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Alexander Pillories Wind PTC

Congress is at long last coming to grips with the failure that is the wind production tax credit (PTC). The bill passed by the House Thursday will cut the rate at which wind production is subsidized by about one-third and will allow the quarter-century-old program to finally end as scheduled in 2020.

Hurdles still remain on the Senate side of things and the fight is far from over. At least one senator, however, isn’t afraid to call out the wind PTC as the costly, cronyistic subsidy that it is. That senator is Lamar Alexander (R-Tenn). Senator Alexander took to the floor on Tuesday to decry the wasteful history of the PTC and enjoin his colleague to discontinue it by year’s end.


Source: https://floor.senate.gov/MediaPlayer.php?view_id=2&clip_id=2656

Alexander described the wind PTC as “at the top of the list” of wasteful spending that should be addressed in the tax reform debate. By eliminating the subsidy on December 31, 2017, rather than phasing it out, taxpayers will be saved $4 billion according to figures cited by Alexander on the floor.

As he pointed out, wind PTC advocates can no longer claim this is a short-term support for an infant industry. The PTC has been extended seven times, has cost us tens of billions of dollars, and yet wind still produces just one-twentieth of our electricity.

We commend Senator Alexander on his continued realist stance on the wind PTC and echo his closing remark:

“I’m here to challenge my colleagues to be willing to consider all energy subsidies for mature technologies–wind, solar, oil, gas–as candidates for elimination in a tax reform bill. Those dollars could be better spent to lower rates for taxpayers.”

Senator Alexander’s comments can be viewed here in the recording of Tuesday’s proceedings by jumping to the 7 hour, 28 minute mark.

To read AEA President Tom Pyle’s comments on the passing of the House tax bill and its wind PTC reductions click here.

To read the Institute for Energy Research’s 2014 white paper on the wind PTC click here.

Abandon Free Market Principles to Save Competitive Energy Markets?

At the unveiling of the George W. Bush Presidential Center, former President Bush admitted to going against his “free market instincts” when he bailed out the banks following the financial crisis. “History shows that the greater threat to prosperity is not too little government involvement, but too much,” he added.

We couldn’t agree more.

Abundant, affordable energy is the foundation of modern prosperity. One of the most pernicious things that the Obama administration did was to interfere with the availability of affordable energy, lavishing subsidies and regulatory support on any trendy, inefficient and expensive technology or energy source that could be branded as “renewable.” The Obama administration’s government distortions raised costs for consumers and destroyed jobs in industries that did not gain government favor in an attempt to “finally make clean energy the profitable kind of energy.” This picking of winners and losers is no way to manage competitive energy markets in a free society.

The American Energy Alliance has not been alone in recognizing the baleful effects of government favoritism. Many clear-eyed politicians have also understood the negative impacts of excessive government intervention in energy markets.

In 2011, then Governor Perry exhorted voters to elect him president so that he could “level the playing field for all energy producers, removing Obama’s practice of picking winners and losers.”

In 2014, 55 House Republicans inveighed against a government subsidy which “has not only cost taxpayers billions, but has caused significant price distortions in wholesale electricity markets.”

In 2015, Rep. Alex Mooney spoke it plainly: “The government shouldn’t pick the winners and losers. What I object to is the government interfering in the market.”

In 2016, leaning on his experience as a state utility regulator, Rep. Kevin Cramer explained that “when ratepayers are subsidizing with an additional cost because of a mandate, that’s different. That’s punishing the ratepayer.”

This past summer, Rep. Keith Rothfus reminded us “the federal government’s role isn’t to pick winners and losers.”

Just a few weeks ago, Senator Shelley Moore Capito indicted the Obama administration for issuing “heavy-handed regulations to pick winners and losers among energy industries.”

Many of the companies that were targeted for harm by the Obama administration likewise stood with us and these political leaders against federal government distortions in energy markets.

FirstEnergy, one of the largest investor-owned utilities in the country, saw things clearly, noting “measures that restrict customer shopping or subsidize one electric generator over another are throw-backs to monopoly regulation. Such efforts that pick ‘winners’ and ‘losers’ in the energy market would create obstacles to private investment in generation and increase prices for customers.”

Earlier this year, the CEO of Murray Energy, correctly noted that under the Obama administration there was not a level playing field “the government has been picking winners and losers.”

