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Will Koch Pull the Plug on Electric Cars?

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General Motors

By Elliott Negin

When multibillionaire industrialist Charles Koch perceives a potential threat to his fossil fuel empire, he doesn't mess around.


To undercut the burgeoning wind industry, Koch's network of advocacy groups, think tanks and Capitol Hill friends fought to terminate the federal production tax credit, and Congress ultimately agreed in 2015 to phase it out over the following four years.

To slow the exponential growth of solar power, his network has been lobbying state legislatures to curtail the practice of net metering, which gives solar panel owners credit for the excess energy they generate and send back to the grid.

Now Koch wants to kill a federal income tax credit of up to $7,500 for electric vehicle (EV) buyers for the first 200,000 EVs each automaker sells. Although EVs make up less than 2 percent of total vehicle sales nationally, 123,000 of them were snapped up in the first six months of this year, more than twice the amount sold in all of 2015, and more carmakers are expected to introduce new EV models over the next few months. Alarm bells are going off at Koch Industries headquarters.

Last year, the initial draft of the House Republican tax reform bill included a provision terminating the EV tax credit, but it survived in the final, end-of-the-year tax package President Trump signed in December. This year's tax-break-extenders bill finds the Koch network back at work to block the EV tax credit, and it got a boost this week from White House chief economic adviser Larry Kudlow, who said the Trump administration wants to end EV subsidies.

A Fight Looms

The rationale behind the tax credit, which Congress passed in 2009, is to create a stable market for EVs much in the same way government policies helped the gasoline-hybrid market grow. Congress has a long history of providing tax breaks to help emerging and established industries alike, and EVs are a natural candidate because auto industry entry barriers are steep, and electrifying the U.S. transportation sector is one of the most important steps the country can take to address global warming.

The battle over the EV tax credit's future is expected to play out before Congress adjourns for the holidays. Leading the fight in favor of the tax credit is Sen. Jeff Merkley (D-Ore.), who introduced a bill in mid-September that would remove the 200,000-unit cap—which Tesla has already hit—and extend the credit until 2028. Rep. Peter Welch (D-Vt.) introduced the same bill in the House.

Meanwhile, Sen. Dean Heller (R-Nev.) and Rep. Diane Black (R-Tenn.) introduced a pair of bills in mid-October that would eliminate the 200,000 sales cap but begin to phase out the credit in 2022. That would still help out Tesla, which built an electric car battery factory in Nevada, and Nissan, which manufactures its Leaf EV in Tennessee.

On the other side: Sen. John Barrasso (R-Wyo.), House Ways and Means Chairman Kevin Brady (R-Texas), other strategically placed Republicans, and at least 20 advocacy groups—all making the same specious arguments, and all beneficiaries of Koch largesse.

In early October, Barrasso introduced a bill in the Senate that would not only eliminate the EV tax credit, but also slap EV owners with a user fee that would go to the Highway Trust Fund, which is financed by the federal gasoline tax. Koch Industries has been one of the senator's top 10 supporters since 2013, donating $45,400 to his campaign and leadership political action committees.

Before the EV tax credit gets to a floor vote as a part of a tax-extender package, it has to go through the Senate Finance Committee and the House Ways and Means Committee, and Charles Koch has cultivated a critical mass of friends on both. Since 2013, Koch Industries has given $253,600 to 11 of the 14 Republicans on the Senate committee and $374,000 to 21 of the 24 Republicans on the House committee, including Chairman Brady. (The company gave nothing to the 13 Democrats on the Senate committee and only $1,030 combined to two of the 16 Democrats on the House committee.)

Koch-Funded Groups—and Koch Industries—Enter the Fray

Three weeks before Barrasso introduced his bill, 30 seemingly independent, self-described free-market organizations signed a letter to Brady urging Congress to either retain the cap on the first 200,000 EVs sold—which would penalize U.S. automakers Tesla and General Motors for selling more EVs than their Asian and European counterparts—or just "eliminate the tax credit entirely, as the House proposed in last year's tax bill."

