It's time to stop thinking of natural gas as a "kinder, gentler" energy source. What's more, we do not have an effective regulatory system in this country to address the risks that gas drilling poses on our health and communities.In other words, "We got caught with our hands in the cookie jar, so now we need to make good."
To wit: is it wrong for environmental groups to accept funds from competitor energy sources? In itself, no - where Sierra crossed a serious ethical boundary was in their refusal to make their clear conflict-of-interest known. In accepting money from natural gas and then using that money directly in service of the interests of that industry (i.e., campaigning against coal), Sierra had exposed itself to a tremendous conflict of interest in its advocacy - one which they deliberately chose not to disclose. They, along with their patron, had a direct economic interest in their lobbying campaign.
[An aside: Notably, when market-oriented groups like Cato accept money from the petrochemical industry, they are assailed as shills for "secretive oil billionaires" - despite the fact that their pre-existing libertarian agenda does not directly favor - or disfavor - any one specific industry. It will likely be a cold day in Hell before the same standard is ever applied to groups like Sierra.]
But perhaps the bigger issue is how the whole case exposes simply how pervasive the notion of rent-seeking is within the energy market as a whole. In this context, "rent" is not used in the meaning of say, a landlord, but rather in the economist's jargon, where these types of "rents" are wealth created through exploitation of the political system - think locking out competitors and the creation of cartels which drive up prices from their normal equilibrium. (Conservative Washington Post columnist Charles Lane also recently devoted a column exclusively to this topic.)
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| Captain Renault is shocked, shocked to find that rent-seeking is going on in energy markets. |
What the Sierra Club case shows is just how rife the intersection of environmental politics and energy is with rent-seeking behavior. The only mystifying feature is how shocked anyone seems to be - almost like Captain Renault in Casablanca, who was, "shocked, shocked to find that gambling is going on here." Anyone who has paid attention to these issues (and in particular, I will give the nod to Rod Adams) knows this kind of behavior has been going on for some time.
For Chesapeake, funding Sierra's "Beyond Coal" campaign was a no-brainer in terms of economic self-interest: not only did they have a chance to kneecap a direct energy competitor (coal); equally as important they purchased vital environmental credibility - in essence, "greenwashing" their behavior. As a special bonus, they were able to accomplish all of this via proxy - it wasn't the natural gas industry attacking their logical competitors, it was a disconnected third party with ostensibly pure economic motives.
In a certain sense, such activities can be viewed as the direct parallel of conventional lobbying, along with its corresponding perspectives. Taking Sierra strictly at their word, Chesapeake's activities are simply like those of psychological conditioning through positive reinforcement - rewarding and promoting behaviors which so happen to benefit their interests, the same way individuals and industries might support candidates whose actions and beliefs correspond with their own interests. The other perspective of course is that Sierra and others become beholden to their donors, altering their message and focus to keep the money coming - something which Sierra's Brune takes great pains to attempt to dispel, particularly by refusing future funds from Chesapeake in rather pharisaic fashion.
Yet at the heart of this is what has fundamentally begun to go awry with American capitalism - it has become, in essence, "political capitalism" (aka, "Crony Capitalism") particularly when it comes to energy. Resources otherwise devoted to research and development of more abundant resources are instead poured into games of political influence-peddling, a game in which the winners reap privilege and favor from regulators, all to the detriment of consumers.
Meanwhile, funneling money into environmental lobbying organizations has been fundamentally dual-purpose - for one, "buying off" groups in a mafioso-like protection racket as well as hiring them on as mercenary lobbyists to rig the regulatory regime in their favor. This raises obvious problems across the political spectrum - unlike the way Rod Adams characterizes the issue as market advocates as blithely dismissing the matter as, "This is what you get when you play with fire," political capitalism - particularly in energy markets - should be worrying to anyone with a vested stake in environmental and energy security issues.
And unfortunately, no one's hands are really clean when it comes to this one. The fossil fuel industry continues to profit handsomely from uncaptured externalities in their products - everything from the carbon dioxide they are allowed to freely spew into the air to the pollutants which come out the flue of every coal plant - especially egregious when one examines how existing coal plants have been grandfathered in to more stringent environmental regulations. And indeed, the natural gas industry has proven expert at playing ahead of the curve on this one, when it comes to both paying off environmental organizations to promote natural gas as a "bridge fuel" as well as positioning themselves as the "clean(er)" source of energy. Those with slightly longer attention spans might remember fossil fuel magnate T. Boone Pickens' implausible wind corridor plan - in reality, a plan to reap tremendous benefits by hawking natural gas - something he just so happened to have a large vested interest in.
