New York Times Beginning to See The Light
Posted June 20th, 2008 at 3.39pm in Energy and Environment.
They waited until well after the debate over Lieberman-Warner in the Senate was over, but the New York Times finally reported today that Europe’s carbon capping scheme is not working. James Kanter writes:
This week, the European Environment Agency reported that emissions from factories and plants that trade pollution permits rose 0.4 percent in 2006 over the previous year, and 0.7 percent in 2007, the first two years of the system’s operations.
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European Union officials acknowledge that establishing such a vast market has been more complicated than they expected.
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During the three years in which they participated in the first phase of the market, carbon emissions in the iron and steel sector in Britain alone rose more than 10 percent while emissions in the cement industry rose more than 50 percent, according to transcripts from the British Parliament.
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Meanwhile, poorer countries in the union, led by Hungary, are clamoring to overturn emissions allowances that they say are too stingy and risk undermining their economic growth.
Higher energy prices, weakened industries, and lost jobs … all for the benefit of increases in carbon emissions. Where do we sign up!
- Author: Conn Carroll
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June 20, 2008 Carey Birmingham, San Antonio, TX writes:
A Common Sense Solution to the vexing question of Windfall Profits Tax on Oil and Continued Drilling by Oil companies in and Around Domestic United States and its Environs.
© Carey G. Birmingham
San Antonio, TX
June 19, 2008
Summary: This paper proposes the creation of a public/private joint venture between private oil companies and the federal government. The specified mission of such a J/V (or as presented here, a Trust) is to provide specific and defined development capital for alternative fuels, while providing an incentive for major oil companies to participate. Incentives would include allowing participating oil companies to drill for and extract fossil fuels in ANWR, off shore and elsewhere in the domestic United States.
Assumptions in this white paper:
1. Nationalized Oil Production in the United States is bad for the nation’s economy and the nation as a whole;
2. “Windfall” profits taxes are, intrinsically, bad for the consumer and will not, in the short nor long term, contribute directly to lower prices at the pump;
3. Financial enticements to the private sector will lead to better, cleaner and more market efficient solutions to alternative fuels;
4. The United States must, for a wide variety of reasons, become energy independent.
Individually, these assumptions may appear to be contradictive to one another, but this view is myopic. This paper will provide a common sense, collaborative alternative to the problem of a) the public’s obsession to “punish” large oil companies, b) the current political climate of a quick, politically correct (albeit misguided) effort to increase taxes paid by these oil companies, c) the need for increased drilling in controversial areas currently off-limits to oil company exploration, including the Arctic National Wildlife Refuge (AMWR) and d) the requirement of large capital sources to investigate, develop and bring to market alternative fuels which will (i) produce a profit for those who invest the capital and (ii) result in an environmentally responsible solution to pollutants produced by carbon-based fuels.
Creation of a Public Trust: The Alternative Fuels Trust Corporation (AFTC)
First step to address the issues posed above is the creation of a public/private entity for the purpose of raising capital for the specific purpose of creating alternative fuels.
Precedent: Such a Trust has a precedent in the Resolution Trust Corporation (RTC) which, while not entirely public/private in its own right, used private sector contractors, overseen by federal government bureaucrats, to solve what many saw as an impossible task: solving the problems of failed savings & loans insured by the FSLIC (now extinct). This was completed by federal bureaucrats working in concert with local and state private sector contractors to dispose of FSLIC assets, and eventually cede those assets back into the private sector. Those of us who remember, and worked with, the RTC, recall a somewhat cumbersome process which eventually could only be called a success. A success, in this context, means that a) the government did not get in the real estate business, per se, except for a very brief period of ownership b) the impact on the American Taxpayer was limited and absolutely transparent to most Americans, c) the impact on the American economy was also limited and long term tax increases were not outwardly required and, d) enumerable real estate assets were returned to productive use which created enormous wealth, jobs and eventual real estate tax revenues for municipalities which otherwise had delinquent properties on their tax roles.
Management and Structure of a Trust: In this context management of the AFTC would be comprised of Federal Appointees, similar to the RTC’s representatives, and private sector oil company (or others) executives. The proposed structure of the Trust would be a joint venture with the Government holding, say, a 50% interest and oil companies owning the balance of the interest on a pro-rata basis based upon their “buy in.”
The Buy In: Interest in the AFTC would be purchased by private sector participants (oil companies) for an initial buy in of, say, $100MM to purchase a minimum of 5% interest for a maximum capital raise of $2BB for the entire 50% interest. This buy in would be used specifically to avoid any “Windfall” profits legislation, and such would be spelled out in AFTC’s charter.
Uses of Buy In Capital: Once created, the AFTC would have as its charter to commit the (privately raised) capital to the R&D of alternative fuels which are not currently on the market and which would, in the broad scope, not be “harmful” to the environment, as the term would be further defined. This charter could reasonably be expanded, with the consent of members of the Trust, to include grants and other direct financial incentives to private sector “sub-contractors” to develop technology. Of course, this charter would have to be clearly defined and delineated by the members, each having its interest in the Trust to vote.
Ownership of Resulting Proprietary Alternative Fuel Technology: The AFTC would be created in the form of an “incubator” and, while designed to make a profit, would not necessarily get in the business of production, marketing and distribution of its developed products or inventions. Nevertheless, ownership of patents, copyrights and other proprietary interests would, presumably, vest with Trust. The Trust, in turn, could sell off the newly created technology, license it or otherwise permit others (including perhaps the oil company members themselves) to bring the alternatives to market.
Advantages for the Oil Companies to Participate in AFTC: Clearly, this is the most controversial aspect of this proposal. Nonetheless, it offers the most common sense inducement for these oil companies to participate in the AFTC efforts and the Buy in. First, there will always be the incentive for the oil company participants to receive a return on their respective capital by means of their pro-rata ownership in the AFTC and the resultant returns offered by new technologies.
As an additional inducement, however, oil companies who commit the required capital to AFTC would receive preferential rights to bid on and acquire long-term drilling rights to areas off shore and in ANWR where they currently are banned.
Advantages for the Government to Participate in AFTC: There are untold reasonable benefits for the Government to participate in AFTC, not the least of which is the chance for the government to participate in AFTC’s profit without the need to place any investment capital (taxpayer funds). Other benefits include a) the obvious political benefits in the Government’s expanded efforts to appear concerned for both the private sector and environmental, alternative fuel solutions, b) allowing private sector expediency and profit motive to expedite the process in a positive, incentive based fashion as opposed to a heavy handed negative, punishment based fashion, c) zero cost to the taxpayer, d) oversight and control of the development process,.
Advantages for the American Consumer: Many dispute that exploring for more fossil fuels in and around the US will result in a reduction at the pump any time soon. Nevertheless, any alternative fuels solution would require similar time delays to get to market and will require initial capital to create such alternatives, in itself a lengthy effort. The AFTC allows both process to proceed contemporaneously and is a healthy compromise using private equity, while avoiding the windfall tax. Furthermore, the initial capital contribution by the oil companies would treated on their respective balance sheets as an asset and therefore, presumably, not passed through to the consumer, as any additional tax would undoubtedly be. All these will result in both cleaner fuel solutions as well as fossil fuel production in the reasonably near future.
In addition, none can argue that the taxpayer is suspect about the actual use of funds generated by any windfall profits tax; the overall concern is that the funds will not be used as specified, but rather for general government pork. There are numerous instances of government misuse of specific-use funds n our recent history. The creation and management of a Trust as envisioned protects the raised capital from misuse and can invite oversight from the OMB and independent, private sector auditors.
© Carey G. Birmingham
San Antonio, TX
June 19, 2008