But it turns out that they are not true free-market groups at all. Yes, they argue that the government shouldn't subsidize any energy technologies, but they confine their objections to tax breaks for clean energy alternatives, claiming all the while that the oil and gas industry receives no subsidies. In fact, since 1918, permanent oil and gas tax breaks and other subsidies have averaged $4.86 billion per year in 2010 dollars, according to a 2011 study by investment firm DBL Partners. Taking inflation into account, that amounts to an average of $5.62 billion today.

Why would free-marketeers make such an exception?

Perhaps because they get significant funding from fossil fuel interests, most notably Charles Koch, whose privately held Koch industries owns three oil refineries, thousands of miles of oil and gas pipelines, and bulk coal delivery services. These think tanks and advocacy groups essentially function as public relations arms of their benefactors, representing their interests under the guise of being neutral, albeit conservative, policy shops.

Consider the group that organized the anti-EV tax credit letter: the American Energy Alliance. AEA is the political lobbying arm of the Institute for Energy Research, and the president of both groups is Thomas J. Pyle, a former lobbyist for Koch Industries and the National Petrochemical and Refiners Association. Between 2012 and 2016, Koch foundations gave $8.9 million to the groups—which together employ only a dozen people—and in previous years, ExxonMobil and the American Petroleum Institute were among their patrons.

Like AEA, 15 of the other 29 organizations that signed Pyle's letter, including Americans for Prosperity, Americans for Tax Reform, Competitive Enterprise Institute and Heritage Action—the Heritage Foundation's political lobbying arm—are Koch grantees, collectively receiving $142.6 million over the same five-year time period. And two other groups on the letter—the National Black Chamber of Commerce and Taxpayers Protection Alliance—got AEA grants in 2015. Including those two, at least 18 of the 30 signatories are known cogs in the Koch network.

Koch Industries itself weighed in on Oct. 24, when company lobbyist Philip Ellender sent a letter to members of Congress opposing the Heller and Black bills that would extend EV tax credits for four more years and eliminate the 200,000-unit cap. "Congress should not be in the business of picking winners and losers by subsidizing one form of energy over others," Ellender wrote, "regardless of its source." Left unsaid, of course, is the bogus Koch World claim that oil and gas industry tax breaks are not subsidies.

Koch-Funded Think Tanks Provide Deceptive Arguments

If direct funding of politicians and advocacy groups weren't enough, Koch foundations also underwrite the libertarian think tanks that produced the studies cited by Barrasso, Pyle and Ellender to make their case: the Pacific Research Institute, which received $200,000 from Koch funds between 2012 and 2016, and the Manhattan Institute, which received $954,500 in Koch grants and another $535,000 from ExxonMobil over that same five-year period. The two studies' spurious arguments are that the EV tax credit largely benefits wealthier Americans and reduces U.S. tax revenue, and that the internal combustion engine-powered cars are as clean as EVs.

The Pacific Research Institute study found that nearly 80 percent of EV tax credits in 2014 went to households with an adjusted gross income of at least $100,000 and more than half went to households with adjusted income levels of at least $200,000. What the study failed to mention, however, is the fact that upper-income Americans are generally the only ones who can afford to buy any kind of new vehicle, whether electric, hybrid or gasoline-powered. As a 2018 study by the National Center for Sustainable Transportation pointed out, the average income of households buying new cars in 2012 was $119,400; accounting for inflation, that would equal an average annual income of $131,000 today.

The Pacific Research Institute study also ignores the fact that some EVs are a relative bargain, and the federal tax credit makes them even more so. The average price of a new vehicle across the country in January of this year was $36,270. The tax credit reduces the cost of a 2018 Nissan Leaf to $22,490 and a 2018 Chevy Bolt to less than $30,000, making these two EVs more affordable options for middle-income households.

The Manhattan Institute study, meanwhile, argues that the EV tax credit is cheating the U.S. Treasury out of tax revenue. Last year, the EV tax credit amounted to $670 million. Compare that to the lost tax revenue in 2014 from the oil and gas industry's permanent tax breaks, which totaled $4.7 billion.

