The Coming Cap and Trade Debacle

(A Real Man-Made Disaster)

“Coal makes us sick, oil makes us sick, its global warming, it’s ruining our country, its ruining our world.”  Senate Majority Leader, Harry Reid

“‘Emergencies’ have always been the pretext on which the safeguards of individual liberty have been eroded.”  F. A. Hayek

Over the past few years, energy and climate, two previously unrelated subjects have become conjoined in a way that demands that one cannot be discussed apart from the other.   This confluence is largely due to the efforts of former Vice-President Al Gore, Jr. and a well-choreographed procession of activists to link energy and climate.  Interestingly, they know absolutely nothing about the former and can do nothing about the latter.  Nevertheless, this lack of knowledge and power has not deterred their resolve to replace our complex energy industry with windmills and corn stalks and dictate global temperatures.  If the stakes were not so high the spectacle would be amusing.

This convergence could not have been achieved apart from a generation of media propaganda combined with an increasing portion of the population that no longer labors to produce fuel and power for themselves.  While the media foist relentless attacks upon oil and gas companies more and more Americans reside in metropolitan areas far removed from the understanding and production of energy. (Given the state of the debate it is appropriate that the authors of the so called “American Clean Energy and Security Act”, Henry Waxman and Edward Markey, reside in Beverly Hills and Boston.) Ironically, the continuous and reliable supply of fuel and power provided by domestic energy producers has made them contemptible in the mind of the citizens and a suitable culprit for problems that they don’t understand.

It is hard to believe that after arguing that we could save as much energy by simply “getting tune-ups and keeping our tires inflated” as we could gain by tapping our enormous reserves of off-shore oil, candidate Barack Obama went on to become President of the United States.  If is also difficult to fathom that Speaker Nancy Pelosi was able to strong-arm a terribly flawed Waxman-Markey bill (Cap and Trade) through congress after announcing that “natural gas is not a hydrocarbon” (it is). Once again, Americans who take for granted the most reliable and affordable supply of energy in the free world continue to overlook ludicrous misstatements of fact about the subject. For too long, career politicians, who have no earthly idea what they are talking about, have gotten away with spouting platitudes like “earth friendly”, “green jobs”, “clean energy”, “windfall profits” and “dirty oil” to shape the energy debate. These empty slogans have found their way into the national lexicon and are now repeated by print media, network anchors, cable news broadcasters, schoolteachers and students who in turn have no idea what they are talking about.

The Administration insists that hydrocarbons are “making the planet sick” and that Cap and Trade will create millions of alternative energy jobs. Our national energy policy has been totally subverted by these suppositions. President Obama concedes that our transformation into a carbon free economy will not be without sacrifice and dislocation.  Nevertheless, he moralizes that we are compelled to take courageous action for the sake of the planet and “future generations.”   In other words, this is a big gamble, but we really have to implement “cap and trade” because the current energy policy is unhealthy and unsustainable. But what if Al Gore and Barack Obama are exactly wrong – or worse, what if they are shown to have conflicts of interest?

As reported by the Ed Barnes of Fox News, Barack Obama was a director of the Joyce Foundation which helped launch the Chicago Climate Exchange (CCX) in the early 2000s that will facilitate carbon emissions trading.  Goldman-Sachs was President Obama’s largest private contributor in 2008 and coincidently owns 19% of CCX.  Generation Investment Management, co-founded by Al Gore and former Goldman CEO and US Treasury Secretary, Hank Paulson, hold 10% of CCX.  Commodities Futures Exchange commissioner, Bart Chilton, expects carbon trading to become a $2 Trillion market within five years.  Given the direct economic enrichment that will accrue to President Obama’s political patrons it would be irresponsible and naïve to ignore this obvious conflict of interest and to assume that the administration’s enabling policies are altruistic. [1]

The three most important criterion any consumer of energy considers when he desires to access power or fuel are:  Will it turn on? Will it stay on? How much does it cost?  Our conventional energy industry (oil, natural gas, coal and nuclear) has a demonstrated record of providing Americans with the most affordable and reliable supply of energy in the free world, while alternative energy receives failing grades in all three categories. We are truly building bridges to nowhere if we are expecting wind, solar and ethanol to take us to the mythical carbon free world.

