IR 892 Internship Report The Political Economy of Petroleum: The Role of Government Policy Joakim Hellberg San Francisco

State University

Spring 2013

Abstract The scientific consensus view on the reality of anthropogenic climate change science has not been matched by political action. United Nations-led climate talks are not showing any signs of putting the world on a 2 C track and investments in global petroleum production are inconsistent with this safe level of temperature increase . The United States has been called out as a spoiler of the climate talks and significant parts of new investments in new fossil fuel production is located in North America. This report places government policy at center stage to explain why the U.S. is not acting on climate change. It employs two theoretical models, or worldviews, to frame the debate on climate change and facilitate understanding of the power dynamics that has led to a large and politically powerful oil and gas industry. Two petroleum billionaires, Charles and David Koch, are especially active in their attempts to shape the trajectory of government policy, directly and indirectly, and are therefore given special attention. The report points out three critical elements of the political economy of petroleum: 1) That the oil and gas industry has been profitable over time; 2) that government policy has been crucial to industry profits through direct and indirect policy measures and; 3) that the industry has been especially active in influencing government policy and regulation. It concludes that opposition to climate action is rooted in a mix if economic interests and deep ideological convictions about the role of government in the economy.

INTRODUCTION ................................................................................................................... 1 1.1 1.2 1.3 THE ISSUE: CLIMATE CHANGE ........................................................................................... 1 CLIMATE CHANGE AND THE UNITED STATES .................................................................... 2 SUMMARY ........................................................................................................................... 5

THEORY AND METHODOLOGY ...................................................................................... 6 2.1 2.2 2.3 HYPOTHESIS ........................................................................................................................ 6 RESEARCH QUESTIONS ....................................................................................................... 6 THEORY............................................................................................................................... 6 The Market Model World View .................................................................................... 7 The Market Model Applied to American Politics ......................................................... 8 The Organizational Model ......................................................................................... 10 Juxtaposing Models .................................................................................................... 11 Coalitions of Organized Interest ................................................................................ 12

2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 2.4 2.5 3

METHODOLOGY ................................................................................................................ 14 SUMMARY ......................................................................................................................... 16

CASE STUDY........................................................................................................................ 18 3.1 THE PROFITABILITY OF THE OIL AND GAS INDUSTRY ...................................................... 18 The Financial Performance of Major Oil and Gas Companies ................................. 18 The Income Base of Koch Industries .......................................................................... 22 Summary ..................................................................................................................... 24

3.1.1 3.1.2 3.1.3 3.2 3.3 3.4

GOVERNMENT POLICY, ACTIVE DIRECT SUBSIDIES TO PETROLEUM ............................... 24 GOVERNMENT POLICY: ACTIVE INDIRECT SUBSIDIES TO PETROLEUM............................ 33 ACTIONS TO AFFECT GOVERNMENT POLICY .................................................................... 35 Direct Influence on Policy Making............................................................................. 35 Indirect Means of Affecting Government Policy ........................................................ 39 The Positions of Supermajor Sponsored Organizations............................................. 47 The Positions of Koch Sponsored Organizations ....................................................... 48

3.4.1 3.4.2 3.4.3 3.4.4 3.5 4

SUMMARY ......................................................................................................................... 49

CONCLUSION ...................................................................................................................... 51 4.1 DISCUSSION ...................................................................................................................... 51 Strategic Implications................................................................................................. 51

4.1.1

Introduction

During the summer and fall of 2012, I have been engaged in the culminating experience at the International Forum on Globalization1 (IFG), San Francisco, for my Masters degree in International Relations. My work at IFG focused around the issue of climate change and the actors in the U.S. who are opposing policy measures aimed at reducing greenhouse gas emissions. In particular, this work centered on two multi-billionaires brothers: Charles and David Koch, and resulted in a report released at the UN climate change conference in Doha, Qatar. The report was aimed at stirring up a debate and draw attention to how extremely wealthy individuals wield disproportional influence over the course of U.S. environmental policy. This internship report provides a more theoretical and comprehensive account of U.S. environmental politics and places the work of the Forum in a broader context. 1.1 The Issue: Climate Change

Climate change is first and foremost a political problem. The scientific consensus on the human causes of a changing climate is well established but political solutions remain distant. The Intergovernmental Panel on Climate Change (IPCC) will begin presenting its fifth Assessment Report (AR5) in September of 2013, but a leaked draft has already given indications of sharper formulations regarding the human causes of climate change, leaving virtually no room for alternative explanations. The leaked report states: "There is consistent evidence from observations of a net energy uptake of the earth system due to an imbalance in the energy budget. It is virtually certain that this is caused by human activities, primarily by the increase in CO2 concentrations. There is very high confidence that natural forcing contributes only a small fraction to this imbalance" (Hickman, 2012).

The statement is to be contrasted with the previous 2007 report: Most of the observed increase in global average temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations (Pachauri & Reisinger, 2007).

The terminology of estimates in the IPCC reports refers to a set standard of confidence intervals in which very likely refers to a probability of occurrence > 90% and virtually certain indicates a level of confidence > 99% (Pachauri & Reisinger, 2007). Even devout skeptics are being converted. The Berkeley Earth Surface Temperature Project, led by former climate change skeptic Dr. Richard A. Muller and funded in part by the Charles G. Koch Foundation, confirmed increasing temperatures, debunked the solar variability theory, and could find no other explanation to global warming better than increasing levels of carbon dioxide in the atmosphere (Muller, 2012). For climate change skeptics this means that the minimal opening for reasonable doubt that existed is now closed.

Hereinafter, the Forum or IFG.

Global business-oriented institutions have also recently published reports describing the impacts of a warming world and the implications of using remaining global fossil-fuel resources. The World Bank (WB) raised the alarm before last years climate change conference in Doha (COP 18), by drawing up a scenario with serious effects of a moderate 4-degree Celsius warming (World Bank, 2012). The International Energy Agency (IEA) came out at the same time with the conclusion that two-thirds of remaining fossil fuel resources need to stay in the ground for the planet to stay below 2C warming (International Energy Agency, 2012, p. 3). Yet, there has been a boom in U.S. oil production and investment worldwide, which may expand world oil production capacity significantly by 2020. The additional capacity would come not only from conventional, but also from more polluting unconventional sources such as Canadian tar sands and U.S. shale oils making up 28.3% of projected growth (Maugeri, 2012). Contrasting this growing supply scenario with the IEAs 2 degree Celsius energy demand forecast, Oil Change International suggests that 79% of planned capacity is above the safe 2 degree Celsius global temperature increase limit (Kretzmann, Stockman, & Turnbull, 2012). This calculation is consistent with a 2009 study estimating the warming effect of an additional 500 billion tons of carbon emissions, bringing the number of total anthropogenic emissions to 1 trillion tons, to 1.3-3.9 degrees Celsius (M. R. Allen et al., 2009, p. 1163). The international negotiations on climate change are not showing any signs of putting the world on track towards avoiding a significant rise in global temperatures either. The U.S. is considered by many to be one of the largest stumbling blocks to progress on this issue due to the scale of the U.S. economy, the volume of its greenhouse gas emissions, and its power position in international politics. During the 17th Conference of the Parties (COP) in Durban, South Africa the U.S. was called out as a spoiler of progress in the negotiations a by a number of large environmental groups, activists and elected officials (Goldenberg, 2011). These accusations were expressed anew in late 2012 at COP 18 in Doha, Qatar where Special Envoy Todd Stern and Chief Negotiator Jonathan Pershing kept a low media profile (Goodman, 2012). 1.2 Climate Change and The United States

Given the major part the U.S. plays in global climate change due to its high emissions, no significant international effort to curb warming could be effective without American participation (Rabe, 2011, p. 495). For a long time the U.S. was a leader in domestic environmental legislation as well as in international environmental politics, but in the new millennium it has lost much of its momentum and fallen behind other states and the EU (Harris, 2009). This negative trend goes back as far as the 1970s and 1980s (Falkner, 2005; Kelemen & Vogel, 2009). As the second largest emitter of greenhouse gases (GHGs); with the highest per capita emissions of GHGs; and the largest economy in the world; the U.S. has the financial and technological capability to mitigate climate change. If it was to lead - it is likely that other countries would follow (Harris, 2009, p. 966). Since many landmark environmental laws were passed in the 1970s, U.S. environmental ambitions has come and gone with the shift of presidents. While the Reagan and GW Bush administrations were the greatest opponents of environmental legislation and international binging treaties, Clintons and Gores ambition to have the Kyoto protocol ratified in the Senate was stymied by the Byrd-Hagel Resolution (Harris 2009).

After Congress failed to ratify the Kyoto Protocol signed by the Clinton administration in 1998 and George W. Bush took office, climate policy in the U.S. shifted to the state level. During this period of state domination of climate policy, renewable portfolio standards and regional cap-and-trade programs were developed in the absence of federal leadership. Following the 2007 Supreme Court ruling in Massachusetts v. EPA, a ruling compelling federal regulation of greenhouse gases under the Clean Air Act (CAA), climate policy transitioned into a period of contested federalism where the executive branch took back the lead over states amid legal and congr essional challenges (Rabe, 2011, pp. 499501). The CAA...is arguably the most successful piece of environmental legislation ever drafted (Environmental law and policy, 2010, p. 465). It is estimated that the first 20 years of the CAA produced $21.7 trillion in benefits over costs (US EPA office of Air and Radiation, n.d.) and that the 1990 CAA amendments will produce net benefits close to 2 trillion in 2020, as it already has accumulated over 1.2 trillion in benefits as of 2010 (US EPA office of Air and Radiation, 2011). In the above-mentioned ruling of Massachusetts v. EPA, the Supreme Court found that the EPA was bound by the CAA to regulate ...any air pollutant...which may reasonably be anticipated to endanger public health and welfare... (Plater et al., 2010, p.482.). While subsequent EPA regulation under Obama has been challenged in courts, the Administrations climate policies were backed by the D.C. Circuit Court of Appeals in its June 2012 ruling in the case of Coalition for Responsible Regulations v. EPA upholding all of the EPAs new regulation on greenhouse gases and the legal authority of the Agency over the field (Martinson, 2012). Despite the victory in the D.C. Circuit there is no reason to believe that Congressional attempts to cripple the EPA in its greenhouse gas regulation attempts will cease as industry-sponsored Republicans continue to use tactics of climate change denial and arguments of job-loss and rising energy prices (OKonski, 2012). The Clean Air Act along with other environmental laws and their derivate regulations are under attack from all directions. The Obama Administration has been forced to slow down on the rolling out of new regulations, parking 25 of them in the review stage in 2012. Despite broad support for the EPA from the American people attacks on environmental laws in Congress continue (J. Allen & Martinson, 2012). Perceptions among the American public concerning the threat to them selves, their families, and community from global warming have risen significantly since 2008 and a majority is convinced that global warming is human caused (Leiserowitz, Maibach, Roser-Renouf, Feinberg, & Howe, 2012). The public support for Environmental Protection Agency regulation of carbon dioxide is very strong with 77% of voters supporting stricter Clean Air Act limits. 64% also believes that Congress should not stop the EPA from regulating carbon dioxide and 69% prefer EPA scientists to set air pollution standards over Congress. On top of the high approval for EPA action, most voters believe that more jobs will be created as a result of updated CAA standards (Bocian, Baumann, McHenry, & Judy, 2011). Obama has tried to re-build the battered regulatory apparatus of the state by appointing leaders loyal to the notion of scientific administration, proposals to increase agencies funding (including the EPA), and by shifting cost-benefit analysis away from the conservative cost-heavy bias (Judis, 2010). Obamas initial action was seen in

appointments of prominent names to lead the work on the environment, energy, and climate change, and initial policy changes (Bomberg & Super, 2009). While Obama is pushing a top-down federal regulatory effort to reduce greenhouse gas emissions, some analysts see progress on climate change is to be seen as an entirely bottom-up process where policies are implemented on the federal level only after states have already taken equivalent action (c.f. Selin & VanDeveer, 2007). Due to the limited scope and uncertain future of federal regulation, it is likely that future climate-policy developments will be predominately state and regionally centered (Rabe 2011). A plot of the participation trend of the U.S. in major environmental agreements2 reveals a steadily declining ratification trend since the early 1990s. The divergence between signature and ratifications during the 1990s indicates the division between the Clinton/Gore administration and Congress. If a global treaty on climate change is assumed to be a necessary component of a slowdown of greenhouse gas emissions into our environment, and the U.S. would need to be a key party to such an agreement, this data on participation does not show a particularly promising trend. FIGURE 1 U.S. participation in major environmental agreements 3 2.5 2 1.5 1 0.5 0 1970

No. of Treaties Signed/Ratified

1975 1980 1985 1990 Signed (5-year moving average)

1995 2000 2005 2010 Ratified (5-year moving average)

Data source: Mitchell, International Environmental Agreements Database Project, (Version 2012.1). n = 53

A major environmental agreement is defined as an agreement signed by at least 25% of U.N. member states at the time. Environmental as classified by Mitchell, R. B. (n.d.). International Environmental Agreements (IEAs) Defined. International Environmental Agreements (IEA) Database Project. Retrieved December 18, 2012, from http://iea.uoregon.edu/page.php?query=static&file=definitions.htm

1.3

Summary

The scientific consensus regarding anthropogenic climate change has long been settled. The vast majority of remaining fossil fuel resources need to be kept underground for global temperatures to stabilize on average somewhere around 2C. The majority of the U.S. public has accepted that humans indeed are responsible for warming the planet. There is a federal legal and regulatory framework in place with the power to limit greenhouse gas emissions. The administrating agency, the EPA enjoys a high level of support and trust from the public to implement the law. Yet, its regulations are being challenged in court and by Congress. The very basis of science and climate change is being questioned. Oil and gas investments worldwide and in North America are inconsistent with a global 2C warming limit and a substantial international agreement on greenhouse gas emission reductions is nowhere in sight. Investment in oil and gas production is especially telling: Investors do not see future restrictions on oil and gas production and/or use as a risk large enough to outweigh the potential benefits. Unless these actors are insensitive to the trajectory of American politics, their choices indicate a business as usual scenario for oil and gas production. The question is: why? Why is there such a discrepancy between what needs to be done and what is being done? Why is so little being achieved despite public support? Why has the U.S. shifted from being a global leader of environmental policy to a lackluster? What forces are at work behind scenes? U.S. financial policy and regulation, or the weakness of such policies and regulations, proved to be a major factor in the 2008 financial crises that set of a global recession. The financial crisis is an example of just how much the U.S. matters to the world economy, and more importantly, that something has gone awry with a political system that allows for such crises to occur. In a similar vein, U.S. climate policy and opposition to stronger regulation can keep fueling global warming and set off irreversible changes in the climate system. As such a scenario seems plausible, it is important to understand the political dynamics that are pushing us in this dangerous direction. Guided by the flow of revenue from oil and gas production, this report is led towards the political activities of the beneficiaries of continued and expanded use of fossil resources. Over the last decade, the so-called supermajor oil companies have seen their profits go through the roof and a private conglomerate with a petroleum income-base has generated extreme wealth for its owners. Understanding the dynamics connecting these extreme concentrations of wealth and power to climate policy is a crucial step towards achieving policy change. A comprehensive understanding of U.S. environmental policy and the role of extreme wealth in shaping its course requires asking questions about broader changes in American society and the global economy. That U.S. environmental policy is intricately connected to other policy areas and sources of political conflict in American society is a truism. To focus this report, I will concentrate on the role of government policy and the ways a particular segment of the fossil-fuel industry have leveraged their wealth to influence government policy.

