“We will harness the sun and the winds and the soil to fuel our cars and run our factories.” Thus spoke President Obama in his first inaugural. He had promised to be the greatest green energy president ever, and he moved to fulfill that goal. During the 2008 campaign, he best captured the spirit of the green energy movement when he said, “I am absolutely certain that generations from now, we will be able to look back and tell our children that . . . this was the moment when the rise of the oceans began to slow and our planet began to heal.”1
Green energy appeals to President Obama because it is “renewable,” meaning naturally replenished. Sunlight, wind, tides, geothermal heat—all are renewable in nature, and therefore provide green energy. Strongly tied to the green energy movement is the belief that the most dangerous threat to mankind is global warming, defined as a gradual increase in the overall temperature of the earth’s atmosphere, generally attributed to the greenhouse effect caused by increased levels of carbon dioxide, chlorofluorocarbons, and other pollutants.
Many so-called experts, with support from politicians such as former vice president Al Gore, have proclaimed that global warming is a proven fact, and therefore levels of carbon dioxide in the atmosphere must be reduced worldwide. What does Gore blame for the increase in carbon dioxide levels? The use of fossil fuels. Environmentalists who believe in global warming have predicted that warmer temperatures will melt the polar ice caps, raising the levels of the oceans until lower Manhattan is under water. They blame droughts in sub-Saharan Africa on global warming. Stronger hurricanes occur, they say, because of global warming. “Global warming is no longer a political issue but rather, the biggest moral challenge facing our civilization today.”2
Barack Obama embraced the “fact” of global warming as fully as Jimmy Carter embraced the “fact” that the United States would run out of oil in about ten years. Both presidents, therefore, took immediate action to encourage political entrepreneurs. To President Obama, for example, the ethanol mandates, in place from the Bush administration, were just the start. Right away, he promoted a cap-and-trade law. Under cap-and-trade, people would pay to emit carbon by purchasing from the government special permits. Those permits are “permission rights” to emit certain amounts of carbon into the air. In the cap-and-trade bill that passed the House, the Waxman-Markey bill, 15 percent of the permits would be auctioned off to the highest bidders, and fully 85 percent of the permits would be given away to corporations free of charge. Such a corporate giveaway was, at first, too much even for Obama, whose budget director observed, “All of the evidence suggests that what would occur is that corporate profits would increase by approximately the value of the permits.” But President Obama later endorsed the Waxman-Markey bill as passed.3
Many corporate leaders supported cap-and-trade even though it would sharply raise the costs of energy for every family in America. General Electric was in the forefront. “On climate change,” John Rice of GE wrote, “we were able to work closely with key authors of the Waxman-Markey climate and energy bill, recently passed by the House of Representatives. If this bill is enacted into law it would benefit many GE businesses.”4
With ethanol heavily mandated, and corporations lining up for their government subsidies, the United States was in danger of being drowned in corn, swallowed by debt, and sucked dry by political entrepreneurs. During President Obama’s first term, green energy finally began to be challenged. Many Republicans changed from being quietly skeptical to publicly critical. The much higher cost of food and the expensive subsidies finally began to erode the bipartisan support for green energy. Also, the newly formed Tea Party urged politicians to balance the budget and slash subsidies for ethanol and other special interests. The massive Tea Party rallies in early 2010 fortified the Republican minority in Congress. They became more serious about the rising national debt, corporate subsidies, and new revelations about pollution from ethanol and its perverse effects on car engines. Some complained that corn, from its growth to the gas tank, was creating more pollution and even more carbon emissions than gasoline.