The wind turbines and solar panels promoted by the “clean energy” advocates provide less than 1% of the nation’s energy supply and are incapable of being scaled to impact our economy.  Furthermore, their intermittency issues are fatal limitations for Americans who require a continuous power source. Ethanol has been so thoroughly discredited as a commercial fuel that only the most obstinate zealots continue to lobby for its mandated consumption and subsidies. So before we disassemble the greatest energy production and delivery system the world has ever known maybe we should take a breath and question the premises that undergird the climate-energy cabal:

  1. What if hydrocarbons are NOT warming the planet?
    Fact:  Earth’s temperatures appear to have peaked in 1998 and have been cooling for the past decade.  During this same period carbon emissions have increased. Hence the catch phrase “global warming” has been quietly replaced with “climate change” thereby allowing for all possible outcomes. [2]
  2. What if we have no ability to significantly reduce the earth’s temperature?
    Fact:  The Obama Administration desires to reduce US emissions by 50% by 2050.  This would equate to the horse and buggy emission levels of 1900 and according to the International Energy Agency would cost $45 trillion dollars. Climatologists project that this colossal effort might result in an inconsequential temperature reduction of .1 to .2 degree C. [3]
  3. What if there will NOT be millions of new “clean energy jobs” and that alternative energy is actually a job killer?
    Fact:  Spain has lost 2.2 jobs for every 1 “clean energy” job that has been created.  Most of the new jobs have been in the government bureaucracy.  As one of the largest energy producing and consuming countries in the world job destruction in the United States would be far more dramatic.  Even the Department of Energy’s own model projects a net employment loss if cap and trade is mandated particularly in energy and manufacturing. [4]
  4. What if the only people lobbying for wind, solar and ethanol are those who stand to profit immensely from subsidies provided by our tax dollars?
    Fact:  All of the so called renewable energy sources that President Obama favors rely exclusively upon subsidies, tariffs and huge tax credits in order to be economic.  The American people will only use these inferior sources under compulsion.  General Electric and Archer Daniels Midland will only manufacture wind turbines and distill ethanol with the promise of government assistance and taxpayer subsidies.(Ethanol receives 190 times the subsidy as natural gas per unit of energy produced.  Wind and Solar receive 97 and 93 times respectively as much subsidy per energy unit produced as natural gas.) [5]
  5. What if alternative energy sources are in fact unreliable, inferior and actually destructive?
    Fact:  Wind and solar are intermittent (the wind does not blow and the sun does not shine continuously) and cannot be commercially stored or easily transported. Therefore they can never be relied upon to supply power “on demand” but can only serve as a secondary or supplemental source of power.  Ethanol is the “post office” of all transportation fuels.  More energy is consumed in its production than a unit of ethanol contains.  Once produced, the BTU (energy) content of a gallon of ethanol is 25% less than that of gasoline.  Refiners are compelled by law to blend the so-called “biofuel” with gasoline which reeks havoc in fuel injection engines and water craft and of course decreases fuel efficiency of the vehicle. [6]
  6. What if “alternatives” can never be produced in sufficient quantities to replace our conventional energy sources?
    Fact: As of 2007 the United States derived 3.8% of its energy from alternative sources including ethanol (7% if hydroelectric power is included).  According to the Energy Information Administration (EIA) the massive spending President Obama has mandated for alternative energy will result in an impressive 184% increase in the nation’s “clean energy” supply.  Unfortunately, this will only equate to 7% of U.S. energy demand and will be the most expensive and heavily subsidized energy source ever produced.  Mr. Obama has not yet informed us as to where and how we will dig up the remaining 93% of our energy needs. [7]
  7. What if an ample supply of affordable energy is requisite to the economic prosperity and security of the nation?
    Fact:  Economic productivity and quality of life are products of energy consumption.  Mechanized agricultural, transportation, air conditioning and adequate sanitation depend upon power and fuel.  Developing nations understand this and covet access to hydrocarbons.  Adequate energy is also essential for military armaments and transport.  Therefore, our global competitors (and potential adversaries) China and Russia are engaged in a contest to capture large reserves of oil and gas in Africa, South America and around the world. They are not interested in politically correct but unviable energy sources like solar and wind. India and China have informed Secretary of State Hilary Clinton that they would be pleased for the United States to sign Kyoto or self regulate its own carbon emissions but that they most certainly would NOT. On August 12 of this year the Australian Senate rejected legislation that would have created a carbon tax and trade system by a vote of 42 to 30.  It seems these countries intend to grow their own economies. [8]
  8. What if we DO have sufficient supplies of coal, oil, natural gas and nuclear power to sustain us for the foreseeable future until economic alternatives are developed?
    Fact:  The BTU content of US coal reserves exceeds the energy content of the oil reserves in Saudi Arabia.  The oil shales of Western Colorado are estimated by the Department of Energy to contain 1.5 Trillion barrels of oil equivalent and the Energy Information Agency estimates the country has a 90 year supply of recoverable natural gas (1,744 Trillion Cubic Feet). Successful exploration efforts in Louisiana and Pennsylvania promise to augment this estimate. [9]
  9. What if the cost of fossil fuels has risen less than the rate of inflation over the past 30 years?
    Fact:  Even with the oppressive regulation and taxation of the energy sector the cost of energy consumes less of our Gross Domestic Product or of household income that it did 30 years ago.  This despite the constant hand-ringing and apocalyptic warnings of the media.  Furthermore, gasoline, which is simply a component of transportation, has increased in price far less than automobiles that are the largest component of transportation.    This reality is reflected in the financial performance of oil and gas companies who consistently shows earnings in the middle range when compared with other industries.  It should be noted that oil company profits often run countercyclical to the broader economy.  For instance, during the historic expansion of the late 1990s when ten of the largest DOW components enjoyed average earnings of 15.69% and individual retirement accounts inflated like never before, major oil companies experienced only 3.99% profitability and many independent oil companies actually lost money or suffered bankruptcy.  However, even during the high oil and gas prices of 2006 through 2008 the major oil companies earned less than 10%. [10]
  10. What if “Cap and Trade” is a giant scam designed to reward politically connected corporations by creating skyrocketing energy prices on the backs of the American people?
    Fact:  Cap and Trade will burden the real energy producers with additional regulation and taxation rendering usable energy rare and expensive. It will reward opportunistic Wall Street firms like General Electric and Goldman Sachs. GE will manufacture the obtrusive wind turbines while Goldman orchestrates the climate trading labyrinth. The difference between Cap and Trade and Las Vegas is that the American taxpayers (the “players”) can’t possibly win and the President’s Wall Street cronies (the “House”) can’t possibly lose.  At least the suckers playing the slots on the strip have a mathematical chance.