Nor coal has been a shirking violet, both with their "America's Power" campaign as well as their steadfast opposition to any carbon pricing scheme.
And indeed, it goes without saying that renewable sources have their heads deepest in the trough, both in advocating for political mandates for producers to buy their products (renewable portfolio standards) as well as demanding outrageous subsidies (electricity feed-in tariffs and above-market energy price contracts) in order to keep an otherwise unsustainable business plan afloat.
Finally, an area where I at times am forced to part ways with my nuclear advocacy colleagues - yes, nuclear too is at times guilty of the same behavior (if to a lesser extent), particularly in the face of high-stakes "energy policy" legislation. The counter-argument many nuclear advocates make is that nuclear is uniquely hamstrung as an energy source by federal regulations - which is indeed true. Nuclear plants requires years of licensing approval before construction can even take place and must maintain a record of safety and waste stewardship unheard of in any other energy sector. But in my mind, the answer is not more special pleading with the government to offset these requirements, but to simply level the playing field - let the same standards apply across the board and then we'll see how "cost-competitive" other conventional energy sources are. (Don't hold your breath for Congress to move on that one.)
Much like the Game of Thrones, in the game of political capitalism, you win or you die. (And either way, consumers lose.) But the only surprise in this debacle is in how long it has taken anyone to notice that game has already long been in motion.
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Thanks for this. The only quibble I would have is the comment that crony capitalism is a particular problem in the energy industry. As bad as it is, nothing can equal the financial sector.
ReplyDelete@SteveK9: Probably true. In no way is the problem limited to the energy sector, that's for certain...
Delete@Steve - excellent article.
ReplyDeleteYou might have misunderstood the point that I was trying to make about the way that "free market" advocates have dismissed the importance of the immoral issue of paying someone else - anyone else - to kneecap a competitor and raise the barriers to entry.
I know I am weird about this, but I like competition that is based on self improvement, not based on doing something that makes it more difficult for your competitor. The world benefits when businesses compete by seeking to improve their own products and to more effectively communicate the benefits of purchasing those products. The world - over all - loses when businesses denigrate other good products or prevent those products from reaching the market. (By the way, I never cheer if a member of "my team" gets away with holding or pass interference either.)
Aside - I fully support, however, the notion that there is a need to protect intellectual property from the simple act of imitation or downright theft. There is a good reason for businesses or individuals who have invested in creation to seek to ensure that others do not steal their markets without making the same kind of improving effort. - End Aside.
One thing that should come out of this blatant, egregious example of the natural gas industry PAYING the Sierra Club to directly do work to both harm a competitor and promote its product is an investigation of the tax exempt nature of the Club itself.
The actions that it was paid to perform are exactly the same actions that firms on K-street or Madison Avenue get paid to perform. There is no justification for those business transactions to be exempted from taxation - even if they are legal manipulation.
Aubrey McClendon's tax returns should be audited. His deductions for paying the Sierra Club to market his company's products should be disallowed. The Sierra Club's tax returns should be audited to at least classify their "Beyond Coal" campaign as a commercial enterprise that is done in return for being paid to do it.
It is past time to shine a spotlight on the widespread practice of paying groups that CLAIM to be working for higher purposes with tax deductible money when the transaction is clearly one that results in that front group performing commercial services for hire.
Rod Adams
Publisher, Atomic Insights
@Rod - I certainly agree, and perhaps I have misinterpreted your point. Free market advocates *should* be incensed by this kind of behavior, because it represents everything gone wrong with the system - this we agree upon. In fact, I can find little that I do disagree with in what you said above.
DeleteHonestly, the more you mention it, the more I begin to wonder about how these "donations" to Sierra Club should be treated - in essence, they seem more like money given to a lobbying organization (not tax deductible) rather than a tax-exempt charity. The more one pulls at this thread though, the more one has to wonder how far it goes. If anything, this certainly should be making the case to the feds to start opening the books of groups of supposed "environmental non-profits" like Sierra and Greenpeace...