Exelon, largest utility in the Fortune 500, has made clear its preference for outcomes based on free markets, “rather than through the government picking technology winners and losers,” and proudly declared itself “anti-subsidy.”

We couldn’t have said it better ourselves.

On September 29th, the Trump administration Department of Energy released a notice of proposed rulemaking proposing a rule for action by the Federal Energy Regulatory Commission (FERC). This proposed rulemaking called for FERC to intervene in electricity markets to guarantee cost recovery for certain classes of electricity generation units. As we have stated before, we agree that baseload power generation is not adequately valued. We also believe that FERC can play a limited role in addressing this legitimate concern. The Perry proposal, in contrast, would: pick winners and losers, cause significant price distortions in wholesale electricity markets, constitute government interference in markets, punish ratepayers, create obstacles to private investment in generation, and increase prices for customers.

Today, we implore the politicians and companies who fought against the reckless energy policies of the Obama administration not to go against their previously stated free market instincts. EPA Administrator Scott Pruitt is working to undo a slew of unnecessary and burdensome federal regulations like the Clean Power Plan, which would have led to the federal takeover of the electricity grid. The House of Representatives is taking steps to rein in distortive subsidies like the wind Production Tax Credit.

Our focus should be on helping to unwind these distortive and destructive policies, not adding to an already broken system. Let’s heed the advice of President Bush and be on the right side of history by sticking with our free market instincts. In the end, everybody will be better off.

AEA Responds to GOP Tax Plan

WASHINGTON – Thomas J. Pyle, President of the American Energy Alliance, has issued the following statement on today’s release of the Tax Cuts and Jobs Act:

“This pro-growth tax reform plan is a breath of fresh air for American businesses and the American people. The immediate lowering of the corporate tax rate to 20 percent will free up capital to boost investments, jobs, and incomes and the termination of distortionary practices like the $7,500 electric vehicle tax credit will help restore market signals and save taxpayers money. The 2016 elections gave the president and this Congress a mandate to chart a better path for our economy and this plan reflects that.”

“While we’re pleased with many provisions and the overall blueprint, we would prefer to see—and will continue to argue for—a more thorough elimination of federal energy subsidies. A termination of the Investment Tax Credit and the Production Tax Credit is of the highest order of importance. With that said, this plan takes us in the right direction by maintaining the scheduled expiration of the Production Tax Credit for wind energy and phasing out the temporary credits for wind and solar established by the 2015 PATH Act.

“The subsidies that have been dished out by the federal government to the wind industry in particular are staggering. Our 2015 study found that the cumulative magnitude of federal subsidy allocations from the PTC, the ITC, and Section 1603 grants to the wind industry from 2005 to 2014 was at least $18.6 billion. The wind industry’s continued dependence on the federal government is an injustice to the taxpayers forced to foot the bill. The phase-out of these subsidies cannot come a moment too soon.

“The bottom line, despite its flaws, is that this plan is a positive overhaul of a broken tax system. The sizable tax reduction for corporations will bring new jobs and stronger earnings for American families and help us move more into line with America’s historically strong rates of economic growth.”

Standing up to the Ethanol Mafia

Earlier this week a group of Senators from some of the states that are victims of the Renewable Fuel Standard (RFS) decided to fight back against the ethanol mafia. It’s about time. The spectacle last week of a few Midwestern Senators making threats and holding up nominations to protect a government handout that only benefits their wealthy backers in the ethanol industry was a new low even for Congress. Members of a party that ostensibly opposes regulation and federal mandates went full mafia-protection-racket to defend the federal government mandate that keeps Big Ethanol raking in the cash.

The RFS is the embodiment of government gone wild. It provides a federally guaranteed market for a product that no one needs and most people don’t want. Absent this government mandate, some ethanol would likely still be blended into gasoline to comply with environmental regulations, but nowhere near the levels that are mandated by the RFS. That is why Big Ethanol and their bought-and-paid-for Senators like Chuck Grassley and Deb Fischer went to the mat to stop even the minor, commonsense adjustments proposed by the EPA.

