Too Big To Fail? Too Big, Period.

Cross-posted from the Breakthrough Institute and WattHead - Energy News and Commentary

The executives of General Motors, Ford and Chrysler made yet another trek to Washington DC this week - this time ditching the corporate jets to drive hybrid cars - and once again pled for a federal bailout to prop up their struggling companies. Up to $34 billion taxpayer dollars are apparently all that stands between at least two of the "Big Three" automakers and bankruptcy.

GM's executives told Congress the company will fail very, very soon unless it receives at least $12 billion in loans in the coming months. Chrysler warned they could go belly up by year's end without $7 billion in government aid. Even Ford, which is doing a bit better than its two Detroit brethren, is asking for an open, taxpayer-funded line of credit of up to $9 billion dollars.

All this means its time for Congress and the American public to face two basic facts.

First, GM and Chrysler are essentially bankrupt already, and Ford may not be far behind. The insular management of the Big Three has already run their companies into the ground, and if a massive government loan is the only thing that will keep them afloat, we might as well consider them failed companies, for all intents and purposes. So let's start treating them that way. With the economy in recession already, we certainly need to ensure a soft landing - rather than a hard collapse - for the auto companies and the millions of Americans who depend on them for their paychecks. But the objective of the bailout should be to preserve American auto industry jobs, not to preserve the Big Three companies themselves. GM, Chrysler, and perhaps even Ford are done. We shouldn't be afraid to turn the page on this chapter of the American auto industry and usher in something entirely new - and better.

Second, if GM, Chrysler and Ford are too big to fail, then it's time to realize that they are simply too big, period. If taxpayers are going to put their money on the line to bailout Detroit, we should be taking advantage of this opportunity to make fundamental changes to the American auto industry. It is time to say, "Never again!" to auto companies that are so large that they can hold taxpayer's hostage because the consequence of their failure is too great - companies that are so large that competition and innovation are stifled by their vast and unwieldy bulk.

Here's what we propose: offer government loans to the Big Three to ensure the companies don't collapse now during the midst of recession. But the conditions of those loans should be similar to the conditions of the Chapter 11 bankruptcy the companies would enter in absence of the loans. No blank checks for the Big Three to continue business as usual.

Instead, Congress will appoint an independent blue ribbon commission. They'll staff that commission with the best bankruptcy judges, restructuring consultants, and industry experts in the world. This commission will be charged with breaking the company up into several smaller companies that will inherit the different divisions, car models and assets of the parent. The commission will then seek new management to run each new company, deploying head hunters to recruit top talent from mid-level management within the Big Three, or even in the ranks of foreign companies like Toyota, Volkswagen or Hyundai.

The new companies - Baby GMs, or Baby Chryslers - will then be turned back over to the private sector and they'll be encouraged to issue new common stock to raise more operating capital. The government will have to vigorously enforce anti-trust laws to ensure these companies remain small, at least for the time being, and to keep foreign automakers or governments from gobbling them up (the Chinese government has already been shopping for one of the Big Three, and would gladly snatch up the new companies if we let them).

In the end, we'll have a new kind of American auto company - leaner and nimbler, and under a new class of managers - and a new kind of America auto industry - one that's more competitive and fosters the continual innovation that's been absent in Detroit for too long.

In the short run, we'll protect as many automaker jobs as possible by injecting capital into these new companies to help them weather the transition period. In the long run, some of these new companies will fail, but when they do, they won't be large enough to send the entire economy into tailspin. And for every company that fails, others will succeed by adopting a corporate culture that embraces innovation and produces high-quality cars that match the American consumer's demands.

The net result will be a vibrant and innovative American auto industry that sustains good manufacturing jobs here in the United States. The new competitive environment will foster the adoption of more efficient vehicle designs, encourage the development of cutting-edge technologies like plug-in hybrid electric vehicles, and create space for up-and-comers like Silicon Valley-based electric car manufacturer Tesla Motors to enter the field.

