Bootleggers & Baptists: How Economic Forces and Moral Persuasion Interact to Shape Regulatory Politics (20 page)

[t]he Court remains mindful that it does not have creative power akin to that vested in Congress. . . . It is altogether fitting that Congress designated an expert agency, here, EPA, as best suited to serve as primary regulator of greenhouse gas emissions. The expert agency is surely better equipped to do the job than individual district judges issuing ad hoc, case-by-case injunctions. Federal judges lack the scientific, economic, and technological resources an agency can utilize in coping with issues of this order. (
American Electric Power Co. v. Connecticut
, 131 S. Ct. 2527 [2011], quoted in “. . . And the Climate Tort Cashiered” 2011)

Thus, the Court affirmed that EPA is the official climate change cartel manager.

The Struggle for Advantage and Breakup of Coalitions

The Bootlegger/Baptist theory calls attention to coalitions that seem to prevail when environmental and other social regulation is being formulated. In the post-Kyoto period, we find environmentalists playing the familiar Baptist role. The theory suggests that we should find allies among the Bootlegger population—countries, industries, and firms that foresee a “greener” bottom line resulting from their support for green policies. Accordingly, within such industries, we should find firms that have specialized assets or outputs favored by rules that raise the cost of competing assets and products.

Under Kyoto and cap-and-trade, countries such as the United Kingdom and Russia were positioned to exploit carbon reductions that had already occurred—and to raise the costs of competing economies that were burdened with large emission reduction targets. But unlike conventional regulatory arrangements that involve one national government regulating domestic industries, Kyoto presents us with the unusual situation of countries behaving like firms, strategically positioning themselves to benefit while gaining protection and credibility from international environmental groups. Within any given economy, polluting firms might become low-cost producers of carbon reductions if a cap-and-trade approach were taken. The trade in carbon reductions would then provide an opportunity for firms that operate exchanges in which reduction permits are bought and sold.

Bootleggers Hear the Call

Consider the following anecdote. Enron president Ken Lay was a widely celebrated supporter of the Kyoto Protocol. He was an even earlier supporter of international efforts to attack carbon emissions, especially when market-like approaches were being considered (Morgan 2002). Enron, a major natural gas producer and pipeline operator, had developed one of the world’s leading trading floors for energy contracts and futures—one that could easily expand to include carbon emission contracts. Environmental groups had recognized Lay for his leadership.

Describing Enron’s Kyoto stance, Dan Morgan (2002) writes:

Enron officials later expressed elation at the results of the Kyoto conference. An internal memo said the Kyoto agreement, if implemented, would “do more to promote Enron’s business than almost any other regulatory initiative outside of restructuring the energy and natural gas industries in Europe and the United States.”

John Palmisano, Enron’s chief Kyoto lobbyist, wrote that the Kyoto outcome “is exactly what I have been lobbying for and it seems like we won. The clean development fund will be a mechanism for funding renewable projects. Again we won. . . . The endorsement of emissions trading was another victory for us” (L. Solomon 2009).

In January 1997, Enron announced that it was forming the Enron Renewable Energy Corporation in an effort to “take advantage of the growing interest in environmentally sound alternatives of the $250 billion U.S. electricity market.” Tom White, Enron Renewable Energy CEO, supported the Clinton administration’s plan to fight global warming, which included $3.6 billion in tax credits to spur the production and purchase of renewable energy and related technologies (Salisbury 1998b).

Taxpayer subsidies can, of course, become habit-forming. On April 9, 1998, the National Corn Growers Association announced a major lobbying effort opposing congressional efforts to eliminate the 54-cent-per-gallon subsidy to producers of corn-based ethanol (National Corn Growers Association 1998). The association’s newsletter claimed that “ethanol is good for the economy, good for the environment, good for America.”

The celebration of ethanol did not mention that ethanol production may use more energy than it provides and causes significant collateral environmental damage or that the federal government’s $6 billion annual ethanol subsidy assisted the production of beverage as well as industrial alcohol (Bandow 1997). But that did not seem to matter. The fuel additive was praised by EPA, by some leading environmental organizations, and especially by Vice President Al Gore, the nation’s most prominent advocate for saving the planet.

