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Updated: 4 min 28 sec ago

A big conservative city is about to strangle its sharing economy

November 03, 2014, 11:40 AM

Onerous new regulations in Houston, Texas, set to go into force this Tuesday, may end up shutting down some ride-sharing operations in the country’s fourth most populous city — a place that desperately needs them. The city’s sheer overreach in regulating companies like Uber and Lyft, indeed, should serve as a strong rejoinder to cities that might consider following a similar path.

Under Houston’s new regime, everyone who drives for pay, even on a very occasional basis, will have to go through a 40-step process that the city specifies in excruciating detail. Individually, the requirements the city imposes for things like safety inspections and criminal records checks aren’t unreasonable. But the way that Houston wants to do them is. In many cases, the city insists on doing and redoing things (such as background checks) that companies have already done. The result: Uber is complaining bitterly and will almost certainly see its driver ranks shrink, while Lyft is likely to suspend all operations on Nov. 4. Smaller companies like Wingz that might have targeted Houston’s large and lucrative market are, for now, staying away entirely.

In some cities, with lots of mass transit, this might not be that big a deal. Houston, which doesn’t have the population density to support street-hail taxis in most of its neighborhoods and possesses only one urban rail line, companies like Uber and Lyft are sometimes the only practicable way to get around for those who don’t have access to a car. Imposing regulations that make life nearly impossible for the companies’ drivers, as the city has done, sets an awful precedent, reduces options for consumers and seems likely to increase drunk driving.

And it’s particularly disturbing because Houston, of all cities, should know better. Although it’s hardly a tea-party hotbed, the city easily stands as America’s most conservative city with more than 1 million residents. In 2012, Barack Obama and Mitt Romney came within a few thousand votes of each other county-wide and it’s the only really big city in the country that regularly elects city council members who could do fine in the House GOP caucus. The governments of San Francisco and Washington, D.C. — the two most liberal cities in the country by many measures — have both been much more welcoming to Uber and Lyft, and even our nanny state on the Hudson, New York City, has done much better than Houston. The city needs to change. Quickly.

New peer production companies are a vibrant new economic sector. Houston is proving how the wrong regulations can crush them.

Redefining ‘public interest’

November 03, 2014, 10:48 AM

For decades, trial lawyers, the insurance industry, and health-care providers have battled over how to set insurance rates and adjudicate medical-liability claims. In California this year, two ballot measures—Propositions 45 and 46—won’t make that debate any clearer, though if you’re on the insurance commissioner’s payroll or a member of the plaintiffs’ bar, you’ll be happy if they win public approval.

Prop. 45 seeks to limit the power of health insurers and providers to raise rates by subjecting them to stiffer regulatory scrutiny. Its proponents—primarily Insurance Commissioner Dave Jones and Santa Monica-based advocacy group Consumer Watchdog—want health insurers and providers to submit to a prior-approval process similar to one enshrined in 1988 for property and casualty insurers, under which the insurance commissioner may reject insurance rate hikes outright. Prop. 45’s backers maintain that consumers have saved billions of dollars on property and casualty insurance thanks to this regulatory authority, and that a similar arrangement could save them billions more on health care.

Prop. 46, another Consumer Watchdog-backed effort, would raise the state’s current cap on non-economic damages in medical-negligence cases while also requiring doctors to undergo drug testing. The damage-cap adjustment relates to 1975’s Medical Injury Compensation Reform Act (MICRA), which capped “pain and suffering” at $250,000 without any adjustment for inflation. Backers say that the drug testing would curb substance-related medical malpractice claims.

The two measures are unnecessary, to put it mildly. Prop. 45 advocates claim that state health insurance is too expensive and should be more tightly regulated. But if rates are too high, it isn’t for lack of regulation. California is unique among states in its oversight of insurance premiums. The Golden State already has two tiers of health-insurance rate review, which often work in tandem. The first tier has been around since 2010, when the state subjected health insurance rates to a “file-and-use” system. Right now, insurers submit proposed rate changes to the relevant regulator—either the Department of Insurance or the Department of Managed Healthcare. If the regulator determines that the rate is unreasonable, it can ask the insurer or health plan to reduce it. If the insurer fails to comply, its refusal is made public, and the regulator may try to force the issue through a public hearing. Covered California, the state’s Affordable Care Act exchange, serves as the second tier. Unlike the file-and-use system, which relies on public perception to influence insurers, Covered California regulators can veto rate hikes of 10 percent or more.

To an already onerous process, Prop. 45 would add two additional tiers of review. The third tier would give the state insurance commissioner the power to reject health insurance rate hikes, regardless of their amount, just as he can do now with property and casualty insurance rates. Notwithstanding public scrutiny and Covered California’s discretion, Prop. 45’s supporters insist that consumers will suffer unless the state has the power to stop any and all “unreasonable” rates. That’s arguable, at best. Insurers often do reduce their rates at the first hint of public scrutiny. And the Department of Insurance is hardly a neutral arbiter of rate reasonability. The process for deciding whether a rate is reasonable ultimately relies on subjective judgments and political incentives, because the insurance commissioner himself is a career politician. Political incentives almost invariably result in efforts to push for lower rates that ignore market realities.

