In advance of Tuesday's election, I thought it would be useful to have a quick look at Mitt Romney's vision for the country's energy future.  This blog post provides links to other assessments of his broader energy plan that I think do a nice job framing some important issues, and then discusses Romney's statements about subsidies to clean energy.  Part 2, which  won't be ready for a couple more days, will look some critical deficits in Romney's statements about subsidies to oil and gas, and provide guidance on important subsidies he is overlooking and why these matter.

Cato Institute review of Romney energy goals and claims

As a starting point for looking at the Romney's energy vision, Jerry Taylor and Peter van Doren at Cato Institute have done a nice review of many aspects of, and problems with, Romney's energy plan.  The piece takes an even-handed position on all forms of energy, even oil and gas, which makes it particularly refreshing given that Cato has historically received significant funding from oil and gas interests. 

Taylor and van Doren highlight areas where Romney is merely replacing one muddled policy with another; and others where Romney's critiques don't stand up well once one looks more carefully at the facts.  I found their discussion of oil and gas leasing procedures and delays in the Obama administration versus prior ones particularly interesting. 

Never ones to mince words, the authors note that

Most of Mitt Romney's energy plan, however, is neither particularly good nor particularly bad.  It is simply ugly.  Over and over again we find Romney making a great show of middling proposals that are so over-sold and misleadingly marketed that it's hard to take his campaign seriously.  Worse, his rhetoric reinforces the silliness that informs so much of our wrongheaded approach to energy matters. 

While Taylor and van Doren's review of the Romney energy plan is well done, some of their recommendations on how to fix energy markets -- while true to Cato's libertarian roots -- remain works in progress. 

Selling federal lands containing significant mineral reserves, for example, is their solution to problems with royalty adequacy.  But though auctions may solve royalty valuation problems, other important issues will remain.  Private landowners routinely leave environmental nasties for the taxpayer to clean up, and have done so at least for the past century.  That's unlikely to change.  Subsidies on state level severance taxes (which, unlike government royalties, also apply to minerals on private land) are already a problem, and shifting who owns the property won't solve it.  Finally, lands have multiple and often competing, uses, not all of which are easily monetized.  Sales to the highest bidder won't solve these either. 

Taylor and van Doren also support ending all subsidies to energy, which makes sense so long as the definitions aren't being gamed.  But environmental externalities also convey a subsidy that skews which fuels win in the marketplace.  There is no discussion of how to deal with them.

A look at Romney's characterization of subsidies to "green" energy

Romney's claim of $90 billion in subsidies to "green" energy, made during the first debate, is shown in all its glory below:

And — and in one year, you provided $90 billion in breaks to the green energy world. Now, I like green energy as well, but that's about 50 years' worth of what oil and gas receives,

The figure has already been fairly widely critiqued, and I'll provide much more detail on the "50 years' worth of what oil and gas receives" claim in my part 2 posting on this topic.  But there are some important points these earlier write-ups did not discuss.

Not all of Romney's critiques are unwarranted 

I have been quite critical of the federal loan guarantees to energy facilities, viewing them as well beyond the core competence of DOE and at risk for political manipulation and corruption, for some time.  So long as one looks to fix the entire program, and not just the fuels you don't like, I'm all in favor of this spending being attacked.  Ending the loan guarantee program would be a good thing.  Unfortunately, Taylor and van Doren note that Romney failed this particular neutrality test, defending massive credit subsidies to nuclear reactors even while he criticized loans to renewable fuels.  

Similarly, while recipient industries understandably love refundable tax credits (these are also a big part of ARRA, and included in the $90 billion figure), I view them as bad policy.  Refundable credits pay out cash even if the tax payer has no federal tax liability left.  Thus, they are basically a government grant, but without any review of recipients that normally applies to government awards, and without the limitations on total spending that government program budgets normally set. 

