Friday, April 17, 2009

Libertarian on EPA's Greenhouse Gases Endangerment Finding

Endangerment Finding: Legislative Hammer or Suicide Note?, by Marlo Lewis
Master Resource, April 17, 2009

EPA’s soon-to-be-published endangerment finding definitely puts a swagger in the step of energy-rationing advocates in the Administration, Congress, and environmental groups. They believe it gives them the whip hand in Congress–a hammer with which to beat opponents into supporting cap-and-tax legislation. This is too clever by half.

Yes, as explained previously, the endangerment finding will trigger a regulatory cascade through multiple provisions of the Clean Air Act (CAA). A strict, letter-of-the-law application of those provisions to carbon dioxide (CO2) and other greenhouse gases would not only raise consumer energy prices. It could also freeze economic development, even shut down much of the economy.

So, it’s not surprising that Team Obama and others think they can frighten opponents into supporting, for example, the Markey-Waxman cap-and-tax bill, which specifically precludes CAA regulation of greenhouse gases under the National Ambient Air Quality Standards (NAAQS) program, the New Source Review (NSR) preconstruction permitting programs, the Title V operating permits program, and the Hazardous Air Pollutant (HAP) program.

But the cap-and-tax faction miscalculate, because the rest of us are not caught between a rock and a hard place. We have a third option: Just say no to cap-and-tax, and then let the Administration take ownership of the rising energy costs, job losses, and GDP impacts that Obama’s EPA inflicts on the country by regulating CO2 under the CAA.

Roger Pielke Jr. concisely explains why the CO2 litigation campaign that begat Massachusetts v. EPA could and should be a political boon to Republicans:

Republicans must be drooling over the possibility that EPA will take extensive regulatory action on climate change. Why? Because the resulting political fallout associated with any actual or perceived downsides (e.g., higher energy prices) will fall entirely on Democrats and the Obama Administration. Far from being an incentive for Congress to act on its own, the looming possibility that EPA will take regulatory action is a strong incentive for Republicans to stalemate Congressional action and a nightmare scenario for Democrats.

Michael Shellenberger of the Breakthrough Institute agrees, pointing out that the Administration’s threat to regulate CO2 under the CAA unless cap-and-tax opponents come along quietly is tantamount to a promise to commit political suicide:

In other words, the White House “threat” to Republicans and moderate Democrats to regulate carbon is the equivalent of threatening your enemy with suicide. (”Don’t make me raise energy prices! You’ll really be in trouble with your voters when I raise their energy prices!”)

The CO2 litigation campaign bespeaks a fundamental contempt for the democratic process. Applying the CAA to CO2 could easily produce a regulatory regime far more costly than the Kyoto Protocol, yet without the people’s elected representatives ever voting on it. Those who instigated the Mass v. EPA case sought to substitute their will for that of Congress. They also sought to create a regulatory nightmare that Congress could fix only by adopting legislation that lawmakers would not otherwise support on the merits.

And now, this litigation strategy could blow up in their faces. ‘Tis a consummation devoutly to be wished. Republicans do have a knack for snatching defeat from the jaws of victory. But with a little coaching from energy realists (okay, a lot of coaching), we may yet protect the economy and the Constitution from Mass v. EPA.

Fighting Piracy through Nation Building?

Fighting Piracy through Nation Building?, by Christopher Preble
Cato at Liberty, Apr 17, 2009

Even though I was on vacation last week, I followed the story of the Maersk-Alabama and Captain Richard Phillips with great interest. And I exulted when three of the four pirates met their end. The safe return of the Maersk-Alabama and her entire crew was a clear win for the cause of justice, and could serve as a model. Future efforts to protect ships from pirates are likely to include some combination of greater vigilance on the part of the shipping companies and crews, in collaboration with the navies of the many different nations who have an interest in keeping the sea lanes open and free. (This is one of the themes that I develop in my new book, and that I will discuss next Monday at Cato.)

We do not need to reorient our grand strategy to deal with pirates. We don’t need to reshape the U.S. Navy to fight a motley band of young men in leaky boats. As my colleague Ben Friedman has written, piracy is a problem, but decidedly minor relative to many other global security challenges.

But some are criticizing the approach taken to resolve last week’s standoff. They say that the only way to truly eliminate the piracy problem is to attack and ultimately clean out the pirates’ sanctuaries in lawless Somalia. This “solution” fits well with the broader push within the Washington foreign policy community that would deal with our security problems by fixing failed states.