The fourth and final tier of review would introduce “private intervenors” (that is, attorneys) to the health insurance rate-approval process. The role is modeled again on the property and casualty rate process, in which private intervenors may challenge a proposed insurance rate while the prior-approval process is underway. In theory, intervenors are public-spirited lawyers who forego financial reward for the sake of the public interest. But the role has evolved into a nice practice for professional contrarians—like Ralph Nader protégé and Consumer Watchdog founder Harvey Rosenfield, who has made millions as an intervenor. No other state allows paid intervenors to weigh in during the rate-approval process—one reason why California’s insurers can expect to wait anywhere from one to two years for the state to approve a rate hike.

If Prop. 45 passes, then insurers, facing a four-tier review process, would have to account for the extra time that it will take for rate changes to take effect. They would likely propose rates that lead to as few trips through the rate-approval labyrinth as possible. In practice, this would lead to an unresponsive, more expensive market. California’s auto insurance rates are needlessly high precisely for this reason.

Prop. 46 would have a similarly harmful impact on consumers. The state legislature capped “pain-and-suffering” damages in 1975 to help end an insurance-availability crisis. Windfall damage awards had forced malpractice insurers to raise rates to reflect the new risk, which encouraged doctors to scale back their practices or leave the state. That led legislators to enact a range of tort reforms, most notably the $250,000 cap. Prop. 46’s backers make a superficially reasonable case that after nearly 40 years, the damage cap is too low. But the trouble with non-economic damages is that they don’t comport with objective measurement, much less inflation. Unlike economic damages, which relate to quantifiable losses, “pain-and-suffering” bears no relationship with lost property or wages. As it exists today, the civil-justice system provides remuneration for grievous but measurable losses. On these terms, plaintiffs are being made whole.

Prop. 46 proponents assume that improving the position of plaintiffs will help all Californians. Two problems: first, bigger windfalls for a small collection of plaintiffs would raise the cost of medical care for everyone; second, under the ACA, the cost of those windfalls will be borne directly by consumers or spread among taxpayers, who fund federal health-care insurance subsidies. In either case, the costs will make their way to consumers and undermine access to quality care. Nor will greater windfall awards adjust the behavior of medical providers. State law punishes medical negligence not only through civil penalties but also with administrative and criminal sanctions. The stakes are high already. Negligence persists not because providers are lazy but because achieving favorable outcomes 100 percent of the time is impossible.

The public interest is not the exclusive domain of those who seek government solutions. California’s voters seem to get the point. A Public Policy Institute of California poll released last week shows Prop. 45 and Prop. 46 losing support. In this case, the interests of insurers and medical providers more closely mirror those of the public.

Three things conservatives wrote this week that everyone should read

November 03, 2014, 10:40 AM

From ThinkProgress:

Eli Lehrer argued in The Weekly Standard this week that a carbon tax could ostensibly break this gridlock. Because it reduces carbon emissions in a particularly efficient and market-friendly manner, the policy could ostensibly enjoy support from experts and thinkers across the political spectrum. But as Lehrer points out, the idea remains anathema to GOP politicians. He thinks liberals could change this, but they would have to give up “new revenue, new regulations, and new resource development restrictions” to make it happen…

…Because it builds the price of climate change into fossil fuels from the beginning, a (sufficiently punitive) carbon tax really would make fuel-economy standards, EPA’s power plant rule, and restrictions on fossil fuel drilling technically redundant. Liberals won’t give up on the goal of massive public investment in renewables, but that’s something the U.S. should be doing regardless — there’s no reason to politically tie that goal to the revenue from a carbon tax. But while state-by-state carbon taxes would be better than nothing, one federal carbon tax would make life simpler for businesses. It would also allow Lehrer’s revenue-neutrality goal to be hit by reducing payroll taxes — the form of federal taxation that falls hardest on the poor and working class — an equivalent amount.

Transparency crucial with RESTORE money

November 03, 2014, 9:00 AM

Florida’s 23 Gulf Coast counties are about to enjoy a windfall, as the U.S. Treasury Department recently finalized rules allowing states impacted by the 2010 Deepwater Horizon oil spill to apply for billions in funds. How they choose to spend that money could go a long way toward determining the future of the region.

Passed in 2012, the Resources and Ecosystems Sustainability, Tourist Opportunity and Revived Economics of the Gulf States Act, or RESTORE Act, dedicates 80 percent of fines levied against BP to projects that support environmental restoration and economic development in the Gulf Coast states that felt the spill’s effects.

Unlike the other four affected states, the RESTORE Act requires Florida’s allocation go directly to the 23 Gulf Coast counties. Thus, while the state governments of Texas, Louisiana, Mississippi and Alabama will have a significant say in how funds are spent, in Florida, such decisions will be made at the local level.

The millions of dollars that will pour directly into Gulf Coast counties place a great deal of responsibility on their leaders, as well as presenting them unique opportunities. Full transparency and a measured approach will be crucial to ensure the funds are spent in the best possible way.

Citizens should be given ample time and opportunities to review and comment on recommended projects. With today’s technology, transparency is not a cumbersome or expensive proposition: projects, their cost estimates and other related analyses should be posted on official websites well in advance of final decisions. Healthy discussion and oversight will help counties avoid unintended consequences.

Officials should know the long-term costs of projects they elect to undertake, and their guiding principle should be to avoid creating liabilities for taxpayers. Projects that require continued subsidies, permanent growth in public sector employment or, worse, new government programs to keep them viable will require taxpayers to pick up the tab when RESTORE money runs out.

In short, these funds should be treated as a one-time windfall and should be directed toward high-return projects and improvements. They should not be used to grow government, impose new taxpayer liabilities or benefit a politically connected few. Rather, they should be used to make Florida safer, greener and more economically and physically resilient.