The foundation of our entire energy policy is based upon falsehoods.  These false choices create an illusion that would require the abandonment of our abundant natural resources and the energy technology that has been developed over the last century. Now we learn that those attempting to mandate our energy choices have maneuvered themselves into position to be the primary beneficiaries of their own legislation. But if the very premises of the argument are false and if their implementation would be ruinous, then their exposure and defeat are vital. A sound energy policy is essential to the economic well-being and the national security of any nation.  Abundant, reliable and affordable fuel and power is fundamental to the prosperity and quality of life of the American people.  It is high time that those of us who know better speak up before President Obama’s policies shackle us to the windmills and Dutch ovens that our great grandparents forsook a century ago while he oversees the largest transfer of wealth in American history.

By Kyle L. Stallings
August 19, 2009


  1. “Obama Helped Fund Carbon Program.” Ed Barnes, for Fox News. March 25, 2009.

    “Money and Connections Behind Al Gore’s Carbon Crusade”, By Deborah C. Barnes, Human Events, October 3, 2007.

    “Goldman Sachs doubles stake in Climate Exchange”, Energy Risk, January 23, 2007.

    “Could Cap and Trade Cause Another Market Meltdown?”, Rachel Morris, June 8, 2009, Mother Jones.

  2. “Answering Three Simple Questions”, August 11, 2009, Science and Public Policy Institute.
  3. “Global Warming Primer”, National Center for Policy Analysis – 2007.
  4. “Green Jobs: Fast-tracking Economic Suicide”, Michael Economides and Peter Glover, August 4, 2009, American Thinker.
  5. “Green Jobs, Fact or Fiction”, Robert Michaels and Robert Murphy, January 2009, Institute for Energy Research.

