How a playboy billionaire built a political army to defend his fossil fuel empire.
A few years ago, I was sitting in the book-lined study of an elegant condo with a view of downtown Washington, interviewing a former senior Koch Industries lobbyist about his job. I asked him what got him up in the morning when he worked for Koch. He gave me a one-word answer: “Carbon.”
At the time, I had been reporting for years on Koch Industries, one of the largest and most confusingly complex private companies in the world. Its annual revenue is larger than that of Facebook, Goldman Sachs and U.S. Steel combined, and it makes everything from gasoline to nitrogen fertilizer to nylon, paper towels and windows. For all this complexity, one business inside Koch Industries remains more important than the rest — processing and selling fossil fuels.
David Koch, who died Friday at the age of 79, is best known as a major funder of right-wing political causes, from tax cuts to deregulation, an enthusiastic patron of the arts and a man-about-town. But to his critics, his most lasting political legacy might very well be the rapidly warming world that he has left behind.
Koch Industries realized early on that it would be a financial disaster for the firm if the American government regulated carbon emissions or made companies pay a price for releasing carbon into the atmosphere. The effects of such a policy would be measured over decades for Koch. The company has billions of dollars sunk into the complex and expensive infrastructure of crude-oil processing. If a limit on greenhouse gas emissions were imposed, it could dampen demand for oil and diminish the value of those assets and their future sales. The total dollar losses would likely be measured in trillions over a period of 30 years or more.
Construction on the Koch political machine began in the 1970s, after Charles Koch took over the family company. He and David began funding and orchestrating a political project to restrain government power in the United States through lobbying, think tanks and political donations. The effort accelerated in the 1990s after a Senate committee, following a long investigation, accused Koch Industries of stealing oil from Native American reservations where the company was operating. That experience convinced David and Charles Koch that they needed to have a stronger presence in Washington to fend off their critics.
The machine reached full fruition in 2008, when Barack Obama was elected president. The machine is so effective because it is multifaceted. In addition to one of the largest registered corporate lobbying offices in the country, located about two blocks from the White House, there is a constellation of Koch-funded think tanks and university centers. They all convey a consistent message: that government programs can only cause more harm than good and that market forces alone must shape human society. And their work is bolstered by a private network of donors that David and Charles Koch assembled over the years, a network that gives donations at levels rivaling a political party.
Finally, Koch controls a “boots on the ground” army in the form of Americans for Prosperity, a network of employees and volunteers who knock on doors, attend rallies to protest climate change legislation, and visit the offices of any lawmakers who seem likely to cross Koch Industries on the issue.
This machine has been employed to great effect to ensure that no government action is taken to control greenhouse gas emissions. In the early 1990s, President George H.W. Bush made it clear that he would support a treaty to limit carbon emissions. The Republicans even had a market-based solution to tackle the problem, a system called “cap and trade” that put a price on pollution and allowed companies to buy and sell the right to pollute. Cap and trade had been used to great effect to reduce power plant pollution and acid rain. But in 1991, the Cato Institute, a Koch-funded think tank, held a seminar in Washington called “Global Environmental Crises: Science or Politics?” This was part of a decades-long effort to cast doubt about the reality of climate change.
David Koch worked tirelessly, over decades, to jettison from office any moderate Republicans who proposed to regulate greenhouse gases. In 2009, for example, a South Carolina Republican, Representative Bob Inglis, proposed a carbon tax bill. KochIndustries stopped funding his campaign, donated heavily to a primary opponent named Trey Gowdy and helped organize teams of Tea Party activists who traveled to town hall meetings to protest against Mr. Inglis. Some of the town hall meetings devolved into angry affairs, where Mr. Inglis couldn’t make himself heard above the shouting. Mr. Inglis lost re-election, and his defeat sent a message to other Republicans: Koch’s orthodoxy on climate rules could not be violated.
Mike Pence, who was then a congressman in Indiana, and others soon signed a “carbon pledge” circulated by Americans for Prosperity, which effectively prohibited the government from putting a price on carbon emissions. Those efforts and others effectively derailed the effort to pass a cap and trade plan for greenhouse gas emissions in 2009 and 2010. In 2009, the level of atmospheric carbon concentration hovered around 370 parts per million. In the decade since, levels have surpassed 400 parts per million, the highest level recorded in human existence.
