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| Center on the EnvironmentUpdated: 10/23/2008 Carbon Fuel Standards and Flex-Fuel Vehicles Windfall Profits Tax
Renewable Energy Portfolio
Obama’s Plan for Green Jobs and Manufacturing Hybrid and Electric Vehicles
Carbon Tax v. Cap-and-Trade Promoting the supply of domestic energy by Derek Sutton International Involvement on Climate Change
Windfall Profits Tax Gareth Collins What is a windfall profits tax? It’s a tax levied by the government on profits that a particular industry, in this case the oil industry, obtains in a sudden fashion due to events beyond the industry’s control. The windfall profits tax attempts to offset the unfairness of an obscenely high wealth transfer or profit rate. In the Fast forward to the 2008 presidential election, and the issue of the windfall profits tax has come up again. Oil companies are once again raking in record profits, and politicians are eyeing a huge (and politically popular) revenue stream for the federal government. A windfall profits tax would punish the oil companies that many critics see as complicit and dubious actors in the recent rise of energy prices. Oil companies have a monopoly on the preferred transportation fuel of the global economy, and the wealth transfer taking place between consumers and the industry is startling. ExxonMobil, the world’s largest oil company, recently passed Wal-Mart as the world’s largest corporation (measured by revenue). All 10 of the company’s most profitable business quarters have occurred since the third quarter of 2005. Although critics of a windfall profits tax say oil companies will pass the tax on to the consumers by increasing prices, from an environmental standpoint, high gas prices may not be all that bad. They will spur investment in alternative energy and reduce oil consumption, both of which will slow the debilitating effects of climate change. But some of the same drawbacks of the first windfall profits tax might drag down the next one. By taxing American oil companies even more, we may become even more reliant on imported oil. Excessive taxation of the oil industry would decrease incentives and available capital for exploration, at a time when the energy economy desperately needs more supply. One of the most prominent arguments against a windfall profits tax is that it is inherently unfair. The oil industry’s profit rate of about 10% is in line with most other industries, and far lower than information technology companies like Google. Should the government assess each industry and company one by one to determine what constitutes a fair and unfair profit level? A windfall profits tax might be a slippery slope to excessive corporate regulation. In the months and weeks leading up to the election and subsequent inauguration of the next President, this issue will certainly be addressed more by both candidates. Is Barack Obama’s support of the tax just another example of pandering to the American people with economic populism? Is John McCain’s staunch opposition a sign that he values oil company autonomy a little too much?
Obama’s Plan for Green Jobs and Manufacturing Dan O’Connor The following is a brief summary and analysis of Sen. Barack Obama’s plans regarding the creation of “Green Jobs” and growing the Obama’s Plans: 1. Invest 150 million over 10 years in the following technologies: Plug-in hybrids, energy efficiency, renewable energy, low emissions coal, biofuels and biofuels infrastructure, and digital electricity grids. 2. Increased funding for “Green Job” training, especially for veterans and disadvantaged youth. 3. Convert Auto and Other Manufacturing Facilities into Clean Technology Leaders: 1 billion dollars per year for plant “modernization” and $4 billion in tax credits and loan guarantees for domestic automakers to “retool.” Analysis The first criticism of the plan is that Obama’s key selling point is that it will create 5 million “green jobs.” First of all, unless the government plans to directly employ 5 million of its citizens, which would represent nearly 2% of the The second criticism of Obama’s plan is what Frederic Bastiat calls the “broken window fallacy.” Bastiat’s theory (http://www.fee.org/publications/the-freeman/article.asp?aid=3227) can be applied to any government spending program that claims to “create jobs.” The “broken window fallacy” states that taxing everyone and then spending that money to “create jobs” is the equivalent of the government throwing a brick through a shopkeeper’s window, in order to create jobs in the glassmaking industry. If the shopkeeper’s window had not been broken, he might have spent his money on a new pair of sneakers instead of a window. Thus, the government has accomplished its goal of creating jobs in the window industry; however, they have done so at the expense of shoe industry (and the shopkeeper, who has to continue wearing old shoes!). Instead of the government deciding to invest in specific industries and not others, might it be better to instead go directly at the problem: make carbon emissions more expensive through an aggressive tax or cap-and-trade system? By making “bad” things such as coal-fired energy or gas guzzling cars more expensive, the government with be creating an incentive in the market for clean, renewable energy generation and more fuel efficient cars. The Obama plan for job training is a good example of synergy, in which one solution can effectively solve two problems (some might prefer