2 2.1 Hypothesis

Theory and Methodology

Government policy has been crucial for building and sustaining oil and gas industry profits, and hence, the wealth of Charles and David Koch. 2.2 Research Questions 1) Have government polices built and supported oil and gas industry profits? a) For the major industry actors?

b) For Koch Industries? 2) How does the oil and gas industry use their profits to influence government policy? a) The major industry actors?

b) Charles and David Koch and Koch Industries in particular? 2.3 Theory

To conceptualize and describe societal dynamics I employ an organizational model based on Miller (2008, Chapters 25) with a view of power as embodied in and wielded by organizations, as opposed to a market model with an atomistic view of power. To capture the characteristics of the actors and coalitions of actors in the organization model I will draw on Banerjee (2010) and Bishler and Nitzan (2004). From the viewpoint of organizational models, politics is a struggle between organized interest groups or dominant factions. From the viewpoint of market models, political power resides with individual voters. The self-interested utility-maximizing individual is the departure point for this perspective. The central assumption in this report is that government is the key institution in society. Government policies and regulations determine income distribution not just through taxes and transfers but also through regulating market income. Market income distribution is not beyond the reach of government - quite the opposite as government structure markets (Hacker & Pierson, 2010, pp. 169 170). State regulation of the economy is not neutral but biased. It has different impact on class fractions, institutions and their competencies. Conflicting demands on the state for regulatory changes arise and are unequally granted to the favor of the dominant coalition whose competencies are privileged (Banerjee, 2010, p. 5). However, this view of government as the controller of markets and distributor of rewards is not always acknowledged and not consistent with a conception of markets as an apolitical force distributing rewards in a natural way. The view of markets as a natural and apolitical distributor of income is central to the ideological position and rhetoric of the organizational actors who benefit most from current market arrangements. For the purpose of enabling identification of this ideological position later in this report, I will outline a pure market model in this section. To build a theoretical framework for capturing the power structures and actors behind the promotion of a market-based understanding of political economy, I will outline an organizational model. Raymond Millers account of three different world views (2008) provide a useful vantage point for beginning to understand and describe the broader political and economic dynamics resulting in todays U.S. environmental policy 6

position. In short, Millers three models (world views), the multi -centric organizational model, the market model, and the Marxist model explains events through, respectively: power struggles; shifts in supply and demand; and through change in material conditions. For the purpose of this report, I will concentrate on the first two models as they capture the ideological and rhetorical base of the political right, including the petroleum industry and the Koch brothers, as well as the dynamic of power struggles between organizations and coalitions of organizations. Table 1. Millers World Views School of thought Free Market (neoclassical economics) Multi-centric organizational Organizations Power-negotiations Central actors Individuals Decision-making Markets Value theory Subjective preference Cost of production David Ricardo Classical Marxism Classes Capitalist mode of production Source: Adopted from table 8.1: Miller, R. C. (2008). International Political Economy: Contrasting World Views. London; New York: Routledge. 2.3.1 The Market Model World View Abstract labor Karl Marx Ancestors Adam Smith

The Market Model as delineated by Miller (2008, pp. 1537) is a model that includes free-market ideology, the doctrine of neoliberalism and neoclassical economics. In the purely competitive market model, described by Miller, the central actors are free, rational utility-maximizing individuals. The subjective preferences of individuals form the basis for decision-making, and the aggregated decisions of individuals translate into the market interactions of supply and demand. Because the market is seen as the central mechanism through which individuals subjective preferences are negotiated, it is viewed as natural and apolitical. Therefore, politics and economics are separate dimensions due to the central role of the market as decision-maker. In the Market Model, the idea that individuals should be free to make their own decisions without government interference is dominant. The role of government should therefore be restricted too supporting the functioning of the market by: 1) establishing, interpreting, and enforcing rules; 2) providing essential infrastructure; and 3) providing (physical) security for its citizens. The critical assumptions behind the superiority of the market as an independent and apolitical exchange mechanism are: unrestricted factor mobility: i.e. capital and labor can and will move without restrictions in order to maximize returns; no restrictions on setting up businesses, no geographical obstacles, no copyright, no intellectual property rights; and he value of everything can be captured in a price and traded. Market interactions take place under conditions of perfect competition and perfect information, meaning that no actor has market power (cannot affect prices by its actions alone). Critical assumptions about the individual are: that individuals are rational towards the end of maximizing material interests (in a narrow sense); the material appetite of individuals is insatiable: more is better. This results in

individuals acting as Adam Smiths classical economic man subordinating all non -material objectives to material maximization. The most striking feature of the Market Model worldview is that it is devoid of any power analysis. As consumers are sovereign entities and no actor has market power, there is no need for further elaboration on power relations. 2.3.2 The Market Model Applied to American Politics

There are two main categories of arguments being levied against environmental protection and action on climate change. Neither of the two do necessarily have anything to do with opposition the preservation of our natural environment, but rather with deeper ideological beliefs about the role of government. Conservative dont like blaming the market; if there is a problem with the economy, in their hearts they know the true cause must be government (Stiglitz, 2010, p. 10).

2.3.2.1

General Political Polarization

A widely used measure of political polarization in Congress developed by political scientists Keith Poole and Howard Rosenthal discerns two main dimensions of voting from the distribution of roll-call votes. The first dimension is a traditional liberal-conservative scale reflecting the...division on the fundamental ro le of government in the economy (Poole, 2012). The second dimension separates legislators by geographic region, mostly over issues of race and civil rights. After the civil-rights era, race-related issues have been subsumed in the first-dimension and are now questions of redistribution. Today, the first dimension, the liberal-conservative scale, can capture most voting as regional differences along the second dimension has been all but eradicated (VoteView.com, 2013). This alignment of voting patterns leads to the definition of polarization as a separation of politics into liberal and conservative camps, and with a vanishing share of moderates, conservatives have become close to synonymous with Republicans and liberals with Democrats (McCarty, Poole, & Rosenthal, 2006, p. 3). The parties have become more ideologically homogenous and the distance between party means has increased with time. There is no longer overlap between conservative Democrats or liberal Republicans (McCarty et al., 2006, pp. 3, 23 24). Two movements, beginning in the 1970s, are responsible for the increased polarization of political parties: A general drift of Republicans to the right and the party shift of Southern Democrats to the GOP (McCarty et al., 2006).

FIGURE 2. Party polarization, 77th to 112th Congresses

1.1 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 1940

Distance between party means - first dimension

1950

1960

1970

1980

1990

2000

2010

House distance

Senate distance

Source: VoteView.com. (2013, January 18). House/Senate Polarization 1st to 112th Congresses (excel files). Retrieved from http://pooleandrosenthal.com/political_polarization.asp 2.3.2.2 Environmental Regulation as a Drag on the Economy Environmental protection typically entails government intervention into markets and restrictions on property rights, challenging conservative values, but is consistent with liberals view that protecting collective welfare is a proper role of government (McCright & Dunlap, 2011, p. 160). Conservatives began attacking environmental regulations in the 1970s as they were seen as afederal intrusion into the workings of the private sector (Layzer, 2012). Historically, environmental protection was supported by both parties and was not a particularly divisive issue until the early 1980s when Ronald Reagan defined environmental regulation as a drag on the economy. Constructing government as the problem has been an electorally successful strategy for the Republican Party for a long time, and the anti-environmentalist label seem to have come at a low cost (Dunlap & McCright, 2008). Global warming had been introduced as a legitimate problem in the U.S. by the time of the 1992 UN Conference on Environment and Development in Rio de Janeiro. Anti-environmental forces led ...by conservative foundations, think tanks, and politicians emerged in response to global envi ronmentalism... and backed by the 9

fossil-fuel industry, sought to debunk climate change science and ...to delegitimize global environmental problems, particularly anthropogenic global warming, in order to undermine the call for regulatory action (McCright & Dunlap, 2011, pp. 158159). After Clinton-Gore administration action had been blocked by a Republican takeover of Congress in 1994, the election of George G.W. Bush further politicized climate change and the war on terror drove it off the agenda (McCright & Dunlap, 2011, pp. 158 159). 2.3.2.3 Undermining Scientific Credibility "The vast majority of people who are involved in the [Republican] nominating process the conventions and the primariesare suspect of the science," Phillips continued. "And thats our influence. Groups like Americans for Prosperity have done it (Quoted from Novak & Maguire, 2012). Sir Nicholas Stern has described climate change as the greatest and widest-ranging market failure ever seen (Stern, 2006). Oreskes and Conway concludes in their study of the history of denial of issues ranging from the negative health effects of tobacco to the reality of climate change, that the real reason behind the discrediting of science was about the proper role of government in regulating mar kets (Oreskes & Conway, 2010, p. 262). It was about free-market fundamentalist defending against a problem that scientific studies implied would require government intervention (Oreskes & Conway, 2010). Robert Brulle arrives at a similar conclusion from his studies of climate change denial funding, tracing the roots of denial through conservative foundations and funders to free-market ideology and opposition to government interference in in markets (Brulle, 2013). 2.3.3 The Organizational Model

The Organizational Model, again as delineated by Miller, 3 is very much an antithesis to the Market Model. It does not view individuals as the central actors with the power to alter productive capacities through changing consumer preferences, but instead places organizations at center stage. It takes into account historical and cultural contexts and defines interactions in terms of power-negotiations between organizational actors instead of in apolitical marketnegotiated consumer demand meets producer supply - terms. Individuals are not assumed to be free and rational 4 and their preferences as consumers are by and large determined by producer preferences through advertising. 5 In the Organizational Model, capitalism is about profit maximization and not about maximizing competition. As corporations seek to acquire market power, control over culture and social norms, and knowledge, the main interaction is competition for power power to control production, set prices, and control distribution of resources. In the Organizational Model, government is a major organizational player with power to determine the level of competition in the economy (pre-market) and how to distribute its resources (post-market). The inductive basis for the Organizational Model worldview does not lead to any logical outcomes, but likely outcomes are; income, wealth and knowledge inequality; market-defying movements in price levels: stagflation; symbiosis between business and
3

Miller, 2008 pp. 86-113. Miller titles his model the Multi-Centric Organizational Model, but for the sake of simplicity, I will simply refer to it as the Organizational Model. 4 Mature and bureaucratized organizations are an exception, assumed to act rationally. See Miller, p. 101. 5 Described by Kenneth Galbraith as the revised sequence, see Miller, p.97.

10

government: the revolving door; democratic deficit as unelected corporate managers makes decision about production and distribution; over-usage and abuse of the natural environment as costs are externalized to keep profits levels up. As the outline of the Organizational Model above implies, control of government policy is the vital instrument to maximize profits and control its distribution. This is the central premise of this report. 2.3.4 Juxtaposing Models

To contrast these two models can be contrasted, and, at the same time give the relevant political background for the economic fortunes and dominance of oil and gas in the American economy, I will use the story of income inequality. Political scientists Jonathan Hacker and Paul Pierson capture the conflicting premises of the two models in their analysis of the roots of American income inequality (2010). A credible political account of rising income inequality, they argue, must not only explain the extreme concentration of income in the top, but also identify the policies, and more importantly the political processes giving rise to those policies (2010, p. 168). Their main critique of economic and political science accounts is that they are either apolitical or too focused on the median voter to account for the trend of rising inequality since the 70s. They trace these failures to an overemphasis of the voter-politician nexus, neglect of organized interest, and the crucial role of government in distributing market rewards. The median voter emphasis assumes that voters have the power to discipline politicians through their vote. H acker and Piersons critique of the voter-politician-nexus focus, or what they also call politics as electoral spectacle, resonates well with the central premise of the Market Model in which individual consumer preferences (read votes) can alter productive capacities (read politics and policy). 6 Hacker and Pierson argue against a market-based understanding of economic inequality through scrutinizing economic and political science accounts. Economic explanations point to skill -biased technological change as a factor that has skewed the income distribution in favor of the highly educated. The argument that technological change has skewed returns towards the highly educated does not hold up, as the base of highly educated individuals is much broader than t he economic elites. Returns to top income earners in an international comparative perspective, despite exposure to the same markets and technologies for all advanced countries, are not uniform either, with a number of countries seeing no increase or even a smaller share going to its top income earners (Hacker & Pierson, 2010). Political science median-voter explanations of why voters have not disciplined their representatives contradictory to the theory of voters disciplining their political representatives point to immigration as a factor (Hacker & Pierson, 2010, p. 165). This argument, brought by McCarty, Poole and Rosenthal, claims immigrants

In International Relations theory, some liberals also hold this perspective. Andrew Moravcsiks conception of international politics rests on a bottom-up perspective in which state preferences are determined mainly by individuals material and ideational preferences [formed] independently of politics and then advance through political exchange and collective action. In such liberal perspectives, organizations are acknowledged as important actors and individuals are not assumed to be perfectly rational or guided solely by material gain, but crucially, the root of organizational action is still a reflection of aggregate individual preferences unaffected by organizational preferences. See: pp. 513-553 in Moravcsik, A. (1997). Taking Preferences Seriously: A Liberal Theory of International Politics. International Organization, 51(4), 513553. Doi: 10.2307/2703498

11

have depressed wages through adding to the low-income labor pool, which explains rising income inequality, and since immigrants are not entitled to vote, they cannot compel political representatives to pass redistributive policies. Hence, the statistics on income inequality will show rising income inequality between income earners but conceal that citizens (voters with power to discipline politicians) have not experienced rising income inequality and therefore has no greater incentive to push for redistribution than before (2006). Hacker and Pierson refute this line of argument, as the income ratio of the median citizen/population mean is not significantly different from the ratio of the population median/population mean. In addition, both have fallen significantly since the 70s (2010, fig. 4, pp.165-166). Paul Krugman supports the position that immigration and skill-biased technological change are not sufficient to account for rising inequality. Krugman adds growing international trade to the factors causing income inequality, as trade depress wages through increased competition. However, as Krugman points out, immigration, trade, and skill-biased change are only potential contributors to the widening wage gap between high-skilled and low-skilled workers. If these factors would add up to a complete explanation of income inequality, we would expect to see a more even distribution of income among high-skilled workers - a distribution matching the groups productivity gain. Yet, this outcome has not materialized as most if the gain has been concentrated to a narrow elite of high-skilled workers (2007, Chapter 7). 2.3.5 Coalitions of Organized Interest

If market-based explanations of technological change, immigration, and economic globalization fail to account for rising income inequality: what lies behind the trend, and which are the political forces behind changing public policy? Both Hacker and Pierson and Krugman point to the power of organized interests and the organizational transformation that took place in the 1970s. The former authors emphasize the material aspects of a changing organizational power balance with business interested at center stage, while the latter author emphasizes the ideological roots of political change with racism providing the fuel for a conservative political movement, which ultimately built up to alter the power balance between organized interests. They agree that the outcome of this political battle was a stronger Republican party, increased political polarization, and a power-shift from organized labor to business organizations and the wealthy. Hacker and Pierson pinpoints four major changes in politics since the 1970s; the rise of business power in politics, the decline of labor organizations, the moral issue focus and alignment of Christian conservatives with the GOP, and the monetization of politics, as all having contributed to the weakening an organizational voice for the working and middle classes on economic issues in America. While Hacker and Pierson avoids mentioning a coalition of interests deliberate working together to gain influence over government decision-making, Krugman describes a coalition between a number of different groups. Described in short; the coalition of factions that started as a conservative right-wing drift within the Republican Party grew to accommodate anti-union businesses, sunbelt-entrepreneurial interests, neoconservatives and cold-war intellectuals. This coalition, movement conservatism, drew its financial support from anti -union sentiment in the

12

business community and gained its popular base by exploiting communist fear and dislike of welfare payments to certain racial groups (2007, Chapter 6). Since the focus of this report is on the oil and gas industry, the Sunbelt entrepreneur link described by Krugman is of particular interest.7 Bishler and Nitzan situate the petroleum industry as a part of a coalition within what they call dominant capital the largest power coalitions at the center of the political economy (2004, p. 256). In Bishler and Nitzans account, dominant capital groups are engaged in a battle to increase their relative share of profits through controlling the trajectory of future production. As dominant capital groups are focused on relative performance, and not absolute profits, they need to ensure that they can accumulate at a faster pace than the average. Bishler and Nitzan call this process differential accumulation. For large investors, there is only one method for achieving differential accumulation: to actively engage in actions to make sure that such accumulation occurs. Whichever group can accumulate differentially is by definition the dominant capital group a group involved in the central power processes of government, law, ideology, mass persuasion, and international organizations (Bishler & Nitzan, 2004, p. 272). To underscore the vital role of government policy in the realization of profits, with little relation to productivity or the costs of production inputs, Bishler and Nitzan point to the reliance of Microsoft on intellectual property rights, Citigroup on monetary policy, and General Motors on a host of policy decisions supporting the profitability of enterprise: the interstate highway system, lack of public transport, environmental regulation, oil prices, taxes, and labor union strength, to mention a few (2004, pp. 269271). Measuring shares of global market capitalization is one way to visualize the power struggles between factions within dominant capital (see Figure 3). Bishler and Nitzan capture the relationship between

See Krugman 2007, p. 160.

13

Figure 3. Shares of Global Market Capitalization.

Source: Nitzan, J. (2012). Topic 10: Regimes of Accumulation: Theory and History. York University. Retrieved from http://bnarchives.yorku.ca/331/11/nitzan_y6285_10_regimes_of_accumulation_handout_2012_13.pdf two factions of dominant capital who rely on different regimes of accumulation for their profits. The neoliberal techno-mergerdollar coalition relies on a breath regime with added productive capacity, new investment and mergers and acquisitions dominant from the mid-80s to the mid 90s. The neo-conservative weapon-petrodollar coalition on the other hand thrives under a depth regime, dominant from the 70s till the mid-80s and from the early 2000s and onwards, relying on instability and social crises and working through redistribution through stagflation (Bishler & Nitzan, 2004). Banerjee describes a dominant coalition as a minimal collection of class fractions and government institutions able to win regulatory contests repeatedly against other class fractions and institutions while accumulating assets faster than them (2010, p. 1). Agents (class fractions and institutions) are able to retain their positions in the production network by access to information-rich nodes that enables competencies. Through their hegemonic positions they can induce the state to enact biased regulation as to reinforce their competencies (Banerjee, 2010, p. 1). 2.4 Methodology

Hacker and Piersons organizational take on rising income inequality is primarily material and corresponding to the direct ways organized interests can affect policy. They acknowledge the important role of ideas, as I classify here as indirect ways of affecting policy, but point to policy changes taking place prior to intellectual rationales. The evidence they present is quite compelling. Business organizations managed to begin the era of deregulation, stop labor and health care reform, minimum wage indexing, and a consumer protection agency under a Democratic president and a Democratic Congress in the late 70s before Reagan won the White House (Hacker & Pierson, 2010,

14

p. 179). In emphasizing organized interests and the evolving structure of American political authority, we do not wish to deny that changes in ideas have played an important independent role in the restructuring of public policy over this period. The rise of neoclassical economics and increased emphasis on market-based policy prescriptions as well as the broader ideological backlash against activist government have clearly shaped the policy trends we describe (2010, p. 174).