What was that proposal? What was it that sent Big Ethanol into a frenzy? The mere suggestion that perhaps the federal government should not be mandating imports of foreign fuels. Last year about 45% of biodiesel needed to meet the RFS was imported because the United States does not produce enough domestically. The EPA quite reasonably suggested that maybe the RFS should be adjusted slightly to better match actual domestic production. But the first rule of government handouts is no backsliding at any cost. Big Ethanol has decided that in order to protect their mandated market, the RFS must only ever go up. So instead of commonsense, we get a program that finances criminals, foreign producers and Big Ethanol. We are left with a situation where President Trump, who regularly rails against imports, is pressured into protecting a program that mandates those very imports at the expense of domestic petroleum fuels.

In their fulminations against the EPA, the subsidy Senators talked about the jobs that the RFS supports. Well what about the jobs it destroys? Hundreds of thousands of people work in the refining industry across the country, people whose jobs are at risk because of the escalating cost of complying with the RFS. East coast refiners are particularly damaged by being forced to buy compliance offsets, called RINs, to meet federal RFS mandates. That is money plucked from states like Pennsylvania and Texas to line the pockets of Iowa ethanol producers. In this situation it is perfectly appropriate for Senators like Ted Cruz and Pat Toomey to stand up to this extortion.

And it’s not just the refining industry that is harmed by the RFS. Every good that is transported by truck in the United States is more expensive because of the RFS. That is money taken from the pockets every single American to enrich, not the farmers in Iowa or Nebraska, but rather a few rich ethanol producers.

It’s long past time for our elected representatives in Washington to stand up to the ethanol mafia. President Trump should listen to these senators who are taking a stand; they are advocating for domestic jobs and domestic energy production, both of which are harmed by the RFS, and they are advocating for all Americans, who are forced to pay more for goods and gasoline because of the RFS.

Who Is Chuck Grassley’s Mafia Don?

Over the last few weeks and months, Senator Grassley and his paymasters in the biofuel industry created a lot of sound and fury about an eminently reasonable proposal from the Environmental Protection Agency (EPA). Namely, matching the biodiesel mandate in the Renewable Fuel Standard (RFS) more closely to the amount of biodiesel actually produced in the United States. This minor proposed adjustment to the federal biodiesel mandate prompted howls of anguish from Big Ethanol and their senators, who refuse to countenance any change to their special interest deal whereby the federal government requires consumers to purchase their product. The complaints escalated to threats from a few Midwestern senators to retaliate against the administration should any alteration be made to Big Ethanol’s government gravy train—U.S. senators effectively acting as the enforcers of the ethanol mafia.

The RFS mandates that certain levels of biofuels be mixed into the nation’s fuel supply. However, the mandate is expressed in volumes rather than percentages, with the mandated volumes ratcheting up every year. These volumes increase even if the United States does not actually produce enough of the products to meet the mandate. In the case of biodiesel, last year about 45% of the 2 billion gallons of mandated biodiesel had to be imported, mostly from Argentina. The resulting domestic shortfalls have created a situation that, according to the former head of the EPA Criminal Investigation Division, is ripe for fraud, particularly in the biodiesel market.

The key opening for this fraud is the compliance mechanism for the RFS, which is known as the Renewable Identification Number (RIN). A RIN is assigned to every unit of biofuel produced, but it can be detached from the physical fuel and traded and sold like a financial commodity. Refiners are required to accumulate enough RINs to meet their share of the RFS mandate, whether by purchasing biofuel with RINs attached or RINs traded in the opaque and poorly regulated secondary market.

The market for RINs has been fertile ground for fraudsters. The EPA keeps a running tally of the fraud that it has discovered. In the last three-plus years, the EPA has taken enforcement actions involving more than 429 million fake RINs with a market value of over $325 million. And keep in mind, that is just the ones they managed to catch and convict.

In one example of this massive fraud, extensively documented by Bloomberg last year, a con man named Philip Rivkin was indicted for selling more than 60 million fake RINs for at least $78 million, as well as illegally claiming another $21 million in biofuel tax credits. When an EPA inspector arrived at the site of his company, Green Diesel, he found a deserted facility with rusting equipment and disconnected pipes. Green Diesel never produced a single gallon of marketable biofuel.

The cost of this fraud is passed along directly to consumers in the form of higher fuel prices at the pump. According to the EPA, biodiesel costs between $1.36-$1.85 more for every gallon of petroleum diesel replaced. And don’t forget that much of that biodiesel is imported. Every good that is transported by truck in the United States is made more expensive by this biodiesel mandate, all for the sake of enriching criminals, foreign companies and Big Ethanol special interests.