The economic incentives are all mucked up:  payments are based on what is built or the quantity of energy produced; not necessarily how well it is built, how many people want to buy it, and how valuable the product you are marking actually is. These are bad incentives and bad market signals.  They tend to put markets into hyperdrive (particularly if refundable credits are available only for a short time), exacerbating capital overshoot for both the supply companies and for the recipient market.  Resources are misallocated quickly and strongly, and the risk of a "hard landing" with many closures when the subsidy ends, is increased.  Alternatively, the build-up is so fast that a new and powerful entrenched interest is born, successfully lobbying for the subsidy policy to continue.

Overall, however, Romney's characterization of subsidies to green energy is sloppy and misleading 

More than the exact figure, it is the types of errors in the numbers that gave me pause -- errors that would be enough to get a manager or CFO fired.  Because of his past business success (a major emphasis of the Romney campaign), the issues noted below are all the more surprising.

1) Comparing one year of oil and gas subsidies to multiple years of support to other fuels.  How cool would it be if Yahoo! could tally up multiple years of net income to compare with a single year for some of its competitors?  The firm would look so much more profitable (and maybe my Yahoo! shares would rise at least for awhile).  But this framing would not be accurate.  Nor would it provide managers and investors with the data they need need to evaluate the health of a business or the value of an investment.  Mitt's green subsidy figures are no more useful or representative.

2)  Mixing commitments with cash flow.  Not all of the money committed has been spent; nor will all of it necessarily ever be spent.  It's like capital commitments to a private equity fund:  you pledge up to a fixed amount, pay it in over a series of years, but often circumstances change and you never have to put in the full amount. Both the commitment and the cash outlay figures can be useful to report on, but you can't lump them together as Mitt did. Comparing the full funding commitments for the things you don't like with actual payouts only for the things you do is dishonest.

3)  Separating the spending by type of recipient.  Imagine a Bain fund that stated only the gross amount invested, with no detail of what it was spent on.  As noted in the reviews linked to above, the $90 billion in commitments spanned a wide variety of enterprises and industries. 

Though I wouldn't be quick to count subsidies to corn ethanol in the green category, I recognize many people still do, so begrudgingly let Mitt do so as well (though it is also useful to look green energy subsidies without the ethanol for comparing support to conventional fuels). 

But spending on high speed rail?  The sector has been garnering subsidies for decades, using whatever mechanisms and programs possible.  And yes -- conceivably, someday, if the trains are speedier than regular trains, high speed rail could be more successful at moving large numbers of passengers between point A and point B than Amtrak has been with its regular speed trains.  And if most of those new people used to drive their cars by themselves on highways, we could see a lower carbon footprint.  But counting it as a subsidy to green power today is a stretch. 

So too with the $5 billion spent to clean up old nuclear weapons sites.  Just because "clean energy" and "clean up" both have the word "clean" in them doesn't make nuclear weapons cleanup a subsidy to green power.  And like high speed rail, cleanup spending on weapons sites is an area that has been sucking cash for well over a generation at this point, with messes aplenty for our children to work on as well.

4)  Nixing all stimulus?  Part of the spending (about $5 billion, though as of December 2011 less than $3.5 billion had been spent) went to weatherize homes for low income residents.  As stimulus spending during a recession goes, this one is near the top in terms of Keynesian goodness.

The weatherization industry is labor intensive, but installation can't be outsourced to a Chinese factory.  The type of labor required is also important:  a mix of skills, including many jobs for which a college education is not needed and workers can be trained quickly, thus helping a wide swath of society.  The key materials are often domestic (cellulose insulation, for example, is made from domestic waste paper), boosting domestic multipliers.  And the result of the spending is a more comfortable home for lower income citizens, with improved health and reduced heating costs going forward.  Handouts from federal, state, or local energy assistance programs can be reduced.  Finally, significant portions of the  reductions in fuel demand cut the need for heating oil (often imported) or electric power (often coal-fired), providing both energy security and environmental benefits.  I'm just not seeing the downside here.

But it's still included in the $90 billion that Romney views as wasteful.  So is no stimulus other than tax breaks allowable under the Romney economic doctrine?  If so, he really ought to come clean on this view point, and state clearly that government spending of any type shouldn't be boosted even during near-depressions.  Otherwise, he ought to applaud this particular item rather than condemn it. 