Restoration of Florida’s wetlands and barrier islands, for example, can begin to achieve these goals. The state’s fishing industry, which employs roughly a quarter-million Floridians, benefits from healthy coastal wetlands that provide natural habitats for fish, oysters and other wildlife. Many of Florida’s 7 million ecotourists visit these areas. But perhaps more importantly, coastal wetlands and barrier islands serve as vital natural buffers that protect developed inland areas from wind and storm surge.

There are a number of other ways RESTORE Act funds can be used to make coastal areas more resilient. Building or modernizing levees, pumps, storm-water drainage systems and other infrastructure to reduce flooding would make areas safer, as well as cheaper to insure. Fortifying or widening causeway bridges to facilitate coastal evacuations and disaster response before and after hurricanes could save lives and accelerate the recovery process. Modernizing water and sewage systems would reduce toxic discharge, preserve drinking water and hasten service restoration after a disaster.

Although the Deepwater Horizon oil spill was the greatest ecological disaster to affect Florida, the RESTORE Act gives us an unprecedented opportunity to make large-scale investments that will leave a lasting impact. If used wisely, they can help make our Gulf Coast stronger and more vibrant than ever before.

R Street responds to Intergovernmental Panel on Climate Change report

November 02, 2014, 9:54 AM

WASHINGTON (Nov. 2, 2014) – Congress should heed today’s warning from the Intergovernmental Panel on Climate Change to pursue effective mitigation and adaptation strategies to counter the risks of a warming globe, starting with an immediate end to government subsidies that make the problem worse, the R Street Institute said. 

As part of the 40th session of the United Nations’ IPCC this week in Copenhagen, Denmark, the panel adopted the final “synthesis” report of its Fifth Assessment Report. The first full-scale update to climate projections since 2007, the report reiterates scientific consensus that “human influence on the climate system is clear,” with ramifications for ecosystems and the food supply from rising seas and rising surface temperatures.

Rather than continue the politicized trench warfare that has paralyzed lawmakers, R Street outlines three crucial steps that Congress could take today to better prepare Americans for their climate future.

• Phase Out the National Flood Insurance Program: In 2012, Congress passed perhaps its most important piece of climate change legislation to date with the Biggert-Waters Act, which gradually phased out subsidies to properties in flood-prone areas. Alas, facing backlash over rising insurance costs, those same lawmakers gutted many of those same reforms earlier this year. The threat of more frequent and more damaging floods means there is no time to dither. Congress needs to phase out all flood insurance subsidies for all properties and set the stage to shift this risk entirely to the private sector.

• Expand the Coastal Barrier Resources Act: Signed into law by President Reagan just over 30 years ago, the CBRA withholds federal subsidies to development in a 1.3 million acre coastal zone, mostly along America’s Atlantic and Gulf coastlines and the Great Lakes. But much pre-existing development was grandfathered at the time of the bill’s passage, while other parcels have been carved out of the zone over the years. It’s time to reverse that trend and strengthen the law to ensure taxpayer dollars aren’t used to encourage development in areas most at risk from climate change.

• Enact Carbon Pricing Legislation to Preempt Proposed Onerous EPA Regulations: The EPA has proposed regulations to impose a 30 percent reduction in carbon emissions from electricity generation by 2030. These regulations likely will impose enormous costs for relatively modest emissions reductions. Instead, Congress should embrace the power of the free market by utilizing revenue-neutral carbon pricing as a complete substitute for command-and-control regulation. Carbon pricing would allow states to achieve mandated emissions reductions through a price signal instead of complicated regulation, while utilizing all resulting revenue to eliminate or reduce taxes that are damaging to the economy.

The following R Street Experts are available for comment on the report:

Ian Adams, California Director  - Adams has written about climate change and a carbon taxation program in publications like The Oregonian.

Christian Cámara, Florida Director – Cámara has testified before the U.S. House of Representatives Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs about the Coastal Barrier Resource Act.

R.J. Lehmann, Senior Fellow – Lehmann has written extensively on the National Flood Insurance Program and why it should be privatized, including providing input during drafting of the Biggert-Waters Act in 2012.

Eli Lehrer, President – Lehrer has written on climate change and in favor of a carbon tax in conservative magazines like The Weekly Standard and National Review.

Lori Sanders, Outreach Director – Sanders has written a policy study on expanding the Coastal Barriers Resources Act and comments to the EPA on the proposed greenhouse gas regulations. She also recently took part in a panel discussion on the regulations.

To arrange to speak with any of the R Street climate change experts, please contact Nicole Roeberg at nroeberg@rstreet.org or (202) 997-1186.

It’s time for Georgia lawmakers to end the auto dealership monopoly

November 01, 2014, 12:02 PM

From Peach Pundit:

Andrew Moylan of the R Street Institute and Peter Van Doren of the Cato Institute spoke at length about the regulatory issues Tesla and other innovative technologies that have gained popularity face.

R Street disappointed in onerous regulations on ridesharing in the City of Houston

October 31, 2014, 4:10 PM

HOUSTON, TEXAS (Oct. 31, 2014) – The R Street Institute expressed deep disappointment in the onerous regulations for transportation network companies set to go in effect in the City of Houston on Tuesday, Nov. 4. The new rules present an unnecessary bureaucracy that will cost taxpayers an estimated $600,000.