I have gone on at length, usually with my colleagues Justin Logan and Ben Friedman, on the many reasons why an overarching strategy for fixing failed states is unwise and unnecessary. I won’t expand on that thesis here, other than to point out that of all failed states in the world, Somalia is arguably the most failed. “Fixing” it would require a massive investment of personnel, money, and time — resources that would be better spent elsewhere.

Mackubin Owens offers one of the more intriguing defenses of this approach in a just published e-note for the Foreign Policy Research Institute. Owens likens a strategy of fixing Somalia to Gen. Andrew Jackson’s military operations in Florida, a story that features prominently in John Lewis Gaddis’s Surprise, Security and the American Experience. As Owens notes, when some members of President James Monroe’s cabinet wanted to punish Jackson for exceeding his mandate — in the course of his military campaign he captured and executed two British citizens accused of cavorting with the marauders who had attacked American citizens — Secretary of State John Quincy Adams jumped to Jackson’s defense and proposed a different tack. He demanded that Spain either take responsibility for cleaning up Florida or else give it up. And we all know what happened. Under the terms of Adams-Onis Treaty of 1819, Florida became a territory of the United States. Some 26 years later, it became our 27th state.

I’ve vacationed in Florida many times. Walt Disney World is wonderful for the kids; I’ve been there six times. I spent three memorable days watching March Madness in Miami a few years back. Spring training baseball is great fun. Adams couldn’t have imagined any of these things when he acquired a vast swampland; he cared only that Florida under Spanish control, or lack thereof, posed a threat.

Here is where the parallels to the present day get complicated. I’ll admit that I’ve never been to Somalia. Perhaps they have their own version of South Beach, or could have some day. But I’m frankly baffled by the mere intimation that our national security is so threatened by chaos there that we need to take ownership of the country’s — or the entire Horn of Africa’s — problems.
And yet, that is what many people believe. And this is not a new phenomenon. In many respects, we have chosen to treat all of the world’s ungoverned spaces as the modern-day equivalent of Spanish Florida.

Max Boot and Robert Kaplan compare U.S. military operations in the 21st century to the westward territorial expansion of the 19th century. In 1994, Kaplan authored one of the seminal works in this genre, “The Coming Anarchy,” in which he advised Western strategists to start concerning themselves with “what is occurring . . . throughout West Africa and much of the underdeveloped world: the withering away of central governments, the rise of tribal and regional domains, the unchecked spread of disease, and the growing pervasiveness of war.” Less than two years later, William Kristol and Robert Kagan wrote, “American hegemony is the only reliable defense against a breakdown of peace and international order.” Boot in 2003 advised Americans to unabashedly embrace imperialism. “Afghanistan and other troubled lands,” he wrote, “cry out for the sort of enlightened foreign administration once provided by self-confident Englishmen in jodhpurs and pith helmets.”

Americans have resisted such advice, and with good reason. The world will not descend down the path to total ruin if the United States hews to a restrained foreign policy focused on preserving its national security and advancing its vital interests. That is because there are other governments in other countries, pursuing similar policies aimed at preserving their security, and regional — much less global — chaos is hardly in their interests. The primary obligation of any government is to defend its citizens from threats. Curiously, our conduct in recent years suggests that U.S. policymakers doubt that other governments see their responsibilities in this way. Indeed, we have constructed and maintained a vast military largely on the grounds that we, and we alone, must police the entire planet.

In The Power Problem, I quote Machiavelli, who noted in his discourses: “Men always commit the error of not knowing where to limit their hopes, and by trusting to these rather than to a just measure of their resources, they are generally ruined.” I continue:

As Machiavelli would have predicted, the notion of what Americans must do to preserve and advance our own security has steadily expanded over the years to encompass the defense of others. Seemingly unconstrained by the resources at our disposal, we are driven by our dreams of fashioning a new global order. But we are also driven by false fears. We believe that we can only be secure if others are secure, that insecurity anywhere poses a threat to Americans everywhere. If someone on the other side of the planet sneezes, the United States is supposedly in danger of catching pneumonia. The putative cure is preventive war. Such geostrategic “hypochondria” has gotten us all into much trouble over the years. We would be wise to take measure of our relative health and vitality, and not confuse a head cold with cancer.