Since the 2016 election, and in the face of more urgent scientific warnings about climate change and a growing popular movement for action, the Koch network has tried to build a Republican Party in its image: one that not only refuses to consider action on climate change but continues to deny that the problem is real. Just this week, Senator John Cornyn, Republican of Texas, dismissed data about climate change by pointing out on Twitter: “It’s summer.” In doing so, he reflected the politics of a party — and a world — that has been profoundly shaped by David Koch.
Jason Kenney, the newly elected premier, is set to clash with Justin Trudeau, Canada’s prime minister
“HELP IS on the way, and hope is on the horizon,” proclaimed Jason Kenney after his United Conservative Party decisively won the election in Alberta, an oil-producing province in western Canada, on April 16th. He was talking to Albertans depressed by a downturn in the oil industry, which has pushed up unemployment and left empty a quarter of the office space in Calgary, the province’s biggest city. For Justin Trudeau, Canada’s Liberal prime minister, Mr Kenney’s victory is more a source of worry than of hope.
Although Alberta’s slump was largely caused by factors beyond the province’s control—notably the fall in oil prices in 2014-15—voters took their anger out on the government of Rachel Notley of the left-leaning New Democratic Party. Her election four years ago had been a first for a province with a reputation for Texas-like conservatism and suspicion of the federal authorities in Ottawa. Ms Notley is a defender of the province’s oil industry, which extracts the stuff expensively from tar sands. She lobbied hard for an expansion of the Trans Mountain pipeline to take more oil to the Pacific coast for export.
But she is also an environmentalist, and introduced a carbon tax, now C$30 ($22) a tonne, to discourage greenhouse-gas emissions. In striking this balance she had an ally in Mr Trudeau, who championed the pipeline but also passed a law requiring provinces to set a price on carbon emissions or to submit to one imposed by the federal government.
Much of Canada has resisted that grand bargain. The province of British Columbia, the pipeline’s terminus, remains opposed to the project on environmental grounds. In August 2018 the federal government took it over from Kinder Morgan, the frustrated US-based firm trying to build it. Moreover, four provinces led by conservative premiers—Ontario, Manitoba, Saskatchewan and New Brunswick—are fighting Mr Trudeau’s carbon price in the courts.
Alberta will now join them. Mr Kenney, a former federal immigration minister described by Maclean’s, a magazine, as a “Guinness-sipping nerd”, is expected
- swiftly to kill the provincial carbon tax. He plans to
- raise an emissions cap on tar sands oil production and s
- low down plans to eliminate coal-fired electricity. He has
- threatened to cut off British Columbia from shipments of Alberta’s oil if it continues to oppose the pipeline expansion. Mr Kenney also
- promises to bring “tens of thousands of jobs” to Alberta by slashing environmental and labour regulation, and by reducing the corporate-tax rate from 12% to 8%.
At first glance, his victory will pose additional problems for Mr Trudeau, who has been hurt by allegations that his office put improper pressure on the country’s attorney-general to drop the prosecution of a Quebec-based engineering company. He faces a re-election battle in October. But Mr Trudeau may not mind a fight over climate policy. According to a poll conducted in March by Abacus Data, 69% of Canadians say climate change is one of the top five issues they will consider when they vote. Just 28% of Canadians are firmly opposed to a carbon tax.
The federal government has the power to override British Columbia’s opposition to the pipeline expansion. It could do so as early as May 22nd. That gives Mr Trudeau some hope that he can rescue his energy grand bargain, despite Mr Kenney’s opposition to the carbon tax.
Alberta’s new premier may benefit from an upturn in the province’s growth. The unemployment rate was 6.9% in March. That is still 1.1 percentage points above the national rate, but it is well below the peak of 9.1% in November 2016. TD Financial Group, a bank, predicts that Alberta’s economy will grow by 2.4% in real terms next year, the fastest rate in the country, thanks in part to a rise in oil prices. The sunnier outlook has nothing to do with the new premier’s pro-oil policies. That will not stop him from taking the credit.
