Category Archives: Energy

Energy, History, Security

Is the Kochtopus Risk Real?

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Where is Godzilla when you need him? A giant menacing shadowy figure of petrochemical poisons looms over America. It waves its tentacles and weaves it ways into every market, every sector, trying to subdue the environment and overpower resistance. Is it smog? Could it be…is it…The Kochtopus?!

…the University of Massachusetts at Amherst’s Political Economy Research Institute named Koch Industries one of the top ten air polluters in the United States.

[…]

Koch Industries owns Brawny paper towels, Dixie cups, Georgia-Pacific lumber, Stainmaster carpet, and Lycra, among other products. Forbes ranks it as the second-largest private company in the country, after Cargill, and its consistent profitability has made David and Charles Koch—who, years ago, bought out two other brothers—among the richest men in America. Their combined fortune of thirty-five billion dollars is exceeded only by those of Bill Gates and Warren Buffett.

One of my big beefs, pardon the pun, with the Kansas-based duo is that they fail the libertarian test.

They claim to be advocates of a completely free market — only the strongest should survive through “creative destruction” (their term) — yet their history of wealth tells a very different story.

When their father failed in the market, he quit and found a more generous source of income. Regulations might have helped Fred innovate in America, but an easier path to get rich lured him away — Russia.

Fred attended M.I.T., where he earned a degree in chemical engineering. In 1927, he invented a more efficient process for converting oil into gasoline, but, according to family lore, America’s major oil companies regarded him as a threat and shut him out of the industry. Unable to succeed at home, Koch found work in the Soviet Union.

It might be said he was unfairly shut out of the market, but this begs the question of what market is completely fair and why he did not try to reform the market? He failed in the existing market, and instead of using creative destruction to improve he quit the competition and gave himself to Stalin. That arrangement apparently did not work out so well for Fred, who soon realized his financial benefactor now was calling all the shots (pun not intended).

In the nineteen-thirties, his company trained Bolshevik engineers and helped Stalin’s regime set up fifteen modern oil refineries. Over time, however, Stalin brutally purged several of Koch’s Soviet colleagues. Koch was deeply affected by the experience, and regretted his collaboration. He returned to the U.S. In the headquarters of his company, Rock Island Oil & Refining, in Wichita, he kept photographs aimed at proving that some of those Soviet refineries had been destroyed in the Second World War. Gus diZerega, a former friend of Charles Koch, recalled, “As the Soviets became a stronger military power, Fred felt a certain amount of guilt at having helped build them up. I think it bothered him a lot.”

Fortunately for Fred, he managed to get rich thanks to Stalin. But his decisions bothered him so much it became a grudge that he passed on to his children.

Here I think it appropriate to mention the younger Bush Presidency connection to problems raised by the elder Bush. The elder Bush invaded Iraq, but failed to depose Saddam Hussein, for example. The younger Bush then re-lit and carried his father’s torch to the point where it blinded him; who today believes that the current war with Iraq was really about the search for WMD? Could the Koch sons make a similar mistake in judgment?

I fear the same totally irrational view of current events now infects the Koch corporate offices in Wichita. They probably seek to avenge their father; they want to win the battles in a war that ended over 60 years ago. Although there are many possible paths they could choose, it seems they may just want to find a target to pin with a 1950s hatred of the “Reds”.

The Koch father, no matter how well intentioned he was with his grudge, unfortunately tended to work himself up over nothing. He joined extreme political movements and vowed to fight the evil Communist agents taking over America, like a decorated war General elected President and the “colored man”

Members considered President Dwight D. Eisenhower to be a Communist agent. In a self-published broadside, Koch claimed that “the Communists have infiltrated both the Democrat and Republican Parties.” He wrote admiringly of Benito Mussolini’s suppression of Communists in Italy, and disparagingly of the American civil-rights movement. “The colored man looms large in the Communist plan to take over America,” he warned. Welfare was a secret plot to attract rural blacks to cities, where they would foment “a vicious race war.” In a 1963 speech that prefigures the Tea Party’s talk of a secret socialist plot, Koch predicted that Communists would “infiltrate the highest offices of government in the U.S. until the President is a Communist, unknown to the rest of us.”

He admired suppression by Mussolini? That’s like saying he admires the use of WMD. The Italian leader made indiscriminate use of chemical weapons and viruses on civilians, which decimated the Horn of Africa. He even bombed hospitals. Koch was either ignorant of the facts or blinded by his rage. Either way, his admiration was misplaced.

Perhaps Fred Koch did not concern himself with the welfare of Africans, dismissing them as more of the “colored man” who “looms large”.

The Koch sons now running his empire do not seem to reflect upon their father with any disdain for his philosophy at all. It does not appear that they have distanced themselves from his admiration of fascism or from his rhetoric against civil rights and welfare; thus we today find a mutation from Fred Koch into a formidable Kochtopus.