    “The Climate-Industrial Complex”, Geoffrey Styles, August 14, 2009, Energy Tribune.

    “Is Wind the next Ethanol?”, Ben Lieberman, May 11, 2009, The Heritage Foundation.

  6. “The Great Ethanol Scam”, Ed Wallace, May 14, 2009, Business Week.

    The Clean Energy Scam”, Michael Grunwald, May 27, 2009, Time Magazine.,9171,1725975,00.html

    “Gusher of Lies”, Robert Bryce, copyright 2008, page 164 (ethanol); pages 224-226 (wind); and page 220 (solar).

  7. EIA, Annual Energy Outlook 2009, EIA data.
  8. “Australian Senate Rejects Cap and Trade..”
  9. “Energy Kids Page” Where Do We Get Coal, Energy Information Administration.

    “Marcellus Shale gas reserves could meet US natural gas needs for 14 years.” Pittsburgh Post-Gazette, December 8, 2008.

    “Developing Shale Oil May Solve Our Energy Crisis”, H. Sterling Burnett, PHD, Washington Examiner, July 29,2009.

    “National Strategic Unconventional Resource Model”, Department of Energy, April, 2006, Page 5.

    “Modern Shale Gas Development in the United States:A Primer, U. S. Department of Energy Office of Fossil Energy, April 2009. (Executive Summary, Page E-5).

  10. “Earnings in Perspective”, Energy

Consider 2006 energy expenditures in relation to 1981 energy costs:

1981 2006
Gas expense as a percentage of new car cost [1] 13.8% 5.3%
Gas expense per auto as a percentage of household income [1] 10.7% 5.1%
Oil Consumption as a percentage of GDP 6.0% 3.3%

[1] Assumes 12,000 miles annually based upon average new vehicle costs [$8,912 for 1981 and $27,800 for 2006], average fuel efficiency [13.2 for 1981 and 21 for 2006] and average costs of regular gasoline [$1.35 for 1981 and $2.58 for 2006] including light trucks and SUVs.

The chart below compares the profit margins of the independent and major oil sector with the profit margins of ten widely held non-oil companies from 1997 to 1999. Average NYMEX oil price of $16:

Category Profits Margin Capital Inv Reinvest. %
Independent Oil ($176 M) -18% $21.0 B N/A
Major Oil $42.8 B 3.99% $82.6 B 193%
Major Non-Oil $145 B 15.69% $120.7 B 83%

Independent Oil includes Range, Occidental, Marathon, Amerada Hess, Apache, Pioneer, Anadarko, Murphy, Chesapeake, Devon.

Major Oil includes ExxonMobil, ChevronTexaco and ConocoPhillips.

Major Non-Oil includes Phizer, GE, Microsoft, Home Depot, Verizon, Wal-Mart, Intel, IBM, Caterpillar, Coke and Federal Express.

The chart below compares the same companies for 2004 to 2006.

Average NYMEX oil price of $49.

Category Profits Margin Capital Inv Reinvest. %
Independent Oil $55 B 18% $75 B 138%
Major Oil $182 B 8.2% $112 B 61% [2]
Major Non-Oil $241 B 12.8% $178 B 74%

[2] Higher prices allowed major oil companies to increase dividends to their shareholders while also increasing capital investment by 36% over the 1997-1999 period,

The oil and gas industry is the most heavily taxed sector in the United States.   In addition to income taxes, the industry pays severance and property taxes calculated upon gross production as well as import duties, sales and use taxes.  Severance taxes in Texas alone exceeded $5.7 Billion in 2006. Taxes paid by the three largest U.S. oil majors in 2006 were in excess of their profits as shown below:

Company Income Tax Other Tax Total Tax Net Income
Exxon $27.9 B $42.4 B $70.3 B $39.5 B
Chevron $14.8 B $20.8 B $35.6 B $17.1 B
Conoco $12.8 B $18.0 B $30.8 B $15.6 B

Posted on August 22nd, 2009 by admin  |  1 Comment »