NR Digital

Climate Profiteers

by Stephen Spruiell

For Gore & Co., green is gold

A common feature in some magazines (not this one) is the matching game, in which readers are invited to match celebrities’ faces to their abs, or their favorite rehab facilities, or even their movies or songs. This game came to mind as I was poring over Al Gore’s green-tech portfolio: If one were so inclined, one could play a nerdy but revealing version of the matching game by pairing the companies in which Gore invests with the millions or billions of dollars they would receive under the Democrats’ energy legislation.

That legislation, which passed the House last year, has stalled in the Senate because of its controversial restrictions on the use of fossil fuels — a system of emissions limits and tradable permits known as “cap-and-trade.” But cap-and-trade isn’t the whole program; billions of dollars in green subsidies are also packed into the legislation. So now the Democrats are considering Plan B: drop cap-and-trade, pass the rest of the bill, and declare victory. It wouldn’t be the kind of victory that hardcore environmentalists want, and would confer only negligible benefits upon the environment, but it would make Gore and his venture-capitalist friends a lot richer — and taxpayers poorer.

Only a small part of Gore’s investment portfolio is tied to cap-and-trade. Most of the companies in which he invests would benefit from the other parts of the Democrats’ energy bill — the parts that would be much easier for Congress to pass. Congress has been subsidizing green programs for decades, and that support increased dramatically with the 2005 energy bill. But the Democrats want to pump it up still more, even though the consensus for dramatic action on climate change is buckling like a shoddy roof in a blizzard of scientific scandals. The U.S. government, facing record-setting deficits and debt, cannot afford new subsidies. Yet with “green jobs” as their rallying cry, Gore and other advocates for more green-tech largesse will push to pick the taxpayers’ pockets — lining their own all the while.

Let’s play the matching game. Gore is a partner at venture-capital firm Kleiner Perkins Caufield & Byers, which has investments in a handful of green-tech firms poised to make bank if something like the House’s Waxman-Markey bill, named for Reps. Henry Waxman (D., Calif.) and Ed Markey (D., Mass.), becomes law. For example, Altarock Energy, a firm specializing in geothermal power, would be eligible for loans at below-market rates through the Clean Energy Manufacturing Loan Program. So would Bloom Energy, a company that makes solid oxide fuel cells; Ausra, which concentrates on solar power; and Harvest Power, which markets technologies that turn garbage into biogas. These companies would also qualify for a massive piece of the Residential Energy Efficiency Block Grant Program, which would provide $2.5 billion to state and local governments to promote the use of renewable energy, including solar, biomass, and geothermal, in single-family and multifamily housing.

Then there are the ethanol makers, Mascoma Corporation and Amyris Biotechnologies among them. Corn ethanol lost some of its political attractiveness in the wake of 2008’s food-price spikes, but the government’s failure for 30 years running to popularize this spotty fuel hasn’t daunted its champions in Washington. Ethanol boosters have transitioned smoothly from corn to cellulosic ethanol, which is derived from non-food sources such as switchgrass and wood chips. One of the biggest problems with cellulosic ethanol is that breaking down such fibrous matter requires costly processes and chemicals — and that’s where Mascoma and Amyris come in. The Waxman-Markey bill contains mandates and loan guarantees that would help the producers of cellulosic ethanol buy the products they sell.

Another of Kleiner Perkins’s investments, its stake in Silver Spring Networks, is already paying off thanks to the stimulus bill President Obama signed last year. That bill contained billions of dollars in grants to spur improvements of the nation’s energy grid, with the goal of converting it into a “smart grid” that helps utilities more accurately gauge electricity use. Silver Spring provides software and services to implement smart-grid improvements, and its client utilities have already scored more than $500 million in grants, thanks to the stimulus. Under Waxman-Markey, Silver Spring would fare even better: The bill has an entire subtitle dedicated to smart-grid development, and billions of dollars in subsidies to fund it.

In addition to specific grants and subsidies, almost all of the companies in Kleiner Perkins’s green-tech portfolio would benefit from a blanket provision in the Waxman-Markey bill that would require 20 percent of the power that utilities supply to come from renewable energy sources by 2020. This would essentially force utilities to buy costlier energy from the green-tech sector and pass the cost on to consumers.

Though there is money to be made elsewhere, cap-and-trade remains the big goal of both Gore and the money men behind him — men such as David Blood, a former Goldman Sachs executive who, along with Gore, runs Generation Investment Management (thus the firm’s nickname, “Blood and Gore”). Generation IM owns a large stake in the Chicago Climate Exchange, a clearinghouse for carbon-emissions permits, and Goldman Sachs has put money into the project. Not only would Gore profit directly from the expansion of this market, but the renewable-energy companies in which he invests would, by virtue of their line of work, qualify for free permits and offsets to sell to other companies, giving them yet another way to profit from climate-change legislation.