Some scientists still supported President Obama’s view of global warming, but others did not. As scientist Bjorn Lomborg has noted, “We are told that very expensive carbon regulations are the only way to respond to global warming, despite ample evidence that this approach does not pass a basic cost-benefit test. We must ask whether a ‘climate-industrial complex’ is emerging, pressing taxpayers to fork over money to please those who stand to gain.”5
The first break in the bipartisan consensus for green energy emerged in 2009. The Republicans stalled the cap-and-trade bill, and it didn’t become law. Second, Republicans challenged the massive growth of government—in part on energy issues, but more so on the huge stimulus bill and Obamacare. Not one Republican voted for Obamacare, the president’s interventionist health-care program, and Republicans ran in the 2010 midterm elections on the issue of cutting federal spending. When they captured the House by winning sixty-three new seats, more than had been gained by any party in more than sixty years, they became more fortified in resisting federal expansion in energy and other areas. “We shouldn’t be giving corporate farms, these large agribusiness companies, subsidies,” said Paul Ryan, chairman of the House Budget Committee. “I strongly believe that.”6
In 2011, Senator Tom Coburn (R-Okla.) tested the resolve of the new Republican resistance when he forced a Senate vote to repeal both the ethanol tax credit and the ethanol tariff. It was a legislative assault on ethanol unheard-of ever since Dwayne Andreas began playing golf with Hubert Humphrey. The taxpayers could save $3 billion, Coburn said, if Congress would end those two government favors for ethanol. Coburn lost, but he did corral forty votes to repeal. “I’m proud,” Coburn said, “so many of my Republican colleagues put common sense, good judgment, and free-market conservative economic principles ahead of political expediency.” Later that month, a repeal bill endorsed by Coburn and Senator Dianne Feinstein (D-Calif.) won seventy-three votes, a majority from both parties. President Obama opposed the bill, and the House never considered it. Coburn’s work paid off at the end of 2011, however, when the ethanol tax credit and tariff came up for renewal. Ethanol supporters couldn’t muster enough support, and those subsidies ended.7
The 2012 Republican primary became the next test of enthusiasm for ethanol. The Iowa caucuses have long been the first test for Republican candidates, and they had always come to Iowa full of praise and promises of cash for ethanol. Bob Dole, for example, who won the 1996 Republican nomination, was known as “Senator Ethanol.” In 2012, however, that glowing Republican support for ethanol was often muted, and sometimes even negative. As Bloomberg reporter Laura Litvan noted, “The declining political allegiance to ethanol, once required for political gains in rural states, also was on display in the 2012 Republican presidential campaign, where for the first time support for corn-based biofuels didn’t play much of a role.” Only Newt Gingrich showed much enthusiasm for ethanol, and he finished the Iowa caucuses a distant fourth—even trailing Ron Paul, who explicitly opposed subsidies for ethanol. “This isn’t 2000 or even 2008,” said columnist Kathie Obradovich of the Des Moines Register. “Concern over the national deficit and debt, and the tea party’s scorn for government handouts, has moved ethanol subsidies off the third rail of Iowa politics.”8
The Republican indifference, and even hostility, to ethanol contrasted sharply with President Bush’s support of the ethanol mandate. In 2013, some Republicans, in fact, tried to repeal that mandate. Their effort “lost a little wind in its sails” when the EPA changed the gasoline and ethanol quotas for 2014, which made them more attainable and less disruptive. Even so, the mandate as it still exists will force about 40 percent or more of future corn crops into the gas blenders. The National Academy of Sciences, however, did a 2009 study that concludes, “Plowing up more land to grow crops has also increased water pollution and emissions of air pollutants, including particulate matter.” The National Research Council, created by Congress in 2008, also points to ethanol’s harmful effects on the environment. Before the ethanol tax credit expired at the end of 2011, “it was increasing carbon emissions by five million tons every year, at a cost of $5.26 billion.” In other words, we may actually have more carbon dioxide from ethanol, and it has raised food prices, raised gas prices, and made the gasoline in our cars less efficient.9
What’s so outrageous is that green energy subsidies, even if they had worked, were never needed. The United States was already heading toward energy independence when President Reagan lifted price controls on oil and natural gas in the early 1980s. During the 1980s, American drillers not only discovered new sources of energy; they invented new methods of extracting it from the ground. The key invention was hydraulic fracturing (fracking), and the entrepreneur was Texas oilman George P. Mitchell.