The Kochtopus has entered new battles. It has rallied against clean energy innovation in America, for example. Imagine a Fred Koch today, just graduating from MIT and hoping to bring his new ideas for energy to market to reduce emissions. Who would oppose the need for his ideas and try to shut him out? The Kochtopus would, because energy innovation to reduce emissions is some kind of evil government plot, apparently.

…97 percent of the $8.2 million raised by the [Yes on Proposition 23] forces has been given by oil-related interests and 89 percent of that money has come from out of state. Three companies, Koch Industries, Tesoro, and Valero — another Texas-based oil company — have provided 80 percent of those funds.

“There are three companies from out of state that have a very specific economic interest in rolling back our clean energy economy and jobs,” Thomas Steyer, a San Francisco hedge-fund manger who is co-chair of the No on 23 campaign, said during a conference call Friday.

“I am a businessman,” he added. “I believe in the free enterprise system. I believe in profit. But companies have to accept the rules that are placed on them.”

Steyer, founder of Farallon Capital Management, has pledged $5 million of his own money to the No campaign.

If Proposition 23 had passed, the Fred Koch’s of today would likely have to go to China or other countries to innovate with clean energy, just like Fred had to go to Stalin.

“If the Yes on 23 folks win, we’re going to change the framework for investment here,” said Steyer. “We’re going to change our ability to create new industries. Those industries are going to go elsewhere, probably not in the United States. Probably specifically our biggest competition in this is China.”

Oh, the irony of so-called libertarianism. First the Koch family gets rich from government aid, then they try to shut down regulations that would help others with new ideas who could be in competition. They also spin studies that try to cast doubt on the need for cleaner energy or more regulation to protect health; it’s a play right out of the oil company book of the 1930s that their father was so angry about.

The sons should be backing innovation and new ideas and fighting for regulation that protects the market. They should be promoting welfare programs and proving Communism evil and wrong by example — show how success in a fair market can spur growth and help reduce harm. Instead they are playing right into the hands of their harshest critics.

The Kochtopus is demonstrating an obsession with consolidation of wealth, deregulation and monopolization, fueled by misplaced pride in anti-Stalinism, which is quickly earning it the reputation of one of the more ironic and tragic stories in America.

Look around. Do you see signs of the Kochtopus, ready to take control and stop you from suggesting new ideas or helping others?


Excuse me, which way to the boardroom?

Energy, Security

Diesels today already meet 2025 standards

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The San Francisco Chronicle has posted a poorly researched story called “62 mpg being talked about as new standard for 2025“. It gives a very one-sided perspective:

The government already has said automakers’ fleets must average 35.5 miles per gallon of gas by 2016 – up from 27.3 right now – but 62 would change everything. Two-thirds of U.S. cars would have to be electric or gas-electric hybrids, says Gloria Bergquist of the Alliance of Automobile Manufacturers. And it would cost consumers more than $3,000 per new vehicle, at least twice as much as it would for a standard of 47 mpg, according to one analysis. The good news: Net savings over a lifetime could be $5,700 to $7,380.

Let’s face it, Bergquist is known for having her head and heels dug into the sand, as you can see in an LA Times quote last year:

One of the factors that should be assessed is affordability of technology because if consumers don’t buy that technology, we’re not going to achieve those results. We also don’t know the future state of the electric infrastructure or consumers’ ability to find clean diesel.

It’s not really about affordability. A clean diesel that exceeds the 2016 35.5mpg standard is available today. I drive a 2004 diesel engine that the EPA rates at 38mpg. That car was less expensive than the gasoline option for the same car when I bought it. Better mpg, less cost…if it was only about affordability why did anyone buy the gasoline option in 2004?

It also is not about the ability to find clean diesel. Diesel comes from virtually every form of oil. That was the inventors intention. Fish, cattle, plants, even waste oil otherwise headed to a landfill…everything with oil can fuel diesel engines. Compare that with the highly-centralized and prohibitively expensive petroleum exploration and drilling model of supply; Bergquist obviously has her models mixed up.

Despite the above two factors, manufacturers still say they would rather sell gasoline models. Take, for example, Honda has been very slowly considering whether to enter the American market (remember how they introduced their SUV just as the SUV demand started to crash?) with an Accord that gets more than 60 mpg. They have the technology now, but they’re afraid to introduce it:

Honda expects to bring the clean-diesel car to the U.S. by 2010. It gets 62.8 miles a gallon on the highway, but otherwise looks and feels like a regular Accord. At that mileage level, the car is about as “clean” as a new Toyota Prius. But if you run it on biodiesel, a form of diesel made from vegetable oil or animal fat, it would be even cleaner than a Prius (Priuses get 60 in the city).