When Doctors Opt Out - "We already know what government-run health care looks like"

When Doctors Opt Out. By Marc Siegel
We already know what government-run health care looks like.
WSJ, Apr 17, 2009

Here's something that has gotten lost in the drive to institute universal health insurance: Health insurance doesn't automatically lead to health care. And with more and more doctors dropping out of one insurance plan or another, especially government plans, there is no guarantee that you will be able to see a physician no matter what coverage you have.

Consider that the Medicare Payment Advisory Commission reported in 2008 that 28% of Medicare beneficiaries looking for a primary care physician had trouble finding one, up from 24% the year before. The reasons are clear: A 2008 survey by the Texas Medical Association, for example, found that only 38% of primary-care doctors in Texas took new Medicare patients. The statistics are similar in New York state, where I practice medicine.

More and more of my fellow doctors are turning away Medicare patients because of the diminished reimbursements and the growing delay in payments. I've had several new Medicare patients come to my office in the last few months with multiple diseases and long lists of medications simply because their longtime provider -- who they liked -- abruptly stopped taking Medicare. One of the top mammographers in New York City works in my office building, but she no longer accepts Medicare and charges patients more than $300 cash for each procedure. I continue to send my elderly women patients downstairs for the test because she is so good, but no one is happy about paying.

The problem is even worse with Medicaid. A 2005 Community Tracking Physician survey showed that only 50% of physicians accept this insurance. I am now one of the ones who doesn't take it. I realized a few years ago that it wasn't worth the money to file the paperwork for the $25 or less that I received for an office visit. HMOs are problematic as well. Recent surveys from New York show a 10% yearly dropout rate from the state's largest HMO, the Health Insurance Plan of New York (HIP), and a 14% drop-out rate from Health Net of New York, another big HMO.

The dropout rate is less at major medical centers such as New York University's Langone Medical Center where I work, or Mount Sinai Medical Center, because larger physician networks have more leverage when choosing health plans. Still, I am frequently hamstrung as I try to find a good surgeon or specialist to refer one of my patients to.

Overall, 11% of the doctors at NYU Langone don't participate in at least two insurance plans -- Aetna or Blue Cross, for instance -- so I end up not being able to refer my patients to some of our top specialists. This problem, in addition to the mass of paperwork and diminishing reimbursements, is enough of a reason for me to consider dropping out as well.

Bottom line: None of the current plans, government or private, provide my patients with the care they need. And the care that is provided is increasingly expensive and requires a big battle for approvals. Of course, we're promised by the Obama administration that universal health insurance will avoid all these problems. But how is that possible when you consider that the medical turnstiles will be the same as they are now, only they will be clogged with more and more patients? The doctors that remain in this expanded system will be even more overwhelmed than we are now.

I wouldn't want to be a patient when that happens.

Dr. Siegel, an internist and associate professor of medicine at the NYU Langone Medical Center, is a Fox News medical contributor.

Small Cars Are Dangerous Cars - Fuel economy zealots can kill you

Small Cars Are Dangerous Cars. By Sam Kazman
Fuel economy zealots can kill you.
CEI, Apr 17, 2009

The super-high efficiency minicar has become the Holy Grail for many environmentalists. But on Tuesday, a new study on minicar safety tossed some cold water on the dream. The Insurance Institute for Highway Safety (IIHS) reported that in a series of test crashes between minicars and midsize models, minis such as the Smart car provided significantly less protection for their passengers.

The tests did not involve the much ballyhooed mismatches between subcompacts and Hummers, but measured the effect of relatively modest differences in size and weight. Even though the Smart car and other minis such as the Honda Fit and the Toyota Yaris have fared relatively well in single-car crash tests, they performed poorly in these two-car frontal offset collisions. In the words of IIHS president Adrian Lund, "though much safer than they were a few years ago, minicars as a group do a comparatively poor job of protecting people in crashes, simply because they're smaller and lighter."

That difference is reflected in the real world. The death rate in minis in multi-vehicle crashes is almost twice as high as that of large cars. And in single-vehicle crashes, where there's no oversized second vehicle to blame, the difference is even greater: Passengers in minis suffered three times as many deaths as in large cars.