That's the future of the American auto industry. Anything short of this kind of dramatic restructuring of the industry will merely prolong the inevitable day when GM, Chrysler and Ford fall under their own weight, taking American jobs, taxpayer dollars and our economy with them. Too big to fail? Too big, period.

[Image source: FoxNews.com]

Pelosi Cobbles Together Strong Energy Bill - Heading for Showdown in Senate

After long hours of negotiations that have stretched long into the night for the past week, House Speaker Nancy Pelosi seems to have cobbled together a deal that will send a strong energy bill out of the House, likely Thursday.

Rumors last month that essentially every major provision but increased fuel economy standards might get stripped from the bill followed by long weeks of speculation have given way today to confirmation that the energy package heading for a House floor vote tomorrow will include some version of every major clean energy provision under consideration: a 35 mpg CAFE standard, a biofuels standard, and in a surprise turn, both a 15% by 2020 national renewable electricity standard and a $21 billion tax package for clean energy sources.

The passage of the bill, expected tomorrow in the House, will be a major victory for Speaker Pelosi, who has fought hard to advance a strong energy bill to the floor over opposition from Republicans, industry and even influential members of her own party - namely influential Michigan Congressman John Dingell.

Even after securing passage in the House, the bill will be heading towards a tough vote in the Senate where opposition from ranking member of the Senate Energy Committee, Pete Domenici (R-NM) will mean the bill will require a filibuster-proof 60 votes to secure passage. And it won't end there: President Bush has re-iterated threats to veto the bill if it includes certain provisions, including a renewable electricity standard and tax provisions financed by ending subsidies for the oil and gas industry.

Details on the components of the energy package below. But first, a look at the tumultuous - and still-unfolding - saga of the 2007 Congressional Energy Bill.

The Energy Bill's Saga

After some Senate Republicans blocked a formal conference committee to reconcile the two version of the energy bill passed by the Senate and House this summer (see previous posts here and here), Democratic leaders opted to move forward without a formal conference. They have instead been meeting in closed sessions to hammer out details on what provisions are in and what are left on the cutting-room floor. They concluded those negotiations late last night and have referred a full bill to the House floor for a vote sometime Thursday.

While the hundreds-of-pages long bill includes scores of smaller provisions, including some excellent new energy efficiency provisions, four major provisions were at the center negotiations - and speculations - this past week:

A 35 mile-per gallon fuel economy standard (35 mpg CAFE) for cars and light trucks, the first increase in fuel economy standards in 30 years. The energy bill passed by the Senate included a 35 mpg CAFE provision while the House version did not. Senior Michigan Democrat and House Energy Committee Chairman, John Dingell had opposed the Senate version of the CAFE provision, pushing for a weaker update to CAFE standards.

A large biofuels requirements (a renewable fuels standard or RFS) that mandates billions of gallons of ethanol, biodiesel and other biofuels for use in U.S. cars and trucks. The Senate bill included a 36 billion gallon by 2022 biofuels standard, including 21 billion gallons from "advanced" biofuels like cellulosic ethanol. The House version had no renewable fuels title.

A 15% by 2020 renewable electricity standard (RES) requiring large electric utilities to acquire 15% of their electricity from renewable sources like wind, solar and geothermal energy by 2020. The Senate narrowly failed to pass a RES this summer, while the House succeeded in passing a standard for the first time in history.

Finally, a multi-billion dollar package of tax incentives for clean energy funded by ending subsidies and closing royalty loopholes enjoyed by the oil and gas industries. During the first "100 days" push, House Democrats passed a $32 billion tax package while the Senate again narrowly failed to pass a tax package; the House energy bill passed this summer did include a $16 billion tax package.

The fuel economy provisions were the source of contention between Speaker Pelosi and Energy Chairman Dingell, who has been a key advocate for the auto industry and fought the 35 mpg CAFE standards.

