra-low interest rates following the dot-com crash and 9/11 attacks.
Beyond the honest mistakes that will inevitably accompany any major new enterprise, we must also beware of the huge scope for corruption afforded by these proposals. The danger here is a quantum leap from the permit banking programs established by the Clean Air Act for air pollutants, because the market for carbon dioxide emissions will be much larger and will affect more businesses. For example, an incumbent president could put pressure on the carbon Fed to keeps carbon prices low going into an election year. Or, the government might allow large companies experiencing hard times to receive very generous carbon dioxide credits because they are “too big to fail.”
This new form of corporate welfare would be particularly insidious, because the “debt” wouldn’t involve future taxpayers. Currently, if the government wants to bail out a politically-favored company, it ultimately puts the taxpayers on the hook, either through higher deficits or more inflation. But once a carbon Fed is up and running, corporate bailouts can occur through printing up new carbon dioxide emission permits “out of thin air” on the carbon Fed’s balance sheet—just as Bernanke currently grants new reserves to banks out of thin air, by simply increasing their account balances with the Federal Reserve.
However, the political incentives against “loose” carbon dioxide policy would only come from environmental groups. These groups would be the only ones concerned when the carbon Fed grants new allowances to businesses. Unlike inflation or deficits, which are very tangible indicators of irresponsibility to taxpayers, average citizens won’t be up in arms over a “low carbon price” that gives them cheaper electricity. Given the lopsided incentives, we would expect the carbon Fed to very soon hold a high proportion of “non-performing” loans of allowances. There would be direct and immediate benefits from granting allowance relief to politically connected companies , while the (alleged) harms of such loans would only even be realized years later, if and when the company didn’t pay back the carbon permits.
Because of real-world politics, even those who believe in catastrophic predictions of climate change should think twice before running to the U.S. federal government as a savior. Whether it is the Federal Reserve, Social Security, the Securities and Exchange Commission, or even the FBI and CIA for that matter, the government has a poor track record in creating institutions that actually live up to their founding purpose.
If policymakers implement an economy-wide cap and trade program as President Obama proposes, the special interests who cheerlead the move will eventually see the worst of both worlds: The government will pose as savior of the planet, and point to the stringent carbon dioxide emission trajectories contained in the initial legislation. But in practice, connected companies will receive special treatment, and new bodies such as the “carbon Fed” would allow certain businesses to circumvent the statutory caps. The U.S. economy would suffer needless hardship and inefficiency, while total emissions may not even be reduced from the status quo baseline.
IER, March 11, 2009
The Federal Reserve was established in 1913 as the central bank of the United States. It acts as the “banker’s bank” and has the dual mission of smoothing out the ups and downs of the business cycle and of containing price inflation. The Fed ultimately controls the U.S. money supply through its regulation of commercial banks, which are required by law to “back up” a fraction of their customers’ checking account balances with either cash in their vaults or reserves that the commercial banks themselves hold on deposit with the Fed. If the Fed thinks that inflation is too high, it “tightens” by siphoning reserves from the system which has the effect of raising interest rates and shrinking the money supply. On the other hand, if the Fed thinks the economy needs a shot in the arm, it pumps extra reserves into the banking system which causes interest rates to fall and increases the supply of dollars.
Though the Fed is supposed to create stability in the financial system, over the last year analysts have increasingly blamed the Fed for creating some of the current financial uncertainty. Business leaders must guess about Fed Chairman Ben Bernanke’s next moves. Will the Fed save large banks? Will Bernanke allow them to fail? No one knows. This uncertainty makes it more difficult to take large risks or make billion-dollar bets if the Fed will change the rules of the game. Not only have Bernanke’s actions caused some instability, but many analysts think Alan Greenspan’s ultra-low interest rates in the mid-2000s contributed to the housing boom and subsequent bust. While the Fed may have been created with the best of intentions, in the real world the Fed is not a perfect institution and its large economic powers can create a new set of financial problems.
The Fed’s role in our financial woes should give us pause. However, there are some people who promote extending the idea of a Federal Reserve to the regulation of carbon dioxide and greenhouse gases. Like the regulation of the money supply, this will likely lead to many problems.
The fundamental causes of our current financial mess would be amplified if we establish a new market for carbon permits, especially if such a market were regulated by an overseeing “carbon Fed,” as many academics propose. Although analysts disagree about who is responsible, clearly what happened during the housing boom was that investors began trading mortgage-related assets at prices that were not supported by the market fundamentals. Yet in a cap and trade regime, where firms must buy and sell permits giving them legal permission to emit carbon dioxide, the “assets” will have values entirely determined by government fiat. A simple change in government policy, such as changing the size of emission allowances, could cause a boom or bust in the permit market. This new source of uncertainty will make markets even more volatile, and will make long-term investment in the US economy even riskier.
Former Resources for the Future (RFF) researcher Daniel Hall recently left the think tank to join the Obama Administration as a Climate Policy Analyst. In his final post at the RFF website, Hall summarizes the issues he believes need to be hashed out in the upcoming debate on cap and trade. But Hall’s discussion of “allowance banking” and the proposed “carbon Fed” shows the danger that cap and trade legislation poses to the American economy. A “carbon Fed” that will target a “carbon price” will cause even more distortions in the economy and politicize markets even more.
In his summary of the unsettled cap and trade issues, Hall devotes a section to “Cost Containment.” He writes:
Cost containment is the central issue, the fulcrum on which legislators hope to balance the ambition of an emissions reduction program with its economic impact. It therefore intersects with the emissions target, the revenues that will be raised, and the impacts on domestic industries and households. Cost containment itself, however, is not well defined. In practice, it conflates two different (though related) issues. The first is how to manage short-term volatility in the price of emissions allowances. The second is how—or whether—to manage the long-term trajectory of allowance prices. Several policy mechanisms, outlined below, have been proposed to accomplish one or both of these goals.
So far, it sounds reasonable enough. The policymakers are considering that their efforts to reduce carbon dioxide emissions would adversely affect the economy. It sounds as if Hall is arguing for government to do the sensible thing and balance environmental goals against economic hardships. But when Hall discusses the various proposals for how businesses would actually receive relief, he does not reassure the alarmed reader. Two of the mechanisms to reduce short-term volatility in allowance prices are “banking and borrowing”:
Banking and borrowing provide intertemporal flexibility and prevent allowance prices from being driven by year-to-year fluctuations in unrelated factors (such as weather and economic growth). Banking of allowances is uncontroversial and will certainly be included in legislation. Borrowing is likely to be allowed but limited in both volume and duration because of concerns about default by heavily indebted firms.
Hall is saying that under a cap and trade system, the government will issue a given number of allowances entitling the bearer to emit a specified amount of carbon dioxide each year. But businesses will not have to use their allowances in the year of issue. If it proves more profitable, a business will be allowed to “bank” its current allowances so that they can be used in the future. (Academics argue over the proper “interest rate” the government should pay on these allowance deposits.)
The economic rationale for allowing “banking” of carbon permits is cost containment. Even in the computer simulations that yield the most worrisome projections of future climate change, the policy goal is to reduce emissions in the long-run. The precise timing of the emissions isn’t nearly as significant as the total amount of emissions over, say, a ten-year period. But differences in timing can have a significant impact on how costly it is for businesses to comply with the regulations. This is why Hall argues that allowance banking is “uncontroversial” and will certainly be included in legislation.
However, Hall points out that policymakers should be much more skeptical of allowing companies to borrow against future allowances. In theory, borrowing provides cost containment just as much as banking. For example, a particular factory owner might decide that it makes sense to completely revamp his operations, so that (say) in five years his factory emissions are much lower. On the other hand, if carbon dioxide-capturing technologically existed on a commercial scale, at a reasonable price, a factory owner could go for a hypothetically cheaper, quicker fix by installing these hypothetical filters on his smokestacks. Without the possibility of borrowing future allowances, the factory owner might not be able to afford the first approach, even though it would mean lower long-run emissions.
