In case you’ve been living under a rock for the last week, President Donald Trump announced the U.S. would no longer be participating in the Paris Climate Agreement. He made the announcement on June 1 in a White House ceremony, arguing the
agreement put American jobs unnecessarily at risk, while harming consumers, and that some of these nations would not have to reduce any emissions, while others, the U.S., would have to reduce emissions.
However, there was no enforcement mechanism nor any measurement requirement. If a nation fails to reduce their emissions, nothing happens, and if a nation reports false numbers, nothing happens. Because the U.S. was likely the only nation to play by the rules, it would have only hurt U.S. industries unilaterally. For this reason and many more, the President had to pull out of the agreement.
Shortly after the announcement, many celebrities and CEOs took to social media to voice their disagreement with the President’s decision. Disbelief and anger would be an understatement in describing the reactions.
One celebrity business tycoon, Elon Musk, took to twitter, before the announcement, threatening to quit White House councils if the U.S. did not stay in the agreement. Musk is the billionaire CEO of Tesla and SpaceX, two companies that benefit greatly from the government subsidies and contracts, that did not take to kindly to the decision. I wonder why?
Tesla makes money two ways. The first is the obvious, they sell cars. Not just any car, but electric cars. The vehicles range in price from $35,000 to over $80,000. The vehicles also come with a generous tax credit valued at up to $7,500. Tesla proudly promotes the credit on their website as an incentive. This seems like it would be enough to make a profit, but it is not, as the company still has not turned one.
Secondly, Tesla sells Zero Emission Vehicle (ZEV) credits in California to other carmakers in the state. How much can these credits be worth? In the third quarter of 2016 Tesla pocketed $139 million from ZEVs. Those credits pushed Tesla into profitability for the quarter, breaking a 13-quarter losing streak. So, it could be said that Tesla has a financial incentive to ensure harsh environmental regulations are pushed across the nation. It’s not hard to see why he was in favor of the agreement.
The Department of Energy expects wind energy to make up 20 percent of U.S. electricity generation by 2030, and coincidently General Electric (GE) is the largest wind-turbine maker in North America. Knowing those facts, it is no surprise GE was one of the companies pushing to stay in the agreement. GE CEO Jeff Immelt tweeted out “Disappointed with todays’ decision on the Paris Agreement. Climate change is real. Industry must now lead and not depend on government.” Perhaps Mr. Immelt should take a look at where his company gets its money.
Not only does GE make the wind turbines, they get subsidized heavily for it. GE has received over $1.6 billion in subsidies from local, state, and federal authorities. It’s a pretty good scam if you can get the government to pay you to make something you get to sell.
Keep in mind, this is just for GE wind energy. This does not include any other green energy subsidies, loans, or bailouts from local, state, and federal governments. When you total the entire amount up, GE has gotten a staggering $159.4 billion in government funds since 2001. That’s more than the GDP for many small nations. With that kind of money on the line, it’s easy to see why GE would want to keep that gravy train rolling.
One might ask, why would a major corporation want burdensome rules and regulations that come with the agreement? Wouldn’t the new rules and regulations hurt the bottom line of the companies. Yes and no.
Excessive regulations cost small businesses over $12,000 per year, and if you’re a business trying to start, it’ll cost over $83,000, according to a recent survey by the National Small Business Association. These costs might not seem like a lot to an Exxon or Google, but to a startup oil field company out of a garage, it’s a killer.
Corporations are not worried about larger competitors, per se, they are worried about the start-ups that can put them out of business with new technology. One way to stop this from happening is to push regulations ensuring the small businesses cannot keep up. Financial regulations introduced under Dodd-Frank had the same effect on small banks. Because of the cost of regulations, small banks could not compete, and many are struggling because of it.
Speaking of banks, many big banks were also disappointed with the President’s decision. The CEO of Goldman Sachs broke his twitter silence to state “Today’s decision is a setback for the environment and the U.S.’s leadership position in the world. #ParisAgreement.” This begs the question “Why do bankers care?” Who do you think is going to finance the green energy projects?
As the regulations mandate more and more “renewable” energy, the projects are likely to be financed by major banks, with a little help. If banks do not believe the project is likely to succeed, they do not finance it. However, if Uncle Sam backs the loan, because it is green, then banks will loan out any amount to anyone with a federally backed loan guarantee. The Department of Energy gives out billions every year in loan guarantees. Banks will happily make loans, for a small fee of course, as long as they are backed by the federal government. Bad loans made by banks being backed by Uncle Sam, haven’t we seen this story before?
As you continue to laugh at or take seriously the reactions to Trump’s Paris climate accord announcement, remember one thing, follow the money. That will almost always tell you why the critics are coming down the way they are.