The latter two provisions were the source of the most conflict between Democrats and Republicans, and between the House and the Senate, and have drawn veto threats from President Bush.

Although of questionable environmental character, the biofuels package, in contrast, is widely seen as the political "glue" that holds the bill together, drawing in "farm state" Republican moderates.

All this led to much speculation and anticipation over the course of what was a very secretive negotiation process, as small bits of information leaked of closed negotiation chambers and rumors spread.

Veil of Secrecy Parted To Reveal Strong Energy Bill

In the end, the bill heading to the House floor will be stronger than many - perhaps most - speculated, including some version of all four major provisions:

The bill includes a 35 MPG fleetwide CAFE standard, although it retains the "flex fuel vehicle loophole" that Detroit automakers exploit to help turn gas guzzling SUVs into 35 mpg machines on paper. The loophole is decreased in later years though. The CAFE standard also keeps separate standards for cars and light trucks/SUVs, potentially leaving the SUV loophole intact. Pelosi has issued assurances though that the seperate standards will still amount to a 35 mpg fleetwide average across all cars, light trucks and SUVs.

Also in the bill is a large biofuels standard, although details are still emerging on the renewable fuels title.

The bill includes the 15% by 2020 renewable electricity standard passed by the House earlier this year, although there have been some small modifications made (a lower price cap on the costs of compliance for example). Like the version passed by the House, utilities can meet up to 4% of the standard with energy efficiency (which I suppose makes it a 11% RES and 4% efficiency standard, although some utilities may opt for more than 11% renewables). The bill does not conflict with the 25 renewables standards already enacted by states.

Finally, in a surprise to many, the bill will include a $21 billion tax package which will be financed in part by ending $13 billion in subsidies for the oil industry. A provision in the original House bill to close unintended loopholes in offshore oil and gas royalty agreements was not included in the new bill.

The bill also includes a number of other provisions intended to advance America towards a clean energy future, including strong new energy efficiency standards and a "Green Jobs" provision intended to create 3 million new skilled jobs in the clean energy economy.

Speaker Pelosi's summary of the bill can be found here.

The Saga Continues... Showdown Looms in the Senate

While the energy bill is expected to pass the House, where simply majority rules, it's fate in the Senate is still unclear. A "supermajority" of 60 votes will be required to move the bill in the Senate past Republican opposition in the form of a filibuster threat, and Senate Majority Leader Harry Reid has said he is unsure whether or not he has the needed 60 votes.

If the bill cannot secure passage in the Senate in it's current form, speculation is that Democrats will begin stripping provisions from the bill until 60 votes can be earned. What the bill looks like at the end of that process is still unclear, and the possibility of a presidential veto looms over the whole thing (sounds pretty familiar...).

Stay tuned (and call your Senators!).

Legislative Shenanigans Underway on Congressional Energy Bill

As Democrat and Republican leaders maneuver, negotiate, and deal on the Congressional Energy Bill this week, there appears to be some nefarious shenanigans underfoot and a possible cave-in on support for renewable energy in process. Now might be time to call your Senators and Representatives...

Energy Bill Shenanigans

First, Senator Pete Domenici (R-NM) is working to strip the Renewable Fuels Standard (RFS) title out of the Senate Energy Bill and attach it wholesale to the Ag Bill currently under debate in the Senate. Domenici claims he's just trying to save the RFS from the potentially floundering Energy Bill, but Senate Majority Leader Harry Reid (D-NV) says he's got more sinister motives.

According to lots of folks, including Reid, Domenici is really trying to kill the Energy Bill with this move.

Remember that Domenici was the man who led the filibuster in the Senate that blocked both the Renewable Electricity Standard and the tax package that would have shifted billions in unnecessary royalties and closed loopholes to provide $32 billion in tax incentives from the oil and gas industries to fund clean, renewable energy.