Unlike many of the other Koch-funded groups, the Manhattan Institute grudgingly concedes that the oil and gas industry indeed gets tax breaks, but insists that those subsidies provide consumers a "tangible benefit" by reducing the retail cost of oil and gas. In other words, it's fine for the government to pick winners and losers as long as it picks your preferred subsidy recipient.

EVs Significantly Cleaner Than Gas Engines

The Manhattan Institute study also makes the ludicrous claim that new internal combustion engines emit next to no pollutants while EVs, which are powered by the electricity grid, likely produce more pollution and will not significantly reduce carbon emissions.

Wrong.

Experts at the Rocky Mountain Institute, a truly independent energy think tank, posted a thorough take-down of the Manhattan Institute report last July. In a nutshell, they found that it used "flawed methodology and flawed assumptions" when comparing monetary damages associated with sulfur dioxide, nitrogen oxides and particulate matter from EVs and internal combustion vehicles and completely ignored the damages associated with carbon dioxide emissions. "A methodology that accurately accounts for all emissions," they concluded, "results in a dramatically different result."

"Nonpartisan institutions, including the Union of Concerned Scientists (UCS) and the Electric Power Research Institute, have published accurate and reliable studies of these questions that found the opposite of what [the Manhattan Institute report] concludes," they added, "as have others cited by the Energy and Policy Institute."

In fact, according to UCS Senior Engineer Dave Reichmuth, 75 percent of Americans live in areas where an EV is cleaner than a gasoline-powered car that gets 50 miles per gallon, and the carbon emissions from an average EV sold in the United States this year are equivalent to that of gas-powered car that gets 80 MPG. "And the good news," he says, "is EVs will only get cleaner as the U.S. electricity grid adds more renewable energy."

Will the EV Tax Credit Survive?

The Koch network is working overtime to pull the plug on the emerging electric car market, but the momentum is not in its favor.

Demand for EVs is growing. An AAA survey published this spring found that 50 million Americans will likely buy an EV for their next car, 5 percent more than in 2017.

The supply of EVs is growing as well. The number of available EV models jumped from only two in 2010 to more than 40 today.

Sticker price, as with any vehicle purchase, remains a sticking point. Falling manufacturing costs, aided by the EV tax credit, are already starting to help. The cost of an EV battery, for example, plummeted 80 percent between 2010 and 2017 and will become even cheaper as more automakers ramp up electric vehicle production. And EVs have built-in cost advantages over internal combustion cars: They are much cheaper to maintain—and they save owners a ton on gas. Keeping the EV tax credit in place for another decade and removing the 200,000-unit cap would certainly help ensure that EVs can become cost-competitive with gas vehicles.

Finally, Tesla, Nissan and General Motors—which manufacture EVs in California and Nevada, Tennessee, and Michigan, respectively—as well as Ford and Fiat-Chrysler will be pressed to compete with automakers in Asia and Europe that are getting significant support from their governments to go electric. Encouraging EV sales here at home may threaten Charles Koch's fossil fuel empire, but retaining the EV tax credit will not only help combat climate change, it will fortify the U.S. auto industry, which—even with the recent layoffs at General Motors—still employs more than 2 million people.

Danya Abdel Hameid provided research assistance for this article. Koch grant data came from the following Koch-controlled foundations' 990 tax forms (which can be found at ProPublica's Nonprofit Explorer and the Foundation Center's 990 Finder): American Encore, Charles Koch Foundation, Claude R. Lambe Charitable Foundation, and Freedom Partners Chamber of Commerce. Campaign contribution data came from the Center for Responsive Politics website, opensecrets.org.

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Ola Elvestrun, Norway's environment minister, announced Thursday that it is freezing its contributions to the Amazon Fund, and will no longer be transferring €300 million ($33.2 million) to Brazil. In a press release, the Norwegian embassy in Brazil stated:

Given the present circumstances, Norway does not have either the legal or the technical basis for making its annual contribution to the Amazon Fund.

Brazilian President Jair Bolsonaro reacted with sarcasm to Norway's decision, which had been widely expected. After an official event, he commented: "Isn't Norway the country that kills whales at the North Pole? Doesn't it also produce oil? It has no basis for telling us what to do. It should give the money to Angela Merkel [the German Chancellor] to reforest Germany."