Among the many requirements are additional background checks of all drivers and an automotive check to be performed by one specific contracting facility. This is in addition to the background checks and automobile inspections already required by TNCs.

“Regulations, when properly written, set standards and requirements,” said Houston-based R Street Associate Fellow Steven Titch. “Building fire codes stipulate necessary fire suppression and alarm systems, but they don’t tell builders they must use one particular contractor or purchase one specific brand of fire extinguishers. All builders must do is show inspectors they have complied with the code.”

“The City of Houston’s demand that ride-sharing drivers use the state’s systems micromanages the compliance process while placing a substantial economic burden on taxpayers, due to administrative costs. TNCs have shown they can meet the law’s requirements for driver background checks without using the expensive and burdensome mechanisms the city is demanding,” he said.

TNCs currently require drivers nationwide to pass vigorous background and automotive checks, at no cost to taxpayers.

“While we’ve seen many cities recently adopt regulations that are more welcoming to TNC s, the exact opposite is happening in Houston,” said Andrew Moylan, senior fellow and executive director of R Street.  “Cities should encourage more job development, not enact new regulations that will cost the taxpayers money and hinder people trying to enter the workforce on a full-time or part-time basis. It would be unfortunate to see ride-sharing companies cease operations in Houston because of onerous rules that do not make anyone safer than the status quo.”



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October 31, 2014, 3:39 PM

A carbon tax won’t happen without some give from the left

October 31, 2014, 12:03 PM

Despite growing support from some conservative policy wonks, the idea of taxing carbon dioxide emissions, even as an alternative to the sort of heavy-handed greenhouse regulations promulgated by the Obama administration, has failed to garner much enthusiasm on the right.

The idea remains almost untouchable for Republican politicians, and the notion that there’s any chance that could change in the near future has been dismissed as “wishful thinking” by left-wing outlets like Mother Jones.

While this may be a fair assessment of the political facts as they stand, if progressives actually wanted to avert the various catastrophes that environmentalists say are inevitable without serious policy action—changes in growing seasons, collapse of certain fisheries, rising sea levels and possibly increases in certain types of natural disasters—there are ways they could help sell a carbon tax to the right.

Conservatives will never support a carbon tax so long as they fear it will be used to promote more intrusive government, more spending and more control over individuals’ lives. But if the left convincingly made the case that they are willing to give up new revenue, new regulations and new resource development restrictions to make it happen, conservative support for a carbon tax is within the realm of possibility. But progressives will have to make certain policy concessions to get there.

For those on the right who do support a carbon tax—primarily conservative and libertarian-leaning economists like Gregory Mankiw, Kevin Hassett and Irwin Stelzer—a primary attraction is the opportunity to use carbon tax revenues to cut taxes on productive activity, like labor and investment, and instead substitute a price on externalities that hurt the public. Adele Morris of the Brookings Institution has shown how a very modest carbon tax could easily help the United States bring its highest-in-the-world corporate income tax rates down to around the average for wealthy nations without eliminating the research and development tax credit and other widely supported tax breaks. The centrist environmental think tank Resources for the Future has done excellent work on how it might be used to cut payroll taxes.

The precipitating event that forces consideration of such trade-offs was the Supreme Court’s 2007 decision, more or less requiring the Environmental Protection Agency to restrict carbon dioxide emissions under the Clean Air Act. While there are reasons to question the court’s ruling, it will be nearly impossible to overturn. With bureaucrats set to regulate carbon dioxide, a carbon tax begins to look like an attractive alternative to the morass of costly regulations the Obama administration’s EPA intends to impose. The only other commonly discussed alternative—enacting a carbon-trading scheme, such as the cap-and-trade bill that passed the House in 2009—has proved nearly impossible to implement in any democracy. The European Union’s scheme has already collapsed twice, and a major one in California seems to be degenerating into a slush fund.

A carbon tax, properly constructed, could encourage energy producers to find the lowest-cost ways to reduce carbon dioxide emissions while leveling the playing field for energy sources like nuclear, wind, solar and hydro. A first step might be for the EPA to allow states flexibility to pursue their own carbon taxes in lieu of subjecting themselves to new greenhouse gas regulation. Such an approach could prove a hugely attractive political option for Republican office-seekers, who would be able to promise cuts to state income, property or sales taxes, while giving the boot to EPA busybodies. In private discussions, OMB officials have made positive noises about the possibility of allowing this to happen under the current law, and states including Virginia and Washington have discussed the possibility. Rep. John Delaney, D-Md., has introduced a bill that would make state-level carbon taxes an option.

But all of these possibilities would require those on the left to come to the table by giving up their own dreams of recycling carbon tax proceeds into “green jobs” schemes and other boondoggles beloved of progressives. Some environmentalists are on board with the notion of a revenue-neutral carbon tax (although many insist on difficult-to-administer schemes that would provide a “dividend” to taxpayers), but that cohort shrinks significantly when it’s proposed that the tax replace EPA regulations, much less preempt energy-related regulations like fleet fuel-economy standards for automobiles. To have any chance of political success, a carbon tax would have to do exactly these things.

Finally, to bring conservatives around to the idea, a carbon tax should also be coupled with a general easing of restrictions on energy development, particularly natural gas. As research by the Berkeley Earth Group has shown, new natural gas development has done more than any other single factor to reduce greenhouse gas emissions in the past decade. Allowing ample gas development over the next 50 or so years could do a lot to mitigate whatever energy price changes might come from a new carbon tax.