If a company borrows against future carbon allowances and uses them in the present, it means total U.S. emissions are higher in the present year than the amount actually allowed by the legislated cap. But in terms of reducing carbon dioxide emissions this outcome is acceptable, so long as the company remains in business and then pays back its “loan” in a future year by buying excess permits off the carbon market and returning them to the government, unused. That loan payback will ensure that total U.S. emissions are lower that year, than the number of permits actually issued.
What if a company borrows against future carbon permits—so that today’s emissions are higher than the legislated cap— then the company goes bankrupt before it pays back the “loan”? The government would then be in a bind. If it simply forgives the loan, then long-run emissions will exceed their legislated trajectory, because the company’s over-emission during its period of borrowing will not be counterbalanced by under-emission when the company pays back permits from the market. On the other hand, the government could adhere to the legislated (long-run) emission cap by reducing the total number of permits issued by the amount of the company’s default. For example, if the now-bankrupt company had been obligated to buy and deliver 500 tons worth of unused carbon dioxide emission permits, the government could instead auction 500 fewer permits in the first place. Under this approach, ultimately the taxpayers would eat the loss of the company’s default, because the Treasury would effectively be auctioning the 500 permits to the bankrupt company for free, rather than charging the market price.
With all of the shenanigans surrounding the recent bailouts of financial institutions, we should be very alarmed by Hall’s casual discussion of carbon banking, and the potential for corruption that such schemes would entail. Yet Hall’s discussion of a “carbon Fed” is even more disturbing:
Independent oversight bodies have been proposed to oversee and intervene in allowance markets (modeled in some ways on the Federal Reserve for monetary policy). This proposal is not so much a mechanism as an institutional structure through which various policy mechanisms could be applied.
Just as the Federal Reserve is given a two-pronged task of fighting inflation while ensuring economic stability, so too the “carbon Fed” would have the dual mandate of fighting carbon dioxide emissions increases while ensuring economic growth. During hard times, the Federal Reserve allows the money supply to increase more rapidly, and is willing to tolerate higher inflation if it helps get the economy out of recession.
By the same token, then, the carbon Fed would adjust its various rules—such as the total size of the cap, the interest rate charged on loans or earned by deposits of allowances, and the “credit limit” granted to various businesses—in order to ease the pain of carbon dioxide mitigation during recessions. On the other hand, if the economy is healthy and climate scientists bring alarming new projections to the attention of the carbon Fed governors, then they might decide to “raise the price of carbon dioxide emissions” the same way that today’s Fed raises the federal funds rate when it wants to tighten the money supply.
The scope for unintended consequences—as well as simple corruption—involved with the proposal for a carbon Fed is breathtaking. It would introduce yet another huge source of uncertainty for businesses. In addition to trying to anticipate their customers’ tastes, new regulatory and tax burdens, and the Fed’s stance on interest rates, businesses will also have to make forecasts about how loose or tight “carbon dioxide policy” will be. This extra uncertainty in the U.S. economy will cause investors to shift some of their funds to other countries.
As with any major new institution, a carbon Fed would almost certainly make enormous mistakes as it interacts with the economy and environment. Remember, the Federal Reserve was established in 1913 ostensibly to prevent the volatile financial panics that had periodically gripped the country, such as the then-most recent 1907 panic. And yet, fifteen years after the Federal Reserve banks opened their doors for business, the U.S. suffered the worst stock market crash in history, followed by the worst decade in U.S. economic history. (Clearly the Federal Reserve had a long learning curve when it came to its mission of ensuring stability.) In our own times, more and more analysts are blaming the housing boom and our current financial mess at least partly on Alan Greenspan’s ultra-low interest rates following the dot-com crash and 9/11 attacks.
Beyond the honest mistakes that will inevitably accompany any major new enterprise, we must also beware of the huge scope for corruption afforded by these proposals. The danger here is a quantum leap from the permit banking programs established by the Clean Air Act for air pollutants, because the market for carbon dioxide emissions will be much larger and will affect more businesses. For example, an incumbent president could put pressure on the carbon Fed to keeps carbon prices low going into an election year. Or, the government might allow large companies experiencing hard times to receive very generous carbon dioxide credits because they are “too big to fail.”
This new form of corporate welfare would be particularly insidious, because the “debt” wouldn’t involve future taxpayers. Currently, if the government wants to bail out a politically-favored company, it ultimately puts the taxpayers on the hook, either through higher deficits or more inflation. But once a carbon Fed is up and running, corporate bailouts can occur through printing up new carbon dioxide emission permits “out of thin air” on the carbon Fed’s balance sheet—just as Bernanke currently grants new reserves to banks out of thin air, by simply increasing their account balances with the Federal Reserve.
However, the political incentives against “loose” carbon dioxide policy would only come from environmental groups. These groups would be the only ones concerned when the carbon Fed grants new allowances to businesses. Unlike inflation or deficits, which are very tangible indicators of irresponsibility to taxpayers, average citizens won’t be up in arms over a “low carbon price” that gives them cheaper electricity. Given the lopsided incentives, we would expect the carbon Fed to very soon hold a high proportion of “non-performing” loans of allowances. There would be direct and immediate benefits from granting allowance relief to politically connected companies , while the (alleged) harms of such loans would only even be realized years later, if and when the company didn’t pay back the carbon permits.
Because of real-world politics, even those who believe in catastrophic predictions of climate change should think twice before running to the U.S. federal government as a savior. Whether it is the Federal Reserve, Social Security, the Securities and Exchange Commission, or even the FBI and CIA for that matter, the government has a poor track record in creating institutions that actually live up to their founding purpose.
If policymakers implement an economy-wide cap and trade program as President Obama proposes, the special interests who cheerlead the move will eventually see the worst of both worlds: The government will pose as savior of the planet, and point to the stringent carbon dioxide emission trajectories contained in the initial legislation. But in practice, connected companies will receive special treatment, and new bodies such as the “carbon Fed” would allow certain businesses to circumvent the statutory caps. The U.S. economy would suffer needless hardship and inefficiency, while total emissions may not even be reduced from the status quo baseline.
Industry Views: Carbon Taxes: Reducing Economic Growth—Achieving No Environmental Improvement
Carbon Taxes: Reducing Economic Growth—Achieving No Environmental Improvement
IER, March 11, 2009
Energy makes modern society possible. It lights the night, heats our homes, powers our entertainment, and most importantly, it helps us conserve the ultimate non-renewable resource—time. Energy amplifies our ability to do work. Machines help autoworkers assemble cars, power tools help construction workers build our homes, gasoline-powered automobiles help us take care of our families, diesel-power trucks distribute fresh produce across the country, and electricity-powered computers give us unprecedented access to information. But the energy that supplies 85 percent of our needs—coal, oil, and natural gas—are under attack. Politicians and special interest groups are proposing various methods to tax these abundant and reliable sources of energy.
The newest attack on oil, natural gas, and coal are proposals to tax carbon dioxide emissions. Noted economist Art Laffer and current U.S. Rep. Bob Inglis (R-S.C.) argued in favor of a carbon tax in a New York Times[1] op-ed. Author, commentator, and syndicated columnist Charles Krauthammer made his case for a large increase in the gas tax in the Weekly Standard .[2] And Fred Smith, the CEO of FedEx, has publicly declared his support for a tax on carbon dioxide emissions.