Contrary to their own preferred focus on material means of policy influence over ideational influence, Hacker and Pierson point out that public distrust in government is a reason for government failure to address inequality (2010, p. 174). Consequently, fuelling such sentiments should facilitate policy drift. Given the apparent interrelationship between material and ideational factors, it should be safe to draw the conclusion that material and ideational means of influencing policy are complimentary in two directions, so that the latter legitimizes the former, or makes way for it. Based on previous theories and accounts of shifting power constellations resulting in the redistribution of income in general, this report will be structured according to the following reasoning: Factions with competencies and interests tied to the use of oil and gas have leveraged their financial resources directly (campaign contributions, lobbying, independent expenditures) to affect legislation. These factions have also leveraged their financial resources indirectly to undermine the credibility of science related to climate change, and, more importantly, to politicize and align all environmental issues along the liberal-conservative spectrum over the fundamental disagreement regarding the role of government in the economy. Independent variable: Organized efforts by oil & gas interests/Koch Brothers Intermediate variable: Environmenatal policy shift/ policy drift Dependent variable: Economic rewards to oil & gas interests/Koch Brothers

Two tracks for organized interests to affect government policy: (1) Direct, material means of influencing policy makers (a) Campaign finance (i) Direct contributions (b) Lobbying (2) Indirect means of influencing policy makers by promoting an anti-government and anti-regulation ideology.8

Hacker and Pierson refers to indirect means of affecting policy as agenda setting. 2010, p. 173.

15

(a) Funding think tanks; (b) Academic institutions and research; (c) Astroturf and independent expenditure organizations and; (d) Industry organizations. These two tracks represent the ways profits and wealth can be leveraged to affect policy outcomes. The most visible and quantifiable track is the direct track that utilizes fully legal means to influence what bills legislators introduce and how they vote. The indirect/ideological track is more difficult to capture in numbers as is designed to impact they way legislators and the general public comprehend and frame issues. The indirect/ideological track is designed to have an impact on public opinion and therefore how the public vote. It also represents a way to influence the minds and opinions of legislators and provide them with an ideological toolkit to use against their political opponents and persuade voters.

The remaining part of the report is structured according to the following logic: (1) Show how the oil and gas industry, including Koch Industries, have been profitable over time. (a) With petroleum industry income data (b) With estimates of Charles and David Koch net worth (2) Show that government policy has been crucial to oil and gas industry profits through: (a) Active policy measures: (i) Direct industry subsidies (b) Active indirect policy decisions: (i) War in the Middle East (ii) Construction/maintenance of the interstate highways system (3) Show that oil and gas has taken action to affect government policy (a) Through direct action lobbying and campaign finance (b) Through indirect action funding of think-tanks, astroturf agents, academia, and interest group organizations 2.5 Summary

The Market Model view of the world is emphasizes the apolitical nature of markets and consequentially does not contain a power analysis beyond the power of individual consumers. The Organizational Model on the other hand recognizes the relationship between the distribution of power and the distribution of rewards in society. Groups standing to gain from the current distribution of power and income benefit from keeping the logics and dynamics of this unequal relationship obscured and as far away from the public mind as possible. To promote a Market Model view of the world justifies the current distribution of income. Such a promotion is exactly what is to be expected from the most powerful factions in society.

16

The main division in American politics is manifested as a fight about the proper role of government. Environmental issues were drawn into that dispute starting from the 1970s and have since followed a similar pattern of polarization as has liberals and conservatives. Constructing environmental regulation as a drag on the economy and undermining scientific credibility is not about the environment per se, but only really tactical expressions of deeper ideological beliefs. Beliefs, which to varying degrees, are consistent with their proponents economical interests. Therefore, supporting groups that are for limited government, less regulation, free markets, free enterprise, lower taxes, and against generally accepted methods of science is equal to opposing government action on climate change.

17

3 3.1 3.1.1 The Profitability of the Oil and Gas Industry

Case study

The Financial Performance of Major Oil and Gas Companies

The petroleum industry has been profitable over time, especially in the early to late 2000s as show in figure 3 below. The operating revenues of the major oil companies are also sizeable relative to U.S. GDP with 9% on average between 1977-2009 and a top observation of over 19% in 1980.9 In 2011, the revenues of the five so called super major integrated10 oil companies, ExxonMobil, Chevron, BP, Royal Dutch Shell, and ConocoPhillips weighed in at 12% of GDP (Pirog, 2012, p. 1) Figure 3. Petroleum Industry Profitability 1977-2009

140 120 100 80

30 25 20 15

60 40 20 0 1975 1980 1985 1990 1995 2000 2005 2010 10 5 0 2015

Petroleum Industry Net Income ($2005 billions left scale) Return on Equity for Major Energy Producers (ROE % right scale)
Source: EIA. (n.d.). Financial Reporting System (FRS) Database. U.S. Energy Information Administration. Retrieved March 26, 2013, from http://www.eia.gov/finance/data.cfm#petroleumops Including the super-majors BP, Royal Dutch Shell, ExxonMobil, Chevron, and Conoco/Philips. ROE is consolidated data for all major energy producers but almost entirely comprised of petroleum company income and equity. For a complete list of companies reporting to the FRS see: http://www.eia.gov/finance/performanceprofiles/CoList.cfm Figure 3 show net income and return on equity (ROE) as measures of profitability. Net income is a straightforward absolute measure of profitability, and ROE is a relative measure of profitability as it is the ratio of net income to stockholders equity, or put in another way, profits relative to capital i nput or share value. As figure 3
9

10

Based on EIA FRS petroleum operations data compared to nominal U.S. GDP for the same year. Integrated companies span the entire oil supply chain from exploration and production to retail sales.

18

shows, major energy producers ROE and net income reached record levels in the mid -2000s. The ROE level between 2000-2006 was 7% higher than the manufacturing industry average that had been only 2% below between 1985-1999 (Lazzari & Pirog, 2012, p. 7). The record profit levels since 2003 has been seen by many as windfall profits or unearned gain and resulted in the introduction of Congressional proposals if windfall profit taxes (Pirog, 2012; Pirog & Lazzari, 2008). The relationship between oil prices, crude oil supply and demand, oil industry profitability, and the performance of the overall economy is both peculiar and interesting. First, the size of profit of the oil industry depends largely on crude oil prices and not on supply volume (Pirog , 2012; Pirog & Lazzari, 2008). Second, crude oil prices are more a function of the level of conflict in the Middle East than a function of supply and demand (Bishler & Nitzan, 2004). Third, even as the economy as a whole suffers from high oil prices, major oil companies generally experience increased incomes and higher profits (Pirog, 2012; Pirog & Lazzari, 2008). The standard market model predicts that the market price of a commodity responds to movement in supply and demand. Ceteris paribus: More supply results in lower prices and less supply equals higher prices. More demand results in higher prices and less demand equals lower prices. The price is set at the equilibrium level where supply meets demand. Given these assumptions, oil prices would correspond to oil inventories given a constant demand. Figure 4. Scarcity and the Real Price of Oil

Source: Nitzan, J. (2012). Topic 10: Regimes of Accumulation: Theory and History. York University. Retrieved from http://bnarchives.yorku.ca/331/11/nitzan_y6285_10_regimes_of_accumulation_handout_2012_13.pdf Bishler and Nitzan show that while oil prices went up in the 70s and 80s, actual supply increased and was in fact greater than demand. Even when some regional supply has been held from the world market, other source 19

have always compensated for the shortfall. The conclusion Bishler and Nitzan draw is that inventories do not matter, as actual physical supply has been constant. Instead, prices fluctuate with the perception of risk that actual physical supply may be affected (Bishler & Nitzan, 2004, pp. 301302). An elaboration on the reasons for price increases consistent with this risk perception hypothesis, is that an increased conflict level in the Middle East discourages investment in oil production, not only in the region, but everywhere in the world. The reason is that the Middle East has the lowest crude oil production costs in the world, and if investments are put off for the future, more expensive production sites in other parts of the world become risky investments as a future price fall resulting from decreasing conflict levels would render these investments less profitable (Bilmes & Stiglitz, 2008, pp. 220221).11 The previous figures have illustrated the absolute level of profits and the relative profits level to capital input (figure 3), and the market defying price levels of crude oil (figure 4). The below figure (figure 5) illustrates the relationship between oil comp anies share of profits and the ratio of oil price to consumer prices. The ratio of the oil price to the consumer price index (CPI) is the steepness of the thin curve. When oil prices increase more than the average price increase (the CPI), i.e. when the price of oil contributes relatively more to the price increase than other items included in the CPI, relative profits accrue to oil companies. Figure 5. The Price of Oil and the Global Distribution of Profit

11

The authors also refute the claim that a surge in demand from China can account for the jump in prices the early 2000s and retained high price levels. Their argument is supported by much lower futures markets oil prices prior to the Iraq war than after the invasion decision. Futures markets, they argue, are accurate and anticipate surges in demand through forecasts, which in turn proved to be accurate with respect to rapidly growing markets demand.

20

Source: Nitzan, J. (2012). Topic 10: Regimes of Accumulation: Theory and History. York University. Retrieved from http://bnarchives.yorku.ca/331/11/nitzan_y6285_10_regimes_of_accumulation_handout_2012_13.pdf The economic conditions that allowed for the kind of relative price increase seen since the onset of the war on terror are stagnation and inflation. This argument, brought by Bishler and Nitzan as an attempt to explain why the petroleum industry manages to expand its share, relies on the nature of inflation and its dominant components. Inflation is a measure of average price increases, but it does not indicate if some elements contribute more or less to the average. Oil prices have been a leading indicator of inflation since the 1970s and have made up a larger share of price increases than other items in the CPI. Furthermore, and contrary to conventional wisdom, inflation has been accompanied by stagnating growth and high unemployment factors that Bishler and Nitzan claim undermine consumer power to resist price increases (2004). Figure 6. The Petro-Cores Differential Accumulation

Source: Nitzan, J. (2012). Topic 10: Regimes of Accumulation: Theory and History. York University. Retrieved from http://bnarchives.yorku.ca/331/11/nitzan_y6285_10_regimes_of_accumulation_handout_2012_13.pdf Figure 6 illustrates the relative performance of major oil companies to all other companies included in the Fortune 500. Comparing the percent deviation of the petro-core12 to the Fortune 500 and the occurrence of Middle Eastern conflicts reveals a striking pattern. All Middle Eastern Conflicts have been preceded by a relative underperformance by the petro-core and all conflicts are positively correlated with the petro-core beating the average. The importance of the relation between oil company profits and Middle East conflicts will be re-visited later in the case study section of this report.

12

The petro-core, as defined by Bishler & Nitzan, is currently comprised by BP, ExxonMobil, Royal Dutch Shell, and Chevron.

21

3.1.2

The Income Base of Koch Industries

Koch Industries is the second largest privately held company in the United States after Cargill with and estimated $115 billion of revenue in 2012 and 60000 employees (Koch Industries on the Forbes America s Largest Private Companies List, n.d.) Compared to the super-major integrated oil companies, Koch Industries is a small player with revenues not even matching up to half of the smallest super-majors revenues: Chevron and ConocoPhillips.13 Koch Industries business activity is mainly concentrated in and around petrochemicals with Flint Hill Resources running oil refineries in Alaska, Minnesota and Texas; the Koch Pipeline Company transporting petroleum, natural gas and chemicals; and Koch Fertilizer and Invista making use of natural gas and petroleum for fertilizer and synthetic fibers and polymer production. (Koch Industries Companies, n.d.). Together with the single most valuable asset in the Koch portfolio, paper and pulp product producer Georgia-Pacific, these companies are estimated to contribute almost 80% of Koch Industries $115 billion annual revenue (Bloomberg Billionaires, n.d.). The activity of Koch Industries petroleum operations is not only limited to downstream interests but also to upstream production of tar sands in Alberta, Canada trough Koch Exploration Canada L.P. and Koch Oil Sands Operating G.P. Koch Industries imports roughly 25% of Alberta tar sands oil to its refineries, operates a barrel of terminal in Hardisty, and is among the largest mineral lease holders in Alberta. In late 2012, Koch Oil Sands reviewed offers on 220000 acres of its holdings of tar sands, exposing some information on its stakes in the Canada tar sands otherwise not publicly available (Douglass, 2012). As a private company, Koch Industries is not required to publish details on its financial performance publicly (About Koch Industries, n.d.), which makes it difficult to pinpoint and quantify specific sources of revenue and profit. However, as the Forbes Magazine and Bloomberg continuously publish estimates of the total assets of Charles and David Koch, it is possible to plot the growth of their fortunes against crude oil spot prices.

13

ConocoPhillips revenue reached 251.2 billion in 2011, Chevrons reached 244.4 billion See Pirog, 2012, Table. 2

22

Figure 7. Charles and David Koch Wealth vs. Oil Price

90 80 R = 0.87447 70 Wealth ($billion) 60 50 40 30 20 10 0 0 1987 20 40 60 $ / barrel 80 100 120 2005 2009 2008 2012

Updated and improved from: IFG. (n.d.). How to Reduce Gas Prices and Remove Barriers to Clean Energy: Ban Oil Derivatives. IFG Oligarchy Blog. Retrieved from http://thesuperrich.wordpress.com/2012/03/21/koch-cash-set-tosoar-from-rising-gas-prices-oil-speculation/ Data sources: Forbes Magazine. Various Issues. Forbes. (1987-2011). Print. Bloomberg Billionaires. (n.d.). Retrieved September 19, 2012, from http://www.bloomberg.com/billionaires/2013-04-08/aaa EIA. (n.d.). Petroleum & Other Liquids: Europe Brent Spot Price FOB. U.S. Energy Information Administration. Retrieved November 19, 2012, from http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RBRTE&f=M Forbes billionaires list is compiled by adding up individuals assets, cash, property, and debt (Inside The 2013 Billionaires List, n.d.). If the assumption is made that Charles and David Kochs assets are primarily based on ownership titles in Koch Industries, their overall wealth becomes a proxy for the growth in net value of Koch Industries. The above plot shows a very strong correlation between oil prices and growth of the combined wealth of the Koch Brothers. Oil prices can successfully predict 87% of the variation in wealth. Moreover, the most interesting feature of the comparison between the Brothers wealth and oil prices is that it resembles the record profit levels of the super-majors as illustrated in Figure 3. The 2005-2006 jump in wealth may also be related to Koch Industries acquirement or Georgia-Pacific and the stagnation of 2007-2009 to the economic crises, but the overall pattern ties the fortune of Koch Industries and its owners to the price of oil.

23

3.1.3

Summary The petroleum industry has been profitable over the last 35 years and especially since the early 2000s. The

wealth of Charles and David Koch increased six fold over the ten-year period of 2002-2012. Both the profitability of the petroleum industry and the wealth of the Koch Brothers are closely correlated with crude oil prices. Oil prices have not obeyed standard supply and demand logics, but appear to be more closely tied to risk perception than to actual physical supply. The key turning point in the time-series of oil prices, profits, and wealth accumulation was in the early 2000s when skyrocketing oil prices propelled the net income of major oil, return on equity, and relative return on equity to record levels. The wealth of the Koch Brothers also begun soaring upwards towards new heights. The major factor behind the concentration of income towards the petroleum industry seems to have been the war on terror destabilizing the Middle East. 3.2 Government Policy, Active Direct Subsidies to Petroleum Energy tax policy involves the use of the governments main fiscal instruments taxes (financial disincentives) and tax subsidies (or incentives) to alter the allocation or configuration of energy resources. In theory, energy taxes and subsidies, like tax policy instruments in general, are intended either to correct a problem or distortion in the energy markets or to achieve some social, economic (efficiency, equity, or even macroeconomic), environmental, or fiscal objective. In practice, however, energy tax policy in the United States is made in a political setting, being determined by the views and interests of the key players in this setting: politicians, special interest groups, bureaucrats, and academic scholars. This implies that the policy does not generally, if ever, adhere to the principles of economic or public finance theory alone; that more often than not, energy tax policy may compound existing distortions, rather than correct them (Lazzari, 2008, p. 1, added emphasis).14

Energy tax policy has historically been characterized by two broad policy objectives: reducing oil import dependence and promoting national security, and environmental concerns. These two objectives have not always been consistent with each other as increased domestic oil production has negative environmental effects (Sherlock, 2010, p. 1) The history of energy tax policy (subsidies) can be categorized into five time-periods (Lazzari, 2008; Sherlock, 2010): 1. 2. 3. 4. 5. 1918-1970 promoting oil and gas 1970-1980 conservation and alternative fuels 1980-1988 free-market approach 1988-1998 back to interventionism, energy security, environmentalism 1998

14

Salvatore Lazzari is a Specialist in Public Finance at the Congressional Research Services Resources, Finance and Industry Division.

24

The first period was entirely focused on increasing oil and gas production with no tax incentives for other energy sources. The second period was characterized by federal budget deficits, environmental and equity concerns, and the 1973 and 1978-1979 oil shocks which all contributed to a shift towards energy conservation and alternative fuels. The Reagan administrations free-market approach and the scaling back of many subsidies and taxes marked the third period. The fourth period contained a mixed bag of incentives aimed at conservation, alternative fuels energy security and reduced oil imports, but also renewed and new tax incentives for oil and gas. The fifth period initially saw very low oil prices and support proposals for the oil industry, but after as oil prices rose around the turn of the century, proposals shifted towards reducing energy prices (Lazzari, 2008; Sherlock, 2010). However, the Energy Policy Act of 2005 (EPACT05) introduced new tax incentives for oil and gas, despite high and rising oil prices, even if the net tax effect change was slightly negative for the industry. The 2000s saw a tripling of the number of energy tax expenditures and increasing revenue losses with EPACT05 responsible for most of both (Lazzari, 2008; Sherlock, 2010). Energy subsidies, or producer incentives to develop domestic energy resources and consumer support measures, come in different forms. Tax policy, as outlined above, is only one type of subsidy. What makes tax policy subsidies special is that it is generally accepted as such and estimates of revenue losses are readily available from government sources. There is no universally accepted methodology to calculate its size and impact of other subsidies or non-specific tax provisions benefiting energy producers. The most comprehensive methodology divides energy subsidies into six categories: tax policy, regulation, research and development, market activity, government services, and disbursements.