While a few environmental groups, most prominently the Environmental Defense Fund, have been willing to make common cause with the gas industry in some cases, they remain a minority. Many progressive groups, ranging from Greenpeace to MoveOn.org, oppose any new gas development and all other conventional energy development as well. This includes almost lockstep opposition by environmental groups to the much-debated Keystone XL pipeline, even though energy economists like MIT’s Chris Knittel have shown pretty convincingly that pipeline expansions would reduce overall carbon dioxide emissions.

With equally few exceptions—largely the progressive iconoclasts at the Breakthrough Institute—environmentalists have shown little enthusiasm for nuclear power, even though it’s one of only two viable forms of baseload power generation that emits no carbon dioxide at all. (The other is hydro, which is largely tapped out in the United States but might be developed for U.S. use in the Canadian north.)

Even with all of these inducements, it’s unlikely the conservative grassroots will embrace a carbon tax. No more than 2 percent of voters—nearly all of them on the left—tell Gallup pollsters the environment is their most important issue. Even environmental voters, furthermore, tend to be far more concerned with water and air quality than climate change.

Conservatives won’t make many sacrifices to get their desired climate policies because few voters—and almost no members of the conservative base—care about the issue. But given the right set of concessions from the political left, a carbon tax proposal could be crafted that would get a fair amount of political support.

Moylan on state franchise dealership laws

October 31, 2014, 11:06 AM

Earlier this week, R Street Executive Director Andrew Moylan joined a Cato Institute-hosted “hangout” to discuss state regulations that restrict how auto-makers can sell their cars, which in many cases bar manufacturer-owned dealerships from competing with independent dealers. The issue has reemerged recently as New Jersey, Iowa, Michigan and other states have cracked down on the direct sales showroom model pioneered by Tesla, which doesn’t use independent dealers at all. Video of the full discussion is available below.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.


October 31, 2014, 10:59 AM

R Street Institute

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October 31, 2014, 10:49 AM

Should music publishers be an antitrust concern?

October 31, 2014, 9:00 AM

On Aug. 6, a letter arrived at the U.S. Department of Justice from someone writing anonymously under the name John Doe. Mr. Doe was seeking to persuade the DOJ to protect his small business from an organization that was trying to bully him so aggressively into giving them money that he professed to prefer muggings. He wrote that he feared retaliation if he used his real name. Quoth the anonymous author:

I can confirm that it feels very much like a mafia-style shakedown…These threats sometimes rise to the level of a collection agent screaming over the phone. I have been mugged at gunpoint under circumstances that felt more polite.

Was this some branch of the mob? Perhaps the Crips or the Bloods? No. The organizations being referenced were none other than the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music Inc (BMI). It is the job of these Performance Rights Organizations, or PROs, to negotiate financial arrangement with anyone who might potentially play music published by the companies they represent.

John Doe’s letter was not received as part of a criminal investigation, but rather during the DOJ’s comment period on whether or not to allow ASCAP and BMI to withdraw from established “consent decrees” that have set the rates that must be paid on all the songs in their catalogue. These decrees were instituted primarily because the amount of music that ASCAP and BMI control rises to such a high level as to be considered an antitrust concern. With an eye toward potential revenues from digital streaming service like Pandora, ASCAP and BMI are seeking to be released from those decrees so they can renegotiate for higher prices.

John Doe is not alone in smelling the whiff of cartel-like behavior. In fact, the reason that ASCAP and BMI are seeking to be released from the consent decrees is because they already tried to get out of them in court and failed miserably. Judge Denise Cote wrote in her decision that ASCAP and BMI had used “mafia-style tactics” and had even written language in their emails to businesses that effectively conveyed the message: “nice place you got here, would be a shame if anything happened to it.”

However, while ASCAP and BMI are just the most visible actors in this case, they are merely the enforcers in this metaphor. The dons are none other than the music publishers, such as Sony ATV and Universal Music Publishing. In fact, if ASCAP and BMI are being overly aggressive, that may be in part due to dissatisfaction on the part of music publishers that their enforcers aren’t shaking down their targets for enough money. Both Sony ATV and Universal Music Publishing representatives have, in fact, threatened to pull their music catalogues from ASCAP and BMI’s stewardship and negotiate for money directly.

Unlike ASCAP and BMI, Sony ATV and Universal Music Publishing would not be subject to the same heightened antitrust scrutiny. Nonetheless, Sony ATV is the largest music publisher in the world, controlling 32 percent of the market, with Universal Music Publishing close behind at 18 percent. In other words, between them, these two publishers control half of the music business.

If the DOJ were consistent, they’d find that level of concentration disconcerting. Bear in mind that the Society of European Stage Authors and Composers (SESAC), a PRO that represents just 10 percent of the market (according to the highest estimates), is now subject to two federal lawsuits for violating the Sherman Antitrust Act. If SESAC is in violation, then surely publishing groups that control either double or triple their market share should be treated similarly.

A further irony to the situation is that, not only do Sony ATV and Universal Music Publishing not speak for the entirety of their industry, but they may not even represent, on balance, the wishes of their respective companies. RIAA Vice President Mitch Glazier has publicly praised Pandora’s willingness to work with performers and seems more than willing to stand by the status quo. No less than seven entities bearing the Universal name are members of the RIAA, and the same goes for 30 entities bearing the Sony name. However, music publishers of the type represented by the National Music Publishers’ Association (NMPA) take a dimmer view and appear to regard any and all music licensees (especially Pandora) as a giant money pot.