“Since the early 90s, the vast majority of Americans have been in favor of higher taxes for the rich… these are mainstream ideas and positions, but if you watch Fox News it seems like it’s a crazy, lunatic idea,” says @rcbregman.“Donald Trump, who doesn’t want to show his own tax returns, and who knows how many billions he has hidden away in the Cayman Islands… he was brought into power by this propaganda channel, Fox News,” says @rcbregman.“It’s a very American idea…. If you want to make capitalism work, you got to ensure competition. If companies become too big, like it’s clearly the case with Amazon right now, you break them up, that’s what you do if you have a proper capitalist economy,” says @rcbregman.
Saving planet, creating jobs are noble ideas—but by combining them, Green New Deal exacts too high a cost
The Green New Deal that Democrats unveiled last week is actually two deals: one to combat global warming, another to create millions of well-paid jobs for targeted groups.
Individually, both goals have their merits. But by combining them, the Green New Deal promises to make climate mitigation both absurdly expensive and deeply partisan and is thus more likely to set back than advance the climate cause.
The premise behind the Green New Deal is right. While the world may not spontaneously combust in 10 years, global carbon-dioxide emissions need to start dropping soon, by a lot, to keep temperatures from rising more than 1.5 degrees Celsius from 1800s levels, according to the Intergovernmental Panel on Climate Change. Increases beyond that raise the probability of extreme weather, deadly heat and rising sea levels.
Because the private market has no incentive to reduce carbon emissions, government intervention is necessary. But not all interventions are created equal, and the Green New Deal’s seem engineered to be as expensive as possible.
Consider its goal of massive public investment to achieve 100% renewable energy in as little as 10 years. Kevin Book, head of research at ClearView Energy Partners, a research firm, estimates replacing the 83% of current U.S. generation that is not renewable with solar photovoltaic, wind and biomass would cost $2.9 trillion—nearly a full year’s tax revenue.
This excludes any cost for interest, operations, maintenance, new transmission lines or compensation to private investors for writing off natural-gas and coal plants with plenty of useful life left. It assumes cheap battery storage that doesn’t yet exist. Even so, this works out to $83 to avoid one metric ton of carbon dioxide.
The Green New Deal’s plan to upgrade every building in the U.S. to “maximum energy efficiency” is even more questionable. A study by Meredith Fowlie, Michael Greenstone and Catherine Wolfram in the Quarterly Journal of Economics found the federal government paid an average of $4,585 each to weatherize homes in Michigan. Extrapolate that to 95 million homes nationwide, and the bill tops $400 billion. The cost of avoided carbon dioxide: up to $285 per ton.
To understand how high $83 to $285 per ton of carbon dioxide is, consider that Barack Obama’s economists put the economic harm of a ton of CO 2 at $50. Or that you can pay a power producer
- $6 to reduce emissions by one ton in New England,
- $15 in California, and
- $25 in the European Union,
based on emission permit prices in those jurisdictions, notes Mr. Greenstone, an economist at the University of Chicago.
Yet in the Green New Deal, trillion-dollar price tags are a feature, not a bug. That is because its mission is to create “millions of good, high-wage jobs” in “front-line and vulnerable communities.” The higher the price tag, the more jobs it creates. How to pay for it? Its Democratic sponsors would raise taxes on the rich and borrow the rest, including from the Federal Reserve, just as the U.S. did during World War II, dramatically boosting output and employment.
But in 1941, the U.S. had plenty of unused resources to mobilize: just 28% of prime-aged women had jobs. By 1945, 35% did and today, 74% do. (The data aren’t strictly comparable due to changing definitions.) The war effort still spurred intensive inflation pressure, contained only with wage and price controls. The U.S. is now close to full employment and its debts are far higher. Even in today’s world of low inflation and low interest rates, the scale of deficit spending the Green New Deal implies would likely push both higher.
Republicans and business groups have long fought even modest costs to mitigate climate change. Jacking up the price to finance left-wing Democratic priorities will only intensify their opposition. Indeed, Republicans and President Trump are itching to run against the Green New Deal. This guarantees inaction on climate unless Democrats win the White House, House of Representatives and 60 Senate seats.
What the U.S. needs is the Green New Deal’s sense of urgency combined with market mechanisms that incentivize carbon reduction at the lowest price, such as a carbon tax, carbon credits or tradable emission permits. This will also spur innovation that other countries can adopt to tackle their own emissions, which will be 88% of the global total by 2040.