In response to all this, the EPA proposed just a minor adjustment to the biodiesel mandate, no more than 15%, to closer align with actual domestic production. A common sense argument that the federal government should not be mandating imports of foreign goods. But Senator Grassley among others declared this a betrayal and threatened to hold up nominees to the EPA. Last week, Secretary Pruitt sent the complaining senators a letter attempting to allay their concerns that he sought to rationalize the boondoggle program they are so attached to. While this letter gave the subsidy senators most of what they want for now, they may have shot themselves in the foot by getting the president and EPA administrator to intervene in an active rulemaking, setting up possible litigation in the future.

The key fact remains, though, that Sen. Grassley and his fellow subsidy senators moved themselves to this level of outrage not to protect consumers, not to reduce transportation costs, not to reduce imports. No, their fury was unleashed in defense of a government mandate that lines the pockets of criminals, foreign producers, and their Big Ethanol political backers. Would that the average American consumer had these kind of enforcers in Washington, D.C.

Key Votes on Amendments to HR 3354

In considering HR 3354 Department of Interior, Environment, and Related Agencies Appropriations Act, 2018 [Make America Secure and Prosperous Appropriations Act, 2018], the American Energy Alliance has identified the below three amendments offered to Division A as key votes.

NO on Amendment #20 offered by Reps. LoBiondo and Beyer. This amendment seeks to prevent energy exploration activities along the entire Atlantic seaboard. This sweeping prohibition is unjustified and premature. The administration has just begun the process of creating a new five-year leasing plan. It is important that the offshore Atlantic remain a part of this review.

YES on Amendment #100 offered by Rep. Mullin. This amendment seeks to eliminate the use of the so-called social cost of carbon. The social cost of carbon calculation is entirely notional and cannot be justified on scientific or economic grounds. During the creation process, the social cost of carbon models and calculations were manipulated to reach a desired end goal. The social cost of carbon designed by the previous administration should be discarded.

YES on Amendment #101 offered by Reps. Mullin and Perry. This amendment seeks to prohibit the implementation of the previous administration’s methane rule. The methane rule was designed and intended as a tool to strangle energy production on federal lands. The rule is unnecessary, given that methane emissions have been falling in recent years even as natural gas production has increased rapidly. Oil and gas producers already have an economic incentive to capture methane as it is a versatile product in its own right. This unjustified rule should be stopped.

AEA urges all members to support free markets and affordable energy by voting NO on Amendment #20 and YES on Amendments #100 and #101.  Should votes on these amendments occur, AEA will include each in its American Energy Scorecard.

Rhetoric Matters: The Subsidy vs. Externality Distinction

Earlier this week, an article in The Guardian by John Abraham on fossil fuel subsidies piqued our interest and we granted it a coveted spot in our daily news roundup, In the Pipeline:

But I think it deserves a bit more attention.

As the above excerpt indicates, Abraham’s article is a paean to a study that seeks to redefine subsidy. According to the study’s authors and to Abraham, rather than subsidy meaning a benefit given by the government to groups or individuals, usually in the form of a cash payment or grant, the term should encompass “environmental costs like global warming” that are not taken on by an industrial outfit.

Here’s the thing though: we already have a well-known term in the economics nomenclature for this concept: externality. An externality is a side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved.

Externalities can theoretically be negative (think: local water pollution) or positive (think: a neighbor’s garden, which you do not pay to maintain, yet from which you nevertheless derive visual and olfactory pleasure). But the costs and benefits from externalities are notoriously difficult to assess.

Now, I haven’t yet had the opportunity to wade into the study Abraham is promoting, but I think we can safely assume the future costs it attributes to the fossil fuel industry rest upon the dubious “social cost of carbon” (SCC) or another similar metric.

The SCC and its counterparts, however, are far from scientifically valid.