In other words, what’s really going on here is an internecine struggle within the music industry, which might end up crushing entire business models.

Fortunately, there is a way to avoid this problem. If the DOJ is unwilling to consider antitrust action against Sony ATV or Universal Music Publishing, and it seems they are, there is another avenue to avoid seeing the big publishers crush music startups under their heel. Any DOJ compromise on consent decrees will have to be approved by Judge Cote, the woman who slammed ASCAP and BMI’s “mafia style tactics.” If the DOJ tries to gut Cote’s decision, she should deny approval and call the publishers’ bluff. If these people want to act like the mafia, let them show the world how willing they are to hamstring the entire music business for the sake of wringing a few more dollars and cents out of innovators.

Maybe then, the DOJ might remember that extortion is something it’s nominally supposed to fight against, even when the people doing it are friends of the administration.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Gateway claims aimed at e-cigarettes: counterfeit, déjà vu

October 31, 2014, 8:00 AM

In their war against e-cigarettes, government officials often claim that the devices are a gateway to smoking. CDC Director Dr. Tom Frieden recently asserted that “many kids are starting out with e-cigarettes and then going on to smoke conventional cigarettes.” The National Cancer Institute last March promoted Dr. Stanton Glantz’s tortured analysis of youth e-cigarette use (discussed here and here). While his data failed to support a gateway effect, his employer, the University of California at San Francisco, made the claim anyway.

Politicians also have a penchant for yelling “fire” about smoke-free devices. U.S. Sen. Richard Durbin, D-Ill., and Democratic colleagues in the House and Senate issued a report in April titled “Gateway to Addiction.” The term “gateway,” obviously used as an attention-grabber on the cover, appeared only once in the text — as a nonspecific example of how e-cigarettes “could also increase public health risks” for non-smokers.

The marijuana gateway claim didn’t gain currency until the 1950s. Back in the 1930s, Harry Anslinger, the first commissioner of the Federal Bureau of Narcotics and the driving force behind the prohibitive Marijuana Tax Act of 1937, denied a gateway claim during congressional hearings. According to the excellent history of marijuana prohibition by Richard Bonnie and Charles Whitebread, Rep. John Dingell, D-Mich., asked Anslinger “whether the marihuana addict graduates into a heroin, an opium or cocaine user.” The commissioner replied unequivocally, “No sir; I have not heard of a case of that kind. I think it is an entirely different class. The marihuana addict does not go in that direction.”

By 1951, Anslinger changed course while testifying in favor of the Boggs Act, which increased federal penalties for narcotics and marijuana. Endorsing marijuana’s new reputation as a treacherous gateway drug, he said:

The danger is this: Over 50 percent of those young addicts started on marijuana smoking. They started there and graduated to heroin; they took the needle when the thrill of marijuana was gone.

So began marijuana gateway scaremongering, which Dr. James Anthony, professor of epidemiology and biostatistics at Michigan State, labels as “‘vapors’ that emerged from a political cauldron during the middle of the 20th century when it was very difficult to find definitive and convincing evidence of harmful effects of cannabis use – over and above (1) the sometimes extremely severe consequences of criminal penalties for simple cannabis possession and use, and (2) adverse effects on mouth, nose, throat and lung.”

This should sound strikingly familiar to vapers (e-cigarette users) and tobacco harm reduction advocates. As they did with marijuana, prohibitionists make the gateway claim against e-cigarettes in the near-total absence of “definitive and convincing evidence” of harm.

Should we have to declare our emails at customs? The ITC says yes

October 30, 2014, 8:00 AM

“Threats to the open Internet come from all sides….Today’s threat comes from a patent and international trade agency.” - Charles Duan, Public Knowledge

The post-Snowden era of digital communication has been characterized by a series of efforts around the world to exert local control over the Internet. From democracies to dictatorships, a raft of proposals have been put forward by governing bodies who see benefits in controlling data. One technique is to require data be physically stored on servers in the country where the data originated. Thanks to a recent ruling by the International Trade Commission, yet another mechanism for enforcing data localization is now in sight.

It’s difficult for national governments to enforce data localization in a freewheeling digital ecosystem. In the past, such efforts could be easily bypassed with proxy servers, mesh networks and other workarounds. But last April, the ITC added one more layer to the mess of tools that governments can use to splinter and restrict access to the global Internet, when it ruled that transfer of digital data between countries can be regulated in the same way as physical goods. The decision found that, under Section 337(a)(1)(B) of the Tariff Act of 1930, data may be subject to customs laws just like any other import.

As succinctly summarized by Charles Duan, director of the Patent Reform Project at Public Knowledge, the ITC’s decision “just raises more questions.” The ITC’s stated justification is that the digital data sets in the case were “directly representative” of physical models and “are processed or treated through a series of interpolations in a manner analogous to physical manipulation.”

But what classifies a digital dataset as a “direct representation” of physical reality? Will all digital photographs be subject to trade laws? Such an interpretation could wreak havoc on trade treaties currently under negotiation, such as the TTIP and TTP, whose negotiators already face great difficulty finding common grounds on contentious data transfer issues like privacy, antitrust and intellectual property.