Given the nonstop pronouncements we've been hearing about the green promise of high-efficiency cars, these results were shocking to some. But not to IIHS. The Institute has long been reporting similar results from other tests, and its publications candidly advise that, when it comes to safety, larger and heavier cars are generally better.

That's not what advocates of higher fuel-economy standards want to hear. Greater weight may increase crashworthiness, but it also decreases miles per gallon, so there's an inevitable trade-off between safety and efficiency. A 2002 National Research Council study found that the federal Corporate Average Fuel Economy (CAFE) standards contributed to about 2,000 deaths per year through their restrictions on car size and weight. But amazingly, with the exception of IIHS, there's practically no one else providing information on the size-safety issue:

- Not the National Highway Traffic Safety Administration, which has a highly dubious track record on CAFE. In a 1992 lawsuit filed by the Competitive Enterprise Institute, and Consumer Alert, a federal appeals court found the agency guilty of using "mumbo jumbo" and "legerdemain" to conceal CAFE's lethal effects.
- Not the Environmental Protection Agency, which is about to become a major partner in setting CAFE standards. EPA is often fixated on minute risks, such as radon in drinking water, but don't expect it to admit to CAFE's dangers. Its official mission may be "to protect human health and the environment," but its operating philosophy seems to be "not necessarily in that order."
- Not Ralph Nader and his allied traffic safety groups, which are often CAFE's most energetic cheerleaders. Decades ago, Mr. Nader and his colleagues repeatedly warned of the hazards of small cars. The Center for Auto Safety's 1972 book "Small -- On Safety," noted "the inherent limitations" that "small size and light weight" impose on crashworthiness. But in the 1990s both Mr. Nader and the Center reversed their position. Why? Because CAFE presented them with a stark choice between more government power and more safety. They went for more power.
- Not Consumer Reports, which has consistently failed to mention the importance of size and weight in discussing how to choose a safer car. Though it is regarded as the information bible by many car buyers, not a single one of its annual auto issues in the last five years has touched on this topic.

As the National Research Council reported, the current CAFE program -- 27.5 mpg for passenger cars -- contributed to about 2,000 deaths. But driving is going to get even more lethal over the next decade: CAFE standards will be raised to a 35 mpg combined average for cars and light trucks. And with the notable exception of IIHS, information about those risks may be hard to come by.

Mr. Kazman is general counsel of the Competitive Enterprise Institute.

Real Chinese middle class and the McKinsey paper

Real Chinese middle class and the McKinsey paper
China Solved, Apr 16, 2009

If you haven’t read the McKinsey paper on China’s Wealthy – take a look. It’s a beautiful publication – and really reinforces the notion of China as the new super-consumer. The paper is full of tasteful shots of young, attractive Chinese people buying wine together and enjoying one another’s company in shopping malls.

But what caught my eye was on page 9 - the size of wealthy population. Less than 1% of urban Chinese households are wealthy – compared to 10% in US, Germany and Japan. But the Chinese are growing their wealthy component fast – around 16% per year. So we can expect China’s wealthy to rise to maybe 2% the population in 5 years. McKinsey says 4 million households by 2015. It’s not a huge number – but China is a developing economy and maybe McK set the bar too high.

How do they define ‘wealthy’ in China? In a footnote on page 8, McKinsey identifies as wealthy the 1.6 million Chinese earning 250,000 rmb per year or more. Unless I get my basic arithmetic wrong (and it’s been known to happen) we’re talking about people earning upwards of 20,800 rmb per month – or just shy of US$40 K a year.

The hopes of the commercial universe are riding on them – this small band of brave uber-consumers.

The Real Chinese Middle Class vs. the Imagined Chinese Middle Class
It may not have been their intent, but the McKinsey report demonstrates just how thin the upscale Chinese market is. If your business model used to be tailored to a ‘middle class expat’ market that is rapidly disappearing, then you’re already finding that the ‘middle class Chinese’ market is both unwilling and unable to fill the void. McKinsey’s “wealthy Chinese” aren’t packing that much of a punch in terms of numbers or spending potential.

Many westerners leaf through McKinsey type reports and conclude that China can support a lot more high-end spending than it really can. China per capita GDP for 2008 was in the neighborhood of US$3,000. They’re doing great – when I first came here it was barely $1800. Kudos to you China. Kudos.