As IER commented in its official submission to the Executive Branch to challenge use of the SCC in rulemaking:

[T]he use of the SCC as an input into federal regulatory actions is totally inappropriate. The Administration is treating the SCC as if it is a scientifically valid, objective fact of the external world, akin to the charge on an electron or the boiling point of water at sea level. However, the SCC is no such thing, at least in our present state of understanding. Rather, the SCC is an arbitrary output from very speculative computer models. It can be adjusted up or down as the analyst wishes, simply by changing a few key parameter choices. Simply by adjusting the parameter and modeling choices in plausible ways, a knowledgeable economist can generate SCC estimates that are very high, very low, or even negative—meaning that carbon dioxide emissions actually shower “positive externalities” on humans beyond the direct benefits to the emitters, and therefore should (according to the Administration’s logic) receive federal subsidies.

It isn’t just IER that’s unimpressed by the SCC, MIT physicist Robert Pindyck takes a similarly dim view. In the abstract for his paper Climate Change Policy: What Do the Models Tell Us?, he answers the titular question:

Very little. A plethora of integrated assessment models (IAMs) have been constructed and used to estimate the social cost of carbon (SCC) and evaluate alternative abatement policies. These models have crucial flaws that make them close to useless as tools for policy analysis: certain inputs (e.g. the discount rate) are arbitrary, but have huge effects on the SCC estimates the models produce; the models’ descriptions of the impact of climate change are completely ad hoc, with no theoretical or empirical foundation; and the models can tell us nothing about the most important driver of the SCC, the possibility of a catastrophic climate outcome. IAM-based analyses of climate policy create a perception of knowledge and precision, but that perception is illusory and misleading.

As we suggested with our newsletter commentary, there’s a measure of equivocation at play here. Abraham disseminates the figures produced by the study without the slightest indication of the study’s methodology, let alone critiquing it. Furthermore, like IER’s Robert Murphy said in 2013, the context-switching use of “subsidy” is a sort of rhetorical trick. The typical reader, busy with the more pressing concerns of life, will not pursue an in-depth evaluation of the study, but is likely to remember the staggering subsidy claims being made about the fossil fuel industry. And Abraham, of course, knows this.

Scientific topics require deliberate thought, but it is all too often omitted from popular discourse on climate and environmental economics. Readers of The Guardian deserve better than to have “close to useless” metrics, like the social cost of carbon, promulgated as ironclad science.

Key Vote: YES on Rep. Davidson’s Amendment #388 to Focus Dept. of Defense Resources on National Security

The U.S. government has no duty more paramount than ensuring our national security. Unconscionably, Executive Order 13693—like its recently repealed counterpart 13653—jeopardized that imperative by diverting the Armed Forces’ scarce resources toward goals falling far outside their missions. By prioritizing carbon dioxide emissions targets, fleet requirements for low and zero emission vehicles, and aid for local governments to “go green” Executive Order 13693 takes capacity away from our defense capabilities.

Representative Warren Davidson’s amendment #388 to H. R. 2810, the National Defense Authorization Act, would prevent the Department of Defense from continuing to implement the Executive Order in question.

The insertion of ideological and politically-drive considerations into the operations of the Department of Defense dilutes the efforts of our brave men and women in uniform by placing irrelevant concerns on par with the critical security matters that they must weigh. By blocking the implementation of this pernicious Executive Order, Rep. Davidson’s amendment will redirect both material resources and human capital back toward the Armed Forces’ sacred mission of safeguarding our liberty.

The American Energy Alliance strongly supports and urges all members to vote YES on Rep. Davidson’s amendment #388 to H. R. 2810.

Fracking’s Overlooked Local Benefits

The economy-wide, macro-scale benefits of hydraulic fracturing have been well-documented and are indeed palpable in our everyday experiences in the form of noticeably more affordable energy. With the influx of shale oil on the market, for example, we’re seeing lower gasoline prices this summer than we have in over a decade. The national average is currently around $2.25-per-gallon—$1.30 less than it was three years ago. Multiplied by the 140 billion barrels of gasoline American drivers use each year, this means a total savings of $180 billion than can be put to use elsewhere in our economy.

Nevertheless, fracking remains a misunderstood and maligned technique for energy development. Earlier this year Maryland became the third state to ban fracking outright, with Governor Larry Hogan signing the bill in April.

“The possible environmental risks of fracking simply outweigh any potential benefits,” Hogan said. “This legislation, I believe, is an important initiative to safeguard our environment.”

