The Big Payoff?

Is it merely coincidental that subsequent to the confirmation of Brett Kavanaugh President Trump is trying to reward Senator Grassley, Judiciary Committee Chair, for his steadfast support in shepherding the nomination through the Senate Process? Of course, Iowa also is an important state in the mid-terms and President Trump had to do something to undo the damage to commodity prices caused by his tariffs. Corn prices, which have been falling for the last five years, have plunged in response to the trade war caused by the Trump tariffs.
President Trump’s response has been to direct EPA to move ahead with a rule making so that ethanol in gasoline can be increased from 10% to 15% . How this is to be achieved is a mystery as even the Obama EPA concluded that it did not have the authority to lift the 10% cap. That is a good thing because gasoline with 15% would void auto warranties, further damage two cycle engines, and force service stations to incur large costs to install additional tanks.

If it is true, that (sometimes) no good deed goes unpunished, then it is equally true that no bad policy goes unrewarded. The ethanol mandate is a relic of a backroom deal in 1990 to gain farm state support for the 1990 revision to the Clean Air Act. To hide the deal, democrats led by Henry Waxman wrote a formula for reformulated gasoline into law. Politicians pretending to be chemical engineers is all anyone needs to know beyond the fact that prior to passing the Clean Air Act Amendments, the oil and auto industries informed Congress that they could meet proposed tailpipe emission standards without being told how to make gasoline.

Mandating ethanol by way of an oxygenate requirement was not enough for the greedy, so in 2007 President George W. Bush signed legislation that mandated the use of increasing volumes of ethanol. That was predicated on the assumptions that gasoline consumption would continually increase and that corn based ethanol would be replaced with cellulosic ethanol made from switchgrass and wood chips. Within a year, gasoline consumption plateaued and the cellulosic industry never got off the ground. Since 2008, gasoline consumption has only increased 4% while ethanol production has increased 71%. That helps to explain why the President wants to force E-15 into the market place.

After Congress increased the mandate for ethanol blending, EPA created a compliance mechanism—Renewable Identification Numbers (RIN)—to track ethanol blending. RINs can be traded or sold which created another market for traders to get richer. Refiners that do not have a ready source of ethanol have been victims of the RIN market, some incurring costs that exceed their revenue.
Advocates claim that critics aren’t looking at the whole picture. They claim that ethanol cleans the air, reduces oil imports, and results in less CO2 emissions. Their claims are just so much hot air. Back in 1990, there was a fear of our dependence on imported oil which reached a high of 60% of our consumption. Today, without any new Congressional magic, imports are less than 20% .
Since ethanol has a much lower energy density than crude oil, using ethanol in gasoline results in a mileage penalty, so more gasoline ends up being consumed.. The problems with ethanol are far broader than a loss of mileage, not reducing imports nor improving air quality or reducing CO2 emissions.
Incentives to increase corn production have increased the conflict between production for food and production for fuel. 40 percent of the nation’s corn crop is used to produce ethanol, removing it from use as animal feed and food products. As a result, consumers pay more for food products, including milk, cheese, beef, poultry, pork, and cereal. What’s more, the ethanol quota diverts valuable cropland away from other agricultural uses. The damage done to motors and the cost that would be incurred by service stations have no useful benefits and hence, are pure waste.
But ethanol is a more powerful lobby than it was decades ago. In response to the government’s mandates to force more ethanol into gasoline ethanol plant builds have increased. It takes a lot of resources to keep them operating. So, corn farmers and ethanol plant owners are willing to spend a lot of money to maintain mandates that enrich them while picking the pockets of consumers, These are Bootleggers at their worst.

A Geopolitical Rubik’s Cube

The brutal murder of Jamal Khashoggi has laid bare once again the problem we face in dealing with the complex Middle East problem where everything seems to be connected to everything else, few if any leaders who share our values, and there are only “least bad” options. In choosing our relationships with these nations, we are equally constrained. it is much like having to choose among Mafia dons. Faced with such a choice, the Godfather, Don Corleone, doesn’t look all that bad.

