In the corner of Charles Koch’s living room, there was an elevated area that held a bookcase, filled with collector’s editions of Charles Koch’s favorite thinkers, like Hayek and von Mises. The collection seemed like a museum piece now, a collection of antiques that were being left behind by the march of history. The guests stood in clusters near the books, commiserating about the state of politics, the free-falling markets, and waiting to hear what Charles Koch might say about it all.
Every year, Charles Koch made a short speech at the party. Sometimes he was joined by Richard Fink, the top executive over Koch’s political operations. Charles Koch’s speeches tended to be anodyne and courteous. He thanked the gathered employees for their support and reminded them how vital it was to maintain economic freedom in the United States, both for the long-term health of Koch Industries and for the populace. In 2009, however, Charles Koch’s speech was urgent. He felt that the future of America was imperiled. He thanked his guests for their contributions, but the guests understood that the political fight was just beginning.
One threat from the Obama administration seemed more dangerous than the rest. It was the threat of a massive new regulatory regime to limit greenhouse gas emissions that trapped heat in the Earth’s atmosphere. The threat of such had been slowly building for decades, under both Republican and Democratic administrations. Charles Koch fought against it the entire time. Now the threat appeared to be imminent. While both Obama and his Republican opponent, Senator John McCain, campaigned on a promise to limit uncontrolled carbon emissions, Obama made carbon control a pillar of his platform. Since the very month Democrats took control of Congress in 2006, they started working on a carbon-control regime. That effort was well under way, with a proposed law working its way through Congress that was more than a thousand pages long. With their wide majorities in the House and Senate, Democrats were ready to hand the bill to a president who was eager to sign it.
There was a belief, within Koch Industries, that the carbon-control regime could put the company out of business. It was impossible to overstate the stakes of the coming fight. The bill in Congress sought to wholly reorganize America’s energy system. If this happened, there was reason to believe that the world would follow America’s lead. There were already two global treaties seeking to impose carbon limits worldwide—one signed in Rio de Janeiro in 1992 and the other in Kyoto in 1997—and the American regulatory regime could be quickly incorporated into this global framework.
A carbon-control regime would expose Koch to a brand-new regulatory structure, but it could also choke off decades of future profits as the world shifted away from burning fossil fuels. Koch’s sunk investment in the fossil fuel business was measured in billions of dollars, reflected in the value of its two oil refineries, pipelines, and other assets. The future revenue to be derived from these assets arguably numbered in the trillions of dollars in future decades.
In 1989, Charles Koch was caught unprepared when the US Senate investigated oil theft on Indian reservations in Oklahoma. Charles Koch learned from the experience. Things were very different in 2009. As recently as 1998, Koch Industries spent as little as $200,000 a year on lobbyists in Washington, DC. By 2005, Koch was spending $2.19 million. When the Democrats took over Congress in 2006, the spending exploded, reaching $3.97 million in 2006, then $5.1 million in 2007. The prospect of an Obama presidency intensified the effort. Koch Industries spent $20 million on lobbying in 2008. Koch augmented these lobbying expenditures with campaign donations. In 1998, the Koch Industries PAC spent just over $800,000. In 2006 it spent $2 million. In 2008 it spent $2.6 million.
Even these expenditures didn’t come close to capturing the size of Charles Koch’s political machine. Since at least 1974, Charles Koch had envisioned a political influence machine that was multifaceted, including think tanks, university research institutes, industry trade associations, and a parade of philanthropic institutions to support it financially. The machine was a reality now.
The think tanks and academic programs were funded through nonprofit foundations such as the Charles G. Koch Charitable Foundation and the Claude R. Lambe Charitable Foundation. In 2008 alone, the Charles Koch Foundation gave out $8.39 million in grants and gifts, while the Lambe Foundation gave $2.56 million. These grants supported conservative scholars and paid for supposedly independent policy reports released by Washington think tanks. The libertarian Cato Institute think tank, which Charles Koch cofounded and continued to support, operated with annual revenue of $23.7 million in 2008, up from $17.6 million in 2001.
In later years, this political operation became known as the “Kochtopus,” a name that evoked a many-tentacled entity that seemed to grasp every lever of policy making. This nickname gave the Koch political apparatus an air of invincibility, as if it were an unbeatable juggernaut with which Charles and David Koch could buy off politicians, write policies, and tame the federal government to their wishes. This caricature failed to recognize a central truth about the market for influence in Washington, DC: there is no straight line between spending money and getting what you want. The market for influence and policy outcomes was a murkier and more complex market than any other in which Koch operated.
That night, at his home in Wichita, Charles Koch made it clear that he was determined to win in this market, just as Koch Industries had won in so many others. The survival of the company seemed at stake.
At that very moment, the biggest source of trouble for Koch Industries was a small group of dedicated liberal congressional staffers working long hours in an obscure basement office in Washington. This team had been laboring for years to write the thousand-page law controlling greenhouse gas emissions. The team was composed of underpaid, overworked idealists. One of them was a workaholic named Jonathan Phillips. Phillips didn’t know much about Charles Koch at that time. Which helps explain why Phillips was still optimistic that history was on his side.
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In a different world, Jonathan Phillips could have ended up as a Koch Industries employee. He fit the Koch mold. He was entrepreneurial, idealistic, and thoroughly midwestern. The first time he was old enough to vote for president, in 2000, he voted for George W. Bush. Like so many Koch employees, he was trim and athletic. Phillips had short blond hair, and his blue eyes projected an air of absolute sincerity when he spoke.
Phillips might have become a perfectly respectable conservative if he hadn’t served in the Peace Corps, which took him from the cozy confines of suburban Chicago to a tent in Mongolia. He gained a broader view of the world and America’s role in it. He lived amid extreme poverty and developed nuanced views about capitalism. He watched from overseas as George Bush launched an invasion of Iraq that was strategically disastrous and morally troubled. Phillips returned home from the Peace Corps and tried to figure out how he could help make the world a better place. He enrolled in the John F. Kennedy School of Government at Harvard and, after graduation, got a job on Capitol Hill as a congressional staffer in the House of Representatives. This is how Phillips found himself in the center of an effort to redraw America’s energy system.
In the winter months of 2009, Phillips worked in the Longworth House Office Building, a towering stone complex near the US Capitol. The hallways inside the Longworth Building were austere and cold, lined with marble and capped with vaulted ceilings. Every morning, Phillips walked past these grand corridors to a stairwell that took him to the basement. Down there, the floors were made of varnished cement and the ceiling was covered in exposed ducts, pipes, and vents. Phillips walked to a set of doors that looked like they might conceal a utility closet. This was the headquarters for the Select Committee on Energy Independence and Global Warming.