Fracking, which Mitchell popularized, is a process for capturing more oil and natural gas from wells. Some wells are rich in oil, but it is trapped behind a massive rock formation. Mitchell discovered that shooting lots of water and sand down a well causes the sand to seep into cracks in the rock, and the blasts of water over time shatter the rock. That opens a path for the oil (or natural gas) to escape and be captured by the driller. Many sources of oil and natural gas, which had been trapped behind impermeable rock, could suddenly be extracted after 1998, when Mitchell scored his first big success with fracking.10
Mitchell, the son of a Greek immigrant, became an independent oilman in Texas after serving in the Army Corps of Engineers in World War II. Like John D. Rockefeller, Mitchell always envisioned a great future for oil, and invested all he had in his own company, Mitchell Energy. Conventional wisdom of the 1980s said that Mitchell, like Rockefeller a century earlier, was too heavily invested in a declining industry. Rockefeller trusted in the high-sulfur oil of the Lima, Ohio, oil fields, and Mitchell had faith in the Barnett shale near Fort Worth, Texas. In 1982, shortly after President Reagan lifted price controls on energy, Mitchell began a sixteen-year, multimillion-dollar investment in fracking to break up the hard shale rock in the Barnett oil formation.11
“My engineers kept telling me, ‘You are wasting your money,’ ” Mitchell said. But he continued the risk because the Barnett formation was 250 feet thick, and Mitchell believed millions of untapped barrels lay within reach if he could only figure out how to pump it out. In fairness, we should note that the Department of Energy and the tax-funded Gas Research Institute assisted Mitchell along the way. But mostly it was tens of millions of Mitchell’s dollars funding the experiments. Dan Steward, a geologist with Mitchell Energy, said, “George told us, ‘If you don’t think you can do it, fine, I will put people in the positions that can.’ ” In 1998, he finally broke open the shale and began harvesting gushers full of oil.12
Once fracking proved to be successful, American oil drillers experimented with it in the Bakken formation in North Dakota, the Eagle Ford formation in South Texas, and the Marcellus formation in Pennsylvania. The newer drillers combined fracking with horizontal drilling and the result has been to discover about 1,000 trillion cubic feet of natural gas and countless billions of barrels of oil. American energy independence could be just around the corner.13
The drilling in these gas-rich areas has sometimes been slow because of environmental restrictions on fracking. Mitchell believed that fracking was both profitable and environmentally sound. “There are good techniques to make it safe that should be followed properly,” he argued. If fracking can prove to be both safe and effective, it could unleash oil and gas abundance that might rival the days when John D. Rockefeller captured almost 70 percent of the world’s oil market for his company alone. Dwayne Andreas didn’t give us a competitive fuel with his ethanol, but George Mitchell may have done so with much less federal aid through fracking innovations that have unlocked a wealth of natural resources. Only 1 percent of natural gas came from fracking in 2000, but that figure climbed to 40 percent by 2012. Energy imports to the United States were 60 percent in 2008, but dropped to 42 percent by 2012.14
Concerns about fracking and the environment, however, continue to delay progress. In the meantime, the Republicans in Congress have supported building a 2,100-mile oil pipeline from Alberta to Houston, called the Keystone XL Pipeline. President Obama has opposed it, but several votes in Congress in 2011, 2012, and 2013 revealed strong support for the Keystone Pipeline from Republicans, and even votes from some Democrats.15
Construction of the Keystone Pipeline would create tens of thousands of jobs, yet President Obama refuses to support that project while vigorously supporting federal funding for solar energy. One example has been Solyndra, a California company founded in 2005 to build solar panels. Solyndra claimed that its solar panels, consisting of unique cylindrical tubes, could capture more sunlight than conventional flat solar panels.
