Bootleggers & Baptists: How Economic Forces and Moral Persuasion Interact to Shape Regulatory Politics (21 page)

Bootleggers and Baptists Unite and Then Split

In 2007, a Bootlegger/Baptist coalition replaced the anti-Kyoto GCC. Interestingly enough, some of the GCC defectors were leading members of the new U.S. Climate Action Partnership (USCAP), which quickly released a report calling for a cap-and-trade system for reducing carbon emissions (Odell 2007).

USCAP’s strength was in its membership, which included a small but influential group of U.S. companies and environmental organizations. Its corporate members included Alcoa, BP America, Caterpillar, Duke Energy, DuPont, FPL Group, General Electric, Lehman Brothers, Pacific Gas & Electric (PG&E), and PNM Resources. Four nongovernmental organizations joined with these business leaders: the Environmental Defense Fund, the Natural Resources Defense Council, the Pew Center on Global Climate Change, and the World Resources Institute (Odell 2007).

Making reference to USCAP’s inclusive membership, BP president Bob Malone said: “It is very important to interact with a wide group of stakeholders when you are trying to understand any complicated matter. The USCAP framework document is a great example of a diverse group working together to help progress an issue as complex as climate policy” (Odell 2007).

While lending strong support to cap-and-trade, key industrial members such as Duke Energy, PG&E, and BP stood to gain because either they would be sellers in a resulting permit market because of their position as clean energy producers, or they would become providers of low-carbon-content fuels that would command a higher price. Alternatively, they would execute trades for such transactions.

A fracture in the USCAP foundation occurred in late September 2009 when the U.S. Chamber of Commerce found itself shedding members over its opposition to climate change legislation. Exelon Corporation, a major electric utility, followed industry partners PG&E and PNM when it resigned from the chamber (Krauss and Galbraith 2009). The departures were understandable in a Bootlegger/Baptist world. The chamber opposed the Waxman–Markey climate change bill, which would sharply limit carbon emissions, raise the cost of power, and impose as much as a 15 percent tax increase on each U.S. household. Heavy nuclear power generators, Exelon, PG&E, and PNM favored the law.

Things began to unravel further in 2010 when details of proposed congressional legislation were unveiled. All along, USCAP key members hoped to gain profits in a world where carbon emissions would be restricted. Those cutting back would receive marketable permits at no cost that they could sell later. But then the worm turned. On February 16, 2010, BP, ConocoPhillips, and Caterpillar announced their departure from USCAP (Burnham 2010). In breaking the news, ConocoPhillips CEO John Mulva explained:

House climate legislation and Senate proposals to date have disadvantaged the transportation sector and its consumers, left domestic refineries unfairly penalized versus international competition, and ignored the critical role that natural gas can play in reducing GHG [greenhouse gas] emissions. (Burnham 2010)

His story became more relevant to our theory when it was reported that the House bill would give the electric utility industry 35 percent of the newly created tradable permits, an amount roughly equal to the industry’s emissions. In contrast, Mr. Mulva’s refinery industry, which produced one-third of the nation’s industrial emissions, received 2 percent of the permits. The industry would have to purchase the rest, with some coming from their competition, the electricity producers. In a moment of candor, perhaps born of desperation, Mr. Mulva explained, “We want to make sure refineries get protection” (Burnham 2010).

In an earlier comment on the USCAP fracturing, Environmental Defense Fund president Fred Krupp repeated a commonly held misconception about government regulation when he said: “It’s very unusual for big corporations to raise their hands and say, ‘We want to be regulated for something that we’re not regulated for now. When the history . . . is written, it will show USCAP to have played a very constructive role’” (Power 2009). Fred Krupp had apparently not heard about the Bootlegger/Baptist theory of regulation.

With splits occurring right and left, some pro-Kyoto coalitions were losing their Bootleggers, and some anti-Kyoto groups were losing their Baptists. Although this was bad enough, more trouble was on the horizon. The Great Recession was on the way, and the recession’s income-eroding effects would undermine basic support for the purchase of environmental quality.