But we’ve got to be careful which myths we allow ourselves to believe. The notion that an army of Chinese super-spenders with piles of disposable income saving are mobilizing to rescue the global economy – and our favorite little Shanghai bistro – is just wishful thinking. If your China business model still includes lots of foot traffic from “middle class Chinese earning 50 or 60,000 rmb / month “, then you’ve got to go back to the drawing board. Those days are over – and they are not likely to come back any time soon.

Hayden & Mukasey: The President Ties His Own Hands on Terror

The President Ties His Own Hands on Terror. By Michael Hayden and Michael B Mukasey
The point of interrogation is intelligence, not confession.
WSJ, Apr 17, 2009

The Obama administration has declassified and released opinions of the Justice Department's Office of Legal Counsel (OLC) given in 2005 and earlier that analyze the legality of interrogation techniques authorized for use by the CIA. Those techniques were applied only when expressly permitted by the director, and are described in these opinions in detail, along with their limits and the safeguards applied to them. AP

The release of these opinions was unnecessary as a legal matter, and is unsound as a matter of policy. Its effect will be to invite the kind of institutional timidity and fear of recrimination that weakened intelligence gathering in the past, and that we came sorely to regret on Sept. 11, 2001.

Proponents of the release have argued that the techniques have been abandoned and thus there is no point in keeping them secret any longer; that they were in any event ineffective; that their disclosure was somehow legally compelled; and that they cost us more in the coin of world opinion than they were worth. None of these claims survives scrutiny.

Soon after he was sworn in, President Barack Obama signed an executive order that suspended use of these techniques and confined not only the military but all U.S. agencies -- including the CIA -- to the interrogation limits set in the Army Field Manual. This suspension was accompanied by a commitment to further study the interrogation program, and government personnel were cautioned that they could no longer rely on earlier opinions of the OLC.

Although evidence shows that the Army Field Manual, which is available online, is already used by al Qaeda for training purposes, it was certainly the president's right to suspend use of any technique. However, public disclosure of the OLC opinions, and thus of the techniques themselves, assures that terrorists are now aware of the absolute limit of what the U.S. government could do to extract information from them, and can supplement their training accordingly and thus diminish the effectiveness of these techniques as they have the ones in the Army Field Manual.

Moreover, disclosure of the details of the program pre-empts the study of the president's task force and assures that the suspension imposed by the president's executive order is effectively permanent. There would be little point in the president authorizing measures whose nature and precise limits have already been disclosed in detail to those whose resolve we hope to overcome. This conflicts with the sworn promise of the current director of the CIA, Leon Panetta, who testified in aid of securing Senate confirmation that if he thought he needed additional authority to conduct interrogation to get necessary information, he would seek it from the president. By allowing this disclosure, President Obama has tied not only his own hands but also the hands of any future administration faced with the prospect of attack.

Disclosure of the techniques is likely to be met by faux outrage, and is perfectly packaged for media consumption. It will also incur the utter contempt of our enemies. Somehow, it seems unlikely that the people who beheaded Nicholas Berg and Daniel Pearl, and have tortured and slain other American captives, are likely to be shamed into giving up violence by the news that the U.S. will no longer interrupt the sleep cycle of captured terrorists even to help elicit intelligence that could save the lives of its citizens.

Which brings us to the next of the justifications for disclosing and thus abandoning these measures: that they don't work anyway, and that those who are subjected to them will simply make up information in order to end their ordeal. This ignorant view of how interrogations are conducted is belied by both experience and common sense. If coercive interrogation had been administered to obtain confessions, one might understand the argument. Khalid Sheikh Mohammed (KSM), who organized the Sept. 11, 2001 attacks, among others, and who has boasted of having beheaded Daniel Pearl, could eventually have felt pressed to provide a false confession. But confessions aren't the point. Intelligence is. Interrogation is conducted by using such obvious approaches as asking questions whose correct answers are already known and only when truthful information is provided proceeding to what may not be known. Moreover, intelligence can be verified, correlated and used to get information from other detainees, and has been; none of this information is used in isolation.