The arguments boil down to the assertion that carbon taxes are favorable because they are better than cap and trade schemes. This is correct, but it does not mean that we should implement carbon taxes. Carbon tax implementation would run into many of the same problems that have plagued cap and trade. Politicians cannot resist new opportunities to raise tax revenues and dole out our dollars to favored constituencies, especially when the revenues range from hundreds of billions to trillions of dollars. Carbon taxes might hold some allure, but ultimately they are economically destructive. Neither carbon tax nor cap and trade is good for American consumers.
Reasons Why Carbon and Energy Taxes are a Bad Idea:
1. Carbon taxes are taxes on 85 percent of the energy we use. A carbon tax would impose a new tax on the vast majority of our nation’s economic activity. Fossil fuels power our nation and produce 85 percent of the energy we consume in the United States. [3] Nuclear and hydro power produced an additional 11 percent of our energy.[4] The remaining 4 percent comes from other renewables like biofuels, wind, and solar.[5] Carbon taxes may make hydro and nuclear power more attractive, but few sites remain where it is possible to build large hydroelectric dams and new nuclear power plants face major political obstacles.
2. A carbon tax that is perfectly offset by other tax cuts is neither a practical nor a political reality. The history and nature of politics shows that once politicians institute a tax, they will not give it up. Still, some argue in favor of a “tax swap” to reduce income taxes while implementing a new tax on carbon dioxide emissions. Theoretically, this could make sense. However, the argument does not reflect political reality.
The first challenge for promoters of a carbon tax “tax swap” is getting lawmakers to pass a carbon tax. Lawmakers are very wary of imposing easily identifiable taxes across the entire population. Instead, politicians prefer to hide the costs of government programs, while rewarding discrete and identifiable groups. Implementing carbon taxes would result in an identifiable tax increase similar to the unpopular gas tax increases that led to voter displeasure revolts against President George H.W. Bush and President Bill Clinton.
The second challenge for promoters of a “tax swap” is getting Congress to reduce income taxes. Congress could decrease some income taxes, but it is highly unlikely income taxes would be decreased for all income brackets.
Taxpayers will likely fight against a “tax swap” because they understand there is nothing to stop future lawmakers from increasing carbon taxes or returning income taxes to their former levels. Worse, from a taxpayer’s perspective, a carbon tax will give lawmakers another vehicle to raise large amounts of tax revenue.
Some argue that a revenue-neutral “tax swap” would be economically beneficial. There is, however, little evidence politicians are concerned about the economic effectiveness of plans to reduce carbon dioxide emissions. Most economists agree that carbon taxes are a superior to cap and trade.[6] Carbon taxes are more transparent, more understandable, and less subject to political manipulation. Though economists prefer carbon taxes, congressmen strongly prefer cap and trade plans.[7] Lawmakers have floated many cap and trade proposals, but they have not discussed any serious carbon tax proposals.
Lawmakers say they favor economically efficient global warming plans, but their actions demonstrate that the discussion about efforts to reduce greenhouse gas emissions is not about science or economics—it is about politics. Offsetting income taxes with carbon taxes is not a political reality because politicians will not propose such obvious tax increases on all Americans.
3. Politicians like to reward special interest groups with new tax revenues. When politicians have large amounts of tax dollars at their disposal, they tend to spend it on projects that reward special interest groups. A carbon tax would likely generate over $1 trillion in new revenue. Much of this revenue would likely be spent on inefficient “pork” projects.
The proposed cap and trade schemes contain hundreds of billions of dollars for special interests. The recession has spurred additional calls for hundreds of billions of dollars in additional spending to create “green jobs.” For example, the Center for American Progress is calling on Congress to spend $100 billion to create two million “green jobs”[8] and the Apollo Alliance wants Congress to spend $500 billion to create five million “green jobs.”[9] If a carbon tax were in place, lawmakers would almost certainly divert resources to “green job” subsidies or other similar programs, rather than back into taxpayers’ wallets.
4. It is impossible to create an optimal carbon tax. A carbon tax would need to be set at an optimal level that accounts for the economy and climate science. This is an impossible task. One of the greatest insights of the 20th century was that economically efficient central planning is not possible. Friedrich Hayek and others demonstrated that central planners cannot aggregate all of the information necessary to make economically efficient choices.[10] Their insight remains true today. A planner (or Congress) cannot create an optimal tax because he or she does not have all of the necessary information. With global warming, the lack of perfect information is further compounded by partisan politics and uncertain climate science. This makes it impossible to determine an optimal carbon tax.
The cost of a carbon tax will increase the costs of nearly everything that is produced, manufactured, or transported, including food and gasoline. How one would construct a credible methodology for accurately and precisely measuring and accounting for these effects remains, perhaps intentionally, an unaddressed question.
5. A carbon tax is a regressive tax, but increased wealth transfers will likely make it increasingly progressive. Lower income families spend more of their income on energy than higher income families. The Wall Street Journal explains:
The Congressional Budget Office—Mr. Orszag’s former roost—estimates that the price hikes from a 15% cut in emissions would cost the average household in the bottom-income quintile about 3.3% of its after-tax income every year. That’s about $680, not including the costs of reduced employment and output. The three middle quintiles would see their paychecks cut between $880 and $1,500, or 2.9% to 2.7% of income. The rich would pay 1.7%. Cap and trade is the ideal policy for every Beltway analyst who thinks the tax code is too progressive (all five of them).[11]
It appears that some of the proponents of carbon taxes are some of those five beltway analysts who believe the tax code is too progressive. They argue in favor of a carbon tax because it will not retard the formation of capital because it applies to everyone. In other words, since it would be spread over the population without regard to income, carbon tax proponents argue it will not reduce the incentives for high-income earners to generate wealth and create new jobs.
This alleged advantage, however, would never last politically because a carbon tax will be a visible and ever-increasing new tax. In response to that reality, lawmakers are likely to execute new, politically popular transfers of wealth—all with an eye on limiting the tax’s effect on lower-income families. Sales taxes, for example, could be uniformly applied across the economy, but in practice, sales taxes vary on certain items, in part, to help lower-income Americans deal with the increased costs imposed by them.
Carbon taxes would likely be accompanied by various rebate schemes to soften the regressive nature of the tax and make it a more progressive tax. This is currently happening with cap and trade proposals. One plan calls for the government to auction all emission permits and give each citizen a $700 check every year.[12] Another option is to only give the rebate checks from auction revenues to lower-income citizens.[13]
If the government imposes a carbon tax, it is very unlikely that the tax will remain uniform. In the end, not only will it hit the poor with a disproportionate burden of a carbon cap, but it will create yet another series of loopholes in the tax code. As history has shown, such a plan will further distort the market, render the tax code even more complicated, and hide yet another round of handouts to well-connected special interests.
6. A carbon tax set at a wrong level will cause great economic harm. Even the proponents of carbon taxes, such as Yale University Professor William Nordaus, find that once there is deviation from worldwide participation, the costs of achieving environmental global improvements dramatically rise. Nordhaus’ economic model shows that an overly ambitious and/or inefficiently structured policy can swamp the potential benefits of a perfectly calibrated and efficiently targeted plan.[14] For example, Nordhaus’ optimal plan yields net benefits of $3 trillion ($5 trillion in reduced climatic damages and $2 trillion in abatement costs). Yet, other popular proposals have abatement costs that exceed their benefits. The worst is former Vice President Al Gore’s 2007 proposal to reduce carbon dioxide emissions 90 percent by 2050. Nordhaus’ model estimates this plan would make the world more than $21 trillion poorer than if there were no controls on carbon dioxide.[15]
7. Realistically, a carbon tax would lead to lower energy use and lower economic output because low-carbon replacement technologies simply do not exist. Carbon taxes effectively increase the cost of fossil fuels in an effort to make non-fossil fuels more economically attractive. The technologies to significantly reduce greenhouse gas emissions from fossil fuels, however, are decades away and extremely costly.[16] Instead, the only real way to reduce greenhouse gas emissions in the short run is to reduce energy use and economic output.