25

Table 2. Types of Energy Subsidies

Description Special tax code provisions: credits, exemptions, allowances, and deductions Oil and Gas Application Example

Type Tax Policy

Percentage depletion provision Intangible drilling costs provision

Regulation

Legitimizing and facilitating potentially hazardous operations. Influencing/setting prices for different energy types. Subsidies can be calculated as exemptions from federal regulation and regulatory oversight costs to government.

Stripper well exemption from price controls Two-tier price control system Higher rate of return allowance for oil pipelines

Research and Development Market Activity

Federal funding for energy research and development programs.

Federal involvement in the marketplace through investment in construction and operation (of dams for hydroelectric energy), planning, leasing, resource management (for oil & gas).

BLM resource management, leasing and planning

Government Services

Indirect producer support: provision of commercial infrastructure for energy transportation.

Waterways such as ports and channels

Disbursements

Grants

Source: MISI. (2011). 60 Years of Energy Incentives: Analysis of Federal Expenditures for Energy Development. Washington, DC: Management Information Services. Several studies involving one or more of the above categories have been commissioned by various organizations to assess the magnitude and impact of energy subsidies. Tax policy dominate these studies, perhaps for obvious reasons as estimates of expenditures and foregone revenues 15 are estimated annually by the Joint Committee on Taxation (JCT) and the Office of Management and Budget (OMB), but some studies attempt to be more inclusive. However, there is no comprehensive study covering all subsidy types.

15

Tax expenditures are revenue losses attributable to provisions of the federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability Sherlock 2010, p.11 citing the Budget Act; P.L. 93-344. Excise taxes (special taxes levied on a good) are not classified as taxes under the Budget Act even though reductions or exemptions from such taxes turn up as lost government revenue (Sherlock 2010, p. 12).

26

Table 3. Studies on Energy Subsidies Study Environmental Law Institute (2009) Timeframe 2002-2008 Scope Federal subsidies fossil fuels vs. renewables Limitations Counts producer and consumer support: tax policy and grants. Does not include nuclear power. Only study including the Foreign Tax Credit and Reduced Government Take from Federal Oil and Gas Leasing. Management Information Services (2011) DBL Investors (2011) 1918-2009 1950-2010 Federal subsidies comparison of all energy sources Federal subsidies role in energy transitions OECD (2011) 2000-2002, 2008-2010 Federal and AK, TX, WV fossil fuel subsidies CRS (2012) 2010-2012 Federal subsidies comparison of all energy sources Counts tax specific tax policy only. Counts only producer tax policy support: Intangible drilling costs (IDC) and Excess percentage over cost depletion Counts both producer and consumer support measures. Nuclear R&D focus as report commissioned by Nuclear Energy Institute

The studies analyzed here vary greatly in time periods and scopes, as well as in their classification and inclusion of incentives as subsidies. They are however comparable in groups, with the ELI, OECD, and CRS studies providing the most recent, inclusive and detailed accounts of tax-policy incentives. The DBL and MISI studies are less inclusive but span much greater time-periods, showing long-term trends. The studies of government subsidies spanning longer time periods16 are all conclusive in one respect: the oil and gas industry are, and have been, the largest recipients of subsidies over time and on average. The least common denominator of all studies is that they include the two single most important tax provisions over time: the Intangible Drilling Costs (IDC) provision 17 and the Excess Percentage Over Cost Depletion provision. 18 These provisions, both longstanding subsidies to the oil and gas industry, were enacted, respectively, in 1916 and 1926 (Sherlock, 2010, pp. 23). The IDC allows integrated oil and gas companies to deduct 70% of the cost of domestic oil and gas exploration and the development costs of other fuels immediately and the remaining costs over a five-year period. Normal tax rules would only allow deductions as a capital cost based on the rate of extraction (OECD, 2011, p. 6). The percentage depletion provision allows for recovery of investment costs as a fixed percentage of gross income from the property instead of as a percentage of the actual
16 17

The ELI, MISI and DBL studies. The Environmental Law Institute study does not include nuclear power. Oil and Gas Exploration and Development Expensing (IRC Section 617). 18 IRC Section 613, hereinafter percentage depletion.

27

value of extracted resources (OECD, 2011, p. 6; Sherlock, 2010, pp. 23). The effect of percentage depletion was limited to independent producers and royalty owners in 1975 (Timeline History of Natural Gas and Oil Tax Provisions, n.d.) and is currently not applicable to integrated oil companies (OECD, 2011, p. 6). Table 4. Energy Subsidy Studies Comparison (annual average $millions) Subsidies included 2002-2008 Annual Average ($2010) ELI All subsidies Tax policy only IDC and percentage depletion tax policy incentives only Source: Author calculations from original studies using price deflator data from the Bureau of Economic Analysis. Table 4 shows the inflation-adjusted annual average of all subsidies included in the reports, separate accounts of all tax policy, and the isolated contributions of the IDC and percentage depletion tax provisions. The effects of the two tax provisions were stronger over the period 1950-2010 than from 1918-2010 and have decreased lately as indicated by the ELI and OECD estimates. The ELI and OECD estimates are consistent with a 2005 CRS estimate of IDC and percentage depletion revenue losses at $2100 million (Lazzari, 2006, Table 2). The lower figures of the 2000s compared to the 60 year average is an effect of the scaling back of both tax provisions in the 1986 Tax Reform Act, as well as an effect of external market forces as world market prices fell for crude oil, IDC expensing became negative (See Sherlock, 2010, pp. 34). $1,998 $1,689 $4,860 $6,012 $1500 $7,957 $5954 2008-2010 Annual Average ($2010) OECD $6,561 $2512 1918-2010 Annual Average ($2010) DBL $4,860 $4860 1950-2010 Annual Average ($2010) MISI $9,786 $6012 2010-2012 Annual Average ($2010) CRS $2415 $2415

28

Figure 8. Energy Tax Expenditures: Inflation-Adjusted Dollars

Source: Sherlock, M. F. (2010). Energy Tax Policy: Historical Perspectives on and Current Status of Energy Tax Expenditures (No. R41227). Congressional Research Service. Figure 3. Figure 8 shows the costs of the IDC and percentage depletion tax policy incentives in blue, locating the bulk of the cost prior to 1988. The green field, the unconventional fuel production credit, is mainly attributable to coal (Sherlock, 2010, p. 17). The IDC and percentage depletion provisions reached an impressive $10.4 billion in 1981 (in 2009 dollars) (Sherlock, 2010, p. 14). During the much of the period of large revenue losses from IDC and percentage depletion, a windfall profits tax was in place to recoup parts of the excess profits earned. In place between 1980-1990, the windfall profits tax collected $73 billion 19 in net revenue before it was repealed (Lazzari, 2006b, Table 4). The DBL study focuses exclusively on the IDC and percentage depletion, making it uncontroversial. The CRS study is limited to energy specific tax provisions. The other studies stand out more. The MISI study, with the highest average estimate, only includes the IDC and percentage depletion tax provisions but unlike the others, include regulation, market activity and government services in the total. 20 Regulations listed include the stripper well price incentives (in place 1944-45, and 1974-1981) the higher rate of return allowance for oil pipelines (in place 1921-1951) and the two -tier price control system enacted as part of the Emergency Petroleum Allocation Act of 1973, and well-head price controls for natural gas and general costs of regulation. Market activity is counted as

19 20

Adjusted from nominal figures to 2009 dollars. See Table 2 for categorization.

29

the support form the Bureau of Land Management to the oil and gas industry regarding planning, leasing and resource management. Government services are calculated mainly as the maintenance cost of ports and inland waterways (MISI, 2011, pp. 2425, Exhibit 11), i.e. as an indirect producer support measure. While the MISI accounting categories are reasonable, the lack of transparency in data disclosure makes it difficult to assess the accuracy and weights of non-tax estimates. The ELI study is notable for including two posts not accounted for in any of the other studies: the Foreign Tax Credit (IRC Section 901) and Reduced Government Take from Federal Oil and Gas Leasing. The Foreign Tax Credit is a general provision for individuals as well as for corporations to avoid double taxation on income earned abroad. The reason why this provision constitutes a revenue loss is due to the classification of royalty payments to foreign governments as corporate income tax. This practice constitutes a subsidy to oil and gas for three reasons presented by the ELI study. First, no other foreign businesses are normally subject to royalty payments to foreign governments. Second, royalty payments are normally classified as a levy to compensate for special economic benefits and not as taxes; and third, royalty payments for oil and gas were reclassified as tax credits and deductible dollar-for-dollar instead of at the marginal tax rate (approx. 35% between 2002-2008). This arrangement was somewhat limited in the 70s by only allowing credits up to what would have been taken under the U.S. tax code, although excess royalty payment credits could be carried back one year and forward up to ten years (Adeye et al., 2009, pp. 912). The argument presented by the ELI is that since the taxes imposed on oil and gas extraction by foreign countries far exceed their average general corporate income tax, the difference constitutes a royalty payment and should therefore be treated as such. If the IRS would credit oil and gas companies based on the general tax rate applicable in the foreign locations (lower than in the U.S.) and treat the difference as a levy, it would recover approximately $2.4 billion21 annually in revenue (Adeye et al., 2009, pp. 912). The line of argument made by ELI is valid insofar that the special classification of royalties as taxes instead of as levies is correct. However, as the noted in the study, the high royalties on foreign oil and gas in combination with the royalty-as-tax classification does not necessarily benefit oil and gas companies, but merely serves to transfer revenue from the U.S. government to foreign governments. In this respect, the foreign tax credit cannot be counted as a subsidy turning up as indisputable net income on the oil and gas balance sheet. The only scenario in which this arrangement would benefit oil and gas companies bottom line is if foreign governments could shift other non-deductible costs otherwise incurred on the foreign company to the royalty post. The reduced government take from federal oil and gas leasing post in the ELI study is based on the existence of legislation 22 lowering take from federal offshore leases and the comparatively low level of U.S. Government royalties to other OECD countries. ELI bases its calculations on a previous Government Accountability Office (GAO) methodology and arrives at an annual $1.1 billion23 subsidy number (Adeye et al., 2009, pp. 1213).

21 22

Author calculations in 2010 dollars based on ELI figures. See Johnston, J. J. S. 158 (104th): Outer Continental Shelf Deep Water Royalty Relief Act. , Pub. L. No. S.158. Retrieved from http://www.govtrack.us/congress/bills/104/s158/text 23 Author calculations in 2010 dollars based on ELI figures.

30

The net effect of an increased government take on offshore leases may be difficult to assess as indicated in the ELI study, but as targeted legislation has been passed and rates are low in an international perspective, it would be reasonable to accept reduced rates as revenue loss. Other large posts, included in both the ELI and OECD study, are direct payments categorized as consumer support measures. These two posts are the Low Income Home Energy Assistance Program (LIHEAP) and Strategic Petroleum Reserve. The LIHEAP is a federal program distributing funds to low-income households since 1981. It helps households pay for their utility bills, including heating, cooling but also includes state leveraging and outreach programs as well as financial assistance for weatherization (Adeye et al., 2009, pp. 1315; OECD, 2011, p. 13). Both studies isolate the proportions of energy payments that support fossil fuels directly through only including heating costs (ELI) and only heating and crises benefits (OECD) to estimate the total subsidy. The OECD methodology differentiates between fuel-types, but attributes LIHEAP funding in its entirety to petroleum and natural gas. The ELI study does not make this distinction. ELI counts the LIHEAP as a subsidy by stating that accounts otherwise delinquent are active and maintained (Adeye et al., 2009, p. 14). The OECD study does not provide a rationale for including LIHEAP as a consumer support measure. It is clear that LIHEAP is a tax expenditure for the government but it is not entirely clear that the entire oil and gas portion of LIHEAP funds would be absent from oil and gas revenues if it was to be discontinued. The Strategic Petroleum Reserve (SPR) not a clear-cut case of accounting either. It serves as a buffer for impacts of oil supply disruptions for the national economy, which is a potential benefit for consumers as well as for producers. As most countries maintain a strategic reserve, the OECD methodology assumes that a SPR is a necessary expenditure and calculates the support cost as a cost that would otherwise have been incurred on the oil industry. The cost equals operating costs and capital-related expenditures (OECD, 2011, 20). The ELI study makes similar assumptions, only including the capital and operational costs, but makes a point of excluding the acquisition cost of crude as it may prove to be profitable as well as deducting for government leasing of SPR facilities (Adeye et al., 2009, p. 15) A post not included in the later OECD and CRS studies, but accounted for by ELI is the credit for enhanced oil recovery. This credit has been unavailable during the OECD and CRS timeframes as it only can only be claimed when the West Texas Intermediate exceeds $28.24 Another recently added post, included in the ELI, OECD, and CRS studies, has grown since it became law with the EPACT05 in 2005. The temporary expensing of equipment for refining matched t he only two major longstanding tax provisions (IDC and percentage depletion) between 2008-2012. 3.2.1.1 Summary and Discussion

Two long-standing tax provisions account for the bulk of historical subsidies to the oil and gas industry with oil as the largest recipient. Most of the support was concentrated to the period of 1950-1987, but these provisions are still
24

See (Lazzari, 2008, Table 2.) $28 is in 1990 dollars. The threshold is tied to inflation.

31

intact and their size was still significant in 2012. However, comparing the size of these subsidies across studies reveal a negative trend with amounts declining steadily between 2002-2012 from an average of $2 billion (20022008) to $1.7 billion (2008-2010) to a final $1.5 billion on average for the last two years (2010-2012).25 Other tax provisions enacted in 2005 have compensated for the decline. The temporary expensing of equipment for refining is the single largest provision adding an average of $0.7 billion between 2010 -2012. Excluding the foreign tax credit and the reduced lease for oil and gas posts from the ELI study show that total tax policy subsidies have remained at a stable annual level of $2.4-2.5 billion over the last ten years. The question of which government support measures should be counted as subsidies is the critical to the size of overall subsidies to the oil and gas industry. Direct targeted tax provisions included in official government estimates are not controversial, even as the American Petroleum Institute (API) refuse to classify lost government revenues as subsidies and claim that all deductions and credits to the industry are not unique to the industry (Why Oil & Gas Tax Treatments Are Not Unique or Subsidies, 2012) . Classifying subsidies solely as direct government spending is not consistent with the Budget Act definition of tax expenditures as including foregone revenues. 26 Other tax code provisions generally not considered to be special provisions for the oil and gas industry require more elaborate and complex arguments to qualify as special treatment for the industry. The foreign tax credit is such a case as it relies on estimates of average corporate taxes across oil producing countries. The Outer Continental Shelf Deep Water Royalty Relief Act (DWRRA) claimed by ELI as a targeted subsidy for the oil and gas industry is a much more straightforward case. The statute clearly identifies the oil and gas industry as the object for the measure of encouraging production o f marginal re-sources on producing or non-producing leases; through primary, secondary, or tertiary recovery means, reduce or eliminate any royalty or net profit share set forth in the lease(s)(Outer Continental Shelf Deep Water Royalty Relief Act , 1995). The GAO estimates that the royalty relief could amount to $80 billion in total and estimates that an error made in 1998-1999, prohibiting the Secretary of Interior to impose oil price thresholds, alone could add up to $14.7 billion in foregone revenues (Gaffigan, 2007; Humphries, 2009). Direct payments to the oil and gas industry as consumer support measures through LIHEAP and the SPR are also quite clearly supportive of the industry. LIHEAP guarantees a certain amount of revenue for energy producers from low-income consumers who otherwise may have had problems to keep up with utility payments. The SPR is a government-funded supply buffer for the oil industry. It is not only helpful in case of supply interruptions, but through its insurance function facilitates a disproportional reliance on oil as a primary energy source. In the absence of such an economic insurance for the U.S. economy it is likely that the energy sector would have been more diversified with a proportionally lesser reliance on oil. The MISI estimates of the cost of regulation, market activity, and government services are all legitimate posts, but the spread over time and the reports lack of transparency m akes it difficult to include these posts.

25 26

See table 4 summary. See note 20.

32

To conclude this section, the preceding discussion finds that there are a number of major subsidies still in place that can be counted towards the total sum of all direct subsidies to the oil and gas industry with few reservations: 1. Tax Policy (Producer Support) a. b. c. d. e. 2. Intangible Drilling Costs 1916 Percentage Depletion 1926 Deep Water Royalty Relief 1995 Election to Expense 50% of Refinery Cost 2005 Credit for Enhanced Oil Recovery 1990

Economic Security & Consumer/Producer Support a. b. Low Income Home Energy Assistance Program Strategic Petroleum Reserve.

