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Discovery Newsletter: Perspective, Jim Mahoney

April 1, 2016

min read

Green energy proponents often claim that petroleum businesses are hostile to new and innovative energy sources and technologies. As a large company with business and financial interests in petroleum, Koch Industries is no stranger to such criticism.

The truth is, however, that Koch Industries does not oppose electric vehicles, nor is it trying to prevent new energy businesses or technologies from succeeding.

There is value in all forms of energy, including wind, solar, oil, gas and everything in between. (That’s why Koch invests in quite a number of them already, including renewable fuels like ethanol and biodiesel.) Any product or service that helps people improve their lives through voluntary and cooperative transactions is a win-win and benefits everyone involved. 

The real issue

What Koch Industries opposes is the government subsidizing or mandating one form of energy over another, such as oil and other fossil fuels (as well as ethanol) — because doing so distorts markets and harms Americans by increasing energy costs. (Koch opposes all market-distorting policies, including subsidies and mandates — even if they may benefit the company.) 

These subsidies and mandates often prop up companies and industries that would otherwise fail. They are precisely the types of corporate welfare that have become all too common in today’s political system.

Remember the Solyndra scandal? The U.S. government chose to enrich the solar panel company with hundreds of millions in subsidies, and the American taxpayer saw firsthand what happens when the government intervenes to pick winners. The government distorted market prices, resulting in the loss of taxpayer dollars when the company ultimately failed.

Welfare for the wealthy

Another sobering example is the $7,500 federal tax credit for all-electric and plug-in hybrid vehicles. (Similar credits exist in a few states, such as California.) This is a clear example of welfare for the wealthy. 

According to a 2015 study by researchers at the University of California-Berkeley, about 90 percent of credit beneficiaries are people in the top income bracket. Why are taxpayers being forced to subsidize the lifestyle choices of the wealthiest 20 percent?

To be fair, the fossil fuel industry (like many others) has benefited from market-distorting policies. The problem is that continuing these politically driven provisions only rigs the system further. Consumers should be free to choose for themselves the best source of energy to meet their needs, but at its market price and without the influence of subsidies or mandates. 

A company’s success or failure shouldn’t be determined by politicians putting their thumb on the scale or by lobbyists securing special-interest carve-outs. Success should be determined by whether a company provides a product or service consumers value more than their alternatives. 

When the government prevents this type of voluntary exchange, it dulls competitiveness, distorts markets, wastes valuable resources, disrespects consumer choice and erodes Americans’ confidence in the fairness of both government and business. 

Agreeing on a solution

Instead of favoring one energy solution over another, America should embrace as many choices as possible, including fossil fuels. Affordable, reliable and abundant, fossil fuels provide 87 percent of our domestic energy supply and are a critical part of any comprehensive energy strategy. 

Bill Gates is right when he says, “Without access to energy, the poor are stuck in the dark, denied all of the economic, social and health benefits that come with power. So if we really want to help the world’s poorest families, we need to find a way to get them access to energy they can afford.” 

But anyone (Gates included) who says that fossil fuels shouldn’t play a major role in our energy future is wrong. For most people in the world, particularly the least advantaged, fossil fuels are the very best option for creating a better life.

Fossil fuels cannot be the enemy if companies truly want to help people in the United States and around the world improve their lives. That’s why Koch Industries will continue to openly and vigorously advocate for affordable and abundant energy chosen by consumers — not government bureaucrats. Others should do the same. 

But what about climate change?

My degree is in chemical engineering. In my many years of experience with Koch, our engineers have relied heavily on models that predict how our facilities will operate. If we found that a model couldn’t accurately predict what was going to happen in a process unit, we abandoned that model and began working on new ones.

To some degree, I believe this approach is valuable to the global debate about climate change.

Do I think the climate is changing? Sure. It always has and always will. The average global temperature is up about eight-tenths of one degree Celsius since 1880.

But overall, the climate change models have been nowhere close to accurate in predicting what our temperatures or climate would do in recent years. In fact, the models have consistently overestimated the effects of increasing CO2

That variability and inaccuracy is troubling. If we rely on flawed models to develop environmental policy, we’re likely to get flawed policy.

Before we condemn the poor of this world to a life without abundant and affordable energy, we need to strive for accurate information — not “information” that is driven by politics.