The terrorist Abu Zubaydah (sometimes derided as a low-level operative of questionable reliability, but who was in fact close to KSM and other senior al Qaeda leaders) disclosed some information voluntarily. But he was coerced into disclosing information that led to the capture of Ramzi bin al Shibh, another of the planners of Sept. 11, who in turn disclosed information which -- when combined with what was learned from Abu Zubaydah -- helped lead to the capture of KSM and other senior terrorists, and the disruption of follow-on plots aimed at both Europe and the U.S. Details of these successes, and the methods used to obtain them, were disclosed repeatedly in more than 30 congressional briefings and hearings beginning in 2002, and open to all members of the Intelligence Committees of both Houses of Congress beginning in September 2006. Any protestation of ignorance of those details, particularly by members of those committees, is pretense.

The techniques themselves were used selectively against only a small number of hard-core prisoners who successfully resisted other forms of interrogation, and then only with the explicit authorization of the director of the CIA. Of the thousands of unlawful combatants captured by the U.S., fewer than 100 were detained and questioned in the CIA program. Of those, fewer than one-third were subjected to any of the techniques discussed in these opinions. As already disclosed by Director Hayden, as late as 2006, even with the growing success of other intelligence tools, fully half of the government's knowledge about the structure and activities of al Qaeda came from those interrogations.

Nor was there any legal reason compelling such disclosure. To be sure, the American Civil Liberties Union has sued under the Freedom of Information Act to obtain copies of these and other memoranda, but the government until now has successfully resisted such lawsuits. Even when the government disclosed that three members of al Qaeda had been subjected to waterboarding but that the technique was no longer part of the CIA interrogation program, the court sustained the government's argument that the precise details of how it was done, including limits and safeguards, could remain classified against the possibility that some future president may authorize its use. Therefore, notwithstanding the suggestion that disclosure was somehow legally compelled, there was no legal impediment to the Justice Department making the same argument even with respect to any techniques that remained in the CIA program until last January.

There is something of the self-fulfilling prophecy in the claim that our interrogation of some unlawful combatants beyond the limits set in the Army Field Manual has disgraced us before the world. Such a claim often conflates interrogation with the sadism engaged in by some soldiers at Abu Ghraib, an incident that had nothing whatever to do with intelligence gathering. The limits of the Army Field Manual are entirely appropriate for young soldiers, for the conditions in which they operate, for the detainees they routinely question, and for the kinds of tactically relevant information they pursue. Those limits are not appropriate, however, for more experienced people in controlled circumstances with high-value detainees. Indeed, the Army Field Manual was created with awareness that there was an alternative protocol for high-value detainees.

In addition, there were those who believed that the U.S. deserved what it got on Sept. 11, 2001. Such people, and many who purport to speak for world opinion, were resourceful both before and after the Sept. 11 attacks in crafting reasons to resent America's role as a superpower. Recall also that the first World Trade Center bombing in 1993, the attacks on our embassies in Kenya and Tanzania, the punctiliously correct trials of defendants in connection with those incidents, and the bombing of the USS Cole took place long before the advent of CIA interrogations, the invasion of Saddam Hussein's Iraq, or the many other purported grievances asserted over the past eight years.

The effect of this disclosure on the morale and effectiveness of many in the intelligence community is not hard to predict. Those charged with the responsibility of gathering potentially lifesaving information from unwilling captives are now told essentially that any legal opinion they get as to the lawfulness of their activity is only as durable as political fashion permits. Even with a seemingly binding opinion in hand, which future CIA operations personnel would take the risk? There would be no wink, no nod, no handshake that would convince them that legal guidance is durable. Any president who wants to apply such techniques without such a binding and durable legal opinion had better be prepared to apply them himself.

Beyond that, anyone in government who seeks an opinion from the OLC as to the propriety of any action, or who authors an opinion for the OLC, is on notice henceforth that such a request for advice, and the advice itself, is now more likely than before to be subject after the fact to public and partisan criticism. It is hard to see how that will promote candor either from those who should be encouraged to ask for advice before they act, or from those who must give it.

In his book "The Terror Presidency," Jack Goldsmith describes the phenomenon we are now experiencing, and its inevitable effect, referring to what he calls "cycles of timidity and aggression" that have weakened intelligence gathering in the past. Politicians pressure the intelligence community to push to the legal limit, and then cast accusations when aggressiveness goes out of style, thereby encouraging risk aversion, and then, as occurred in the wake of 9/11, criticizing the intelligence community for feckless timidity. He calls these cycles "a terrible problem for our national security." Indeed they are, and the precipitous release of these OLC opinions simply makes the problem worse.