Subaru is the same. The Wall Street Journal predicted dozens of clean diesels in America by 2008, but most automobile manufacturers proved them wrong by sitting on the fence.

VW has the guts, as everyone knows from its history of innovation and design awards in America, to lead. It delivered a clean diesel Jetta as well as the Golf to America, both with 60 mpg, three years ago:

Dubbed BlueTDI, the engine produces 138 horsepower and 236 pound-feet of torque. It’s good for 60 mpg on the highway, a 12-percent improvement over the 2006 Jetta TDI. And thanks to some emissions tweaks – an engine-management system that mitigates toxic nitrogen oxide production by limiting combustion temperatures, and a maintenance-free trap that converts the remaining NOx to nitrogen and water – the Jetta BlueTDI meets the EPA’s Bin 5/LEV 2 emissions standards. That means it’s 50-state legal without the need for urea injection. Even Californians get one.

…and sales have been phenomenal. Even more interesting is that the Audi A3 version of the clean diesel has boosted Audi sales in America.

Stop for a minute and ask yourself why someone would buy an Audi when they could buy a VW for far less money? Why? Even more to the point, why would someone buy a Hummer when they never drive off-road? What about the simple math of spending the least amount of money possible on an automobile? What happened to affordability?

The fact is, many consumers spend money on fancy spoilers, roof-racks, non-aerodynamic bodies and heavy alloy wheels all that actually lower their mpg…because of style, status and social factors. All the evidence of the American automobile experience points away from affordability as a primary concern.

Agree? Now read this lame analysis from Popular Mechanics:

I’m glad VW is going to have a clean-diesel Jetta in 2008. But I won’t buy one. For me, the numbers just don’t work: It’s a $25,000 car that gets 45 mpg. I can buy a Toyota Corolla for $10,000 less and still get 38 mpg—a price difference that would take the Jetta 66 years to overcome, assuming $3 gas/diesel. That’s not to say the Jetta isn’t a great car, and I would much rather drive it than a Corolla. But it just doesn’t make economic sense, and as a writer pulling down a modest income, it’s all about economics.

If it were all about economics the American roads would look completely different than they do today. The sparkling clean Toyota Tundras with 30″ wheels and the Ford Expeditions with only a driver inside would be gone.

Although I sympathize with those who struggle to buy a new $25K car, I do not believe for one minute that the obstacle to diesel adoption is affordability. It is not about the R&D or pump prices any more than it is about the cost of floor mats, as I have argued before.

Even if it were just an issue of getting a loan to cover the extra $1000 for a diesel engine (introduced when manufacturers realized diesel enthusiasts would pay more), my experience has been that American diesel vehicles actually appreciated in value over time while the gasoline variants rapidly declined.

The problem is thus much more simple than the Chronicle would have you believe: it is marketing. Mainstream consumers in America are highly influenced by perceived status and style. Vehicles are sold with a Marlboro Man or a Crocodile Dundee, rather than with a calculator.

Alas, most American auto marketing is stuck in the past with a CYA approach to risk. They seem only to want to follow well-beaten paths (re-introduce old models and brands) rather than approach the new trails; they claim to be oblivious to the obvious signs of rising global consumer demand for clean diesel.

People forget that it was just one adventurous and independent executive at Toyota who fought to bring America the Prius.

Gloria Bergquist will say “the future is uncertain” because she represents an industry stuck looking only in the rear view mirror; it’s an unsafe way to drive the industry unless she is trying to go backwards.

VW’s diesel cars not only already meet the 2025 standards but their plan for 2013 is a car that gets over 260 mpg. Very cool. Speaking of cool, if smaller cars continue to be popular, American drivers might even start looking more seriously at the GX3 concept.

Energy, Security

VW XL1 Diesel Claims 261mpg

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A group of security experts recently mentioned to me that the Oil-producing countries are all well-aware that their resources are limited. They explained this in terms of Iran’s urge to develop nuclear power.

Whether or not you accept that argument, it makes a fitting backdrop to VW’s decision to announce a super-efficient fuel-economy concept car at the Qatar Auto Show.

Take half a regular TDI engine, reduce the body weight about half, and sprinkle in some high tech bits and you get the XL1:

Now, Piech’s Volkswagen has combined state-of-the-art technology, from common rail diesel-supplemented plug-in hybrid power to carbon-fiber-reinforced polymer lightweight body material, to create the XL1. The concept consumes 0.9 liters of diesel fuel per 100 kilometers, the automaker says, which translates to an EPA fuel mileage figure of 261.3 mpg. That mileage equals 24 grams of CO2 per kilometer, VW says. Our CO2 converter converts 261.3 mpg to 0.30 pounds per mile. VW chose to unveil this car as part of an auto show in Qatar, the one part of the world where fuel efficiency isn’t much of an issue.