3.3

Government Policy: Active Indirect Subsidies to Petroleum

This section explores subsidies to the petroleum industry that are indirect. Indirect subsidies are government expenditures that are not directly aimed at the industry to stimulate production or consumption, but expenditures that facilitate and enable oil production and consumption. I.e. the very economic structures of society that determine what sectors of the economy can flourish. One example taken up in the previous section on direct subsidies is waterways: ports and channels. A more accurate classification of waterways is as an indirect producer support subsidy due to its enabling of the transportation of oil to refineries and markets. Highways on the other hand can be classified as indirect consumer support subsidies for the petroleum industry as it enables consumption of road fuels in cars and trucks. Apart from government active policy supporting a petroleum-based economy, this section also includes active policy choices that have an indirect impact on oil companies revenue base. 3.3.1.1 The Interstate Highway System

The Federal-Aid Highway Act of 1952 authorized the first step of constructing of the Interstate Highways System and the 1956 Act set the Federal share of cost at 90%. Construction costs were to be covered by the Highway Trust Fund through gas and motor vehicle use taxes. The total Federal share of the costs was $114.3 billion in 1991 27 dollars (Federal Highway Administration, 2013). Today, 83% of the 18.4 cents per gallon of gasoline tax and 88% of the 24.4 cents per gallon on diesel fuel goes towards the highway account in the Highway Trust Fund. The remainder goes to the Mass Transit Account (Financing Federal-Aid Highways, n.d.). The Federal Highway Administration has spent around $30 billion annually since 1999 on maintaining the highway system (Status of the Highway Trust Fund 1957-2011, 2013). The mass transit account was introduced in 1983 and approximately 20 % of Highway Trust Fund expenditures are spent on mass transit (Snyder, 2011). Adding up the expenditures based on the Federal Highway

27

$170 billon in 2010 dollars.

33

Administrations Highways Statistics reveals that the percentage spent on mass transit is actually much lower at 9%. Adjusted to 2010 dollars, the total amount expended on building and maintaining the interstate highways system since 1957 amounts to over $1.3 trillion. The waterway infrastructure calculation from the MISI study is comparatively small with only $34.2 billion between 1950-2010.28 Table 5. Expenditures of the Highway Trust Fund 1957-2011 ($2010 billions) Accounts Highway Account Transit Account Total Expenditures 1,335 127 1,462 Percentage 91 9 100

Source: Status of the Highway Trust Fund 1957-2011. (2013, January). Highway Statistic 2011. Retrieved April 14, 2013, from http://www.fhwa.dot.gov/policyinformation/statistics/2011/fe210.cfm GDP deflator data from US Department of Commerce, B. E. A. (n.d.). Bureau of Economic Analysis. Retrieved April 12, 2013, from http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&910=X&911=0&903=13&904 =1980&905=2009&906=A

3.3.1.2

War in the Middle East

As indicated previously in this report, conflict levels in the Middle East is the primary driver of oil prices, which in turn is the primary factor in determining oil company net income. Given this connection between Middle Eastern conflicts and oil companies absolute and relative profits, the power of the U.S. government to affect the conflict level is crucial to the oil industry. The U.S. Department of Defense (DOD) is the single largest energy consumer in the world (Singer & Warner, 2009) consuming 117 million barrels of oil in FY2011 at a cost of $17.3 billion. Although, the DOD only consumed 1.9% of domestic petroleum energy, making it a relatively small user compared to overall petroleum consumption (Schwartz, Blakeley, & ORourke, 2012). Whereas the actual consumption of petroleum of the U.S. military is relatively small, the impact on oil prices of using the military in the Middle East is far greater. Joseph Stiglitz and Linda Bilmes has assessed the cost of the war in Iraq in their book The Three Trillion Dollar War: The True Cost of the Iraq Conflict implies: assessing the actual costs of the Iraq war that begun in 2003. Their calculations are built on data from government agencies and respected independent sources for estimating health related costs for veterans. Their framework for estimating the total costs for the war is contains ten steps: (1) (2) (3) (4)
28

Add appropriations/expenditures for military operations and; operational expenditures and re-allocations within the Department of Defense and; correct for inflation and time value of money. Add future operational expenditures and;

See MISI, 2010

34

(5) (6) (7) (8) (9)

current and future cost of disability and health care for veterans and; future cost of replacing and restoring military materials spent and; budgetary costs to other parts of government and; add interest. Estimate the cost to the economy incurred from lost income to deaths and disabilities of soldiers and their families plus cost to society from the same.

(10)

Estimate the macroeconomic impact from higher oil prices, larger deficits, diverted funds from other government spending that would have stimulated the economy provided grounds for future growth.

Stiglitz and Bilmes arrive at an estimate of $1.7 to 2.7 trillion in mere budgetary costs of the war in Iraq covering steps 1-8, and add another $300-400 million from step nine. What is interesting is step ten, adding in the macroeconomic costs of higher oil prices, higher deficit and opportunity costs. In the view of the authors, war is not good for the economy and the only benefactors from the war are the oil and military industries. Oil prices has shot up dramatically since the Iraq war begun incurring costs at around $400 billion on U.S. imports only (Bilmes & Stiglitz, 2008, p. 117). Stiglitz and Bilmes then applies standard macroeconomics to show how money spent on imports have a double negative impact on GDP as it reduces output directly and diverts resources from domestic spending which has multiplier effects in the economy. They also add an assessment of the negative impact of the war on stock markets and future growth prospects. The tally of the Iraq war alone ends up at $4 trillion (Bilmes & Stiglitz, 2008, pp. 130131). The opportunity cost of alternative spending of these trillions of dollars to the U.S. economy are difficult to assess, but previous studies of the impact of cold war military spending suggests that military spending is a poor use of government resources. In a comparison of the multiplier effects of military and non-military government spending, Ward and Davis concludes that military spending is a significant drain on the economy (1992, p. 1). The negative macroeconomic effects on the economy resulting from military spending as opposed to nonmilitary spending and the loss of GDP due to higher import costs of oil are double. Lost opportunities to invest taxpayer money in education or infrastructure and negative effects on growth reduce government revenue in the short and long term. Budget deficits force the government to reduce overall spending on already underfunded government services, compounding the effect further. Budget deficits, in turn, reflect poorly on government as it implies that it cannot manage its costs, thus boosting anti-government and anti-regulation sentiments. 3.4 3.4.1 Actions to Affect Government Policy Direct Influence on Policy Making Lobbying works through influencing political representatives by informing them about interest group preferences. Campaign contributions are means to support candidates who vote according to donor preferences. Independent spending from outside groups is somewhat different, as it can be used both as a carrot and a stick. For example, negative spending against Obama reached $332 million in the 2012 election with only $26 million in

35

positive advertising (OBAMA, BARACK President - Follow the Unlimited Money - Sunlight Foundation Reporting Group, n.d.). Independent spending will not be included here as a direct influence on government policy. Lobbying from the oil and gas industry has more than doubled in nominal terms since 1998, reaching a peak of $174 million in 2009. The biggest spender on lobbying among the supermajors over the period was ExxonMobil, followed by Chevron. Koch Industries was a relatively small spender compared to the supermajors, but its growth in lobbying expenditures has been tremendous. Koch Industries spent only $200,000 in 1998, but a full $18 million in 2008, a growth of 9000%. Considering the revenues of Koch Industries at only a quarter of ExxonMobils and not even half of Chevron and ConocoPhillipss, the amount spent on lobbying by Koch Industries is truly remarkable.

36

Table 6. Lobbying Expenditures of the Supermajors and Koch Industries (nominal millions)

Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Grand Total

Oil & Gas Industry $61 $60 $52 $54 $59 $56 $52 $66 $75 $85 $135 $174 $148 $149 $140 $1,366

ExxonMobil $11 $12 $7 $6 $8 $8 $8 $7 $15 $17 $29 $27 $12 $13 $13 $192

Shell $4 $4 $5 $5 $6 $5 $1 $1 $2 $3 $4 $10 $10 $15 $14 $91

BP $5 $6 $4 $2 $3 $3 $2 $3 $4 $5 $10 $16 $7 $8 $9 $86

ConocoPhillips $0 $1 $1 $1 $1 $1 $3 $5 $2 $4 $8 $18 $20 $21 $4 $90

Chevron $9 $5 $5 $6 $7 $6 $7 $9 $7 $9 $13 $21 $13 $10 $10 $136

API $3 $3 $2 $1 $3 $3 $3 $4 $3 $4 $5 $7 $7 $9 $7 $65

Koch Industries $0 $0 $0 $1 $1 $1 $1 $1 $3 $4 $18 $12 $8 $8 $11 $69

Notes: BP includes Amoco. ConocoPhillips includes Conoco and Philips Corp. until merger. Chevron includes ChevronTexaco, Unocal and Texaco. ExxonMobil includes and Exxon and Mobil. Source: Oil & Gas: Lobbying. (n.d.). OpenSecrets.org Center for Responsive Politics. Retrieved April 18, 2013, from http://www.opensecrets.org/industries/lobbying.php?cycle=2012&ind=E01

37

Table 7. Campaign Contributions of Three Supermajors and Koch Industries (nominal millions)

Election Cycle 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Grand Total

Oil and Gas Industry $11 $21 $18 $26 $22 $35 $25 $27 $22 $39 $33 $71 $349

Industry total % to Dem. 38% 34% 37% 23% 23% 21% 20% 19% 18% 23% 23% 10% Avg. 24%

Industry total % to Rep. 62% 66% 63% 77% 77% 79% 80% 81% 82% 77% 77% 90% Avg. 76%

ExxonMobil $0.53 $0.67 $1.08 $1.21 $1.10 $1.40 $1.18 $0.94 $0.85 $1.43 $1.42 $2.78 $14.57

Chevron $0.49 $1.15 $1.14 $1.51 $1.25 $1.57 $1.31 $0.50 $0.61 $1.11 $0.97 $3.88 $15.48

BP $0.49 $0.48 $0.51 $0.88 $0.81 $1.31 $0.49 $0.33 $0.29 $0.52 $0.14 $0.41 $6.65

Koch Industries $0.04 $0.15 $0.40 $0.84 $1.01 $1.07 $1.45 $0.85 $1.51 $2.00 $2.20 $2.74 $14.29

Source: Oil & Gas: Top Contributors to Federal Candidates, Parties, and Outside Groups. (n.d.). OpenSecrets.org Center for Responsive Politics. Retrieved April 18, 2013, from http://www.opensecrets.org/industries/contrib.php?cycle=2012&ind=E01

38

The Center for Responsive Politics accounting for campaign contributions use Federal Election Commission records of individual donors to compute its data. This data contains information about the amount given and the employer/occupation of the individual used to associate the donation to a particular corporate entity(About the data in these industry profiles, n.d.) . Most of the contributions from the oil and gas industry as a whole have been allocated to Republicans, and their share has been growing steadily since the mid 1990s. The spending of Koch Industries has not seen the same dramatic increase as its lobbying expenditures, but it is still remarkable considering the smaller size of Koch Industries relative to other major oil companies. Koch Industries outspent ExxonMobil in 2002, between 2006 and 2010, and was almost on pair with the leading supermajor in 2012. 3.4.2 Indirect Means of Affecting Government Policy Lobbying expenditures and direct campaign contributions are relatively easy to track through the FEC and traceable to the corporations through its employees. Independent expenditures are a different story as they often include a third party organization with limited reporting requirements to the FEC. Independent expenditures are classified in this report as indirect means of affecting government policy as the money is not directly targeted at influence over government policy choices. As opposed to lobbying and campaign contributions, which are closely connected to legislators votes on specific bills, independent expend itures direct attention to political candidates with the aim of influencing voter support for these candidates. The FEC defines Independent expenditures are non -coordinated expenditures expressly advocating the election or defeat of a clearly identifiable candidate. These expenditures are subject to different reporting requirements than coordinated communications. Coordinated communications are communications between a political party or candidate, and outside groups (PACs and individuals are the only ones permitted to do this) regarding election communications clearly in favor or opposing a certain candidate. Coordinated communications are subject to certain reporting requirements (Coordinated Communications and Independent Expenditures, 2013) . Independent expenditures on advertising hit record levels in 2012 as corporations were allowed to spend unlimited amounts from their general funds to support or oppose candidates following the ruling of the infamous Supreme Court case Citizen United v. FEC (Franz, 2013). Super PACs registered as 527 organizations with the IRS have to disclose their donors, but 501(c)4s do not have any donor disclosure requirement. However, 501(c)4s cannot count elections as their primary purpose which restricts their ability to sponsor ads explicitly supporting candidates (Franz, 2013, p. 9). 501c4s together with 527s and regulated PACs spent more in 2012 as independent expenditures and electioneering communications than over the preceding 30-years from 1980-2010 (Franz, 2013, Fig 2). Franz points out that the shift from party committee spending to outside groups does not really make a difference as outsides groups are closely aligned with partisan goals (2013, p. 22).

39

Table 8. Trends in Political Expenditures 1980-2012

Year 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Sum 1980-2010 2012

PAC Ind. Exp. $16,367,316 $5,935,127 $23,468,774 $10,202,309 $21,465,566 $5,647,859 $11,035,701 $5,200,081 $10,183,805 $10,183,805 $28,802,075 $20,355,772 $68,708,428 $38,555,666 $156,621,685 $208,817,989 $641,551,958 $986,149,879

Party Coord. Exp. $17,544,144 $17,497,584 $29,142,372 $23,595,423 $40,689,308 $19,553,001 $62,950,765 $42,834,872 $54,727,412 $38,794,509 $52,164,188 $21,549,521 $58,694,250 $33,947,635 $49,329,383 $51,101,356 $614,115,723 $63,617,951

Party Ind. Exp. $0 $0 $0 $0 $0 $0 $0 $0 $12,345,461 $1,658,192 $3,612,127 $3,703,698 $269,462,574 $225,461,770 $280,523,392 $183,046,343 $979,813,557 $251,101,895

Electoral Com. $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $79,376,646 $10,506,998 $98,842,661 $69,705,692 $258,431,997 $12,131,085

Source: Adopted from: Franz, M. M. (2013). Interest Groups in Electoral Politics: 2012 in Context. The Forum, 10(4). doi:10.1515/forum-2013-0007, Appendix. Table 8 shows trends in political expenditures since 1980. It indicates how outside groups spending took off dramatically in the 2008 cycle (even before Citizens United v. FEC) and overtook party expenditures in 2012 outspending parties by a ratio of 3:1. Not only did expenditures shift from party hands to outside groups, but funds more than doubled from 2010 to 2012. The groups behind this spending are for the most part not required to disclose their donors. These groups are 501(c)(3)s, 501(c)(4)s, and 501(c)(6)s, and unless donations are made through corporate foundations or earmarked for a specific political communication there is no disclosure requirement. Political organizations under IRS section 527, PACs or Super/Hybrid PACs, are required to disclose donor information publicly, although if donations are routed through a non-disclosing group 501(c)(3), (4), or (6) donors can remain anonymous. 501(c)(3)s, charitable non-profit organizations, are most limited in their political activity and can only engage in issue advocacy and certain election activities. These groups can only do a minimal amount of lobbying. 501(c)(4)s, social welfare organizations, and 501(c)(6)s, business leagues, have less limitations regarding their political

40

activities and can support specific candidates as long as they are not coordinated with the candidates own campaign. The primary purpose of (c)(4)s and (c)(6)s cannot be political activity.
29

Examples of Super PACs (independent expenditures only PACs) are American Crossroads, Club for Growth PAC, and FreedomWorks for America. All these have sister organizations (Crossroads GPS, Club for Growth Action, and FreedomWorks Inc.) registered with the IRS as 501(c)(4)s, which allows them to keep donors identities hidden from the public eye. The most prominent 501(c)(6) is the U.S. Chamber of Commerce and the most notable (c)(3) is the Americans for Prosperity Foundation.
30

This report will focus on the organizations that have clear ties to the oil & gas industry or the Koch Brothers and spent significant amounts in the 2010-2012 election cycle. These groups are the American Petroleum Institute (API), American Enterprise Institute (AEI), The Heartland Institute, Americans for Prosperity (AFP) and FreedomWorks.

3.4.2.1

The Ideological Conviction of Charles and David Koch A market economy functions best when governments do not attempt to influence outcomes with a political agenda, when they do not attempt to pick winners and losers (Executive Viewpoint: Twenty Questions for Charles Koch, 2009). As a company, we are committed to doing what is right in every aspect of our business. That is why we will continue doing everything we can to persuade politicians to put what is good for the country first, before it is too late (Moving Forward, 2013, p. 12).