Solyndra’s leaders eagerly sought federal subsidies for their solar panels. They promised the creation of about four thousand new jobs as well as solar panels that would make Americans glad they had switched to solar energy. Tulsa, Oklahoma, businessman George Kaiser, a major investor in Solyndra, became a strong contributor to Barack Obama’s presidential campaign in 2008. Kaiser personally gave $53,500 to the Obama election, and other Solyndra executives and board members also kicked in enough to make $87,050 in contributions to Obama.16
After Obama was elected, Solyndra spent $550,000 lobbying Congress, and almost that much in support of the American Clean Energy Leadership Act of 2009 and the Solar Manufacturing Jobs Creation Act. George Kaiser also visited the White House on several occasions, and the president cited Solyndra as a model green energy corporation. Obama backed Solyndra for a successful $535 million federal loan, and then he came to California and toured a company factory in 2010. He publicly called Solyndra “a testament to American ingenuity and dynamism.” The president added: “Less than a year ago, we were standing on what was an empty lot. But through the Recovery Act this company received a loan to expand its operations.” Obama concluded, “This new factory is the result of these loans.”17
Within about one year of the president’s visit, Solyndra went bankrupt, closed its doors, and laid off all of its employees. The federal money was gone. But the Obama administration was still confident of its strategy of giving subsidies to green energy companies. “The project [Solyndra] that we supported succeeded,” insisted an official at the Department of Energy. At the White House, spokesman Eric Schultz said in an email, “While we are disappointed by this particular outcome, we continue to believe the clean-energy jobs race is one that America can, must and will win.”18 As usual, politics was paramount. Solyndra, at the request of the White House, delayed its announcement of bankruptcy until one day after the 2010 midterm elections.19
Shortly after Solyndra went broke, another key green energy company, Ener1, was also in the news. Ener1 made electric car batteries and Vice President Joe Biden had visited its Indiana plant to tout the company and the $118 million federal subsidy it received to “expand its operations.” The White House had earlier praised Ener1 for its promise of adding 1,400 jobs to the economic recovery. In fact, the Obama administration called Ener1 one of the “100 Recovery Act Projects that are changing America.” Then, in January 2012, Ener1 declared bankruptcy.20
Another source of federal subsidies for green energy is the Production Tax Credit (PTC), passed in 1992 under President George H. W. Bush. PTC, according to reporter Tim Carney, has given $1.4 billion each year in federal subsidies to corporations for producing wind or solar power. PTC, according to the Congressional Budget Office, was the biggest subsidizer of renewable energy except for ethanol.
A key supporter for the bill that extended the PTC subsidy in 2012 was Jeffrey Immelt, chairman and chief executive officer of General Electric. GE is the leading American producer of wind turbines, and Immelt has actively supported President Obama, serving in his administration as the jobs czar.21 GE has the biggest lobbying budget of any corporation in America, and the company gave more to Obama in 2008 than any presidential candidate in its history. Since Obama’s election, Immelt has had regular contact with the White House. As he once said, “Things that are good for the environment are also good for business.” All forms of green energy subsidies interest GE. As Lorenzo Simonelli, then head of GE Transportation, said, for example, “We are ready to partner with the federal government and Amtrak to make high-speed rail a reality.”22
Another CEO of green energy companies who is also a major donor for President Obama, is Elon Musk. According to reporter Tim Carney, “Musk is the paradigmatic political entrepreneur, launching businesses that seek to capitalize on government favors and lobbying clout rather than provide goods or services that consumers demand.” Musk was born in 1971 in South Africa, but came to the United States in 1992 to attend the University of Pennsylvania. Of the United States, Musk said, “It is where great things are possible.” He is the founder of Tesla Motors, which makes electric cars; of SpaceX, which seeks federal subsidies to explore space; and of SolarCity, which claims to be the largest provider of solar power systems in the United States.23
Musk seeks federal subsidies for all three of his companies, and he was a major supporter of President Obama. In 2012, for example, Musk gave more than $100,000 to Obama’s reelection campaign. Musk also benefited from strategically placed donors. Steve Westly, who has invested in Tesla and served on its board, also raised more than $1.5 million for President Obama. The president put Westly on an energy policy advisory board, which gives advice on federal subsidies for electric carmakers. Musk also hired as lobbyists McBee Strategic, which deals heavily in green energy subsidies, and the Podesta Group, led by John Podesta, who was Obama’s transition director when he became president.