As David Roberts at GristMill writes,

"The RFS is one of the key planks holding support for the energy bill together, bringing in some midwestern Republicans to compensate for the auto and oil Dems that have bailed [due to fuel economy standrd increases and the shift in subsidies from oil to renewables]. If the RFS falls out of the energy bill, the coalition falls apart."

So by pulling out the Renewable Fuels Standard, Domenici seems to be trying to pull the plug on the embattled Energy Bill. Without the RFS, and the farm-state Rs it brings along, the Energy Bill is unlikely to get the 60 votes necessary to pass filibuster in the Senate (likely led - again! - by Senator Domenici).

And as if that's not bad enough, Mr. D. is also trying to tack on his beloved massive loan guarantee for new nuclear power plants to the Ag Bill.

Yeah, "what do nukes have to do with agriculture?" Well, not much, but Domenici plans to try to make it germane by calling the federal loan guarantees "loan guarantees for renewable fuel facilities." Then in a bit of wonderful D.C. trickery, the amendment lumps nuclear power plants within the list of eligible "renewable fuel facilities." Nice one Pete.

The loan guarantees, which total $50 billion in the Senate version of the Energy Bill, would essentially put John and Jane Q. Taxpayer on the hook for any loan defaults by new nuclear power plant developers. The guarantees are necessary because no sane investment bank would finance a new nuclear power plant given the risk and uncertainty in permitting a new nuke.

So when Wall Street won't foot the bill for new nukes, let's put our taxpayers on the hook, or at least that's Senator Domenici's philosophy here. Good thing nuke developers have never defaulted on loans before ... oh wait!

All part of retiring Senator Domenici's legacy of fighting renewable energy. He can't retire soon enough, if you ask me.

Possible Cave-in on Renewable Energy Brewing

So, with influential Republicans working to kill the fragile coalition supporting the Energy Bill, embattled Democratic leaders are considering jettisoning the support for renewable energy in the House version of the Energy Bill.

According to rumors flying around D.C. and across the blogosphere, Speaker of the House Nancy Pelosi and Senate Majority Leader Reid are considering stripping the 15% by 2020 Renewable Electricity Standard (or Renewable Portfolio Standard) and the $32 billion tax package for renewable energy from the Energy Bill in order to try to keep increased fuel economy standards in the bill.

Stripping the RES and the tax title would mean Dems had been forced to cave on just about everything that President Bush has complained about and Senator Rs had fought against.

The 35 mpg by 2020 increase in CAFE standards is critical, especially at a time when oil is trading at nearly $100 per barrel. However, the support for clean, homegrown renewable energy in the Energy Bill is equally critical and the Democratic Leadership needs to be clear that the RES and tax title are not ballast to be thrown overboard in stormy waters.

It's time to send Pelosi, Reid and your own reps and senators a clear message that the Energy Bill must include all three provisions: increased fuel economy standards, a renewable electricity standard, AND a tax package for clean, renewable energy.

Let President Bush veto a critical energy bill at a time of record high energy prices and explain that to the American people. Let House and Senate Rs explain why they blocked efforts to save Americans energy and money, help kick our oil addiction, invest in clean, homegrown, renewable energy sources and put America on a path to a sustainable and prosperous energy future.

But DO NOT cave in.

This isn't the "change" we voted for in November 2006, and we'll be voting for new leaders in 2008 if our current set can't get the job done.

Rep. Ed Markey vs. Toyota On New Fuel Economy Standards

The supposedly "green" automaker, Toyota, is fighting tougher fuel economy legislation that would save American consumers billions of dollars and put a major dent in the United States' oil addiction.

Some of you may have missed the buzz kicked up recently by a nationwide campaign to put the heat on Toyota for lobbying against tougher fuel economy standards. The campaign, coordinated by NRDC , the National Environmental Trust, the Union of Concerned Scientists and others is focused on calling out the fact that Toyota, maker of the 46-mpg hybrid Prius, is joining with the Big Three Detroit automakers to lobby hard against a proposed increase in fuel economy standards to 35 miles per gallon (MPG) by 2020.