Taken at face value, Hogan’s statement portends care and concern for the people of Maryland. As with any technology, we should absolutely evaluate the potential risks and weigh them against the potential benefits. The problem is that Hogan’s calculation doesn’t pass muster.

Any risks that fracking poses, it stands to reason, would be felt most intensely by those who live, work, and play closest to fracking infrastructure. Those same people, however, have the most to gain from fracking.

As other states’ experiences have shown, the value of fracking accrues most directly to the people closest to it who benefit not only from the economy-wide impact, but from leasing contracts, royalties, and private sector investments. While Marylanders will continue to experience fracking’s positives that resonate throughout our economy—lower prices—they’ll miss out on a great deal.

In Texas, for instance, a new study from the Academy of Medicine, Engineering, and Science of Texas, titled Environmental and Community Impacts of Shale Development in Texas, yielded the following findings:

  • In 2014, shale development in the Permian, Eagle Ford, and Haynesville plays accounted for $27 billion in royalties paid to private landowners.
  • Oil and natural gas production generated over $1.5 billion in property tax revenue for Texas schools in FY2014.
  • The Permanent School Fund—a state education endowment supporting K-12 public schools—received $676 million in FY2014 from oil and natural gas revenues.
  • Roughly 230 independent school districts are located in areas where oil and natural gas producing properties generated at least $1 million in property tax revenue in FY2014.
  • The Permanent University Fund—an endowment supporting the University of Texas and the Texas A&M University systems through oil and gas royalties on certain state-owned lands—was at the time valued at $21.8 billion.

These are the sorts of benefits that Maryland’s politicians are denying to its citizens—particularly those in the rural, less developed western portion of the state. If Texas seems too distant and incomparable, Maryland need only look north to its neighbor Pennsylvania to see another state reaping the benefits of fracking.

While the rural counties of western Maryland languish, counties just 200 miles away in eastern Pennsylvania are seeing the rewards that come with shale development.

In its decade of operation in the Keystone State, Cabot Oil & Gas—just one company—has now paid over $1 billion in royalties and nearly $500 million in lease bonuses to landowners in Wyoming County and Susquehanna County. Rightfully, the people of Pennsylvania recognize the relationship as a win-win.

“A billion dollars flowing into our rural economy is an extremely big deal,” said Pennsylvania State Representative Jonathan Fritz. “Being pro-jobs and pro-business, I extend my appreciation to Cabot Oil & Gas. The energy industry has been a blessing to our area and I look forward to Cabot’s continued success and the widespread economic benefit that comes along with it.”

Cabot’s investment has indeed been massive, with $4.6 billion put into the region to build its network of 557 wells.

“Royalties from natural gas development have provided additional income during tough economic times,” said State Senator Gene Yaw. “Whether it’s expanding a farming operation, supporting area businesses or simply putting money away for a child’s college fund, royalties have greatly benefited rural Pennsylvanians.”

“Let’s face it, most municipalities and the county government, they live paycheck to paycheck,” Susquehanna County Commissioner Alan Hall said. “When you start breaking down all the municipalities, and the money that they’ve been able to use without borrowing money, that’s all a savings to the taxpayer.”

When Larry Hogan signed Maryland’s fracking ban in April these are the opportunities he threw away. Sadly, the people of Maryland are worse off economically than they should be, all because state politicians failed to account for these real and direct benefits.

AEA Statement on the Bears Ears National Monument Interim Report

WASHINGTON — American Energy Alliance President Thomas Pyle has issued the following statement regarding Secretary Zinke’s 45-day interim report on Bears Ears National Monument:

“The Antiquities Act allows the president to designate archaeological sites and historical landmarks as off-limits to development, but stipulates that the protected space shall encompass ‘the smallest area compatible with proper care and management.’ Barack Obama stepped beyond that boundary with his Bears Ears designation by granting unnecessary protection to 1.35 million acres—an area nearly as large as the state of Delaware.

“The Bears Ears monument designation was one of the final actions taken by the Obama administration—and one of the most telling. The designation took land out of the hands of Utahans and placed it into those of the federal government. By reducing the size of the monument, the Trump administration will rightfully return to the people of Utah the power to use the land in the manner that best suits their interests. Energy development, land stewardship, and recreation are all important considerations; this decision respects that importance and gives agency to the people for whom Bears Ears has the most significance.”

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