The leading ideological force of the two Brothers is Charles Koch. Charles was influenced by the Austrian School of Economics with Ludwig von Mises and Friedrich Hayek (Executive Viewpoint: Twenty Questions for Charles Koch, 2009). These two along with Milton Friedman are suggested readings on the Koch Industries website. 31 Charles Koch speaks of economic freedom and the Charles Koch Institute runs a website with the same name.32 The requirements for economic freedom are listed as: (1) Individual and property rights

29

Facts regarding donor disclosure and political activities of 501(c)s, PACs and Super PACs adopted from: Grifo, F., Halpern, M., & Hansel, P. (2012). Heads They Win, Tails We Lose: How Corporations Corrupt Science at the Publics Expense . Union of Concerned Scientists. Retrieved from http://www.ucsusa.org/scientific_integrity/abuses_of_science/how-corporations-corruptscience.html See also: Requirements for Exemption. (2013, March 15). IRS. Retrieved April 18, 2013, from http://www.irs.gov/Charities-&-Non-Profits/Other-Non-Profits/Requirements-for-Exemption

31

See What is Economic Freedom? (n.d.). Koch Industries Inc. Retrieved April 20, 2013, from http://www.kochind.com/Newsroom/EconomicFreedom.aspx 32 See Economic Freedom. (n.d.). Economic Freedom. Retrieved April 20, 2013, from http://www.economicfreedom.org

41

(2) An impartial and beneficial rule of law (3) Freedom to trade for wants and needs (4) Sound currency (5) Limited government (Economic Freedom: A heated Debate, 2012). According to Koch Industries Discovery newsletter, government should be small and limited to those activities that actually contribute to societal well-being, such as the protection of persons and property (Economic Freedom: A heated Debate, 2012). Government regulation of greenhouse gases does not seem to be defined as regulation that contributes to societal well-being as it is described as a kind of excessive regulation [that] guarantees the long-term decline of U.S industry, Charles Koch said (Economic Freedom: A heated Debate, 2012). Koch Industries is also committed to free trade without any tariffs, quotas, or subsidies and any other laws or regulations that distort the market even when they benefit Koch businesses (Economic Freedom: A heated Debate, 2012). As a beneficiary of the ethanol tax credit through Flint Hill Resources, Charles Koch said in the January Discovery Newsletter that Koch Industries were happy to see the credit expire in 2011 (Moving Forward, 2013, p. 12). Government in general is described as a self-interested entity funding pork-barrel projects with public money it gets from taxation of income and gasoline, borrowing, and inflating debt through quantitative easing. Koch Industries are also squarely against government bailouts of business (Economic Freedom: A heated Debate, 2012). Charles Koch showed signs of an organizational model understanding of politics when he complained about businesses engaging in rent-seeking behavior through seeking special favors instead of competing with each other. Behavior he calls cronyism (Koch, 2012). 3.4.2.2 The Ideological Conviction the Koch Family Foundations

According to Greenpeace, the Koch family foundations spend $55 million funding organizations denying climate change between 1997-2009 (Greenpeace, 2011). The Kochs are on the boards of several foundations that have supported a variety of think tanks, academic institutions, and fake grassroots organizations. The foundations that the Kochs are active directly in are: Charles C. Koch Charitable Foundation David H. Koch Charitable Foundation Claude R. Lambe Charitable Foundation Knowledge and Progress Fund Fred C. and Mary R. Charitable Foundation

Lately, there has been a lot of attention directed to two secretive foundations, Donors Trust and Donors Capital. These two foundations have routed large sums of money to similar causes. According to a recent Greenpeace report based on IRS 990 tax forms, Donors Trust has given $146 million to 102 groups that have attempted to undermine and obstruct the scientific consensus around climate change or policy solutions to climate change, against

42

the recommendations of the scientific community that countries must act urgently to reduce carbon pollution (Greenpeace, 2013). Donors Trust is according to its webpage dedicated to the ideals of limited government, personal responsibility, and free enterpriseand encouraging philanthropy and individual giving and responsibility, as opposed to governmental involvement, as an answer to society's needs (Donors Trust, n.d.). Table 9. Donors Trust Funding to Twenty Climate Denial Recipients (2002-2011)

Organization American Enterprise Institute (AEI) Heartland Institute Americans for Prosperity (AFP) Federalist Society State Policy Network Hudson Institute Committee for a Constructive Tomorrow (CFACT) Americans for Limited Government Independent Women's Forum Institute for Humane Studies Texas Public Policy Foundation Institute for Religion and Democracy Mercatus Center NFIB Legal Foundation Illinois Policy Institute Philanthropy Roundtable Independence Institute Freedom Foundation (Evergreen Freedom Foundation) Cato Institute Commonwealth Foundation for Public Policy Alternatives Grand Total

Total $19,840,954 $14,496,497 $12,241,961 $10,854,463 $10,059,051 $5,222,000 $4,165,978 $3,950,000 $3,387,604 $3,349,662 $2,630,758 $2,340,000 $2,258,650 $2,093,500 $1,895,707 $1,822,560 $1,727,000 $1,716,555 $1,535,207 $1,473,300 $107,061,407

Source: Adopted from: Greenpeace. (2013). Donors Trust: Laundering Climate Denial Funding (Briefing). Greenpeace. Retrieved from http://www.greenpeace.org/usa/en/media-center/reports/Donors-Trust-LaunderingClimate-Denial-Funding/ The link connecting the Kochs to Donors Trust and Donors Capital Fund is the fact that the Knowledge and Progress Fund a Wichita based fund - has donated over $6 million to Donors Trust and Donors Capital since 2005 (Recipient: Donors Capital Fund, n.d., Recipient: Donors Trust, n.d.) . Charles Koch is the Chairman and CoDirector of the Fund which has Richard Fink as President (Love, 2012). Fink is an executive VP at Koch Industries where he serves on the board of directors. He is also a co-founder of the Mercatus Center at George Mason 43

University where he sits on the board of directors. In addition, Fink sits on the board of the Charles G. Koch Charitable Foundation, Claude R. Lambe Charitable Foundation, Fred C. and Mary R. Koch Charitable Foundation and on the board of Americans for Prosperity, which he also co-founded (Mercatus Center, n.d.). 3.4.2.3 The Ideological Conviction of the Supermajors

From the top twenty recipients of Donors Trust and Donors Capital funds, ExxonMobil has contributed to nine since 2001. These institutions include the Heartland Institute, the Cato Institute, the Federalist Society, the Mercatus Center, and the American Enterprise Institute (AEI) and totals over $4 million, with almost half of the funds going to AEI (Funder: ExxonMobil, n.d.). The engagement of ExxonMobil in the climate science debate is nothing new. A Union of Concerned Scientist report from 2007 traced $16 million of Exxon funds to institutions, which manufactured uncertainty around climate science using similar tactics as the tobacco industry had regarding the health effects of tobacco (Shulman, Abend, & Meyer, 2007).

44

Table 10. ExxonMobil Donations to Organizations Who Receive Funds From Donors Trust & Capital ($ nominal)

Year

American Enterprise Institute for Public Policy Research

Cato Institute

Committee for a Constructive Tomorrow

Federalist Society for Law and Public Policy Studies

Heartland Institute

Independent Institute

Independent Women's Forum

Mercatus Center

Texas Public Policy Foundation

Grand Total

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Grand Total

230000 280000 260000 255000 265000 265000 240000 245000 235000 245000 2520000

20000 30000 25000 15000

35000 35000 72000 125000 90000

15000 15000 15000 15000 15000 15000 15000 15000 15000 15000

90000 15000 92500 100000 119000 115000

5000 10000 10000 5000 15000 40000 40000 30000 15000 15000 15000 40000 40000 40000 40000 40000

5000

400000 390000 529500

10000

560000 534000

20000

70000 40000

15000 10000 10000 20000 10000 80000

555000 360000 310000 310000 310000 4258500

110000

467000

150000

531500

70000

50000

280000

Source: Funder: ExxonMobil. (n.d.). Bridge Project. Retrieved April

l 21, 2013, from http://bridgeproject.com/?organization&id=253653

45

A Union of Concerned Scientists analysis of corporate influence over the climate science and policy dialogue, including ConocoPhillips and ExxonMobil, shines some light on the supermajors positions on science and policy. Based on the companies positions on the EPAs endangerment finding, contributions to the pro or anti proposition 23 camps, public relations, annual report, SEC and IRS filings, shareholder action and Congressional engagement, and funding of outside organizations, UCS has evaluated both companies positions in 2009-2010 (Grifo et al., 2012). ExxonMobil was affiliated with six industry organizations in opposition of climate science or science-based policy, and only affiliated with one support climate science or science-based policy. On the other hand, it was affiliated with an equal number (five on each side) of think tanks and other organizations that either supported or misrepresented climate science. In its public relations communications, Exxon was consistently pro-climate but its actions were almost always anti-climate (Grifo et al., 2012). ConocoPhillips was also affiliated with six oppositional industry organizations, but also with four in favor of climate science or science-based policy. It was not affiliated with any think-tank or other organization misrepresenting climate science, but with one supporting climate science. However, its actions through lobbying and contributions to Congress consisted of equal parts pro and anti-climate funding (Grifo et al., 2012). Interestingly, of the seven energy corporations included in the USC study, all but one (Occidental Petroleum) misrepresented climate science in their comments on the EPA endangerment finding, and only one company of all 28 included expressing concern about climate change in its EPA comment. 33 This consistency indicates that the science misrepresentations are related to regulations, regulations that follow from the EPA endangerment finding. Shell, instead of embarking on a denial track has instead been working on its image through improved public relations over the last twenty plus years. The company has worked on its image as a leader in corporate environmentalism despite being the most carbon intensive among the supermajors with 29% of its reserves in Canadian tar sands and risky exploration ventures in the Arctic (Greenpeace, 2012). It remains unknown if the non-Exxon supermajors are involved in funding organizations fuelling climate denial, but it is possible that they are among the fifteen large donors providing more than 50% of U.S. Chamber of Commerce funding.34 As a 501(c)6, the Chamber does not have to disclose its donors. In 2011 only $11 million of $200 were disclosed (Leonnig, 2012). As the Chamber has run large campaigns promoting the oil industry (Johnson, 2010), has a history of climate change skepticism (Johnson, 2009) and has a policy of not disclosing its members (U.S. Chamber of Commerce, n.d.) it would be reasonable to suspect some level of involvement from the supermajors.

33

See Figure 8 in: Grifo, F., Goldman, G., Gutman, B., Freeman, J., Rogerson, P., & Veysey, D. (2012). A Climate of Corporate Control: How Corporations Have Influenced the U.S. Dialogue on Climate Science and Policy . Union of Concerned Scientists. Retrieved from http://www.ucsusa.org/scientific_integrity/abuses_of_science/a-climate-of-corporate-control.html 34 See US Chamber Watch. (n.d.). The Echo Chamber: How the U.S. Chamber of Commerces Top Corporate Funders Dictate the Agenda for the 112th Congress. Public Citizen. Retrieved from http://www.fixtheuschamber.org/sites/default/files/us_chamebr_watch_-_the_echo_chamber_-_final_formatted_2.pdf

46

3.4.3

The Positions of Supermajor Sponsored Organizations The American Petroleum Institute represents all of the oil and gas industry, including ExxonMobil, BP,

Shell, CococoPhillips, and Chevron (API Member Companies, n.d.). API is not admitting that oil and gas contribute to climate change according to its website: Oil and natural gas take us down the street and around the worldwe rely on them for most of our energy and will likely do so for years to come, emissions from their production and use may be helping to warm our planet by enhancing the natural greenhouse effect of the atmosphere. Thats why oil and gas companies are also working to reduce their greenhouse emissions (API, n.d., my emphasis). APIs 2013 stance has been largely unchanged since 1997 according to an API document available on the Heartland Institute web. The document presents the reality of climate change as uncertain, emphasizes the occurrence of historical temperature changes, and points to reasons such a s sunspots, variations in the earths orbit, clouds and ocean currents (American Petroleum Institiute, 1997). API spent $68 on advertising in 2011 (API 2011 990, n.d.) and had spent $37 as of September 2012 promoting more drilling for oil and gas and less regulation (Lipton & Krauss, 2012). API is relatively careful about expressing its positions on government regulations, market-based approaches and climate change. It came under criticism regarding a leaked internal document which went against USCAP supported legislation, despite the support for energy and climate legislation from some of its members (DeMelle, 2010). API opposes regulation of greenhouse gases under the CAA and have been part of campaigns against a comprehensive climate and energy bill arguing that it will cost jobs, raise gas prices, reduce energy security and make American companies less competitive (Grifo et al., 2012; Kaplun, 2009, p. 5). API has also been involved in funding of a scientific reports skeptical of climate change (American Petroleum Institute, 2010). The Heartland Institute, supported both by the Koch family foundations and Exxon, has a well-documented history of spreading doubt over science including climate change denial 35 and are showing no signs of changing its position. The Heartland Institute mission is to promote free-market solutions to social and economic problems privatization of public services, and deregulation in areas where property rights and markets do a better job than government bureaucracies (Heartland Institute, n.d.). Just recently it released a new report written by retired NASA astronauts, scientists, and engineers. The report titled Anthropogenic Global Warming Science Assessment Report emphasize uncertainties and questions the hype over global warming (The Right Climate Stuff Research Team, 2013). The American Enterprise Institute has a similar history to Heartland, arguing as late as 2007 that DDT was unnecessarily banned and promoted Michael Crichtons novel State of Fear in 2004 (a book describing global

35

See Oreskes, N. (2010). Merchants of doubt: how a handful of scientists obscured the truth on issues from tobacco smoke to global warming (1st U.S. ed.). New York: Bloomsbury Press.

47

warming as a hoax) (Oreskes & Conway, 2010). They have also been caught offering scientists and economists $10,000 each in cash to undermine the 2007 IPCC assessment report (Sample, 2007). The AEI representative who offered cash to undermine the IPCC report was Kenneth P. Green. Green, before coming to AEI, was at the Fraser Institute 2002-2005 where he published an article expressing skepticism against climate science.36 As a resident scholar at AEI since 2006, Green compared climate change to science fiction (Green, 2011). Another prominent AEI scholar, Stephen F. Hayward, has also questioned the reality of climate change in the Weekly Standard (Hayward, 2006). In the most recent issue of the Weekly Standard, Hayward questioned the reality of climate change again: The recent temperature record is falling distinctly to the very low end of the range predicted by the climate models and may soon fall out of it, which means the models are wrong, or, at the very least, something is going on that supposedly settled science hasnt been able to settle (Hayward, 2013).37

3.4.4

The Positions of Koch Sponsored Organizations

Americans for Prosperity was formed in 2003 from the Citizens for A Sound Economy Foundation. The now director, Richard Fink who also founded Citizens for a Sound Economy, and sits on the board of Koch Industries Inc. He is the director of the two Koch companies, INVISTA and Flint Hill Resources. Fink is the president of the Charles G. Koch Charitable Foundation and Claude R. Lambe Charitable Foundations and director of the Fred C. and Mary R. Koch Foundation. Fink was the founder of the Mercatus Center at George Mason University and currently serves on its board of directors. He was also on President Reagans Commission on Privatization (About AFP, n.d.). Citizens for a Sound Economy was founded in 1984 by Charles Koch, David Koch, J.P. Humphries and Richard Fink (Citizens for a Sound Economy, n.d.) David Koch has served as chairman of AFP (Benett, 2012). Americans for Prosperity is according to its own website an organization that works for limited government, less red tape (regulation), less taxes and government spending and free markets (About AFP, n.d.). The organization is against all carbon taxes (Phillips, 2012), and against cap and trade which the group defines as tax on coal, oil and natural gas at its special website set up specifically to make that point (Dont Use Climate Change to Hide Tax Hikes!, n.d.). While the official arguments are economic and AFP says it does not argue against the science of climate change, AFP representatives have been caught claiming that there is no scientific consensus over anthropogenic climate change, if its good or bad, and that carbon is not a pollutant (Johnson, 2010). Politico reported in May 2012 that Charles and David Koch pledged to coordinate and spend $400 million in the federal elections (M. Allen & Vandehei, 2012). Much of this money may or may not have been spent by the Brothers. According to AFP director Tim Phillips, the organization planned to spend $110 million to defeat Obama in 2012 (Wilson & Wenzi, 2012).

36

See Green, K., Ball, T., & Schroeder, S. (2004). The Science Isnt Settled: The Limitations of Global Climate Models. The Fraser Institute. Retrieved from http://www.fraserinstitute.org/publicationdisplay.aspx?id=13537# and Sourcewatch. (n.d.). Kenneth Green. Sourcewatch The Center for Media and Democracy. Retrieved April 27, 2013, from http://www.sourcewatch.org/index.php/Kenneth_Green
37

Hayward is no longer with the AEI but is prominent on AEI webpages: http://www.aei.org/scholar/steven-f-hayward/

48

The AFP does not disclose its donors. However, IRS filings of from donor organizations leads to Donors Trust, a foundation led by Whitney Ball, the former director of development at the Cato Institute, and the Claude R. Lambe Foundation, one of the Koch Family Foundations. Charles Koch was one of the founders of the Cato Institute (Novak & Maguire, 2012; Whitney L. Ball, President President & CEO, DonorsTrust, n.d.) . Donors trust and Claude R. Lambe foundation has given a combined $8 million to AFP since 2010 (Top Organizations Disclosing Donations to Americans for Prosperity, 2012, n.d.). The David H. Koch Charitable Foundation donated $1 million from in 2008, the Charles G. Koch Foundation granted AFP $67,556 in 2009 and the Claude R. Lambe Charitable Foundation has given over $4.5 million since 2005 (Recipient: Americans For Prosperity Foundation, n.d.) . AFP spent over $36 million in independent expenditures and electioneering communications during the 2012 election cycle (2012 Outside Spending, by Group, n.d.) .