Globally, the move toward data localization has been motivated by divergent concerns, in some states to censor Internet activity, while in others, due to fears of foreign surveillance. Russia recently moved to enforce a law passed in July that requires all personal data of Russian citizens to be stored on servers in Russia. Google, Facebook and Twitter have been notified that compliance must include storing all metadata about Russians’ communications on local servers. This is especially problematic, given that Russian data servers are required to use encryption algorithms certified by the Russian Federal Security Service, effectively giving the FSB access to all the data and metadata. It’s a blatant move to restrict Internet access, consolidate the Russian government’s control over the media and give the Russian government increased access to private data.

Authoritarian governments like Russia, China and Iran have used data localization laws to more closely monitor citizen activities, but they are not the only countries passing such laws. The European Parliament is strengthening and expanding privacy laws under the General Data Protection Regulation and some EU members openly advocate creating a “Schengen cloud” to store and process European data.

Andrus Ansip, one of the new vice presidents of the European Commission, has gone on record that the EU-U.S. Safe Harbor data transfer agreement “is not secure.” Unless the U.S. Federal Trade Commission agrees to abide by stringent European privacy standards, Ansip said, “we must consider suspending the agreement.” This would prohibit data about European citizens passing through servers on U.S. soil without explicit consent. It could even compel European countries to remove data from U.S. cloud services. To quote Dirk Engling,a spokesperson for the European hacker association called the Chaos Computer Club:

“By ‘ensuring’ citizens that they are only safe if they restrict their Internet usage to within Europe, what is the Internet there for?”

In India, a country with a growing economy and strong incentive to solidify its place as an emerging tech power, data localization is seen as a tool to increase the country’s influence in the global market. The Indian National Security Council has proposed a plan to store all data regarding communication between two Indian citizens on servers located in India, effectively restricting access to Google, Facebook, and Microsoft Outlook. The plan is meant to safeguard the security and privacy of Indians’ data in light of the NSA surveillance revelations, somewhat hypocritically given the Indian government’s launch of Netra, an Internet spying system.

Aside from curbing freedom of expression, data localization laws would also drive up inefficiencies, increase Internet costs for users, and ultimately degrade data security by making it easier for the NSA to obtain data by direct intrusion and for governments to monitor domestic data. According to Facebook General Counsel Colin Stretch, by adding to the cost of running a network, with local data centers around the world, data localization leaves consumers with a slower Internet experience, limits connectivity and prevents the Internet from reaching its full potential

Given these increased costs and the uncertain economic environment for Internet Service Providers who carry international data, the effects of the ITC ruling could slow the spread of Internet connectivity in developing countries, while erecting barriers to transactions and communications across national borders. It also spells major losses for the U.S. economy: an ITIF study puts potential losses to the U.S. cloud computing industry between $21.5 and $35 million over the next three years as a result of the loss of trust in U.S. data storage providers.

Unless we want to be left with a neutered Internet, hacked into regional slices, we must remain vigilant and ensure that decisions such as the ITC case are reversed. The fact that the word “global” is cropping up as a qualifying descriptor for the Internet, used to describe an integrated network that may be disappearing, is a clear indicator of the challenging work that lies ahead.

The motivations and methods vary, but the principle remains the same. The power of the Internet resides in its effective and efficient structure for transferring of massive amounts of information and computing data. Such technology is powerful. It is also disruptive. We need to devise new legal frameworks for the digital world we live in, rather than retrofitting Tariff Acts from 1930.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

How the EPA should modify its proposed 111(d) regulations to allow states to comply by taxing pollution

October 29, 2014, 11:25 AM

The attached piece was co-authored with Michael Wara and Marta R. Darby of Stanford University.

I. Introduction

The U.S. Environmental Protection Agency (EPA) is exercising its authority under section 111(d) of the Clean Air Act to limit U.S. greenhouse gas (GHG) emissions from existing stationary sources, beginning with carbon dioxide (CO2) emissions from fossil-fuel fired electric generating units (EGUs, power plants or covered sources) [1]. This comment examines the extent to which EPA’s proposed rule for existing power plants (the EPA proposal) and its existing regulations would allow states to comply with their obligations under 111(d) by adopting and enforcing carbon excise taxes. We find that, although states can adopt carbon taxes to comply with 111(d) rules, EPA has inadvertently restricted how states can design their policies, precluding some of the most straightforward approaches. Accordingly, we recommend amendments that would give full flexibility to states to design policies as they see fit, provided those policies are enforceable and will achieve the applicable emissions guidelines.

We are pleased to submit these comments in response to the proposed rule entitled: “Carbon Pollution Plan for Existing Stationary Sources: Electric Utility Generating Units” (EPA-HQ-OAR-2013-0602), notice of which EPA provided in the June 18, 2014 Federal Register (79 Fed. Reg. 34830). We also respectfully submit these comments on behalf of the organizations and individuals listed below:

Carbon Tax Center
Friends of the Earth
R Street Institute
Alan Viard

We are scholars in the field of climate and energy policy with expertise in law and economics. Michael Wara is associate professor and Justin M. Roach Jr. Faculty Scholar at Stanford Law School. His research focuses on the intersection of energy law, environmental law, and climate policy. Adele Morris is an economist. She is a fellow and the policy director for the Climate and Energy Economics Project at the Brookings Institution. Her research includes analysis of the potential economic and environmental outcomes of carbon pricing policies. Marta Darby recently received a law degree from Stanford University.