According to its website, the Amazon Fund is a "REDD+ mechanism created to raise donations for non-reimbursable investments in efforts to prevent, monitor and combat deforestation, as well as to promote the preservation and sustainable use in the Brazilian Amazon." The bulk of funding comes from Norway and Germany.

The annual transfer of funds from developed world donors to the Amazon Fund depends on a report from the Fund's technical committee. This committee meets after the National Institute of Space Research, which gathers official Amazon deforestation data, publishes its annual report with the definitive figures for deforestation in the previous year.

But this year the Amazon Fund's technical committee, along with its steering committee, COFA, were abolished by the Bolsonaro government on 11 April as part of a sweeping move to dissolve some 600 bodies, most of which had NGO involvement. The Bolsonaro government views NGO work in Brazil as a conspiracy to undermine Brazil's sovereignty.

The Brazilian government then demanded far-reaching changes in the way the fund is managed, as documented in a previous article. As a result, the Amazon Fund's technical committee has been unable to meet; Norway says it therefore cannot continue making donations without a favorable report from the committee.

Archer Daniels Midland soy silos in Mato Grosso along the BR-163 highway, where Amazon rainforest has largely been replaced by soy destined for the EU, UK, China and other international markets.

Thaís Borges.

An Uncertain Future

The Amazon Fund was announced during the 2007 United Nations Climate Change Conference in Bali, during a period when environmentalists were alarmed at the rocketing rate of deforestation in the Brazilian Amazon. It was created as a way of encouraging Brazil to continue bringing down the rate of forest conversion to pastures and croplands.

Government agencies, such as IBAMA, Brazil's environmental agency, and NGOs shared Amazon Fund donations. IBAMA used the money primarily to enforce deforestation laws, while the NGOs oversaw projects to support sustainable communities and livelihoods in the Amazon.

There has been some controversy as to whether the Fund has actually achieved its goals: in the three years before the deal, the rate of deforestation fell dramatically but, after money from the Fund started pouring into the Amazon, the rate remained fairly stationary until 2014, when it began to rise once again. But, in general, the international donors have been pleased with the Fund's performance, and until the Bolsonaro government came to office, the program was expected to continue indefinitely.

Norway has been the main donor (94 percent) to the Amazon Fund, followed by Germany (5 percent), and Brazil's state-owned oil company, Petrobrás (1 percent). Over the past 11 years, the Norwegians have made, by far, the biggest contribution: R$3.2 billion ($855 million) out of the total of R$3.4 billion ($903 million).

Up till now the Fund has approved 103 projects, with the dispersal of R$1.8 billion ($478 million). These projects will not be affected by Norway's funding freeze because the donors have already provided the funding and the Brazilian Development Bank is contractually obliged to disburse the money until the end of the projects. But there are another 54 projects, currently being analyzed, whose future is far less secure.

One of the projects left stranded by the dissolution of the Fund's committees is Projeto Frutificar, which should be a three-year project, with a budget of R$29 million ($7.3 million), for the production of açai and cacao by 1,000 small-scale farmers in the states of Amapá and Pará. The project was drawn up by the Brazilian NGO IPAM (Institute of Environmental research in Amazonia).

Paulo Moutinho, an IPAM researcher, told Globo newspaper: "Our program was ready to go when the [Brazilian] government asked for changes in the Fund. It's now stuck in the BNDES. Without funding from Norway, we don't know what will happen to it."

Norway is not the only European nation to be reconsidering the way it funds environmental projects in Brazil. Germany has many environmental projects in the Latin American country, apart from its small contribution to the Amazon Fund, and is deeply concerned about the way the rate of deforestation has been soaring this year.

The German environment ministry told Mongabay that its minister, Svenja Schulze, had decided to put financial support for forest and biodiversity projects in Brazil on hold, with €35 million ($39 million) for various projects now frozen.

The ministry explained why: "The Brazilian government's policy in the Amazon raises doubts whether a consistent reduction in deforestation rates is still being pursued. Only when clarity is restored, can project collaboration be continued."

Bauxite mines in Paragominas, Brazil. The Bolsonaro administration is urging new laws that would allow large-scale mining within Brazil's indigenous reserves.

