Saturday, November 17, 2018
Breaking News
Home » Community Blogs » FREE Insights » The Business of Climate Change
If Congress passes climate change legislation, someone must manufacture and sell products and services to help companies meet lowered carbon emissions targets. With this in mind a friend asked if I saw profitable opportunities. Surely there is money to be made in alternative energy sources like biofuels, wind, and solar? Perhaps arbitraging the CO2 markets is the way to go? While on the surface this seems like a target rich environment, I advise caution to investors considering this arena. Here’s why. Global warming has created a breeding ground for political capitalists. These are businesses that are expert at manipulating the political process to gain profits they can’t make in the competitive marketplace. The opportunities for political capitalism increase with the size and scope of government. When government allocates resources and imposes constraints it is generally to serve the strong and entrenched; the weak and aspiring suffer. The recent health care reform clearly exemplifies just this sort of mischief.

The Business of Climate Change

If Congress passes climate change legislation, someone must manufacture and sell products and services to help companies meet lowered carbon emissions targets. With this in mind a friend asked if I saw profitable opportunities. Surely there is money to be made in alternative energy sources like biofuels, wind, and solar? Perhaps arbitraging the CO2 markets is the way to go? While on the surface this seems like a target rich environment, I advise caution to investors considering this arena. Here’s why.

Global warming has created a breeding ground for political capitalists. These are businesses that are expert at manipulating the political process to gain profits they can’t make in the competitive marketplace. The opportunities for political capitalism increase with the size and scope of government. When government allocates resources and imposes constraints it is generally to serve the strong and entrenched; the weak and aspiring suffer. The recent health care reform clearly exemplifies just this sort of mischief.

Enron was the archetype of the political capitalist business. Its chairman Ken Lay, a Ph.D. economist with years of federal energy regulatory experience, devised a plan for profit predicated on currying government favor through rigging arcane federal energy regulations.

Enron actively supported the Clinton Administration’s BTU tax and lobbied hard for passage of the Kyoto Treaty, in anticipation of which it purchased renewable energy and carbon trading companies. An internal Enron memo stated, “If implemented, [the Kyoto Treaty] will do more to promote Enron’s business than almost any other regulatory business.” (It’s unsettling that key parts of the Obama Administration’s energy policy—a cap-and-trade bill and renewable energy mandates—are among the things Enron wanted most.)

While businesses frequently claim to support regulation out of concerns for safety or the environment, in reality they understand that the costs of regulatory compliance are often steep. This can work to their advantage as smaller competitors, unable to bear these costs, exit (or refuse to enter) the market.

This phenomena is not limited to the United States. European energy companies received free carbon emission allocations and made billions of euros trading them in the European carbon market. Bryony Worthington, the director of Sandbag, a nonprofit group based in London, said cap-and-trade in Europe “has become a kind of subsidy scheme for companies, … and that was not the original idea….”

In 1961, President Eisenhower warned about the insidious nature of the “military-industrial complex.” This was a cozy relationship between arms manufacturers, the military, government agencies, and the congressional representatives whose districts benefited from military jobs.

There is now a “climate-industrial complex” —a cozy relationship between governments, NGOs, some scientists, and business groups who stand to gain. Al Gore is the poster child of this movement. It’s not an accident that his green private-equity firm, Generation Investment Management, stands to make big gains in a carbon-constrained world.

Political capitalism is an insidious force. It encourages special interests to acquire political power to gain advantage over the less powerful. It sets in motion a dynamic that progressively erodes respect for the rule of law, limited government, and private property. The difference between seeking profit through the market process and through the political process is like the difference between peaceful trade and robbery. Both require time, energy, and skill, but one creates wealth while the other destroys it. One encourages peaceful cooperation, the other undermines it.

My advice? When reviewing potential investments beware businesses whose financial success rests on a strategy of political capitalism. There are terms for such plans—exploitative, corrosive, abusive, and detestable—and ultimately unsustainable.

Pete Geddes is Executive Vice President of the Foundation for Research on Economics & the Environment (FREE), based in Bozeman, MT. Contact him at pgeddes@free-eco.org.

NewWest.Net welcomes guest columns of all stripes. Submit yours to editor@newwest.net.

About Guest Writer

Check Also

Coming Home: An Untied Tongue Returns to Montana

When I first moved back home to Montana last year, people encouraged me to write about the experience. A year later, I finally understand why I couldn't do that at the time. It has taken a full year – a cycle through four very distinct seasons – to combat the writer’s block that paralyzed me from this simple task. It’s a strange thing, this connection to the land that drew me home. It informs everything I think, and it informs everything I do. It has such a hold on me that it required a year of penitence (for ever leaving in the first place) before it loosened its grip and my pen. What I finally realized is that, in order to leave in the first place, I had to shut off a part of my spirit to find the courage to go. But it has worked on me, this year and this land, and now my finally-addressed heartbreak of the first leaving, the first loss, so many years ago, has begun to heal. I am not sorry I left and yet I now understand the full toll that the leave-taking exacted on my psyche and my spirit.