Cap-and-trade gained support after Bush imposed it on power plants that released sulfur dioxide, which created acid rain. By 2008, emissions were 60 percent lower than they had been in 1980. More importantly, the cuts were made at much lower costs than people had predicted. The cap and trade system on sulfur dioxide was imposed in 1990.
With their bill, the Markey committee aimed to create the largest cap-and-trade system in history. The limit on greenhouse emissions affected virtually every corner of the modern economy, from automobiles, to power plants, to factories. The policy mechanisms to do so, laid out in the bill’s thousand pages, were almost impossibly complex.
Ed Markey unveiled the bill in May of 2008, giving it the consumer-friendly name of “iCAP.” After Obama became president, Nancy Pelosi became emboldened. She helped initiate a coup in the Energy and Commerce Committee. A usually perfunctory vote on the chairmanship went against Dingell. He was replaced by the California liberal Henry Waxman, who vowed to pass a law to control carbon emissions. Ed Markey and his committee, after years of agitating from their basement office, were now in a position to do more than agitate. They were in a position to govern. They had opened a pathway to push their bill through Waxman’s committee.
The iCAP bill was put on the legislative operating table in 2009 and opened back up. It would become known as the Waxman-Markey bill, an ambitious cap-and-trade system that quickly became a centerpiece of Obama’s legislative agenda. The bill had been in the works for years and had been the subject of hundreds of hours of congressional hearings. In the early days of the Obama era, even more hearings were held. The select committee worked even harder as it drafted new language and met with members of Congress and lobbyists from the energy companies and environmental groups.
The long days of grinding work in the basement office were thrilling, in a way, for Phillips. He had the sense that he was a part of history. And he wasn’t the only one. At night, Phillips and his friends went out to drink at cheap bars. They must have felt something like the young staffers back in the 1930s, when the mighty legislative pillars of the New Deal were being put into place. They were laying the governing framework of future generations.
They were part of the strongest governing coalition in years, or perhaps decades. An acquaintance of Phillips’s, a young speechwriter named Dylan Loewe, wrote a book during that time entitled Permanently Blue: How Democrats Can End the Republican Party and Rule the Next Generation. Galley copies were passed around Washington. People read Loewe’s prediction that the Democratic Party was in a position to hold the White House and Congress for the next quarter century, and this prediction seemed entirely believable. The Republicans had been reduced to a factional minority with no clear path back to power. The Democratic Party had the force of history at its back, pushing it forward.
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Koch Industries’ lobbying office was located on the eighth floor of a majestic stone building two blocks from the White House. In early 2009, David Hoffmann—the environmental attorney who’d helped impose Koch’s “10,000 percent compliance” doctrine at Invista’s factories—was still relatively new to Washington, DC. After working for several years in Wichita, he requested a transfer to Washington in 2007 so that he and his wife could enjoy more big-city culture. He moved into an office at Koch’s lobbying shop, even though he was still a compliance attorney. If Hoffmann sympathized with certain elements of the Obama revolution, he also saw the ugly side of the federal government—the complex bureaucracy, and the overbearing paperwork to comply with environmental laws. The Clean Air Act, he said, was a prime example. To comply with the law, there are “literally thousands of items that you need to go over to determine compliance. It takes a full-time staff, working around the clock, to get some of these compliance reviews completed.”
Even though he wasn’t a lobbyist, Hoffmann helped his peers in Koch’s public affairs division by lending his expertise on compliance matters. That’s why he got dragged into the largest lobbying fight Koch had ever waged, against the cap-and-trade bill that Phillips and his team were then constructing.
Before 2008, Koch’s lobbying efforts had been fragmented. There was a team of lobbyists working for Invista, one for Georgia-Pacific, and another for the oil refining division, Flint Hills Resources. This fragmentation reflected Koch’s commitment to maintain its corporate veil, organizing its various divisions under a legal structure that categorized each division as an independent business. This structure helped Koch contain its legal liabilities, but it also hobbled its corporate lobbying efforts. Because Invista and Flint Hills didn’t coordinate closely, they might be duplicating their efforts or sending mixed messages to lawmakers. In 2008, Koch Industries consolidated its lobbying operations into a single, newly formed company called Koch Companies Public Sector. Now all of Koch’s lobbyists worked side by side, sharing information and strategies as they worked toward common goals.
Hoffmann led an internal committee at Koch, studying how the company might not only adapt to a cap-and-trade regulatory scheme but how it might prosper from it. He came to this role almost accidentally. The newspapers were full of stories about the Waxman-Markey bill. Hoffmann knew that if the law passed, it would instantly become the most significant law that he and his compliance team at Invista would need to contend with. He formed the committee to study the issue. He thought that Invista might find novel ways to comply with the law that could be copied by other divisions at Koch Industries. He was steeped in the ways of Market-Based Management and believed that adapting to a cap-and-trade regime fit perfectly within the MBM framework. “Charles Koch wants to empower his employees to project where industry is going,” Hoffmann said. “We felt like we were doing exactly what the Koch philosophy meant to us. Which is: hope for the best but prepare for the worst.”
Hoffmann enlisted a handful of fellow Invista employees to help him. He consulted with Koch’s lobbyists. And he quickly realized that there was reason to be optimistic about Koch’s future in a cap-and-trade world—or at least there was reason to be optimistic about Invista’s. Invista was already making investments that cut its carbon output. The company was refitting older factories with new furnaces, for example, fired by natural gas rather than coal. Such efforts saved money and increased efficiency, but they could also be transformed into carbon credits that Invista could sell. Koch Industries also operated smaller divisions that made pollution-control equipment. If cap and trade passed, those divisions could see a boost in business.
Hoffmann labored under the assumption that some sort of cap-and-trade bill was inevitable. What he didn’t know then was that he held the minority opinion within Koch’s lobbying office.
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Every Monday morning, Koch’s team of lobbyists gathered in a large meeting room just down the hallway from the office’s main reception area. As the lobbyists filed in for their weekly meeting, they took their seats around a large wooden table in the center of the room. The table was set with thick leather coasters with the Koch Industries logo embossed on them. Other than that, the decorations were spartan. A pad of white paper stood on a tripod near the window, on which to write ideas and sketch out strategies. The only artistic adornment in the room was a small metal sculpture on the shelf of a lumberjack, an apparent homage to Georgia-Pacific and its past workforce.