Consider automobile use and gas prices. People have begun to transition toward fuel-efficient cars, but the real impact of high gasoline prices in 2008 was to reduce vehicle miles traveled. Just as higher fuel prices led to less driving, higher energy prices will lead to reduced energy consumption. That will lead to a corresponding drop in our ability to make economic choices.
Given current technologies, carbon taxes will result in less economic output. The graphic below illustrates that point. The implication is clear—there is a strong correlation between energy use and GDP.
[graph in original post, visit the link at the beginning]
8. Just because a proposal is “budget neutral” for the government does not mean it is “budget neutral” for American families. Carbon taxes or cap and trade programs will transfer wealth from rural areas, where people drive more and use more energy, to more densely populated urban areas.[17] Not coincidentally, many urban and Northeastern politicians favor a cap and trade program or carbon taxes.
Also, carbon taxes will disproportionally harm states that generate the majority of their electricity from coal-fired power plants.[18] These states tend to be more rural states.
9. Domestic carbon taxes, even in the best case, can only produce marginal impacts on climate. In 2006, China surpassed the United States as the world’s largest emitter of carbon dioxide.[19] But the difference in emission growth rates is striking. According to data from the Global Carbon Project, from 2000 through 2007, global total greenhouse gas emissions increased 26 percent. During that same period, China’s carbon dioxide emissions increased 98 percent, India’s increased 36 percent and Russia’s increased 10 percent. Carbon dioxide emissions in the United States increased by three percent from 2000 through 2007.[20] These data are displayed in the graphic below:
[graph in original post, visit the link at the beginning]
As time goes on, the United States will emit a smaller and smaller share of the world’s total greenhouse gas emissions,[21] which makes unilateral efforts— such as a domestic carbon tax—an ineffective way to influence climate. If the United States were to completely cease using fossil fuels, the increase from the rest of the world would replace U.S. emissions in less than eight years.[22] If we reduced the carbon dioxide emissions from the transportation sector to zero, the rest of the world would replace those emissions in less than two years.[23] Increases in worldwide carbon dioxide emissions are driven by developing economies, not the United States.
10. Domestic carbon taxes will force more industries to leave America. Energy costs are a major expenditure for heavy industry. America’s natural gas prices are the highest in the world,[24] even though we have the world’s sixth largest proven natural gas reserves.[25] The high price of natural gas has significantly contributed to the loss of more than three million manufacturing jobs since 2000.[26] Carbon taxes will drive up the cost of natural gas because companies would use it as a substitute for coal in electricity production, which means increased electricity costs for industry and increased natural gas prices. This is especially troublesome for chemical companies, all of which use natural gas not only as an energy source, but also as a feedstock. Higher natural gas prices will force them to pursue options offshore and overseas, reducing American jobs.
11. Domestic carbon taxes cannot address “leakage.” High costs of doing business in America will force jobs and economic activity to leave this country in favor of countries with lower energy prices. China and India have stated they will not impose burdensome climate regulations on their citizens.[27] Because not all countries will implement carbon taxes, industries will take their jobs to countries where taxes do not eat their profits. Despite a huge American economic sacrifice, global emissions will remain the same.
12. Carbon taxes will lead to calls for trade protectionism. Carbon taxes will lead to reduced economic competitiveness. In turn, organized labor will likely call for new barriers to trade. For example, a top priority for the United Steelworkers is a “border adjustment” to penalize the steel imports from countries that do not curb their greenhouse gas emissions.[28] Increased U.S. trade protectionism will almost certainly lead to greater trade protectionism worldwide that will further harm the American economy and all of America’s trading partners.
13. If we are truly concerned about reducing carbon dioxide emissions, the best path forward is increasing humankind’s ability to adapt. Rich countries and societies can adapt more easily to changed circumstances than poor countries. Environmental improvements are more likely to be realized in prosperous societies than in poorer ones.[29] Carbon taxes and cap and trade reduce society’s aggregate wealth, which make environmental improvements more difficult to achieve.
14. Real world experience counsels against a carbon tax. Ken Green, a former supporter of a revenue-neutral carbon tax, changed his mind because of political and economic realities. Mr. Green writes: [30]
I previously felt that a revenue-neutral carbon tax was a good idea, because it would be both effective and could even be economically beneficial. But three developments have caused me to retract my support. First, rising energy costs have already imposed a huge carbon tax with little GHG reduction. This suggests that the elasticity of energy use could be lower than prior estimates, meaning it would be a useless gesture. Second, as implementations of carbon taxes in Europe and Canada have demonstrated, governments simply cannot implement such tax systems without sucking up some of the revenue, and using the rest to benefit crony-capitalists and steer money to favored constituencies. And finally, because using biofuels such as ethanol would let people save on carbon taxes, demand for such fuels will grow, only compounding the environmental and nutritional mischief they cause.
Just because a carbon tax is a bad idea does not mean that cap and trade is better
Nearly all of the above arguments against a carbon tax apply equally to cap and trade schemes. The only real difference is that cap and trade is a stealth tax that brings a large amount of reporting, implementation, and regulatory problems.
The point of cap and trade plans, like carbon taxes, is to increase the price of energy from oil, coal, and natural gas. Lawmakers may say they have plans to rebate some people so that everyone does not suffer, but it is not possible to craft a cap and trade plan that is perfectly offset by rebates. Just because a politician promotes a plan that is “budget neutral” for government does not mean it is “budget neutral” for American families. When politicians redistribute money, there will be winners and losers. The winners will be the politically well-connected groups and the populace as a whole will lose.
Like carbon taxes, it is not possible to set a cap for cap and trade plans at an optimal level. The smartest people in the world could not aggregate enough data quickly enough to discover the optimal level of the cap or a cap and trade scheme or the level of a carbon tax. It would require too much data about American’s preferences and about uncertain climate science. To complicate matters, if the cap set at the wrong level, or if the plan does not include all nations, the inefficiencies will swamp any possible benefits. Most disturbingly, if the United States unilaterally reduces our carbon dioxide emissions, it will not have a real effect on global carbon dioxide concentrations. This means there will be no environmental benefits to the United States unilaterally reducing carbon dioxide emissions.
Cap and trade schemes are very regressive taxes. They will transfer wealth from poorer areas of the country to wealthier areas. Cap and trade will also reduce energy use and thereby reduce economic output. Also, if we drive up costs, cap and trade plans will reduce American economic competitiveness and cause more jobs to flee to foreign countries.
In short, cap and trade and carbon taxes are two different ways to raise energy prices. Both carbon taxes and cap and trade would harm the United States’ economy without making any meaningful differences in global concentrations of carbon dioxide.
Conclusion
Energy is the lifeblood of the economy. Policies that increase the price of energy harm the economy. However, the entire point of policies like carbon taxes and cap and trade is to increase energy prices. These cost increases make the economy less efficient domestically and it makes the United States less economically competitive internationally. Higher energy prices harms America’s ability to grow its economy at home and it means more American jobs will be shipped overseas.
Now is not the time to implement an economically harmful plan like carbon taxes or cap and trade. Americans need an efficient economy to reverse the recession and improve the lives of American workers. Carbon taxes and cap and trade will just make it more difficult to reverse the recession.
References
[1] Rep. Bob Inglis & Arthur B. Laffer, An Emissions Plan Conservatives Could Warm To, Dec. 27, 2008, http://www.nytimes.com/2008/12/28/opinion/28inglis.html
[2] Charles Krauthammer, The Net-Zero Gas Tax: A Once in a Generation Chance, Jan. 5, 2009, http://weeklystandard.com/Content/Public/Articles/000/000/015/949rsrgi.asp
[3] Energy Information Administration, U.S. Energy Consumption by Energy Source, http://www.eia.doe.gov/cneaf/alternate/page/renew_energy_consump/table1.html (May 2008).
