I was going to talk about sane solutions for ground transportation this week and I was going to lead with a tidbit, but that snowballed into the entire rant of its own.
Last week I was reading The Wall Street Journal on my 1994 organic cotton-stuffed futon when I had a “Ha! You scheming, scamming, shysters!” moment. In Law of Gravity Repealed, I accused for-profit corporations who are in favor of carbon caps of essentially getting in bed with the political hacks in Washington to form the rules of the game such that they come out ahead of their competitors. First off, this is a really stupid and naïve strategy that has been demonstrated time and again. The saying goes if you’re not at the table, you’re on the menu.
Companies have three choices when a bill that will deeply affect their business is being debated: (1) fight it with everything they’ve got, (2) help form the legislation whether it will be good for them or not, and (3) ignore it and hope for the best. I would say that most times when they cede power to the government and think they can come out ahead, they get burned badly. This happened with big pharma and the insurance industry with the recently passed healthcare bill. Big pharma thought they could greatly increase their sales with 30 million new customers. What idiots. Hello?!! And they suppose Washington is going to let them charge “market” rates for these 30 million new customers carried entirely by the government. What morons. With perhaps the exception of utilities that will be able to more easily recover costs due to their monopoly status, other large corporations will get burned in the same way with any cap and trade bill that is passed. The exception may be General Electric where the pathetic CEO Jeffrey Immelt is putting all the company’s chips on successfully bribing a majority in Washington to save the company. Otherwise tell me, how is a HUGE energy consumer like Dow Chemical or producer/user like Exxon Mobil going to come out on top. Don’t mess with Washington. You’ll get the horns.
To get back on track regarding last week’s WSJ – [reprinted in this news source because it is no longer available on the WSJ’s website] Dow Chemical, one of the companies I mentioned a couple months ago has seen the political light, which is actually the dark side because there is no bright side in Washington.
Suddenly when cap and trade was shelved last week and Harry Reid started talking instead of a wimpier policy to encourage the use of natural gas, Dow found free-market religion. Using natural gas in place of nearly any other fossil fuel will reduce CO2 emissions. But wait! Dow is suddenly opposed to reducing greenhouse gasses. In a letter supported by many companies and other “special interests”, they write to call on the Senate “not to include any provisions in energy legislation that would ‘artificially’ increase demand for natural gas in the power and transportation sectors.” Let’s see. Cap and trade; artificial pricing pressure and market manipulation. Nope, I’m not seeing any difference here. I don’t understand Dow’s reversal. What happened to the do-gooder spirit?
Purely guessing, Dow probably has millions of carbon credits that are worthless without cap and trade. They may also think they can increase their insulation sales with its passage. I would also like to see the other corporate signatories on that letter. T Boone is most likely not a signatory.
In another non-irony, the National Corn Growers Association also opposes the “artificially” high priced natural gas.
[Courtesy pause here while you finish laughing out loud]
I cannot think of more manipulated markets than the ones for corn and ethanol. First, federal programs to pay farmers to NOT produce crops have been around for decades. I recall as a kid, we had to “divert” xx% of baseline corn acres. So what did we and everyone else do – diverted the acres where nothing grew (sandy patches) or acres that were at high risk of being flooded.
Second, there is the fattest sacred cow of them all: ethanol. The ethanol lobby that includes weaklings like Archer Daniels Midland along with the Corn Growers Association has bagged a permanent 50 cent per gallon subsidy courtesy of me and a few million other Americans, the taxpayers. In addition to this handout, it may be the most trade-protected industry in the country, save for maybe sugar. Imports would be slapped with an insurmountable 54 cent per gallon tariff so we can’t import cheaper ethanol from places like Brazil where cane-sugar-derived ethanol has allowed them to be energy independent since 2006. A 50 cent subsidy plus a 54 cent tariff on imports: more than a dollar a gallon direct artificial price manipulation. I can’t think of a more favorably manipulated market than the one the corn industry has.
To demonstrate the damage heavily manipulated markets wreak, many ethanol companies went bust starting a couple years ago as the price of their feedstock, corn, soared to record highs. Nobody saw those prices coming. Maybe they should have hedged against the risk of soaring feedstock prices – whoop! Can’t do that anymore because of the recently passed financial overhaul. More manipulation and interference…
Epilog: I’m practically from Iowa and my family has grown a lot corn for many years. Even though it is all fed to livestock, the artificial upward pressure on the corn market would seem to help because it makes growing livestock more expensive, driving down meat and poultry supply and improving prices. But like the tobacco industry that was strictly controlled with government quotas, farmers would benefit from the trashing of government manipulation. Income rises and surprise! Farms get smaller – just what everyone seems to want!