Gen. Hayden was director of the Central Intelligence Agency from 2006 to 2009. Mr. Mukasey was attorney general of the United States from 2007 to 2009.

Black liquor, paper industry and Congressional rewards for the right behavior

Alternative Fuel Folly. By Kimberley A Strassel
WSJ, Apr 17, 2009

Every so often Washington throws out a controversy that brilliantly illustrates everything wrong with Washington. Consider the brewing outrage over "black liquor."

This is the tale of how a supposedly innocuous federal subsidy to encourage "alternative energy" has, in a few short years, ballooned into a huge taxpayer liability and a potential trade dispute, even as it has distorted markets and led to greater fossil-fuel use. Think of it as a harbinger of the unintended consequences that will accompany the Obama energy revolution.

Back in 2005, Congress passed a highway bill. In its wisdom, it created a subsidy that gave some entities a 50-cents-a-gallon tax credit for blending "alternative" fuels with traditional fossil fuels. The law restricted which businesses could apply and limited the credit to use of fuel in motor vehicles.

Not long after, some members of Congress got to wondering if they couldn't tweak this credit in a way that would benefit specific home-state industries. In 2007, Congress expanded the types of alternative fuels that counted for the credit, while also allowing "non-mobile" entities to apply. This meant that Alaskan fish-processing facilities, for instance, which run their boilers off fish oil, might now also claim the credit.

What Congress apparently didn't consider was every other industry that might qualify. Turns out the paper industry has long used something called the "kraft" process to make paper. One byproduct is a sludge called "black liquor," which the industry has used for decades to fuel its plants. Black liquor is cost-effective, makes plants nearly self-sufficient, and, most importantly (at least for this story), definitely falls under Congress's definition of an "alternative fuel."

All of which has allowed the paper industry to start collecting giant federal payments for doing nothing more than what it has done for decades. And in fairness, why not? If Congress is going to lard up the tax code with thousands of complex provisions designed to "encourage" behavior, it shouldn't be surprised when those already practicing said behavior line up for their reward, too.
In March, International Paper announced it had received $71 million from the feds for a one-month period last fall. The company is on track to claim as much as $1 billion in 2009. Verso took in nearly $30 million from the operation of just one mill in one quarter of last year. Other giants are gearing up to realize their own windfalls. Wall Street has gone wild, pushing paper-company stocks up dramatically in recent weeks.

Happy as industry is to have this new federal lifeline in the middle of a recession, it is the only one smiling. Foreign competitors are screaming that the subsidy is unfairly propping up the U.S. industry in tough times. They claim the U.S. industry is ramping up production simply to realize more tax money. Canadian forestry firms are already demanding their government file a trade complaint.

In order to qualify for the credit, alternative fuel must be mixed with a taxable one. (The government might want to encourage alternative fuels, but not to the extent that it loses its gas-tax revenue.) This means that to qualify, the paper industry must mix some diesel with its black liquor. This has sent environmentalists around the bend. They have accused the industry of burning fossil fuels that it didn't used to burn, simply to get the tax dollars. (The industry has not been clear on whether it is, in fact, using more diesel.)

And then there's Congress, which is suddenly looking at billions more in red ink than expected. In 2007 it estimated a 15-month extension of the credit would cost taxpayers $333 million. It has since revised those numbers to take into account black liquor and is now figuring a one-year cost of more than $3 billion. Wall Street analysts are talking $6 billion. Senate Finance Committee bosses Max Baucus and Charles Grassley are reportedly aware of the issue, none too happy, and they are working to bar the paper industry from receiving the credit.

But this, in turn, has tossed up uncomfortable questions. The paper industry argues that if the government is going to be in the business of rewarding good behavior, it ought to do it equally. Is green policy only to be aimed at dirty or economically unviable actors? Is black liquor any less useful than ethanol or biodiesel, and if so why? If not, shouldn't Washington encourage its use? Isn't every green subsidy in fact the basis for a trade dispute? These are questions Congress has no interest in confronting, since it would expose the muddle that is its entire green-energy program.

All of this is highly amusing, if not surprising. Every government attempt to manage energy markets has resulted in similar disarray. Look at the havoc that came from the energy price controls, regulations and subsidies of the 1970s. Or look, more recently, at the ethanol fiasco, and the accompanying soaring food costs. Energy powers the economy. Mess with energy markets, and mess with everything else. When will Washington learn?