[4] Id.
[5] Id.
[6] See e.g. William D. Nordhaus, Life After Kyoto: Alternative Approaches to Global Warming Policies, NBER Working Paper No. 11889, Dec. 9, 2005, http://www.econ.yale.edu/~nordhaus/homepage/kyoto_long_2005.pdf; N. Gregory Mankiw, One Answer to Global Warming: A New Tax, N.Y. Times, Sept. 16, 2007, http://www.nytimes.com/2007/09/16/business/16view.html; Kenneth P. Green et. al., Climate Change: Cap vs. Taxes, American Enterprise Institute Environmental Policy Outlook, June 1, 2007, http://www.aei.org/publications/filter.all,pubID.26286/pub_detail.asp.
[7] The following is some of the cap and trade bills introduced during the 110th Congress: S. 2191, The Climate Security Act of 2008; S. 1766, the Low Carbon Economy Act, S. 280, the Climate Stewardship and Innovation Act; S. 309, the Global Warming Pollution Reduction Act; S. 485, the Global Warming Reduction Act; H.R. 620, the Climate Stewardship Act; and H.R. 1590, the Safe Climate Act of 2007.
[8] Robert Pollin, et. al, Green Recovery: A Program to Create Good Jobs and Start Building a Low-Carbon Economy, Sept. 2008, http://www.americanprogress.org/issues/2008/09/pdf/green_recovery.pdf
[9] Jeffery Ball, Does Green Energy Add 5 Million Jobs? Potent Pitch, but Numbers are Squishy, Wall Street Journal, Nov. 7, 2008, http://online.wsj.com/article/SB122601449992806743.html.
[10] See e.g. Friedrich A. Hayek, The Use of Knowledge in Society, 4 Am. Econ. Rev. 519 (Sept. 1945).
[11] Editorial, Who Pays for Cap and Trade? Wall Street Journal, March 9, 2009.
[12] James K. Boyce & Matthew Riddle, Cap and Dividend: How to Curb Global Warming While Protecting the Incomes of American Families, Political Economy Research Institute (Nov. 2007), http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_101-150/WP150.pdf
[13] Robert Greenstein et. al., Designing Climate-Change Legislation that Shields Low-Income Households from Increased Poverty and Hardship, Center on Budget and Policy Priorities (May 9, 2008), http://www.cbpp.org/10-25-07climate.pdf
[14] Robert P. Murphy, Rolling the DICE: Nordhaus’ Dubious Case for a Carbon Tax, p. 20, June 2008, http://www.instituteforenergyresearch.org/wp-content/uploads/2008/06/2008-06_rolling_the_dice_murphy.pdf
[15] Id. at 20.
[16] See Kenneth P. Green, Climate Change: Science and Policy, Oct. 27, 2008, http://www.aei.org/publications/filter.all,pubID.28838/pub_detail.asp
[17] Alaska has the higher per capita energy use, followed by Wyoming, Louisiana, North Dakota and Texas. The states with the lowest energy use per capita are Rhode Island, New York, Massachusetts, California, and New Hampshire. The average Rhode Islander uses only 18% as much energy as an Alaskan and 22% as much energy as someone from Wyoming. See Energy Information Administration, Table R2. Energy Consumption by Source and Total Consumption per Capita, Ranked by State, 2006, Nov. 28, 2008, http://www.eia.doe.gov/emeu/states/hf.jsp?incfile=sep_sum/plain_html/rank_use_per_cap.html
[18] The states with the most affordable electricity either generate the majority of their electricity from coal-fired power plants or from hydro power. See Energy Information Administration, Table S1. Energy Consumption Estimates by Source and End-Use Sector, 2006, State Energy Consumption Estimates: 1960 through 2006, Nov. 2008, http://www.eia.doe.gov/emeu/states/sep_use/notes/use_print2006.pdf; Energy Information Administration, Table 5.6.B. Average Retail Price of Electricity to Ultimate Customers by End-Use Sector, by State, Year-to-Date through September 2008 and 2007, Dec. 12, 2008, http://www.eia.doe.gov/cneaf/electricity/epm/table5_6_b.html
[19] See e.g. Netherlands Environmental Assessment Agency, China now no. 1 in CO2 emissions; USA in second position, June 19, 2007, http://www.pbl.nl/en/news/pressreleases/2007/20070619Chinanowno1inCO2emissionsUSAinsecondposition.html
[20] Calculated using the emission data from the Global Carbon Project. In 2000, China emitted 910,950 GgC, India 316,804 GgC, Russia 391,652 GgC, and the U.S. 1,541,013 GgC. By 2007, China emitted 1,801,932 GgC, India 429,601 GgC, Russia 432,486 GgC, and the U.S. 1,586,213 GgC.
[21] According to the Global Carbon project, in 2007, China emitted 21% of the world’s carbon equivalent and the U.S. emitted 19%.
[22] Calculated using the emission data from the Global Carbon Project. According to these data, the U.S. emitted 1,586,213 GgC in 2007. Without the U.S., the world’s emissions were 5,203,987 GgC in 2000, increasing to 6,884,787 GgC in 2007.
[23] Calculated using the emission data from the Global Carbon Project. According to EPA, the GHG emissions from the transportation sector total 28% of total U.S. emissions. Environmental Protection Agency, Regulating Greenhouse Gas Emissions Under the Clean Air Act; Proposed Rule, 73 Fed. Reg. 44354, 44403 (July, 30, 2008). Twenty eight percent of the U.S.’s 2006 carbon dioxide emissions are 436,141 GgC. From 2005 to 2007, the world’s emissions, with the emissions from the U.S., grew by 476,324 GgC.
[24] Paul N. Cicio, Testimony of Paul N. Cicio, President of Industrial Energy Consumers of America before the House of Representatives, Dec. 6, 2007, http://www.ieca-us.com/documents/IECAHouseTestimony-NaturalGas_12.06.07.pdf
[25] Energy Information Administration, Annual Energy Review 2007, Table 11.4, http://www.eia.doe.gov/emeu/aer/txt/ptb1104.html
[26] See Testimony of Paul N. Cicio.
[27] See e.g. Shai Oster, China Asks Rich to Pay for Cleanup, Wall Street Journal, Oct. 30, 2008, http://online.wsj.com/article/SB122530768753281185.html; Nitin Sethi, As Climate Talks Resume, India Accuses UN of Bias, The Times of India, Aug. 21, 2008, http://timesofindia.indiatimes.com/Climate_talks_resume_today_India_accuses_UN_of_bias/articleshow/3386789.cms
[28] Christa Marshall, Report says climate rules could shut down energy-intensive companies, ClimateWire, Feb. 2, 2009.
[29] Bruce Yandle, Environmental Kuznets Curves: A Review of the Findings, Methods, and Policy Implications, 2004, http://www.perc.org/articles/article207.php
[30] Kenneth P. Green, Climate Change: Science and Policy, http://www.aei.org/publications/filter.all,pubID.28838/pub_detail.asp
IER, March 11, 2009
Energy makes modern society possible. It lights the night, heats our homes, powers our entertainment, and most importantly, it helps us conserve the ultimate non-renewable resource—time. Energy amplifies our ability to do work. Machines help autoworkers assemble cars, power tools help construction workers build our homes, gasoline-powered automobiles help us take care of our families, diesel-power trucks distribute fresh produce across the country, and electricity-powered computers give us unprecedented access to information. But the energy that supplies 85 percent of our needs—coal, oil, and natural gas—are under attack. Politicians and special interest groups are proposing various methods to tax these abundant and reliable sources of energy.