the cliché “Kill two birds with one stone.”) On one hand you have a need for people with “green jobs” skills, such as “advanced manufacturing and weatherization.” On the other hand, you have broad social equity issues revolving around the lack of education resources for disadvantaged groups, such as inner-city youth and veterans. A “Green jobs” training initiative for these groups solves both problems. It is worth noting that this is a strategy promoted by Green-Collar advocate Van Jones, founder of Green for All (greenforall.org) and author of The Green Collar Economy: How One Solution Can Fix Our Two Biggest Problems. Again, the argument against this Obama plan is that it tends to endorse a “Government knows best” philosophy of centralizing investment decisions. The plan demonstrates a belief that it is better to tax the country (or run larger deficits, which is the equivalent of taxing the future taxpayers) and spend it in specified ways than it is to have lower taxes and then allow individual investors and companies to take those tax savings and invest it in modernization where profitable. Additionally, it is also possible that “nurturing” firms, as the Obama plan suggests, could create dependency and put firms at a disadvantage in the future once they are not receiving government aid. All spending programs should be viewed in the context of opportunity cost, meaning the cost of a program is best represented by the forgone benefit of the next best alternative. With this in mind, might it be a better option for the government to help manufacturers (and domestic automakers in particular) with controlling the healthcare costs of their workers, thereby making them more competitive with international competition? Some additional criticisms revolve around the vagueness of the plan. For example, besides saying that the government will allocate money to the states, which will then choose the most “compelling” plans for modernization, it is not clear how monies will be distributed. Will states with more manufacturing, such as the in the
Promoting the supply of domestic energy Derek Sutton What the candidates are saying… Both John McCain and Barack Obama have sections in their proposed energy policies that seek to increase petroleum and natural gas production domestically. Obama seeks to build a natural gas pipeline in The candidates are developing these plans so that the average American sees a way to lower energy prices and to save money at the pump. The reasoning is that if we open up our vast resources of previously untapped petroleum and natural gas, we will no longer have to rely on foreign sources of energy and therefore be more self-sufficient. What the candidates aren’t saying… The Building a natural gas pipeline in The idea of using “unconventional” sources of petroleum and natural gas is economically unsound. Here is an excerpt of what unconventional natural gas is according to NaturalGas.org “unconventional natural gas is gas that is more difficult, and less economically sound, to extract, usually because the technology to reach it has not been developed fully, or is too expensive.” Basically, the term “unconventional” means that it is much more costly to extract the possible petroleum or gas, or there is no way of getting at the petroleum or gas with the technology we have. The role that energy speculators play in the domestic production of our energy resources is quite large. It is true that many oil companies have purchased land for the purpose of extracting petroleum and/or gas, but have left that land dormant and unused. This is wasteful, and those lands should either be used or given up. There are potentially energy resources in the lands bought by drilling companies, or they would not have bought the lands. Once again though, drilling in those fields would not help solve the short term or the long-term energy problem. It would take a while for the resources to be extracted, and we would still be using these sources of energy in which we have a comparatively minute supply. Experts say that there is a large amount of oil left in existing fields that is stranded, and is not being extracted. To extract this oil from the fields, however, would be like scraping the bottom of the barrel—it would take a lot of costly work with relatively small rewards, while other areas have the potential to be drilled. What the candidates SHOULD be saying… We need to radically change our current energy system. Instead of seeking to increase local fossil fuel extraction, the International Involvement on Climate Change Britta Wunderlich Background In 1992 at the Rio Earth Summit -- the United Nations Conference on Environment and Development in The U.S. Senate passed a resolution prior to the negotiation of the Kyoto Protocol saying that the U.S. should not sign any protocol that failed to include binding targets and timetables for both developing and industrialized nations, or else it would result in harm to the U.S. economy. When President Bush took office in 2001, he withdrew support for In February 2007 a non-binding “Washington Declaration” – a global cap-and-trade system that would apply to both industrialized and developing nations – was agreed upon by the G8+5. They hoped it would be in place by 2009 – the same year as the next United Nations Climate Change Conference in
Global Carbon Emissions Levels in 1990 and 2005
Global Per Capita Emissions in 1990 and 2005
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