The Senate passed an energy bill including a 35 mpg by 2020 standard and the House is currently considering similar legislation (in the form of the Markey-Platts bill). Toyota, who often touts their fuel-efficient hybrid Pruis, Camry and Highlander models and markets itself as a "green" car company, is lobbying hard against the 35 mpg by 2020 standard and supporting the significantly more industry-friendly Hill-Terry bill (HR 2927) as part of the Alliance of Automobile Manufacturers (which also includes General Motors, Ford and Chrysler).

New York Times columnist Thomas Friedman helped spread the word about Toyota and Detroit's shenanigans in a column last week and media and grassroots events across the country continue to put pressure on Toyota for fighting increased fuel economy standards.

In response to the pressure, Toyota issued this statement:

There are various bills before Congress that would mandate a new target of 35 mpg by 2020 and require both cars and trucks to meet that standard. Our engineers tell us the requirements specified by these proposed measures are beyond what is possible. Toyota spends $23 million every day on research and development but, at this point, the technology to meet such stringent standards by 2020 does not exist.

Toyota has long supported an increase in the Corporate Average Fuel Economy (CAFE) standards. Moreover, Toyota has always exceeded federal fuel economy requirements. We are continuously striving to improve our fuel economy, regardless of federal mandates. [emphasis added]

Representative Edward Markey, chair of the House Select Committee on Energy Independence and Global Warming and sponsor of the House 35x2020 proposal has personally challenged Toyota's claims that meeting the 35 mpg by 2020 fuel economy standards in the Senate Energy Bill would be "impossible."

In a press release last week, Rep. Markey said:

Toyota, intent on keeping its image as a “green” company, has responded to calls of fuel economy obstructionism by telling their customers that higher fuel economy standards being considered in an energy bill before Congress are “impossible.” Yet a thorough analysis of international fuel economy standards clearly shows that Toyota is already meeting—and exceeding—the 35 mile per gallon standard in the energy bill. In Japan.

“Apparently the only thing that separates Toyota from the ‘impossible dream’ of 35 miles per gallon here in the U.S., is a flight across the Pacific Ocean,” said Chairman Edward J. Markey of the Select Committee on Energy Independence and Global Warming. “The International Date Line is an invisible barrier for fuel efficiency that Toyota is unwilling to cross.”

Toyota claims that Japan does not have mandatory fleet standards comparable to the United States. This is not true. In Japan, the government first imposed weight-based fuel economy standards in 1999 and revised them in 2006 “because the majority of vehicles sold in Japan in 2002 already met or exceeded the 2010 standards,” according to a July 2007 report by the International Council on Clean Transportation (ICCT). The same report says Japan’s fuel economy is currently at 41 mpg, and will have a fleetwide fuel economy of about 47 mpg in 2015 – 5 years before the 35 mile per gallon energy bill requirement is due to be met in the United States. A chart from the report on fuel economy levels around the world is included below (click to enlarge).

The graphic also reveals the lie in GM, Ford and Chrysler's assertions that building vehicle efficient enough to meet the 35 mpg standard is impossible. All three companies already sell thousands of vehicles every year in Canada, Australia and China where fuel economy standards far exceed those in the U.S. and all three operate in Europe where standards are already higher than the 35 mpg standard the automakers are fighting so hard.

So why are Toyota and Detroit fighting so hard against standards that will require them to achieve average fuel economy levels 13 years from now that they are already achieving today in Europe and Japan and will and will need to meet in just a few years in China, Australia and Canada?

Why do these automakers insist on blocking the biggest step towards energy independence and increased energy security Congress has taken in decades?

If you want to tell Toyota it's time to do as their slogan says, and truly get "moving forward," head over to the NRDC's site here.

And click here to tell your representatives that you want to see the strongest elements of both the House and Senate energy packages make it into the final energy bill and onto the President's desk!

[A hat tip to Hill Heat's the Cunctator]