The newest attack on oil, natural gas, and coal are proposals to tax carbon dioxide emissions. Noted economist Art Laffer and current U.S. Rep. Bob Inglis (R-S.C.) argued in favor of a carbon tax in a New York Times[1] op-ed. Author, commentator, and syndicated columnist Charles Krauthammer made his case for a large increase in the gas tax in the Weekly Standard .[2] And Fred Smith, the CEO of FedEx, has publicly declared his support for a tax on carbon dioxide emissions.
The arguments boil down to the assertion that carbon taxes are favorable because they are better than cap and trade schemes. This is correct, but it does not mean that we should implement carbon taxes. Carbon tax implementation would run into many of the same problems that have plagued cap and trade. Politicians cannot resist new opportunities to raise tax revenues and dole out our dollars to favored constituencies, especially when the revenues range from hundreds of billions to trillions of dollars. Carbon taxes might hold some allure, but ultimately they are economically destructive. Neither carbon tax nor cap and trade is good for American consumers.
Reasons Why Carbon and Energy Taxes are a Bad Idea:
1. Carbon taxes are taxes on 85 percent of the energy we use. A carbon tax would impose a new tax on the vast majority of our nation’s economic activity. Fossil fuels power our nation and produce 85 percent of the energy we consume in the United States. [3] Nuclear and hydro power produced an additional 11 percent of our energy.[4] The remaining 4 percent comes from other renewables like biofuels, wind, and solar.[5] Carbon taxes may make hydro and nuclear power more attractive, but few sites remain where it is possible to build large hydroelectric dams and new nuclear power plants face major political obstacles.
2. A carbon tax that is perfectly offset by other tax cuts is neither a practical nor a political reality. The history and nature of politics shows that once politicians institute a tax, they will not give it up. Still, some argue in favor of a “tax swap” to reduce income taxes while implementing a new tax on carbon dioxide emissions. Theoretically, this could make sense. However, the argument does not reflect political reality.
The first challenge for promoters of a carbon tax “tax swap” is getting lawmakers to pass a carbon tax. Lawmakers are very wary of imposing easily identifiable taxes across the entire population. Instead, politicians prefer to hide the costs of government programs, while rewarding discrete and identifiable groups. Implementing carbon taxes would result in an identifiable tax increase similar to the unpopular gas tax increases that led to voter displeasure revolts against President George H.W. Bush and President Bill Clinton.
The second challenge for promoters of a “tax swap” is getting Congress to reduce income taxes. Congress could decrease some income taxes, but it is highly unlikely income taxes would be decreased for all income brackets.
Taxpayers will likely fight against a “tax swap” because they understand there is nothing to stop future lawmakers from increasing carbon taxes or returning income taxes to their former levels. Worse, from a taxpayer’s perspective, a carbon tax will give lawmakers another vehicle to raise large amounts of tax revenue.
Some argue that a revenue-neutral “tax swap” would be economically beneficial. There is, however, little evidence politicians are concerned about the economic effectiveness of plans to reduce carbon dioxide emissions. Most economists agree that carbon taxes are a superior to cap and trade.[6] Carbon taxes are more transparent, more understandable, and less subject to political manipulation. Though economists prefer carbon taxes, congressmen strongly prefer cap and trade plans.[7] Lawmakers have floated many cap and trade proposals, but they have not discussed any serious carbon tax proposals.
Lawmakers say they favor economically efficient global warming plans, but their actions demonstrate that the discussion about efforts to reduce greenhouse gas emissions is not about science or economics—it is about politics. Offsetting income taxes with carbon taxes is not a political reality because politicians will not propose such obvious tax increases on all Americans.
3. Politicians like to reward special interest groups with new tax revenues. When politicians have large amounts of tax dollars at their disposal, they tend to spend it on projects that reward special interest groups. A carbon tax would likely generate over $1 trillion in new revenue. Much of this revenue would likely be spent on inefficient “pork” projects.
The proposed cap and trade schemes contain hundreds of billions of dollars for special interests. The recession has spurred additional calls for hundreds of billions of dollars in additional spending to create “green jobs.” For example, the Center for American Progress is calling on Congress to spend $100 billion to create two million “green jobs”[8] and the Apollo Alliance wants Congress to spend $500 billion to create five million “green jobs.”[9] If a carbon tax were in place, lawmakers would almost certainly divert resources to “green job” subsidies or other similar programs, rather than back into taxpayers’ wallets.
4. It is impossible to create an optimal carbon tax. A carbon tax would need to be set at an optimal level that accounts for the economy and climate science. This is an impossible task. One of the greatest insights of the 20th century was that economically efficient central planning is not possible. Friedrich Hayek and others demonstrated that central planners cannot aggregate all of the information necessary to make economically efficient choices.[10] Their insight remains true today. A planner (or Congress) cannot create an optimal tax because he or she does not have all of the necessary information. With global warming, the lack of perfect information is further compounded by partisan politics and uncertain climate science. This makes it impossible to determine an optimal carbon tax.
The cost of a carbon tax will increase the costs of nearly everything that is produced, manufactured, or transported, including food and gasoline. How one would construct a credible methodology for accurately and precisely measuring and accounting for these effects remains, perhaps intentionally, an unaddressed question.
5. A carbon tax is a regressive tax, but increased wealth transfers will likely make it increasingly progressive. Lower income families spend more of their income on energy than higher income families. The Wall Street Journal explains:
The Congressional Budget Office—Mr. Orszag’s former roost—estimates that the price hikes from a 15% cut in emissions would cost the average household in the bottom-income quintile about 3.3% of its after-tax income every year. That’s about $680, not including the costs of reduced employment and output. The three middle quintiles would see their paychecks cut between $880 and $1,500, or 2.9% to 2.7% of income. The rich would pay 1.7%. Cap and trade is the ideal policy for every Beltway analyst who thinks the tax code is too progressive (all five of them).[11]
It appears that some of the proponents of carbon taxes are some of those five beltway analysts who believe the tax code is too progressive. They argue in favor of a carbon tax because it will not retard the formation of capital because it applies to everyone. In other words, since it would be spread over the population without regard to income, carbon tax proponents argue it will not reduce the incentives for high-income earners to generate wealth and create new jobs.
This alleged advantage, however, would never last politically because a carbon tax will be a visible and ever-increasing new tax. In response to that reality, lawmakers are likely to execute new, politically popular transfers of wealth—all with an eye on limiting the tax’s effect on lower-income families. Sales taxes, for example, could be uniformly applied across the economy, but in practice, sales taxes vary on certain items, in part, to help lower-income Americans deal with the increased costs imposed by them.
Carbon taxes would likely be accompanied by various rebate schemes to soften the regressive nature of the tax and make it a more progressive tax. This is currently happening with cap and trade proposals. One plan calls for the government to auction all emission permits and give each citizen a $700 check every year.[12] Another option is to only give the rebate checks from auction revenues to lower-income citizens.[13]
If the government imposes a carbon tax, it is very unlikely that the tax will remain uniform. In the end, not only will it hit the poor with a disproportionate burden of a carbon cap, but it will create yet another series of loopholes in the tax code. As history has shown, such a plan will further distort the market, render the tax code even more complicated, and hide yet another round of handouts to well-connected special interests.