In responding to the Khashoggi assassination, we are faced with finding a set of actions that doesn’t make the problem worse, while also not compromising our basic values. The answer cannot be an empty set.

As more evidence is leaked and reported, there is less doubt that Mohammed bin Salman (MBS)ordered the assassination. In spite of a charm offensive to paint him as a visionary who will transform Saudi Arabia and by extension reshape the Middle East, he is a tyrannical autocrat who, like our President, has little self-restraint and seems incapable of seeing beyond the here and now. Consequences — both long-term and short — do not enter into his calculus.

So how should we respond? We clearly do not want our response to have the effect of a tilt that strengthens Iran’s hand or gives Russia even more influence in the region. Nor should we risk further destabilizing Saudi Arabia and the economic impact of its vast oil reserves. Similarly, Saudi Arabia can’t afford to dismiss our concerns. President Trump is concerned about losing our military sales and weakening our support of Saudi Arabia’s opposition to the ruling regime in Iran. The Saudis cannot easily walk away from their ties to our weapons systems. Their military capabilities are built and dependent upon US weapons systems and technology.

The current situation is analogous to two scorpions in a bottle who have to find a way to avoid stinging each other.

The range of options might be greater if there was a united allied response. But our allies have been unusually silent, perhaps reflecting a reaction to their treatment by President Trump and their desire to maintain their current relationships with Middle East countries. Whether or not allies individually or collectively act to sanction Saudi Arabia, the US cannot afford to blink. Our slow response to Putin-directed assassinations in foreign countries may have contributed to MBS believing that there would not be a strong response to the Khashoggi assassination.

The assassination clearly has to be treated as crossing a red line. Congress needs to act if the President won’t. And hard as it will be, we need to find a way to get our allies to join us because it will be in their own self-interest to do so.

Whether MBS remains the de facto ruler in Saudi Arabia is probably being debated and contemplated within the House of Saud and by the many enemies he has already made. Independent of the outcome, the long-term strategic outlook for the Middle East remains ominous; hence it requires a robust strategy built on the reasons why the US and our allies have to remain engaged.

Remaining engaged doesn’t mean ignoring actions that violate civil society norms. We have seen the consequences of indifference in Syria.

In addition to whatever actions are taken by the President and Congress and hopefully in conjunction with our allies, consideration should be given to actions that will lessen the choke hold of Middle East oil. One option would be to impose a targeted liquid fuel tax. That would give a boost to the global decarbonization that is already underway. Although the world is not going to walk away from oil-based fuels anytime soon, we can do more to further reduce our dependence on oil imports from unstable regions–and so can our allies.

A liquid fuel tax, sized to reflect a risk premium, could reduce import demand and further reduce CO2 emissions by stimulating new technology. The proceeds could be used to provide much-needed funds for our highway system. We also need to work with our allies to make sure that the IEA plans for addressing an oil shortfall are up to date and can be quickly implemented.

The IPCC Unhinged

The most recent IPCC Summary for Policy Makers with its dire predictions for the next decade and beyond suggest that there is a stronger basis for its predictions of catastrophic consequences and actions to avoid them. The only thing that seems to be new is the fact that major signatories to the Paris Accords are either ignoring their obligations or are finding them unrealistic.

The IPCC implies that the global climate situation has gotten worse but It hasn’t. Roy Spencer regularly publishes global satellite temperature measurements. This is the latest.


As Spencer points out, “The linear temperature trend of the global average lower tropospheric temperature anomalies from January 1979 through September 2018 remains at +0.13 C/decade.” In spite of continuing increases in atmospheric CO2 concentrations, there has been no matching increase in global temperatures.

These data are consistent with the lower estimates of climate sensitivity—the amount of warming from a doubling of CO2. The IPCC in its most recent Scientific Assessment Report estimated that climate sensitivity was between 1.5 degrees C and 4.5 degrees C. A 2018 study by climate scientists Judith Curry and Nic Lewis, published in the August edition of Journal of Climate, estimates climate sensitivity to be 1.2 degrees C. In addition, work by Dick Lindzen—Constraining Possibilities Versus Signal Detection, NAS Press–showed that the relationship between Co2 and warming is logarithmic and given the likely sensitivity, it would take over a century for increased CO2 to increase temperatures by another 1 degree C.