Recession, Copenhagen, and the End of Cap-and-Trade

Bootleggers and Baptists are not immune to a recession’s forces. The demand for regulation—as for any other good—depends on a nation’s level of income and prosperity. In addition, when times are tough, the politicians who organize the supply of favors often have more pressing problems on their minds. Consequently, when a recession is truly severe, such as the Great Recession of the late 2000s, environmental priorities get reshuffled.

The Great Recession became associated with massive federal deficits—and political struggles over what to do about them. It seemed the handwriting was on the wall: the United States was running short of money and credit and would not be able to tax and spend as it had in the past. The pork-seeking climate had changed just at the time when the environmental community was gearing up to push for carbon emissions control legislation. This push was motivated first by an April 2007 Supreme Court decision that instructed the EPA to determine whether carbon emissions endangered human health and well-being (Till 2008). If it found that they did, the EPA would be instructed to proceed with regulations authorized by the Clean Air Act for dealing with harmful emissions.

Paving the Way to Copenhagen

The Great Recession officially began in December 2007. With more than one hot potato to handle at the time, the George W. Bush White House—never especially enthusiastic about climate change legislation—took no action, leaving the matter for the Obama administration. As the EPA continued its “endangerment” deliberations, the next and final post-Kyoto international climate change gathering was scheduled to take place in Copenhagen, December 6–18, 2009.

Regarded as critical to the ultimate success of Kyoto, the Copenhagen gathering would be the last chance for climate change conferees to settle their differences before the Kyoto Protocol’s 2012 expiration date. Two critical issues needed to be resolved at the meeting. The first was China’s stance on joining the developed countries in taking meaningful actions to reduce greenhouse gas emissions; the second was the United States’s continued failure to pass carbon control legislation. A refusal by China to take action would blunt congressional interest in imposing costly carbon control legislation on the American people. Furthermore, if Congress would not act, the climate change Bootleggers would walk away from the coalition.

On December 7, 2009, just one day before departing for the Copenhagen conference, EPA administrator Lisa Jackson announced that agency scientists, taking into account hundreds of thousands of comments, had determined that carbon and other greenhouse gas emissions endanger the health and safety of the U.S. population (EPA 2009). But Jackson’s announcement noted the involvement of Bootleggers and Baptists along with the scientists:

Business leaders, security experts, government officials, concerned citizens and the United States Supreme Court have called for enduring, pragmatic solutions to reduce the greenhouse gas pollution that is causing climate change. This continues our work towards clean energy reform that will cut GHGs [greenhouse gases] and reduce the dependence on foreign oil that threatens our national security and our economy. (EPA 2009)

To put pressure on Congress, Jackson also pointed out that the decision enabled the agency to move forward with draconian command-and-control regulation as dictated by the Clean Air Act. She expressed hope that Congress would pass the debated cap-and-trade legislation and therefore preclude EPA from moving forward with the regulatory process. It was as if the EPA administrator had cried, “Stop me before I regulate again!”

Meanwhile, the Great Recession was taking its toll on any willingness in Congress to place another burden on the U.S. economy. Even so, Jackson’s announcement raised the Obama administration’s bid to bring the Congress, kicking and screaming, to the Kyoto negotiating table. Commenting on the Jackson announcement, Massachusetts senator John Kerry, who was spearheading cap-and-trade in the U.S. Senate, had this to say: “The message to Congress is crystal clear: Get moving. Imposed regulations by definition will not include the job protections and investment incentives we are proposing in the Senate today. . . . Industry needs the certainty that comes with Congressional action on this vital issue” (Morford 2009).

The jaws of the vise were set to tighten. Legislate, or the EPA will regulate. Of course, there was still the matter of China continuing to poke holes in the leaky boat. Unfortunately for those seeking meaningful reductions in total greenhouse gas emissions, unilateral cuts taken by the United States could quickly be replaced by expanding emissions from China and other developing countries. With U.S. regulation or legislation in hand, however, the Obama administration could more credibly place pressure on China to join the carbon reduction cartel.