6. A carbon tax set at a wrong level will cause great economic harm. Even the proponents of carbon taxes, such as Yale University Professor William Nordaus, find that once there is deviation from worldwide participation, the costs of achieving environmental global improvements dramatically rise. Nordhaus’ economic model shows that an overly ambitious and/or inefficiently structured policy can swamp the potential benefits of a perfectly calibrated and efficiently targeted plan.[14] For example, Nordhaus’ optimal plan yields net benefits of $3 trillion ($5 trillion in reduced climatic damages and $2 trillion in abatement costs). Yet, other popular proposals have abatement costs that exceed their benefits. The worst is former Vice President Al Gore’s 2007 proposal to reduce carbon dioxide emissions 90 percent by 2050. Nordhaus’ model estimates this plan would make the world more than $21 trillion poorer than if there were no controls on carbon dioxide.[15]
7. Realistically, a carbon tax would lead to lower energy use and lower economic output because low-carbon replacement technologies simply do not exist. Carbon taxes effectively increase the cost of fossil fuels in an effort to make non-fossil fuels more economically attractive. The technologies to significantly reduce greenhouse gas emissions from fossil fuels, however, are decades away and extremely costly.[16] Instead, the only real way to reduce greenhouse gas emissions in the short run is to reduce energy use and economic output.
Consider automobile use and gas prices. People have begun to transition toward fuel-efficient cars, but the real impact of high gasoline prices in 2008 was to reduce vehicle miles traveled. Just as higher fuel prices led to less driving, higher energy prices will lead to reduced energy consumption. That will lead to a corresponding drop in our ability to make economic choices.
Given current technologies, carbon taxes will result in less economic output. The graphic below illustrates that point. The implication is clear—there is a strong correlation between energy use and GDP.
[graph in original post, visit the link at the beginning]
8. Just because a proposal is “budget neutral” for the government does not mean it is “budget neutral” for American families. Carbon taxes or cap and trade programs will transfer wealth from rural areas, where people drive more and use more energy, to more densely populated urban areas.[17] Not coincidentally, many urban and Northeastern politicians favor a cap and trade program or carbon taxes.
Also, carbon taxes will disproportionally harm states that generate the majority of their electricity from coal-fired power plants.[18] These states tend to be more rural states.
9. Domestic carbon taxes, even in the best case, can only produce marginal impacts on climate. In 2006, China surpassed the United States as the world’s largest emitter of carbon dioxide.[19] But the difference in emission growth rates is striking. According to data from the Global Carbon Project, from 2000 through 2007, global total greenhouse gas emissions increased 26 percent. During that same period, China’s carbon dioxide emissions increased 98 percent, India’s increased 36 percent and Russia’s increased 10 percent. Carbon dioxide emissions in the United States increased by three percent from 2000 through 2007.[20] These data are displayed in the graphic below:
[graph in original post, visit the link at the beginning]
As time goes on, the United States will emit a smaller and smaller share of the world’s total greenhouse gas emissions,[21] which makes unilateral efforts— such as a domestic carbon tax—an ineffective way to influence climate. If the United States were to completely cease using fossil fuels, the increase from the rest of the world would replace U.S. emissions in less than eight years.[22] If we reduced the carbon dioxide emissions from the transportation sector to zero, the rest of the world would replace those emissions in less than two years.[23] Increases in worldwide carbon dioxide emissions are driven by developing economies, not the United States.
10. Domestic carbon taxes will force more industries to leave America. Energy costs are a major expenditure for heavy industry. America’s natural gas prices are the highest in the world,[24] even though we have the world’s sixth largest proven natural gas reserves.[25] The high price of natural gas has significantly contributed to the loss of more than three million manufacturing jobs since 2000.[26] Carbon taxes will drive up the cost of natural gas because companies would use it as a substitute for coal in electricity production, which means increased electricity costs for industry and increased natural gas prices. This is especially troublesome for chemical companies, all of which use natural gas not only as an energy source, but also as a feedstock. Higher natural gas prices will force them to pursue options offshore and overseas, reducing American jobs.
11. Domestic carbon taxes cannot address “leakage.” High costs of doing business in America will force jobs and economic activity to leave this country in favor of countries with lower energy prices. China and India have stated they will not impose burdensome climate regulations on their citizens.[27] Because not all countries will implement carbon taxes, industries will take their jobs to countries where taxes do not eat their profits. Despite a huge American economic sacrifice, global emissions will remain the same.
12. Carbon taxes will lead to calls for trade protectionism. Carbon taxes will lead to reduced economic competitiveness. In turn, organized labor will likely call for new barriers to trade. For example, a top priority for the United Steelworkers is a “border adjustment” to penalize the steel imports from countries that do not curb their greenhouse gas emissions.[28] Increased U.S. trade protectionism will almost certainly lead to greater trade protectionism worldwide that will further harm the American economy and all of America’s trading partners.
13. If we are truly concerned about reducing carbon dioxide emissions, the best path forward is increasing humankind’s ability to adapt. Rich countries and societies can adapt more easily to changed circumstances than poor countries. Environmental improvements are more likely to be realized in prosperous societies than in poorer ones.[29] Carbon taxes and cap and trade reduce society’s aggregate wealth, which make environmental improvements more difficult to achieve.
14. Real world experience counsels against a carbon tax. Ken Green, a former supporter of a revenue-neutral carbon tax, changed his mind because of political and economic realities. Mr. Green writes: [30]
I previously felt that a revenue-neutral carbon tax was a good idea, because it would be both effective and could even be economically beneficial. But three developments have caused me to retract my support. First, rising energy costs have already imposed a huge carbon tax with little GHG reduction. This suggests that the elasticity of energy use could be lower than prior estimates, meaning it would be a useless gesture. Second, as implementations of carbon taxes in Europe and Canada have demonstrated, governments simply cannot implement such tax systems without sucking up some of the revenue, and using the rest to benefit crony-capitalists and steer money to favored constituencies. And finally, because using biofuels such as ethanol would let people save on carbon taxes, demand for such fuels will grow, only compounding the environmental and nutritional mischief they cause.
Just because a carbon tax is a bad idea does not mean that cap and trade is better
Nearly all of the above arguments against a carbon tax apply equally to cap and trade schemes. The only real difference is that cap and trade is a stealth tax that brings a large amount of reporting, implementation, and regulatory problems.
The point of cap and trade plans, like carbon taxes, is to increase the price of energy from oil, coal, and natural gas. Lawmakers may say they have plans to rebate some people so that everyone does not suffer, but it is not possible to craft a cap and trade plan that is perfectly offset by rebates. Just because a politician promotes a plan that is “budget neutral” for government does not mean it is “budget neutral” for American families. When politicians redistribute money, there will be winners and losers. The winners will be the politically well-connected groups and the populace as a whole will lose.
Like carbon taxes, it is not possible to set a cap for cap and trade plans at an optimal level. The smartest people in the world could not aggregate enough data quickly enough to discover the optimal level of the cap or a cap and trade scheme or the level of a carbon tax. It would require too much data about American’s preferences and about uncertain climate science. To complicate matters, if the cap set at the wrong level, or if the plan does not include all nations, the inefficiencies will swamp any possible benefits. Most disturbingly, if the United States unilaterally reduces our carbon dioxide emissions, it will not have a real effect on global carbon dioxide concentrations. This means there will be no environmental benefits to the United States unilaterally reducing carbon dioxide emissions.
Cap and trade schemes are very regressive taxes. They will transfer wealth from poorer areas of the country to wealthier areas. Cap and trade will also reduce energy use and thereby reduce economic output. Also, if we drive up costs, cap and trade plans will reduce American economic competitiveness and cause more jobs to flee to foreign countries.
In short, cap and trade and carbon taxes are two different ways to raise energy prices. Both carbon taxes and cap and trade would harm the United States’ economy without making any meaningful differences in global concentrations of carbon dioxide.
Conclusion
Energy is the lifeblood of the economy. Policies that increase the price of energy harm the economy. However, the entire point of policies like carbon taxes and cap and trade is to increase energy prices. These cost increases make the economy less efficient domestically and it makes the United States less economically competitive internationally. Higher energy prices harms America’s ability to grow its economy at home and it means more American jobs will be shipped overseas.