Under cap-and-trade, there are three ways a carbon emitter can stay below its cap. One, it can reduce its emissions. Two, it can purchase emissions credits from a carbon emitter that is under the cap (the theory being that the prospect of money from a sale of extra credits will give companies an incentive to cut emissions beyond what is required). Three, it can buy another kind of emissions credit, called an “offset.” Offsets are not created by reducing actual emissions in the present, but by reducing theoretical emissions in the future — through products and programs marketed by the kinds  of companies in which Gore invests. Here lies the potential for real money — and real fraud. As other parts of the developed world have implemented cap-and-trade systems in accordance with the Kyoto Protocols, the creation of offsets has become a big business, and Waxman-Markey would make it even bigger. A host of questionable activities would instantly become hugely profitable offset-producing enterprises, with fortunes to be made in improved manure management, reduced-tillage/no-tillage farming, and “afforestation of marginal farmlands,” i.e. paying farmers not to farm, something our government has been curiously keen to do since the Great Depression.

The business of verifying whether and by how much these activities actually reduce emissions is quickly becoming a big industry in its own right. Carbon permits are on track to rival oil and gas for the title of the world’s most heavily traded commodity, and accounting firms are already vying to certify renewable-energy projects.

To follow the money, follow the personnel: When the news broke that Yvo de Boer, director of the U.N. Framework Convention on Climate Change, would be stepping down in the wake of a scandal over mistakes in several climate reports, it was simultaneously announced that his new position would be with the accounting giant KPMG, to help it break into the carbon-offset business. Another example: Rajendra K. Pachauri, de Boer’s colleague at the United Nations, who chairs the Intergovernmental Panel on Climate Change (IPCC), the unit that produced the erroneous reports that earned it, along with Gore, the 2007 Nobel Peace Prize. (The United Nations has launched an inquiry into the IPCC’s errors; no word whether the Nobel committee plans to follow suit.) Pachauri has no formal training in climate science — his academic background is in engineering — but he has made a fortune as a climate consultant, raking in millions in fees by teaching the world’s largest emitters how to use offsets.

Ironically, Pachauri got his start in fossil fuels — until 2003, he was a director of India Oil. Now he plays both sides: a sort of legal protection racket.

Maurice Strong is another former U.N. figure — and another former oil man — positioned to gain from the energy taxes he advocates. As the founding director of the U.N. Environment Program, Strong midwifed the 1997 Kyoto Treaty but stepped down from his post in 2005 after investigations implicated him in the Iraq Oil-for-Food bribery scandal. (Strong maintains that he did nothing wrong and that he resigned for personal reasons.) After leaving the United Nations, Strong relocated to China and helped set up a carbon-permit exchange. China stands to benefit from the implementation of cap-and-trade in the United States, because its dirty power plants and factories offer a plentiful and cheap source of offsets to U.S. businesses willing to pay for upgrading them. A portion of the proceeds generated from cap-and-trade would flow to climate entrepreneurs such as Strong, who also holds a seat on the board of the Chicago Climate Exchange.

In the corporate world, many large businesses are trying at least to hedge their exposure to new energy taxes and regulations — and some are going all-in for cap-and-trade. Among the latter group, General Electric stands out. As Timothy P. Carney of the Washington Examiner has noted, GE has expanded aggressively into wind turbines, coal gasification, solar power, and high-efficiency gas turbines, all of which Congress would heavily subsidize under Waxman-Markey. Not only does GE engage in lobbying for legislation that would tax most of the economy while benefiting its shareholders, its television networks — NBC, MSNBC, and their cousins — participate in a blatantly advertorial “Green Week” each year to promote policies from which GE stands to gain.

Government funding enacted under Democratic auspices usually comes with strings attached to benefit organized labor, so it is no surprise that groups such as Change to Win, a coalition of labor unions, support robust subsidies for so-called green jobs. And here as elsewhere, one finds advocates of carbon caps moving into the profitable world of offsets. Chris Chafe, the executive director of Change to Win, has announced that his next move will be to form an enterprise that aims “to create a more integrated job-creating, climate-capturing, return-generating process that brings all of the incumbent assets from labor, business, and environmental leaders into a common planning process, so we can capture jobs and capture climate goals.” Which is to say, he’s going to make a killing in the climate-subsidy racket.

All these opportunities for private-sector profit stand in addition to the billions in research money at stake for universities and nonprofits — many of them closely tied to profit-seeking green ventures. The University of East Anglia’s Climatic Research Unit — the epicenter of the scandal involving leaked e-mails that showed the world’s leading climate scientists to be fudging data and bullying skeptics — hauled in around $20 million in research grants under former director Phil Jones, who stepped down over the embarrassing revelations. And President Obama has made sure that federal agencies are now entitled to a larger and more explicit share of the global-warming pie: The stimulus included $450 million for NASA “climate-research missions” and $600 million for the National Oceanic and Atmospheric Administration to study climate change.