On May 6, 1998, Republican leaders salvaged the subsidy, partly in the name of global warming prevention (Pianin 1998). Global climate change appeared to have saved the day for the corn producers—at least for a while. Following the corn producers’ cue, U.S. soybean producers heralded the environmental benefits associated with blends of diesel fuel and soybean oil (National Biodiesel Board 1998). In efforts to gain regulatory approval of biodiesel as an “alternative fuel” to substitute for ordinary diesel—which would ensure the industry’s participation in the Department of Energy’s alternative fuel program—the lobbying organization argued that “biodiesel helps reduce the effects of global warming by directly displacing fossil hydrocarbons” (National Biodiesel Board 1998).

Yet the 1998 ethanol subsidy victory, like most political victories, was not without threats. In late 2011, Congress removed the highly visible ethanol subsidy from the budget (Llanos 2011) but offset the subsidy elsewhere in the corn bill by requiring a whopping increase in the amount of ethanol to be introduced annually into gasoline (Drum 2012). But there was more to the story. Ethanol champion Al Gore had recanted. He publicly disclaimed his previous celebration of ethanol’s environmental benefits, calling his support a mistake and saying that his original enthusiastic support had no environmental basis at all (“Al Gore’s Ethanol Epiphany” 2010).

It was strictly political. Gore described his situation this way, “One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for President” (“Al Gore’s Ethanol Epiphany” 2010). When Al Gore walked, the entire Baptist convention followed him out the door. All that was left were Bootleggers—and Bootleggers without Baptist cover look awfully naked.

As regulatory theory predicts, not every member of an industry could expect to benefit from the Kyoto restrictions. For example, Dean Kleckner, president of the 4.8 million-member American Farm Bureau Federation, opposed the protocol “because of its potential harm to U.S. farmers.” Kleckner reflected the concerns of farmers who expected to see Kyoto-induced increases in the prices of food, fertilizer, and fuel (“Farm-State Senators Skeptical” 1998). The differential effects generated by regulation partly explain the formation and destruction of political coalitions.

Latent Bootleggers Energized

Energy action groups that had been around for years, some since the oil embargoes of the 1970s, were inspired by post-Kyoto legislation that called for new energy efficiency standards.
⁵
Others formed for the first time, with both industrial and environmental organizations on their membership rosters. These soon became Bootlegger cheerleaders for rules and subsidies that would favor their members. Among them were the American Council for an Energy-Efficient Economy, the Alliance to Save Energy, the Business Council for Sustainable Energy, the American Wind Energy Association, and the Sustainable Energy Coalition.

In 2001, when newly elected President George W. Bush called for cuts in federal funding for energy efficiency and renewable energy—to the tune of $277 million—the cheerleaders scowled and howled (Holly 2001). Susanna Drayne, coordinator of the Sustainable Energy Coalition, which contained a mix of Bootleggers and Baptists, said, “To say we are disappointed by this budget is an understatement . . . [T]he Bush budget is patently irresponsible” (Sustainable Energy Coalition 2001).

Undaunted, other pro-Kyoto groups soon followed the Enron pattern. Kyoto provided regulatory opportunities to raise rivals’ costs or to gain new revenues from increased demand for cleaner technology. For example, Cummins Inc., a producer of natural gas–fired diesel engines, joined forces with the Pew Center for Global Climate Change to support clean energy regulation. Pew Center president Eileen Claussen noted that the industrial firms joining the effort “recognize the best way to make money is to be there first” (Lavelle 2001, 38). The nuclear power industry unsuccessfully attempted to put on a green face worldwide—but did manage to receive government endorsements from the European Union, Germany, and Sweden as a necessary partner in meeting Kyoto’s goals (“EU’s De Palacio Says Nuclear Needed for Kyoto Targets” 1999).

The Breakup of Kyoto Coalitions

The Kyoto Protocol provided a setting where some Bootleggers heard the altar call and covertly converted to Baptists, only to backslide as the prospects of earthly rewards for the faithful dimmed. For example, one of the larger anti-Kyoto groups, the Global Climate Coalition (GCC), formed by major oil producers and hundreds of other firms, attempted to debunk Kyoto’s weak scientific underpinnings and emphasized the expected economic costs of the protocol.