Hydro / Halvor Molland / Flickr

Alternative Amazon Funding

Although there will certainly be disruption in the short-term as a result of the paralysis in the Amazon Fund, the governors of Brazil's Amazon states, which rely on international funding for their environmental projects, are already scrambling to create alternative channels.

In a press release issued yesterday Helder Barbalho, the governor of Pará, the state with the highest number of projects financed by the Fund, said that he will do all he can to maintain and increase his state partnership with Norway.

Barbalho had announced earlier that his state would be receiving €12.5 million ($11.1 million) to run deforestation monitoring centers in five regions of Pará. Barbalho said: "The state governments' monitoring systems are recording a high level of deforestation in Pará, as in the other Amazon states. The money will be made available to those who want to help [the Pará government reduce deforestation] without this being seen as international intervention."

Amazonas state has funding partnerships with Germany and is negotiating deals with France. "I am talking with countries, mainly European, that are interested in investing in projects in the Amazon," said Amazonas governor Wilson Miranda Lima. "It is important to look at Amazônia, not only from the point of view of conservation, but also — and this is even more important — from the point of view of its citizens. It's impossible to preserve Amazônia if its inhabitants are poor."

Signing of the EU-Mercusor Latin American trading agreement earlier this year. The pact still needs to be ratified.

Council of Hemispheric Affairs

Looming International Difficulties

The Bolsonaro government's perceived reluctance to take effective measures to curb deforestation may in the longer-term lead to a far more serious problem than the paralysis of the Amazon Fund.

In June, the European Union and Mercosur, the South American trade bloc, reached an agreement to create the largest trading bloc in the world. If all goes ahead as planned, the pact would account for a quarter of the world's economy, involving 780 million people, and remove import tariffs on 90 percent of the goods traded between the two blocs. The Brazilian government has predicted that the deal will lead to an increase of almost $100 billion in Brazilian exports, particularly agricultural products, by 2035.

But the huge surge this year in Amazon deforestation is leading some European countries to think twice about ratifying the deal. In an interview with Mongabay, the German environment ministry made it very clear that Germany is very worried about events in the Amazon: "We are deeply concerned given the pace of destruction in Brazil … The Amazon Forest is vital for the atmospheric circulation and considered as one of the tipping points of the climate system."

The ministry stated that, for the trade deal to go ahead, Brazil must carry out its commitment under the Paris Climate agreement to reduce its greenhouse gas emissions by 43 percent below the 2005 level by 2030. The German environment ministry said: If the trade deal is to go ahead, "It is necessary that Brazil is effectively implementing its climate change objectives adopted under the [Paris] Agreement. It is precisely this commitment that is expressly confirmed in the text of the EU-Mercosur Free Trade Agreement."

Blairo Maggi, Brazil agriculture minister under the Temer administration, and a major shareholder in Amaggi, the largest Brazilian-owned commodities trading company, has said very little in public since Bolsonaro came to power; he's been "in a voluntary retreat," as he puts it. But Maggi is so concerned about the damage Bolsonaro's off the cuff remarks and policies are doing to international relationships he decided to speak out earlier this week.

Former Brazil Agriculture Minister Blairo Maggi, who has broken a self-imposed silence to criticize the Bolsonaro government, saying that its rhetoric and policies could threaten Brazil's international commodities trade.

Senado Federal / Visualhunt / CC BY

Maggi, a ruralista who strongly supports agribusiness, told the newspaper, Valor Econômico, that, even if the European Union doesn't get to the point of tearing up a deal that has taken 20 years to negotiate, there could be long delays. "These environmental confusions could create a situation in which the EU says that Brazil isn't sticking to the rules." Maggi speculated. "France doesn't want the deal and perhaps it is taking advantage of the situation to tear it up. Or the deal could take much longer to ratify — three, five years."

Such a delay could have severe repercussions for Brazil's struggling economy which relies heavily on its commodities trade with the EU. Analysists say that Bolsonaro's fears over such an outcome could be one reason for his recently announced October meeting with Chinese President Xi Jinping, another key trading partner.

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