The IPCC proposed actions are so severe—electrifying all on-road transportation, pulling CO2 from the atmosphere, and employing carbon capture technology which is unproven—that it is hard to take them seriously. EU nations, the drivers of the Paris Accords, are not being aggressive and Germany has concluded that its 2020 target is unachievable. Angela Merkel has now become doubtful about the more aggressive targets since European nations are struggling to meet existing ones.

According to a New York Times Magazine article–NYT Mag—the actions to achieve the Paris accords are fantasy. And, the IPCC predictions follow on 30 years of failed predictions. A little over 10 years ago, Al Gore and Jim Hansen predicted that we only had 10 to take IPCC like actions. As Pat Michaels wrote this past June, “… it’s time to acknowledge that the rapid warming he ( Hansen) predicted isn’t happening. … policy makers should adopt the more modest forecasts that are consistent with observed temperatures. That would be a lukewarm policy, consistent with a lukewarming planet.

All of this leads to a conclusion that the IPCC report is an attempt to regain relevance and continue the lifestyle its members have become accustomed to.

Follow The Dutch

Although we enjoyed a long stretch where no major hurricane made land fall, the last few years have been different and the storms have caused a great deal of damage, including serious flooding. By contrast, It has been over 60 years since the Netherlands had any serious flooding from either hurricanes or major North Sea storms, even though the Netherlands is mostly below sea level.

The difference is that the Dutch accept the reality of storms and the flooding that they can cause and have developed an aggressive program of mitigation and adaptation. By contrast, we tend to rebuild and tinker at the margins with actions like modifying building codes, erecting barriers, managing flood plains, and the National Flood Insurance Program. Whatever the merits of these and other actions, they have not been sufficient to effectively mitigate flood and hurricane damage.

The damage from floods and hurricanes runs into the tens of billions of dollars each year. According to the National Climatic Data Center floods and hurricanes between 2010 and 2015 cost the nation $34 billion. And in the last three years the costs have run into the hundreds of billions of dollars.

The National flood insurance reimburses owners who then rebuild in the same places, ensuring future damages unless risk mitigation steps have been taken as part of the rebuilding. Looking back over the past decade, it seems clear that the Federal and state governments are in a vicious cycle working at the margins, incurring losses, and providing insurance reimbursements so that rebuilding can take place.

If the definition of insanity is doing the same things over and over and expecting a different result, then our approach to addressing hurricane and flood risks is insane. It is time to reassess our approach to dealing with hurricanes and floods and the extent to which adopting the Dutch approach, which would be expensive, would reduce future damages. The Dutch create artificial sand dunes in coastal areas, some of which are large enough to house parking garages underneath. They have constructed dikes, dams, and floodgates to protect against water surges, along with a system of drainage ditches, canals, and pumping stations. There should be a serious study of what Dutch techniques will work in which areas and then a federal-state plan to implement them.

Beyond that, the National Flood Insurance Program should be abolished. States are more than capable of designing flood insurance programs to deal with their specific risks. And, there should be no flood insurance subsidies that shelter some from bearing the full costs of risks where they build. If owners of coastal property had to take the full cost of insurance into account in making their construction decisions, there would likely be fewer houses built so close to shorelines.

There also should be another careful review of FEMA and its mission. FEMA like most bureaucracies seeks larger budgets, more people and more power. Responding to disasters will generate more of those than focusing more on prevention and mitigation. There should be a robust research program on ways to mitigate flood and hurricane damage and related engineering data that states could use to develop state specific programs. Currently, FEMA’s strategic plan has risk management and mitigation as a high priority but it is not clear what FEMA does beyond information sharing that involves forward looking engineering research and drawing on the Netherlands experience to develop best practices for states to implement. There is nothing in the FEMA budget that does that.