Big questions about energy policy are critical to ask.  But using fudged, skewed, mischaracterized, or otherwise inaccurate numbers would be enough for Bain Capital to stop trusting the managers and decline to invest in a firm it was evaluating.  The American people deserve information that is at least as good as what Bain fund managers get.

Les aides publiques dommageables à la biodiversité (Public Subsidies Harmful to Biodiversity)

The report provides an extremely detailed review of policies within France that have the effect of harming biodiversity, though does not rank these subsidies in terms of which are most damaging.  The report looks at a vast array of policies that encourage urban sprawl, over-exploitation of resources, and the introduction of exotic species, in the process triggering habitat loss.  The analysis also looks at subsidies to pollution.  Although the authors were able to quantify many specific subsidy items, they were not able to present an aggregate tally due to the complexity of some of the prog

Natural gas fracking well in Louisiana

The US Supreme Court has just greatly loosened the restrictions on spending corporate cash on political candidates and elections. The onslaught of cash that will follow will, I suspect, suprise even the supporters of this change.  More importantly, the web of obligations that this cash creates among the elected officials will greatly worsen an already out-of-control problem of subsidies to favored constituencies.

According to Reuters, roughly $1 billion of the $6 billion spent on the 2008 election cycle came from corporate political action committees, trade associations, executives, and lobbyists.  Frankly, both parts of this number are alarming.  The corporate share is clearly an indication of large problems with political influence.  The total spending is a concern because it renders elected office increasingly out of reach for normal people without private cash hordes or very large patrons, corporate or otherwise.

Sure, perhaps it is unrealistic to think that elections are entirely one vote per person, with voting on the basis  dollars relegated to the marketplace.  But the idea that rulings like this don't weaken our basic democratic principles seems misguided. 

I continue to be puzzled by the idea that commercial free speech is equivalent to free speech by individuals, a premise that seems to recur frequently in these funding debates.  Corporations are legal entities, yet criminal liability is reserved for the people who work in the corporations, not the organization itself.  So in some respects before the law, distinctions by type of entity are already made. 

So too in the area of speech.  Short of incitement (and not much short of it) individuals can say virtually anything they want under the US freedom of speech laws, even if many such utterances are demonstrably false.  Shall corporations now be subject to this same freedom?  Product-related speech, whether that product is a box of cereal or a political candidate, will now be freed from the shackles of accuracy? 

We've certaintly been here before.  Here's an ad for the all-important arsenic complexion wafers, a beauty secret from centuries past.  It was published in Good Housekeeping magazine in the early 20th century, full of testimonials from societal members in good standing.  And remember, when you are in the market for ingestible arsenic,

"Ask for 'Dr. Campbell's Wafers'.  None other are Reliable or Safe."

Arsenic complexion wafers


Splash and Dash: The perils of subsidy

Somewhere in Germany, a trucker is thanking you. A biofuel executive is cursing you. You probably don’’t know it, but you paid $1 for each gallon of the Brazilian biodiesel fuel blend the trucker is using. The fuel-maker is upset because your generous contribution is driving down the price at which he can sell his product.

For their elation and disgust, for your impoverishment, and probably for some harm to the environment as well, you can blame the United States Congress. This all results from yet another misguided attempt to manipulate economic behavior through the tax code...

Subsidies to Ethanol in the United States

This chapter reviews the major policy developments affecting the fuel-ethanol industry of the United States since the late 1970s, quantifies their value to the industry, and evaluates the efficacy of ethanol subsidization in achieving greenhouse gas reduction goals.  Total support to ethanol is currently substantial ($5.8-7.0 billion in 2006) and set to rise sharply even under existing policy settings.  However, its cost effectiveness is low, especially as a means to reduce greenhouse gas emissions.

Subsidies to Nuclear and Biofuels Among the Most Costly Carbon Abatement Strategies.

Provides subsidy cost per mt CO2eq abated via goverment supports to biofuels (including cellulosic) and nuclear energy.  Integrating data from McKinsey & Co. on abatement options, demonstrates subsidies comprise the least efficient options for addressing climate change. Prepared for Greenpeace Solutions.  (June 2008).