Now is not the time to implement an economically harmful plan like carbon taxes or cap and trade. Americans need an efficient economy to reverse the recession and improve the lives of American workers. Carbon taxes and cap and trade will just make it more difficult to reverse the recession.
References
[1] Rep. Bob Inglis & Arthur B. Laffer, An Emissions Plan Conservatives Could Warm To, Dec. 27, 2008, http://www.nytimes.com/2008/12/28/opinion/28inglis.html
[2] Charles Krauthammer, The Net-Zero Gas Tax: A Once in a Generation Chance, Jan. 5, 2009, http://weeklystandard.com/Content/Public/Articles/000/000/015/949rsrgi.asp
[3] Energy Information Administration, U.S. Energy Consumption by Energy Source, http://www.eia.doe.gov/cneaf/alternate/page/renew_energy_consump/table1.html (May 2008).
[4] Id.
[5] Id.
[6] See e.g. William D. Nordhaus, Life After Kyoto: Alternative Approaches to Global Warming Policies, NBER Working Paper No. 11889, Dec. 9, 2005, http://www.econ.yale.edu/~nordhaus/homepage/kyoto_long_2005.pdf; N. Gregory Mankiw, One Answer to Global Warming: A New Tax, N.Y. Times, Sept. 16, 2007, http://www.nytimes.com/2007/09/16/business/16view.html; Kenneth P. Green et. al., Climate Change: Cap vs. Taxes, American Enterprise Institute Environmental Policy Outlook, June 1, 2007, http://www.aei.org/publications/filter.all,pubID.26286/pub_detail.asp.
[7] The following is some of the cap and trade bills introduced during the 110th Congress: S. 2191, The Climate Security Act of 2008; S. 1766, the Low Carbon Economy Act, S. 280, the Climate Stewardship and Innovation Act; S. 309, the Global Warming Pollution Reduction Act; S. 485, the Global Warming Reduction Act; H.R. 620, the Climate Stewardship Act; and H.R. 1590, the Safe Climate Act of 2007.
[8] Robert Pollin, et. al, Green Recovery: A Program to Create Good Jobs and Start Building a Low-Carbon Economy, Sept. 2008, http://www.americanprogress.org/issues/2008/09/pdf/green_recovery.pdf
[9] Jeffery Ball, Does Green Energy Add 5 Million Jobs? Potent Pitch, but Numbers are Squishy, Wall Street Journal, Nov. 7, 2008, http://online.wsj.com/article/SB122601449992806743.html.
[10] See e.g. Friedrich A. Hayek, The Use of Knowledge in Society, 4 Am. Econ. Rev. 519 (Sept. 1945).
[11] Editorial, Who Pays for Cap and Trade? Wall Street Journal, March 9, 2009.
[12] James K. Boyce & Matthew Riddle, Cap and Dividend: How to Curb Global Warming While Protecting the Incomes of American Families, Political Economy Research Institute (Nov. 2007), http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_101-150/WP150.pdf
[13] Robert Greenstein et. al., Designing Climate-Change Legislation that Shields Low-Income Households from Increased Poverty and Hardship, Center on Budget and Policy Priorities (May 9, 2008), http://www.cbpp.org/10-25-07climate.pdf
[14] Robert P. Murphy, Rolling the DICE: Nordhaus’ Dubious Case for a Carbon Tax, p. 20, June 2008, http://www.instituteforenergyresearch.org/wp-content/uploads/2008/06/2008-06_rolling_the_dice_murphy.pdf
[15] Id. at 20.
[16] See Kenneth P. Green, Climate Change: Science and Policy, Oct. 27, 2008, http://www.aei.org/publications/filter.all,pubID.28838/pub_detail.asp
[17] Alaska has the higher per capita energy use, followed by Wyoming, Louisiana, North Dakota and Texas. The states with the lowest energy use per capita are Rhode Island, New York, Massachusetts, California, and New Hampshire. The average Rhode Islander uses only 18% as much energy as an Alaskan and 22% as much energy as someone from Wyoming. See Energy Information Administration, Table R2. Energy Consumption by Source and Total Consumption per Capita, Ranked by State, 2006, Nov. 28, 2008, http://www.eia.doe.gov/emeu/states/hf.jsp?incfile=sep_sum/plain_html/rank_use_per_cap.html
[18] The states with the most affordable electricity either generate the majority of their electricity from coal-fired power plants or from hydro power. See Energy Information Administration, Table S1. Energy Consumption Estimates by Source and End-Use Sector, 2006, State Energy Consumption Estimates: 1960 through 2006, Nov. 2008, http://www.eia.doe.gov/emeu/states/sep_use/notes/use_print2006.pdf; Energy Information Administration, Table 5.6.B. Average Retail Price of Electricity to Ultimate Customers by End-Use Sector, by State, Year-to-Date through September 2008 and 2007, Dec. 12, 2008, http://www.eia.doe.gov/cneaf/electricity/epm/table5_6_b.html
[19] See e.g. Netherlands Environmental Assessment Agency, China now no. 1 in CO2 emissions; USA in second position, June 19, 2007, http://www.pbl.nl/en/news/pressreleases/2007/20070619Chinanowno1inCO2emissionsUSAinsecondposition.html
[20] Calculated using the emission data from the Global Carbon Project. In 2000, China emitted 910,950 GgC, India 316,804 GgC, Russia 391,652 GgC, and the U.S. 1,541,013 GgC. By 2007, China emitted 1,801,932 GgC, India 429,601 GgC, Russia 432,486 GgC, and the U.S. 1,586,213 GgC.
[21] According to the Global Carbon project, in 2007, China emitted 21% of the world’s carbon equivalent and the U.S. emitted 19%.
[22] Calculated using the emission data from the Global Carbon Project. According to these data, the U.S. emitted 1,586,213 GgC in 2007. Without the U.S., the world’s emissions were 5,203,987 GgC in 2000, increasing to 6,884,787 GgC in 2007.
[23] Calculated using the emission data from the Global Carbon Project. According to EPA, the GHG emissions from the transportation sector total 28% of total U.S. emissions. Environmental Protection Agency, Regulating Greenhouse Gas Emissions Under the Clean Air Act; Proposed Rule, 73 Fed. Reg. 44354, 44403 (July, 30, 2008). Twenty eight percent of the U.S.’s 2006 carbon dioxide emissions are 436,141 GgC. From 2005 to 2007, the world’s emissions, with the emissions from the U.S., grew by 476,324 GgC.
[24] Paul N. Cicio, Testimony of Paul N. Cicio, President of Industrial Energy Consumers of America before the House of Representatives, Dec. 6, 2007, http://www.ieca-us.com/documents/IECAHouseTestimony-NaturalGas_12.06.07.pdf
[25] Energy Information Administration, Annual Energy Review 2007, Table 11.4, http://www.eia.doe.gov/emeu/aer/txt/ptb1104.html
[26] See Testimony of Paul N. Cicio.
[27] See e.g. Shai Oster, China Asks Rich to Pay for Cleanup, Wall Street Journal, Oct. 30, 2008, http://online.wsj.com/article/SB122530768753281185.html; Nitin Sethi, As Climate Talks Resume, India Accuses UN of Bias, The Times of India, Aug. 21, 2008, http://timesofindia.indiatimes.com/Climate_talks_resume_today_India_accuses_UN_of_bias/articleshow/3386789.cms
[28] Christa Marshall, Report says climate rules could shut down energy-intensive companies, ClimateWire, Feb. 2, 2009.
[29] Bruce Yandle, Environmental Kuznets Curves: A Review of the Findings, Methods, and Policy Implications, 2004, http://www.perc.org/articles/article207.php
[30] Kenneth P. Green, Climate Change: Science and Policy, http://www.aei.org/publications/filter.all,pubID.28838/pub_detail.asp
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