TCS Daily


Guilt By Association

By Duane D. Freese - January 16, 2002 12:00 AM

Democrats hope to bell the Bush administration with the Enron debacle. Democratic National Committee spokesperson Jennifer Palmieri crows: "Enron now becomes shorthand for Democrats trying to convey to the American people the irresponsible way that the Bush administration ... puts special interests above those of the average American."

Despite the campaign cash and conversations that link Enron and the Bush administration, the facts thus far show the administration did nothing for Enron, other than lend it its ear. Still, Washington being what it is, guilt by association might be enough to dog the administration for a while.

But oh, if only guilt by association applied as much to bad ideas as it seems to apply to individuals who've yet to be found guilty of anything. Then the nation would never have to fear one of Enron's biggest schemes ever coming to fruition.

Indeed, it was Democrats who pursued the one policy that the natural gas supplier, pipeline company and electricity trader considered most important - emissions trading. Emissions trading became a big issue when Vice President Al Gore negotiated the Kyoto protocol back in 1997. The international plan designed to combat climate change called for cutting emissions of carbon dioxide by 5 percent below 1990 levels worldwide by 2012. The United States, under its strictures, would have had to make cuts of 7 percent.

Scientifically, some of the relevant facts are still murky. Vital to life on Earth as a nutrient in the air and to keep the Earth from freezing, CO2 is produced naturally. And climate theories hold that burning fossil fuels increases CO2 concentrations in the atmosphere and will raise temperatures over time. How much and to what ill effect is a matter of tremendous dispute. Many scientists say that natural climate variability overshadows anything man can do to shape the weather.

Economically, the facts are clearer. Kyoto was a bad deal from the start. Estimates by the Energy Information Administration put its annual cost to the U.S. economy at $300 billion.

Despite the economic burden, the Clinton administration bought into Kyoto alarmism hook, line, and sinker despite little public support for the treaty in the United States. Emissions trading was a way to drum up some support by those industries that could take advantage of it for strict emissions limits.

In simple form, a company that had lower emissions than it was permitted under the caps set by its government - or a country that had lower emissions than allowed by the accord - could market its extra allowance to those who exceeded their permit levels.

And who stood to benefit from this cap and trade system, as it is dubbed? Enron.

"Enron stood to profit millions from global warming energy-trading schemes," said Mike Carey, President of the Ohio Coal Association and the American Coal Coalition, on Tuesday.

How? Michael W. Lynch described in Reason online how cap and trade would have worked as regulatory "rent seeking." Coal burning utilities would have had to pay billions for permits because they emit more CO2 than natural gas facilities. That would encourage closing coal plants in favor of natural gas or other kinds of power plants, driving up prices for those alternatives. Enron, along with some other key energy companies in the so-called Clean Power Group - El Paso Corp., NiSource, Trigen Energy and Calpine - that supplied such energy thus would make money both coming and going - from selling permits and, then, their own energy at higher prices.

As for the environment, as Robert Crandall of the liberal Brookings Institution and Fred L. Smith of the libertarian Competitive Enterprise Institute wrote in the Wall Street Journal last summer: "How could anyone know whether Chinese or Russian plants were actually curtailing emissions? Since a Kyoto-style program would create a massive value in CO2 suppression - by some estimates more than $2 trillion - the incentives to cheat would be enormous."

So, when Bush rejected the Kyoto protocol, the administration stuck a stake in the very scheme that an Enron internal memo had declared, according to The Washington Post, would "do more to promote Enron's business than almost any other regulatory initiative outside of restructuring the energy and natural gas industries in Europe and the United States."

Democrats, many of whom also accepted donations from Enron officials for their campaigns, and the media, too, need to beware pressing claims of guilt by association. That's especially so since, in the case of Democrats, many of them favored actions that would have profited Enron enormously. The bottom line ethical issue is always whether someone acted on Enron's behalf, doing something they knew was wrong.

In the meantime, it would be no bad thing if Enron's association rings the end to cap and trade schemes designed to make the flawed Kyoto protocol the law of the land.
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