Musk has received a high return for his businesses from his expensive lobbying of Congress, including some Republicans, and the White House. Tesla, for example, won a $465 million loan from the Department of Energy to make all-electric plug-in cars. Tesla’s Model S, even with subsidies, sells for fifty thousand dollars. In the case of SpaceX, the federal government is both the subsidizer and the customer. SpaceX has received $824 million in federal cash through specific Space Act Agreements.24
In the green energy debate in Washington, some senators don’t bother to hide their connections with lobbyists and political entrepreneurs. Senator Max Baucus (D-Mont.), for example, “tops the list of recipients from business PACs,” says reporter Tim Carney. Baucus’s staff members work for him for several years and then resign to work for Washington lobbyists, who then buttonhole the senator to support subsidies for their corporate clients.25
Here is how Senator Baucus’s system works. After the 2006 elections, Baucus became chairman of the Senate Finance Committee. After that, he actively courted lobbyists and invited them to various private gatherings he held. Much seems to have come from this intermingling. Peter Prowitt, for example, a former Baucus chief of staff, became a lobbyist and vice president at General Electric, which leads the United States in making wind turbines. Prowitt, GE filings reveal, was “on the lobbying team that won wind-tax credits, electric-vehicle tax credits,” and a provision that allowed foreign subsidiaries to avoid taxation. GE, in fact, exploited that provision, which helped the company pay zero in corporate taxes in 2011 when it earned $5.1 billion in profits.26
David Castagnetti, another former Baucus chief of staff, lobbied for at least a dozen health-care companies. Senator Baucus was the point man for President Obama on the passing of Obamacare in 2010. Another Baucus staffer, Shannon Finley, left him to work for a lobbying firm that supported the American Wind Energy Association, which won a tax credit for wind power. Michael Evans, a legislative director for Senator Baucus, left to help the algae industry “extend the biofuels tax credit and expand the subsidy to include ethanol made from algae.”27
The connections here between politics and the granting of federal cash are not illegal. Many no longer see these connections as even unethical. But they are only made possible because over time federal subsidies have been liberally granted to many corporations. These subsidies have rarely added value to the American economy; instead, they have deepened the national debt, and they have undermined trust and faith in the American system of government.
U.S. oil independence was declared to be impossible by President Carter, and unlikely to happen ever again by Presidents Nixon, Bush, Clinton, and Bush. A host of experts agreed. Market entrepreneurs are proving them wrong.
President Obama has poured money into the hands of political entrepreneurs who have promised great results. These subsidies, thus far, have failed abysmally and have created more corruption. But the president clings tenaciously to his faith that green energy will “heal the planet” from the evils of global warming. This, despite growing protests from scientists around the world, who now declare that earlier computer models “involving water vapor and clouds greatly amplify the small effect of CO2.” Even the Nobel Prize–winning physicist Ivar Giaever recently resigned from the American Physical Society (APS). Giaever supported Obama in 2012, but in a letter to the APS a year later, he stated, “I did not renew [my membership] because I cannot live with the [APS policy] statement: ‘The evidence is incontrovertible: Global warming is occurring. If no mitigating actions are taken, significant disruption in the Earth’s physical and ecological systems, social systems, security and human health are likely to occur. We must reduce emission of greenhouse gases beginning now.’ ” In other words, Giaever resigned because global warming is not a fact; global warming is a theory that is not substantiated by current scientific data. Yet in 2013, the APS had not changed its statement.28
What we have here is a conflict between two faiths. Most Republicans now have faith that markets can solve the energy problem. They believe that entrepreneurs can find energy faster than the world can use it. They believe that current and future innovations will bring energy safely and cheaply into American homes with few environmental hazards. President Obama and most Democrats, by contrast, argue that fossil fuels are running out and that substitutes must be found. They have little faith that drillers can safely extract the remaining energy from the ground and deliver it cheaply to American homes without damaging the environment. They have faith that green energy is safer to use and friendlier to the earth, and that someday political entrepreneurs will make green energy competitive with fossil fuels. To them, green energy is America’s future.
This is a contrast of visions. And, many would ask, are President Obama, Al Gore, and the environmentalists using the “emergency” of global warming as an opportunity to tighten control of American society? In the 1790s, President George Washington, alarmed by a perceived threat of British intrusion, set up a federal fur company. In the 1840s, Congress worried that American shipping would fall further behind international competitors and therefore subsidized Edward Collins’s steamships. Samuel Langley received a small fortune to build a flying machine for the U.S. military during the Spanish-American hostilities. Franklin Roosevelt used World War II to pass new taxes and regulations for every aspect of society. Politicians know that threats to national security provide a quick and easy means to rally public support. The energy crisis and global warming have served as such an emergency, but scientists and market entrepreneurs are coming forward to debunk this manufactured crisis.