The first section of this paper reviews the legal context of the EPA proposal and the relative roles of EPA and the states under section 111(d). In Section 2, we discuss the potential advantages to states of a tax-based compliance approach. In Section 3, we explore how, with some important constraints, the current regulations implementing section 111(d) and the EPA proposal allow states to comply by imposing an excise tax on the carbon content of fuels combusted in regulated sources. In Section 4, we recommend amendments to existing rules and the EPA proposal that would remove those constraints and give states full flexibility in how they can design their pollution tax policies. Section 5 concludes.


Under section 111(d) and the EPA proposal, EPA and states share responsibility for regulating GHG emissions from covered entities. [2] ;EPA has proposed emissions guidelines that set state-specific rate-based goals for CO2 emissions from existing power plants. The standards reflect the degree of emission limitation that EPA has determined that states can achieve through the application of the “best system of emission reduction” (BSER) that, “taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements, the [EPA] Administrator determines has been adequately demonstrated.” [3]

The EPA proposal has two main elements: 1) state-specific emission goals, expressed as a limit on the number of pounds of CO2 emitted per kilowatt hour (kwh) generated (with some adjustments), and 2) guidelines for developing and designing state implementation plans that will achieve the goals. The EPA constructed four “building blocks” of potential actions to determine the state-specific emissions goals, including: improving heat-rates at high-carbon EGUs; substituting generation at high-carbon EGUs with generation from less carbon-intensive EGUs; expanding low- or zero-carbon generation; and reducing emissions by lowering demand for electricity. Compliance occurs in two phases; covered sources in each state must meet an interim target on average over the 2020-2029 period and then a final target in 2030 and thereafter.

Each state can develop an implementation and enforcement plan that it forecasts will achieve the emissions goal EPA has set for it, or states can collaborate to submit a joint compliance plan. EPA can approve, reject or conditionally approve the plans. Each plan must detail the policies and programs that the states will use to meet their emissions goals. States must submit the plans to EPA, and EPA must approve a plan if it meets EPA’s requirements. Much as states and the federal government cooperate to achieve national ambient air quality standards under section 110 of the Clean Air Act, under 111(d) EPA sets the GHG goals and states decide how to achieve them. [4] Indeed, the EPA proposal itself states that EPA believes that this “well-established principle” from the section 110 process also “applies in the context of state plans under section 111(d).”[5]

In its proposal for existing power plants, EPA emphasizes the wide flexibility states have in how they achieve their emissions rate targets. Flexibility is important because states have very different existing emissions rates, mixes of generation technologies, costs of abatement, utility regulatory structures and electricity demands. EPA says the agency intends to give all states “the opportunity to shape their plans as they believe appropriate for meeting the proposed CO2 goals” [6] and to allow states to use strategies that are not explicitly mentioned in any of the four building blocks in their compliance plans, including market-based trading programs. [7]

The EPA proposal specifies several acceptable flexibilities. For example, it allows states to demonstrate compliance on a multi-state basis (allowing any state’s emissions to exceed its assigned goal if it coordinates with others to make up for the difference). This accommodates the Regional Greenhouse Gas Initiative active in nine northeastern states and potentially other future multi-state cap-and-trade systems. Further, states can average emissions over the 2020-2029 period, rather than complying on a year-by-year basis. In addition, states can choose to meet either an emissions rate-based target or an equivalent mass-based target. The former requires that covered sources achieve a certain emissions rate per megawatt hour of energy produced while the latter requires that they achieve a certain level of total emissions. EPA also allows states to choose how much of the responsibility for emissions reductions falls on emitting EGUs, and how much is placed on other entities, including the state itself. [8] In the EPA proposal and accompanying communications, EPA has emphasized that it wants to give states maximum flexibility in their approaches to meeting the targets the agency has set.


[1] Environmental Protection Agency, Carbon Pollution Plan for Existing Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg. 34830 (June 18, 2014), at http://www.gpo.gov/fdsys/pkg/FR-2014-06-18/pdf/2014-13726.pdf

[2] See 42 U.S.C. § 7411(d)(1), (2). Section 111(d) applies only to emissions not otherwise regulated under Sections 110 or 112 of the Clean Air Act. Emissions for which EPA has promulgated a national ambient air quality standard (NAAQS) under section 109 are regulated under section 110. 42 U.S.C. § 7411(d)(1)(A)(i). EPA regulates hazardous pollutants under section 112. EPA has not promulgated a NAAQS for CO2 nor has it designated CO2 emissions a hazardous pollutant.

[3] 42 U.S.C. § 7411 (a)(1) and (d).

[4] See 42 U.S.C. § 7411(d)(1) (directing EPA to promulgate regulations that are “similar to” section 110 of the Clean Air Act); Train v. NRDC, 421 U.S. 60, 79 (1975) (holding that states have the authority under section 110 to propose source-specific emissions limitations); Michigan v. EPA, 213 F.3d 663, 688 (D.C. Cir. 2000) (finding that EPA’s NOx Budget Program, promulgated under section 110, did not impermissibly limit state discretion because “states remain[ed] free to implement other ‘cost-effective’ or ‘reasonably cost-effective’ measures” other than those identified by EPA); Virginia v. EPA, 108 F.3d 1397, 1410 (D.C. Cir.), modified on other grounds, 116 F.3d 499 (D.C. Cir. 1997) (EPA cannot condition approval of state plans on the adoption of specific control measures).

[5] EPA, Carbon Pollution Plan for Existing Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg., 34879.

[6] EPA, Carbon Pollution Plan for Existing Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg., 34834.

[7] EPA, Carbon Pollution Plan for Existing Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg., 34837.

[8] Op cit p. 34833.