FreedomWorks, like AFP has its roots in Citizens for a Sound Economy and was created through a merger of CSE and Empower America in 2004 . Former FreedomWorks CEO/President and House Speaker Dick Armey sat on the CSE board together with David Koch prior to the merger of FreedomWorks and Empower America (Dick Armey, n.d.) FreedomWorks fight for lower taxes, less government and more freedom(About FreedomWorks | FreedomWorks, n.d.). FreedomWorks believes that regulation is a burden on enterprise and that cost-benefit analysis and market-based incentives should be used in reforming the regulatory framework (Red Tape, Hidden Taxes and Regulation | FreedomWorks, n.d.). The EPA is said to be responsible for some of the most costly regulations imposed on businesses and consumers (Energy and Environment | FreedomWorks, n.d.) . FreedomWorks blogger Jon Gabriel recently attributed climate change to solar variability, volcanic activity, and weather patterns while doubtfully ascribing a negligible part to human activity (Gabriel, 2013). The largest donation of $10.6 million in 2012 to FreedomWorks came from a mysterious company set up the day before the first donation was made (Gillum, 2012; Top Organizations Disclosing Donation s to FreedomWorks, 2012, n.d.). The mystery man behind the mystery company was later identified as a William Rose (Gillum & Brown, 2012). According to the Bridge Project38, FreedomWorks has received both large and numerous donations from Donors Trust dating back as far as 2006 (Recipient: FreedomWorks Foundation, n.d.). While the funders of Donors Trust are secret, tax records reveals at least one donation of $25,000 from the Charles G. Koch Charitable Foundation in 2010 (Recipient: Donors Trust, n.d.). 3.5 Summary The petroleum industry has been profitable over the last 35 years, especially since the turn of the century. Charles and David Koch have built their fortunes on the petroleum operations of Koch Industries. Both the petroleum industry as a whole and the Koch brothers have seen their net income rise dramatically since the early 2000s. Both the industrys profits and the Kochs net worth are closely correlated with rising oil prices. Oil prices,
38

A liberal Super PAC, see PAC Profile: American Bridge 21st Century. (2012, February 16). The Center for Public Integrity. Retrieved April 19, 2013, from http://www.publicintegrity.org/2012/02/16/8177/pac-profile-american-bridge-21st-century

49

which in turn depend on the level of conflict in the Middle East, are largely disconnected from supply and demand dynamics. Government policy has supported oil and gas through direct subsidies for almost a century; with the two largest provisions dating back as early as 1918 and 1926. These subsidies are still in place, with somewhat reduced effects. Other provisions have been enacted to compensate for the reduction. Non-specific tax provisions have also benefited the industry and consumer support/security programs provide extra backing for oil and gas as primary energy resources. Key government provided infrastructure has enabled production and consumption of petroleum products on a massive scale. Through indirect government decisions to wage war, the petroleum industry has also benefited immensely over the last decade. The supermajors and the Koch Brothers have been actively engaged in efforts to directly affect government policy through lobbying and campaign contributions. Lobbying (1998-) and campaign contributions (1990-) add up to over $1.7 billion. These actors have also employed indirect tactics to secure their privileged economic position in the economy by promoting an anti-government, anti-regulatory, and anti-science ideology through various external organizations.

50

4 4.1 Discussion

Conclusion

Climate change is likely to have severe effects around the world due to political resistance against transformations of economies away from fossil fuel dependence and toward more sustainable use of energy resources. Since the United States is the largest oil consumer today and is projected to become the largest oil producer in the world by 2020, political developments in the U.S. is of outmost importance for the trajectory of climate change. This report is an analysis of the politics and economics of petroleum and the role of government policy in determining the scale of production and consumption of oil resources. The oil and gas industry has received tax code support for almost a century. It has benefited from one of the largest public works projects in the world and through wars destabilizing the Middle East. The industry has been profitable over time and has leveraged these profits directly against policy through lobbying and campaign contributions. In addition to efforts to influence government policy directly, major industry actors have poured large sums into affecting policy indirectly through the electorate. By promoting a Market Model ideology through funding of right-wing free-market anti-government, anti-regulation think tanks, fake grassroots movements, and custom election propaganda organizations, the industry has contributed to the polarization of American politics. This political polarization lies at the heart of the problem for addressing climate change. Environmental issues in general and climate change in particular has drifted from being issues in their own respect to becoming issues of government intervention in the economy. In reality, the government is deeply involved in every aspect of the economy, and particularly in the energy sector. However, promoting a market-based understanding of the world and portraying government intervention as a negative, helps safeguard the privileged position of the oil and gas industry. 4.1.1 Strategic Implications Oil and gas interests have used their capital resources to shape the political and economic landscape according to their preferences. This landscape is shaped in such a way that government regulation of greenhouse gases is politically difficult, if not impossible, to realize at a meaningful scale and speed. How then would it be possible to either alter or circumvent the political obstacles for climate action? As this report has pointed out, the battle over the environment is a fight for control over the legislature and the public understanding of environmental issues. Since money is the medium used in both contests, restricting its usefulness in the political arena is the key to success. The legal ways to address the corporate grip on Congress can be done through reforming campaign finance law and ending corporate personhood through a constitutional amendment. However, this proposal is logically flawed, as a constitutional amendment is an attempt to change the law since the legislative body is not willing to change the law. The remaining option to action in Congress is to convince a significant number of state legislatures to sign on to the amendment in order to forcefully change federal law. So far, only two states (Vermont and Montana) have actually passed joint resolutions or voter initiatives (Move to Amend, n.d.). Restraining the direct use of money in legislative processes should not put any restrictions on democracy, but rather improve it, as money would buy less influence and corporations would not be considered persons. In the public sphere, it would be more 51

problematic to place legal limits on the ability of corporate money to influence government policy indirectly through shaping public perceptions. Other possibilities would be to try reclaiming and separating environmental issues from the debate over government involvement in the economy, or getting the message across to the public that environmental regulation is not a cost to the overall economy, but rather a substantial long term gain. Such a tactic must be employed in the arena of public perceptions the ideological battlefield where political views have become more polarized than ever before. Given that political polarization has grown steadily over the last thirty years and that environmental regulation was joined to the trend in the mid 1980s, it would be reasonable to expect that reversing this trend would take an equal amount of time. However, the last historical turning point towards political consensus took place in the context of severe economic crises and two world wars and the shift was swift. 39 Besides waiting for the economy to collapse and war to break out, there may be innovative ways to get the message across to a critical mass of people. A promising attempt to promote public awareness of global warming through educating key elements of the media who enjoy high levels of confidence with the public has been made by Ed Maibach, director of the Center for Climate Change Communication at George Mason University. Maibach has together with meteorologist and weather forecaster Jim Gandy used weather reports to educate the public in South Carolina about climate change (Ludden, 2013). Changing the minds of climate change skeptics may require the employment of broker categories such as security, technology or religion, to bring believers an skeptics together instead of each camp concentrating their efforts on demonizing each other (Hoffman, 2011). If it is true that environmental policy chance relies on reduced levels of political polarization, then, the underlying factors involved in producing differences must be addressed. As problems related to race, immigration, social intolerance and inequality are fought by a variety of groups, it makes sense for the environmental community to make common cause with these groups as part of the strategy. Insofar that this is a viable strategy, IFGs efforts to bring groups together with the intent of making common cause and coordinate strategies is a positive contribution to change. Alternatively, if amending the Constitution or directly campaigning to promote public awareness of climate change fail, the environmental community could attempt to promote a dominant capital faction with competencies and interests more consistent with environmental protection and climate change mitigation in order to reduce the fossil-fuel industrys share of national income. As the income of other industries increase, the fossil -fuel industrys influence over government policy would be reduced. A key lesson from this report is that oil-related conflicts are immensely beneficial to the petroleum industry and extremely destructive for the overall economy. It boosts oil company profits like no other policy measure, it drains public accounts of resources for other government programs and breaks the federal budget, and it impacts GDP negatively through making oil imports more expensive. Opposing any U.S. military intervention in the Middle East should therefore be a top priority for the environmental community.

39

See VoteView.com. (2013, January 18). The Polarization of the Congressional Parties. VoteView.com. Retrieved April 26, 2013, from http://pooleandrosenthal.com/political_polarization.asp

52

Bibliography 2012 Outside Spending, by Group. (n.d.). OpenSecrets.org Center for Responsive Politics. Retrieved April 19, 2013, from http://www.opensecrets.org/outsidespending/summ.php?disp=O About AFP. (n.d.). Americans For Prosperity. Retrieved April 19, 2013, from http://americansforprosperity.org/about/directors/ About FreedomWorks | FreedomWorks. (n.d.). Retrieved April 19, 2013, from http://www.freedomworks.org/about/about-freedomworks About Koch Industries. (n.d.). Koch Industries. Retrieved April 9, 2013, from http://www.kochind.com/About_Koch/default.aspx About the data in these industry profiles. (n.d.). OpenSecrets.org Center for Responsive Politics. Retrieved April 18, 2013, from http://www.opensecrets.org/industries/methodology.php Adeye, A., Barett, J., Diamond, J., Goldman, L., Pendergrass, J., & Schramm, D. (2009). Estimating U.S. Government Subsidies to Energy Sources: 2002-2008. Environmental Law Institute. Allen, J., & Martinson, E. (2012, June 20). EPA wears the bull s-eye - Jonathan Allen and Erica Martinson. POLITICO. Retrieved from http://www.politico.com/news/stories/0612/77626.html Allen, M. R., Frame, D. J., Huntingford, C., Jones, C. D., Lowe, J. A., Meinshausen, M., & Meinshausen, N. (2009). Warming caused by cumulative carbon emissions towards the trillionth tonne. Nature, 458(7242), 1163 1166. doi:10.1038/nature08019 Allen, M., & Vandehei, J. (2012, May 30). The Billion-Dollar Buy: GOP groups plan record $1 billion blitz. POLITICO. Retrieved from http://www.politico.com/news/stories/0512/76849.html American Petroleum Institute. (1997). The Big Picture. American Petroleum Institute. Retrieved from http://heartland.org/sites/all/modules/custom/heartland_migration/files/pdfs/7763.pdf American Petroleum Institute. (2010, September 15). PolluterWatch. Retrieved April 20, 2013, from http://www.polluterwatch.com/american-petroleum-institute API. (n.d.). Climate Change. American Petroleum Institute. Retrieved April 21, 2013, from http://www.api.org/environment-health-and-safety/climate-change API 2011 990. (n.d.). Scribd. Retrieved April 19, 2013, from http://www.scribd.com/doc/114944284/api-2011-990 API Member Companies. (n.d.). American Petroleum Institute. Retrieved April 19, 2013, from http://www.api.org/globalitems/globalheaderpages/membership/api-member-companies Banerjee, S. (2010). Transnational Competencies, National Identities, and Hegemonic Coalitions in the US, China, and India. Presented at the International Studies Association, New Orleans: Unpublished document. Benett, L. (2012, March 31). Tracking Koch Money and Americans for Prosperity - Forbes. Forbes. Retrieved April 19, 2013, from http://www.forbes.com/sites/lauriebennett/2012/03/31/tracking-koch-money-andamericans-for-prosperity/ Bilmes, L. J., & Stiglitz, J. E. (2008). The Three Trillion Dollar War: The True Cost of the Iraq Conflict. W. W. Norton & Company.

53

Bishler, S., & Nitzan, J. (2004). Dominant Capital and the New Wars. Journal of World Systems Research, X(2), 255327. Bloomberg Billionaires. (n.d.). Retrieved September 19, 2012, from http://www.bloomberg.com/billionaires/201304-08/aaa Bocian, M., Baumann, A., McHenry, J., & Judy, D. (2011). American Voters Strongly Oppose Congressional Action Against Clean Air Standards Voters Want EPA, Not Congress, To Set Standards . Ayres McHenry & Associates Inc. Retrieved from http://www.lung.org/healthy-air/outdoor/resources/clean-airsurvey/clean-air-memo.pdf Bomberg, E., & Super, B. (2009). The 2008 US presidential election: Obama and the environment. Environmental Politics, 18(3), 424430. doi:10.1080/09644010902823782 Brulle, R. J. (2013, January). THE HIDDEN CAMPAIGN TO SPREAD DOUBT ABOUT CLIMATE SCIENCE. Scholars Strategy Network. Retrieved from http://www.scholarsstrategynetwork.org/sites/default/files/ssn_basic_facts_brulle_on_the_climate_change_ counter-movement.pdf Citizens for a Sound Economy. (n.d.). Sourcewatch The Center for Media and Democracy. Retrieved April 19, 2013, from http://www.sourcewatch.org/index.php/Citizens_for_a_Sound_Economy Coordinated Communications and Independent Expenditures. (2013, January). Federal Election Commission. Retrieved April 18, 2013, from http://www.fec.gov/pages/brochures/indexp.shtml DeMelle, B. (2010, July 14). American Petroleum Institute s Revisionist History on Climate Change Position. The Huffington Post. Retrieved April 20, 2013, from http://www.huffingtonpost.com/brendandemelle/american-petroleum-instit_b_646842.html Dick Armey. (n.d.). Sourcewatch The Center for Media and Democracy. Retrieved April 19, 2013, from http://www.sourcewatch.org/index.php/Dick_Armey Dont Use Climate Change to Hide Tax Hikes! (n.d.). No Climate Tax! Americans For Prosperity. Retrieved April 19, 2013, from http://www.noclimatetax.com/ Donors Trust. (n.d.). Mission and Principles. Donors Trust: Building a Legacy of Liberty. Retrieved April 21, 2013, from http://www.donorstrust.org/AboutUs/MissionPrinciples.aspx Douglass, E. (2012, September 20). Koch Brothers Cashing In 220,000 Acres of Tar Sands Holdings. Reuters. Retrieved from http://insideclimatenews.org/news/20120919/koch-brothers-industries-canadian-tar-sandsproperties-keystone-xl-pipeline-alberta-dilbit-climate-skeptics Dunlap, R. E., & McCright, A. M. (2008, October). A widening gap: Republican and Democratic views on climate change. Environment, 50(5), 2635. Economic Freedom: A heated Debate. (2012, July). Discovery - The Quarterly Newsletter of Koch Companies. Retrieved from http://www.kochind.com/files/DiscoveryJuly2012EconomicFreedom.pdf Energy and Environment | FreedomWorks. (n.d.). Retrieved April 19, 2013, from http://www.freedomworks.org/issues/energy Environmental law and policy: nature, law, and society. (2010) (4th ed.). New York: Aspen Publishers.

54

Executive Viewpoint: Twenty Questions for Charles Koch. (2009, Spring). American Journal of Business, 24(1), 1518. Falkner, R. (2005). American hegemony and the global environment. International Studies Review, 7(4), 585599. Federal Highway Administration. (2013, January 14). Dwight D. Eisenhower National System of Interstate and Defense Highways. Dwight D. Eisenhower National System of Interstate and Defense Highways . Retrieved April 14, 2013, from http://www.fhwa.dot.gov/programadmin/interstate.cfm Financing Federal-Aid Highways. (n.d.). Federal Highway Administration. Retrieved April 14, 2013, from http://www.fhwa.dot.gov/reports/fifahiwy/fifahi05.htm Franz, M. M. (2013). Interest Groups in Electoral Politics: 2012 in Context. The Forum, 10(4). doi:10.1515/forum2013-0007 Funder: ExxonMobil. (n.d.). Bridge Project. Retrieved April 21, 2013, from http://bridgeproject.com/?organization&id=253653 Gabriel, J. (2013, February 13). The Environmentalist Religion. FreedomWorks. Retrieved from http://www.freedomworks.org/blog/joncgabriel/the-environmentalist-religion Gaffigan, M. E. OIL AND GAS ROYALTIES Royalty Relief Will Likely Cost the Government Billions, but the Final Costs Have Yet to Be Determined (2007). Gillum, J. (2012, October 27). Specialty Group Inc., Mystery Firm, Formed Days Before $5 Million Campaign Gift. Huffington Post. Retrieved from http://www.huffingtonpost.com/2012/10/27/specialty-group-incdonation_n_2031207.html Gillum, J., & Brown, S. (2012, December 7). William Rose, GOP Super PAC Donor, Fights Disclosure On More Than $12 Million In Donations. Huffington Post. Retrieved April 19, 2013, from http://www.huffingtonpost.com/2012/12/07/william-rose-gop-super-pac_n_2258105.html Goldenberg, S. (2011, November 30). Barack Obama urged to change US stance at UN climate summit. The Guardian. Retrieved from http://www.guardian.co.uk/environment/2011/nov/30/barack-obama-us-stanceclimate-summit Goodman, A. (2012, December 5). Amy Goodman Questions Top U.S. Negotiator on Alleged Obstruction of U.N. Climate Talks in Doha. Democracy Now! Retrieved from http://www.democracynow.org/2012/12/5/amy_goodman_questions_top_us_negotiator Green, K. (2011, June 20). With Climate Change, Life Imitates Art. The American: The Online Magazine of the American Enterprise Institute. Retrieved from http://www.american.com/archive/2011/june/with-climatechange-life-imitates-art/article_print Greenpeace. (2011). Koch Industries: Still Fueling Climate Denial 2011 Update. Washinton, DC: Greenpeace. Retrieved from http://www.greenpeace.org/usa/en/media-center/reports/Koch-Industries-Still-FuelingClimate-Denial-2011-Update/ Greenpeace. (2013). Donors Trust: Laundering Climate Denial Funding (Briefing). Greenpeace. Retrieved from http://www.greenpeace.org/usa/en/media-center/reports/Donors-Trust-Laundering-Climate-DenialFunding/