Over time, however, some GCC members began to see a silver lining in the Kyoto cloud. In June 1998, Shell Oil heard the Baptist call and announced its departure from the GCC. Friends of the Earth representative Anna Stanford claimed credit for Shell’s green conversion, declaring, “We’re delighted that our hard work has paid off, that Shell has bowed to public pressure and seen that the future lies in . . . investing in green energy” (“Shell agm: FOE Urges Huge Increase in Green Energy Investment,” 1988). Speaking the language of both a Bootlegger and a Baptist, Shell responded that “there are enough indications that CO
₂
emissions are having an effect on climate change” and that the firm was “promoting the development of the gas industry particularly in countries with large coal reserves such as India and China” (Magada 1998).

Shell seemed to demonstrate that with Kyoto’s help, firms with strategically located supplies of clean natural gas could improve their bottom lines while bolstering their green image. But Shell was not the first to see this possibility. The earlier decision of British Petroleum (BP) to part company with the GCC made Shell’s departure a bit easier. Following serious discussions with leaders of the Environmental Defense Fund and the World Resources Institute, John Browne, CEO of BP (also touted to mean Beyond Petroleum), argued that firms such as BP should play a “positive and responsible part in identifying solutions” to the global warming problem (“British Petroleum to Take Action” 1997). Anticipating increased demand for oil as a cleaner coal substitute, BP also announced significantly increased investment in the development of solar and alternative energy technology.

Although the different anticipated effects of Kyoto-inspired regulations may explain the positions taken by members of the oil industry, the situation facing coal producers was more clear-cut. Coal producers and related unions were among the most vocal in their opposition to Kyoto. They succeeded in obtaining legislation in West Virginia to prohibit the state’s division of environmental protection from “proposing or implementing rules regulating greenhouse gas emissions from industrial sites” (“Governor Signs Bill” 1998). When Governor Cecil Underwood signed the bill, however, he urged that the state “should continue to encourage the development and implementation of technologies that allow the clean burning of coal” (“Governor Signs Bill” 1998).

As time passed, even more Bootleggers heard the altar call. In November 1998, the American Automobile Manufacturers Association, speaking for General Motors, Ford, and Chrysler, refused to help pay for anti-Kyoto television ads produced by the Global Climate Information Project, another major coalition of firms, labor unions, and farmers (“Look Who’s Trying to Turn Green” 1998). Shortly thereafter, the World Resources Institute gathered executives from GM, BP, and Monsanto to pledge support for Kyoto. Bill Ford, the newly named president of Ford Motor Company, stated: “There is a rising tide of environmental awareness. Smart companies will get ahead of the wave. Those that don’t are headed for a wipeout” (“Look Who’s Trying to Turn Green” 1998).

Pure environmentalism might, of course, explain the behavior of firms leaving the anti-Kyoto club—but other incentives may be involved, too. In October 1998, Senate Bill 2617 was introduced, amending the Clean Air Act to provide regulatory relief for voluntary early action to mitigate greenhouse gas emissions. The proposed legislation, which received strong bipartisan support, was geared toward providing advance carbon-reduction credits for efforts already under way to reduce emissions.

If enacted, the rule change could have provided immediate and massive bottom-line benefits to carbon-emitting firms. For example, three years prior to the proposed rule change, Mobil Oil had cut carbon dioxide emissions by 1 million tons (Salisbury 1998a). At the then-estimated price of $300 per ton, the reduction was a potential asset worth $300 million. The U.S. electric utility industry had actions under way that would cut emissions by 47 million tons of carbon dioxide in two years. The potential side payments associated with this level of emission reductions were enough to make a firm revise its anti-Kyoto stance and push for a cap-and-trade system.

Following this rampant exodus of the converted, the GCC disbanded in 2002, stating that its initial purpose had been served. It was apparent that its coalition had splintered and that other industry groups were forming that would lend support to pending carbon emission reduction legislation.