This is not to suggest that Al Gore or his allies have spent years warning of a climate catastrophe merely for the promise of a big payoff at the end. Gore either sincerely believes his alarmist theories or performs an utterly convincing imitation of someone who does. As for the investments, he says he’s simply putting his money where his mouth is, and he pledges to donate his gains to his nonprofit foundations — which will use them to campaign for even more green subsidies and global-warming regulations, of course. But Gore’s involvement in these ventures shines a light on the fact that private actors have bet a considerable amount of money on Washington’s willingness to continue transferring wealth from taxpayers to politically connected green-tech companies that probably would not survive, let alone thrive, without government support. Those business interests will keep exerting considerable pressure to keep the cash flowing.

And in the long run, these green politics are potentially disastrous. Consider Spain’s “solar bubble.” In the years before the financial crisis, the Spanish government quadrupled subsidies for solar power, thinking it had found a winner on the environment, the economy, and jobs. But when the crisis forced a reordering of budgetary priorities, the Spanish government cut back on the handouts, and the solar bubble burst. The sector proceeded to shed thousands of jobs, contributing to Spain’s current 19 percent unemployment rate. The green lobby may talk about alternative energy and green jobs as though they were cost-free propositions, but there is no greenwashing such an example.

Nor can we wish away economic realities closer to home: After the United States mandated the use of ethanol in gasoline in the 2005 energy bill, investors poured into the sector, thinking the mandate would spark real demand for the product. It didn’t. Refiners didn’t want any more ethanol than they were forced to buy. Excess investment produced a glut, which left ethanol makers clamoring for an expansion of the mandate in 2007. Congress came through, but the increase wasn’t enough to save an industry that made a product for which there was no real demand. Due in part to a spike in corn prices, and in part to bad business decisions made by managers accustomed to government protection, a raft of ethanol companies went bankrupt in late 2008 and early 2009. The industry then had the gall to ask for a bailout on top of all the subsidies it had gotten. (They didn’t get it, but they got lots of stimulus goodies.)

Can these transfers of wealth be stopped? Cap-and-trade may go by the wayside because it is unpopular and because it is seen as radical, but most of the green-energy programs beyond cap-and-trade are simply extensions, albeit massively expensive ones, of programs that Congress has already created. The 2005 energy bill mandated the use of ethanol in gasoline only because decades of subsidizing it hadn’t worked. The 2007 energy bill — a result of both the Democratic takeover of Congress and President Bush’s pledge to end America’s oil “addiction” — increased the ethanol mandate and added billions in subsidies for renewables. And President Obama’s first stimulus package made down payments on many of the programs contained in Waxman-Markey. “Cap-and-trade is controversial. Spending money in Washington is not,” says Marc Morano, a former Republican Senate aide, now editor of CimateDepot.com. “And I think that’s the direction this is going.”

If the Democrats are willing to give up cap-and-trade, Republican votes for the rest of Waxman-Markey’s boondoggles will probably prove sadly obtainable. Even though Republicans were mostly united behind a 2008 effort to kill the congressional ban on offshore oil drilling, Sen. Lindsey Graham (R., S.C.) and four other Republicans almost brokered a compromise that would have opened only a tiny sliver of the Gulf of Mexico to drilling — in exchange for a vast expansion of subsidies for alternative-energy programs, especially ethanol. (If you need Republicans to vote for a big spending bill, just add subsidies for ethanol and watch bipartisanship bloom.) Now Graham is at it again, telling New York Times green-economy obsessive Tom Friedman that we need to “price carbon” in order to gain our “energy independence” — and to create jobs for his constituents in South Carolina, where GE manufactures its wind turbines. The measures Graham supports would not result in energy independence: We import two-thirds of our oil and would have to make fossil fuels intolerably expensive to make a dent in our consumption of them. Nor would these measures result in more employment: They almost certainly would kill more jobs than they would create. But the benefits are concentrated and the costs dispersed.

Other Republicans are susceptible to green suggestions. According to the New York Times, Sen. Susan Collins of Maine supports something she calls “cap-and-dividend,” which would be similar to cap-and-trade but would apply only to certain industries rather than to the entire economy, with all the money from the sale of permits rebated to energy consumers. Such an approach is baffling: Carbon emitters would pay the government for emissions permits and pass the costs on to consumers, who would then receive reimbursements from the government and go on using as much energy as before. Where is the incentive to emit less?

At this point, there may be too much money at stake for Congress to turn back. Too many people have made giant bets on this frivolous enterprise. Nevertheless, it should be opposed. Like Spain with its solar bubble, the United States will face a turning point at which severe fiscal constraints force a reordering of its budget priorities, and at that time retrofitting suburban houses with solar panels probably will not make the budgetary cut. And while lost jobs at the windmill factory may sting, the real economic threat is the possibility of a bursting investment bubble in the market for carbon permits and offsets. Simply put, the industry remains dependent on government money — and the government is going broke. It’s a business model that is, to borrow a term from the green movement, unsustainable.

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