55

Greenpeace, I. (2012). Greenwash+20: How some powerful corporations are standing in the way of sustainable development. Green International. Retrieved from http://www.greenpeace.org/international/en/publications/Campaign-reports/ClimateReports/GreenwashPlus20/ Grifo, F., Goldman, G., Gutman, B., Freeman, J., Rogerson, P., & Veysey, D. (2012). A Climate of Corporate Control: How Corporations Have Influenced the U.S. Dialogue on Climate Science and Policy . Union of Concerned Scientists. Retrieved from http://www.ucsusa.org/scientific_integrity/abuses_of_science/aclimate-of-corporate-control.html Hacker, J. S., & Pierson, P. (2010). Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States. Politics & Society, 38(2), 152204. doi:10.1177/0032329210365042 Harris, P. G. (2009). Beyond Bush: Environmental politics and prospects for US climate policy. Energy Policy, 37(3), 966971. doi:10.1016/j.enpol.2008.10.042 Hayward, S. F. (2006, February 27). Climate of Uncertainty: Why Global Warming is Back in the Headlines. The Weekly Standard, 11(23). Retrieved from http://www.weeklystandard.com/Content/Public/Articles/000/000/006/779fgpcf.asp Hayward, S. F. (2013, April 29). The Climate Circus Leaves Town. The Weekly Standard, 18(31). Retrieved from http://www.weeklystandard.com/articles/climate-circus-leaves-town_718070.html Heartland Institute. (n.d.). About Heartland. The Heartland Institute. Retrieved April 21, 2013, from http://heartland.org/mission Hickman, L. (2012, December 14). Landmark climate change report leaked online. The Guardian. Retrieved from http://www.guardian.co.uk/environment/2012/dec/14/ipcc-climate-change-report-leaked-online Hoffman, A. J. (2011). Talking Past Each Other? Cultural Framing of Skeptical and Convinced Logics in the Climate Change Debate. Organization & Environment, 24(1), 333. doi:10.1177/1086026611404336 Humphries, M. (2009). ______Royalty Relief for U.S. Deepwater Oil and Gas Leases (No. RS22567). Congressional Research Service. IFG. (n.d.). ABOUT THE INTERNATIONAL FORUM ON GLOBALIZATION. International Forum on Globalization. Retrieved April 24, 2013, from Inside The 2013 Billionaires List: Facts and Figures - Forbes. (n.d.). Forbes. Retrieved April 9, 2013, from http://www.forbes.com/sites/luisakroll/2013/03/04/inside-the-2013-billionaires-list-facts-and-figures/ International Energy Agency. (2012). World Energy Outlook 2012. Paris, France: International Energy Agency. Retrieved from http://www.worldenergyoutlook.org/media/weowebsite/2012/exsum/English.pdf IRS. (2008, November 18). IRS 990: International Forum on Globalization. Retrieved from http://990s.foundationcenter.org/990_pdf_archive/943/943262147/943262147_200712_990.pdf IRS. (2011, November 19). Form 990: International Forum on Globalization. Internal Revenue Service. Retrieved from http://www.guidestar.org/FinDocuments/2011/943/262/2011-943262147-08c99ce3-9.pdf

56

IRS. (2013, January 31). Charitable Organizations: Political and Lobbying Activities. Internal Revenue Service. Retrieved April 24, 2013, from http://www.irs.gov/Charities-&-Non-Profits/CharitableOrganizations/Political-and-Lobbying-Activities Joahnson, B. (2010, October 23). U.S. Chamber Of Commerce Is Fueled By Foreign Oil. Retrieved from http://thinkprogress.org/economy/2010/10/23/126082/chamber-foreign-oil/ Johnson, B. (2009, September 29). U.S. Chamber Of Commerce: Weve Never Questioned The Science Behind Global Warming. Climate Progress. Retrieved from http://thinkprogress.org/climate/2009/09/29/174443/chamber-questions-climate-science/ Johnson, B. (2010, October 26). Americans for Prosperity lies: Were not arguing the science of climate change. Retrieved from http://thinkprogress.org/climate/2010/10/26/206930/americans-for-prosperity-climatescience-deniers/?mobile=nc Judis, J. B. (2010, February 1). The Quiet Revolution. The New Republic. Retrieved from http://www.newrepublic.com/article/politics/the-quiet-revolution# Kaplun, A. (2009, August 12). Energy Citizens Take Aim at Climate Legislation. The New York Times. Retrieved from http://www.nytimes.com/gwire/2009/08/12/12greenwire-energy-citizens-take-aim-at-climatelegislatio-54732.html Kelemen, R. D., & Vogel, D. (2009). Trading Places: The Role of the United States and the European Union in International Environmental Politics. Comparative Political Studies, 43(4), 427456. doi:10.1177/0010414009355265 Koch, C. G. (2012, September 9). Charles G. Koch: Corporate Cronyism Harms America. Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10000872396390443847404577629841476562610.html?mod=WSJ_Opini on_LEADTop Koch Industries Companies. (n.d.). Koch Industries. Retrieved April 9, 2013, from http://www.kochind.com/Companies/ Koch Industries on the Forbes Americas Largest Private Companies List. (n.d.). Forbes.com. Retrieved April 9, 2013, from http://www.forbes.com/companies/koch-industries/ Kretzmann, S., Stockman, L., & Turnbull, D. (2012, October 25). Oil s new supply boom is a bust for the climate. The Price of Oil. Retrieved from http://priceofoil.org/2012/10/25/oils-new-supply-boom-is-a-bust-for-theclimate/ Krugman, P. R. (2007). The conscience of a liberal (1st ed.). New York: W.W. Norton & Co. Layzer, J. A. (2012, April). HOW CONSERVATIVES HAVE UNDERMINED U.S. ENVIRONMENTAL POLICY. Scholars Strategy Network. Retrieved from http://www.scholarsstrategynetwork.org/sites/default/files/ssn_key_findings_layzer_on_conservatives_and _the_environment.pdf Lazzari, S. (2006a). Oil and Gas Tax Subsidies: Current Status and Analysis (No. RL33763).

57

Lazzari, S. (2006b). The Crude Oil Windfall Profit Tax of the 1980s: Implications for Current Energy Policy (No. RL33305). Congressional Research Service. Lazzari, S. (2008). Energy Tax Policy: History and Current Issues (No. RL33578). Congressional Research Service. Lazzari, S., & Pirog, R. (2012). Oil Industry Performance and the Windfall Profits Tax. Congressional Research Service. Leiserowitz, A., Maibach, E., Roser-Renouf, C., Feinberg, G., & Howe, P. (2012, September). Climate change in the American mind: Americans global warming beliefs and attitudes in September, 2012. Yale University and George Mason University: Yale Project on Climate Change Communication. Retrieved from http://environment.yale.edu/climate-communication/files/Climate-Beliefs-September-2012.pdf Leonnig, C. D. (2012, October 18). Corporate donors fuel Chamber of Commerces political power. Washington Post. Retrieved from http://articles.washingtonpost.com/2012-10-18/politics/35501119_1_center-forpolitical-accountability-political-donations-chamber Lipton, E., & Krauss, C. (2012, September 13). Fossil Fuel Industry Opens Wallet to Defeat Obama. The New York Times. Retrieved from http://www.nytimes.com/2012/09/14/us/politics/fossil-fuel-industry-opens-walletto-defeat-obama.html Love, H. (2012, November 15). Form IRS 990: Return of Private Foundation: Knowledge and Progress Fund. Guidestar.org. Retrieved from http://www.guidestar.org/FinDocuments/2011/541/899/2011-54189925108cd5e31-F.pdf Ludden, J. (2013, February 19). Forecasting Climate With A Chance Of Backlash. NPR.org. Retrieved from http://www.npr.org/2013/02/19/171832641/forecasting-climate-with-a-chance-of-backlash Martinson, E. (2012, June 26). Greens, automakers hail greenhouse gas ruling. POLITICO. Retrieved from http://www.politico.com/news/stories/0612/77837.html Maugeri, L. (2012). Oil: the next revolution. Belfert Center for Science and International Affairs, Harvard Kennedy School, Cambridge. Retrieved from http://indianstrategicknowledgeonline.com/web/Oil%20The%20Next%20Revolution.pdf McCarty, N. M., Poole, K. T., & Rosenthal, H. (2006). Polarized America: the dance of ideology and unequal riches . Cambridge, Mass: MIT Press. McCright, A. M., & Dunlap, R. E. (2011). The politicization of climate change and polarization in the American publics views of global warming, 20012010. The Sociological Quarterly, 52(2), 155194. Mercatus Center. (n.d.). Richard Fink: Board Member. Mercatus Center George Mason university. Retrieved April 21, 2013, from http://mercatus.org/richard-fink Miller, R. C. (2008). International Political Economy: Contrasting World Views. London; New York: Routledge. MISI. (2011). 60 Years of Energy Incentives: Analysis of Federal Expenditures for Energy Development . Washington, DC: Management Information Services. Move to Amend. (n.d.). Resolutions and Ordinances. Move to Amend. Retrieved April 29, 2013, from https://movetoamend.org/resolutions-map Moving Forward. (2013, January). Discovery - The Quarterly Newsletter of Koch Companies, 112.

58

Muller, R. A. (2012, July 28). The Conversion of a Climate-Change Skeptic. The New York Times. Retrieved from http://www.nytimes.com/2012/07/30/opinion/the-conversion-of-a-climate-change-skeptic.html Novak, V., & Maguire, R. (2012, March 5). Koch-Connected Group Shows Holes in Disclosure Requirements OpenSecrets Blog. OpenSecrets Blog. Retrieved from http://www.opensecrets.org/news/2012/03/energyindustry-trade-groups.html OKonski, K. (2012, June 26). EPA greenhouse gas rules upheld but the attack continues in Congress. Climate Science Watch - Promoting integrity in the use of climate science in government. Retrieved from http://www.climatesciencewatch.org/2012/06/26/epa-greenhouse-gas-rules-upheld-but-the-attackcontinues-in-congress/ OBAMA, BARACK President - Follow the Unlimited Money - Sunlight Foundation Reporting Group. (n.d.). Sunlight Foundation Reporting Group. Retrieved April 18, 2013, from http://reporting.sunlightfoundation.com/outside-spending-2012/candidate/obama-barack/P80003338/ OECD. (2011). UNITED STATES: INVENTORY OF ESTIMATED BUDGETARY SUPPORT AND TAX EXPENDITURES FOR FOSSIL FUELS. Organization for Economic Co-operation and Development. Retrieved from http://www.ipaa.org/wp-content/uploads/downloads/2012/01/2009-04TimelineHistoryofNaturalGasandOilTaxProvisions.pdf Oreskes, N., & Conway, E. M. (2010). Merchants of doubt: how a handful of scientists obscured the truth on issues from tobacco smoke to global warming (1st U.S. ed.). New York: Bloomsbury Press. Outer Continental Shelf Deep Water Royalty Relief Act. , Pub. L. No. 104-58 (1995). Retrieved from http://www.gpo.gov/fdsys/pkg/PLAW-104publ58/pdf/PLAW-104publ58.pdf Pachauri, R. K., & Reisinger, A. (Eds). (2007). Climate Change 2007: Synthesis Report. Summary For Policymakers (Asessment Report No. AR4). International Panel on Climate Change. Retrieved from http://www.ipcc.ch/publications_and_data/ar4/syr/en/contents.html Phillips, T. (2012, July 1). AFP; OPPOSED TO ALL CARBON TAXES. Americans For Prosperity. Retrieved April 19, 2013, from http://americansforprosperity.org/newsroom/afp-opposed-to-all-carbon-taxes/ Pirog, R. (2012). Financial Performance of the Major Oil Companies, 2007-2011 (7-5700 No. R42364). Congressional Research Service. Poole, K. T. (2012, Spring). Graphic Picture of a Polarized Congress. UGA Reserach, 3234. Rabe, B. (2011). Contested Federalism and American Climate Policy. Publius: The Journal of Federalism, 41(3), 494521. doi:10.1093/publius/pjr017 Recipient: Americans For Prosperity Foundation. (n.d.). Bridge Project. Retrieved April 20, 2013, from http://bridgeproject.com/?organization&id=275541 Recipient: Donors Capital Fund. (n.d.). Bridge Project. Retrieved April 20, 2013, from http://bridgeproject.com/?organization&id=283639 Recipient: Donors Trust. (n.d.). Bridge Project. Retrieved April 19, 2013, from http://bridgeproject.com/?organization&id=275378\%22%20data-mce-href=

59

Recipient: FreedomWorks Foundation. (n.d.). Bridge Project. Retrieved April 19, 2013, from http://bridgeproject.com/?organization&id=275621&tab=grants Red Tape, Hidden Taxes and Regulation | FreedomWorks. (n.d.). Retrieved April 19, 2013, from http://www.freedomworks.org/issues/red-tape-and-regulation Schwartz, M., Blakeley, K., & ORourke, R. (2012). Department of Defense Energy Initiatives: Background and Issues for Congress (No. R42558). Congressional Research Service. Selin, H., & VanDeveer, S. D. (2007). Political science and prediction: what s next for US climate change policy? Review of Policy Research, 24(1), 127. Sherlock, M. F. (2010). Energy Tax Policy: Historical Perspectives on and Current Status of Energy Tax Expenditures (No. R41227). Congressional Research Service. Shulman, S., Abend, K., & Meyer, A. (2007). ExxonMobil Report: Smoke Mirrors & Hot Air: How ExxonMobil Uses Big Tobaccos Tactics to Manufacture Uncertainty on Climate Science. Union of Concerned Scientists. Retrieved from http://www.ucsusa.org/global_warming/science_and_impacts/global_warming_contrarians/exxonmobilreport-smoke.html Singer, P. W., & Warner, J. (2009, August). Fueling the Balance: A Defense Energy Strategy Primer. The Brookings Institution. Retrieved from http://www.brookings.edu/research/papers/2009/08/defense-strategysinger Snyder, T. (2011, March 11). Yes, Transit Belongs in the Highway Trust Fund | Streetsblog Capitol Hill. Retrieved from http://dc.streetsblog.org/2011/03/04/yes-transit-belongs-in-the-highway-trust-fund/ Status of the Highway Trust Fund 1957-2011. (2013, January). Highway Statistic 2011. Retrieved April 14, 2013, from http://www.fhwa.dot.gov/policyinformation/statistics/2011/fe210.cfm Stern, N. (2006). The Economics of Climate Change, Executive Summary. London: HM Treasury. Stiglitz, J. E. (2010). Freefall: America, free markets, and the sinking of the world economy (Pbk. ed.). New York: W. W. Norton & Co. The Right Climate Stuff Research Team. (2013). Anthropogenic Global Warming Science Assessment Report. Retrieved from http://therightclimatestuff.com/AGW%20Science%20Assess%20Rpt-1.pdf Timeline History of Natural Gas and Oil Tax Provisions. (n.d.). Independent Petroleum Association of America. Top Organizations Disclosing Donations to Americans for Prosperity, 2012. (n.d.). OpenSecrets.org Center for Responsive Politics. Retrieved April 19, 2013, from http://www.opensecrets.org/outsidespending/contrib.php?cycle=2012&cmte=Americans%20for%20Prospe rity Top Organizations Disclosing Donations to FreedomWorks, 2012. (n.d.). OpenSecrets.org Center for Responsive Politics. Retrieved April 19, 2013, from http://www.opensecrets.org/outsidespending/contrib.php?cycle=2012&cmte=FreedomWorks U.S. Chamber of Commerce. (n.d.). Member FAQs. U.S. Chamber of Commerce. Retrieved April 21, 2013, from http://www.uschamber.com/about/faqs/member-faqs#10

60

US EPA office of Air and Radiation. (2011). The Benefits and Costs of the Clean Air Act from 1990 to 2020: Summary Report. US EPA. US EPA office of Air and Radiation. (n.d.). The Benefits and Costs of the Clean Air Act, 1970 to 1990. US EPA. Retrieved from http://www.epa.gov/oar/sect812/1970-1990/chptr1_7.pdf VoteView.com. (2013, January 18). The Polarization of the Congressional Parties. VoteView.com. Retrieved April 26, 2013, from http://pooleandrosenthal.com/political_polarization.asp Ward, M. D., & Davis, D. R. (1992). Sizing up the Peace Dividend: Economic Growth and Military Spending in the United States, 1948-1996. The American Political Science Review, 86(3), 748755. doi:10.2307/1964136 Whitney L. Ball, President President & CEO, DonorsTrust. (n.d.). Donors Trust: Building a Legacy of Liberty. Retrieved April 19, 2013, from http://www.donorstrust.org/AboutUs/WhitneyBall.aspx Why Oil & Gas Tax Treatments Are Not Unique or Subsidies. (2012, February). American Petroleum Institute. Retrieved from http://www.api.org/policy-and-issues/policy-items/taxes/~/media/Files/Policy/Taxes/OilGas-Tax-Treatments-Not-Subsidies-Feb-2012.ashx Wilson, B., & Wenzi, R. (2012, October 16). The Kochs quest to save America | Wichita Eagle. The Wichita Eagle. Retrieved from http://www.kansas.com/2012/10/13/2528807/the-kochs-quest-to-save-america.html World Bank. (2012). Trun Down the Heat: Why a 4C Warmer World Must be Avoided . Washington, DC: World Bank by the Potsdam Institute for Climate Impact Research and Climate Analytics. Retrieved from http://climatechange.worldbank.org/sites/default/files/Turn_Down_the_heat_Why_a_4_degree_centrigrade _warmer_world_must_be_avoided.pdf

61