The EPA announcement was orchestrated perfectly to coincide with the start of the December 2009 Copenhagen Conference on climate change. The proclamation armed President Obama with much-needed rhetoric for his Copenhagen soliloquy, and Secretary of State Hillary Clinton was accordingly authorized to commit to an annual $100 billion fund that would pay off developing countries for supporting the Kyoto-inspired carbon emissions reduction effort (Gray and Mason 2009). But Secretary Clinton’s offer came with strings: China and India would have to commit first and provide transparent monitoring of their emission reduction efforts.

The Demise of Cap-and-Trade

It was not to be. China’s president Hu Jintao had earlier announced to the United Nations Assembly that his country would not be a party to a global commitment on greenhouse gas reduction (Carrington 2009). After a 31-hour negotiating session led by President Obama, Mr. Hu repeated his position in Copenhagen (Pilkington 2009). Instead of agreeing to a promise that China would not keep, Hu indicated that he would go forward with forest carbon sequestration and expanded clean energy production. Without apologizing, Hu indicated that China would not promote greenhouse gas reductions at the expense of GDP growth and that China’s carbon emissions would continue to increase in the future, though at a reduced rate.

Mr. Obama’s attempt to offset Hu’s disappointing announcement left more than a few Copenhagen attendees frustrated (Goldenberg and Stratton 2009; Stone 2009). Many had come with high expectations that the president would announce a special commitment to pushing climate change legislation through Congress. This was not given. There had also been hopes that the president would make a generous offer of support to African leaders, who hoped to obtain transfers from the wealthier countries in exchange for their cooperation. They too were disappointed. Finally, there were those who wanted to hear an apology from Mr. Obama for U.S. failure to do more. This they received—but the combination of diminished U.S. wealth, dissolving previously coordinated Bootlegger and Baptist coalitions, and unfulfilled high expectations placed America’s president in the position of being seen as an example of failed leadership in a foreign land.

However disappointing it may have proved to attendees, the failure of the Copenhagen conference had been predicted in the pages of the Cato Institute’s
Regulation
magazine (see Lipford and Yandle 2009). Their empirical work on carbon emissions from a sample of industrialized and developing economies showed that China emits 2,173,000 metric tons of carbon to yield a $1 increase in per capita income, the United States emits 204,000 metric tons to get the same dollar, and France emits just 2,470 metric tons for each dollar increase. Mr. Hu’s commitment to GDP growth was unambiguously a commitment to high levels of carbon emission.

The cap-and-trade climate change bill, which had passed the U.S. House but could not make it to the Senate, carried the equivalent of an annual tax on each household of between $450 and $1,531—or as much as a 15 percent tax increase. This paid for carbon reductions that would easily be offset by emissions growth in China and elsewhere (Chamberlain 2009). When the international parties seeking to extend Kyoto met in Durban, South Africa, in late 2011, China surprised attendees by suggesting the country would be willing to make a post-2020 commitment to carbon emission reduction (Conway-Smith 2011). Outwardly, China challenged the United States—the other large noncommitted emitter—to join the effort. However, a closer reading of China’s position suggested that nothing had really changed other than the quality of the country’s public relations messages.

Final Thoughts

Kyoto provides a prime illustration of how Bootlegger/Baptist coalitions form, transform, and ultimately dissolve. It also shows what happens when the forces of a major recession seriously erode the ability of politicians to dole out the rewards that hold those coalitions together. In a sense, the political market for Kyoto-based favors shut down. But it is not dead: new groups can always be formed when the time is right, after all. Most recently, when the EPA’s contested decision to regulate greenhouse gases under the Clean Air Act was affirmed by the U.S. Court of Appeals for the District of Columbia Circuit, the struggle began anew (Volcovici 2012). As the economy recovers and new regulatory proposals surface, Bootlegger/Baptist coalitions are likely to prove renewable and sustainable.

6. TARP: A Bootlegger without a Baptist

Introduction

Until now, we have focused on cases in which groups figuratively waving banners of righteousness give cover to private parties seeking government-grounded profit. Profiteers pursuing preferred policy changes must normally appeal to some public interest or face a negative backlash; that is the essence of Bootlegger/Baptist theory. But what happens when no such moral appeal is forthcoming? Or if the appeal is found wanting? What if there are no Baptists? The simple answer is that such endeavors typically fail—and indeed, this is one reason failed political initiatives are more common than successful ones.