Rent-seeking in climate negotiations
By Ricardo Coelho at Mar 08, 2011
When the financial crisis burst, the same politicians and businessmen who defend a world of free markets and competition suddenly started arguing for state intervention to save speculators. This example of the contradictions of capitalism shows how, far from the free market ideal, we live under a collusion among the political and economic power. Rent-seeking, the process by which corporations use their resources to influence political decisions that affect them and get a rent, is the ghost that haunts regulation, leading to a waste of resources and to the disempowerment of citizens.
One of the clearest examples of rent-seeking at the global level can be found in climate negotiations, which started in 1992 with the Rio Summit. The Kyoto Protocol ratification, in 1997, led to the creation of a global carbon market. Through an administrative act, a new speculative market appeared and a rent worth billions of dollars was distributed among polluters. To know how was this possible, one has to look into the history of climate negotiations.
Typically, when a corporation has its profits threatened by a new environmental regulation, it uses its economic power to discredit science and confuse the public. Thus, in 1989, when scientific evidence already had shown that burning fossil fuels was interfering with the climate, mining, oil and auto corporations founded the Global Climate Coalition (GCC), a climate denialist lobby. The GCC ended up dissolving itself in 2001, proclaiming its success in getting the US out of the Kyoto Protocol.
Exxon-Mobil has consistently followed this tactic, funding scientists that deny climate change and false grassroots movements. But the majority of big polluters, mainly in Europe, have evolved in the sense of presenting themselves as “green” companies, using ambitious marketing campaigns. This greenwashing technique often comes with the seal of approval of many environmental NGOs and helps corporations to proceed their efforts to mine environmental regulations more discretely.
Maybe the best example of greenwash is BP's rebranding. In 1997, the company left the GCC and set up an internal carbon market. Presenting itself as “Beyond Petroleum”, the oil giant announced a large investment in renewables, through a marketing campaign that was backed by many environmental NGOs. Its internal carbon market was used as an inspiration for the creation of a voluntary carbon market in the UK, in 2002, which distributed 111 billion pounds in rents to big polluters and brought no emissions reductions.
BP is a part of a coalition of large polluters that want a global and deregulated carbon market to be implemented. This coalition is supported by speculators, fossil fuel companies, energy producers, auto manufacturers, chemicals producers and other industries who want to profit (or, at least, avoid losses) from carbon trading.
Gathering the pieces of the puzzle, we can understand how the Kyoto Protocol was made according to industries' interests. Not only are the emissions reductions targets puny but, worse still, they're irrelevant when one sees that polluters can disrespect them if they buy enough carbon rights. The fact that Kyoto has more holes than a swiss cheese was presented as a necessary condition to get the US approval, even after the Protocol was rejected with unanimity by the US Senate in 1998. This was the result of a long negotiating process in which the majority of the world opposed US proposals for carbon trading to be introduced but ended up being overwhelmed by the corporate lobbying. In the neoliberal order, the expression “conflict of interests” has no meaning and the UN promotes corporate lobbying in climate negotiations up to the point where its influence far exceed that of the NGOs.
A good illustration of the appropriation of climate policy by corporations can be found in the evolution of the EU stance on carbon trading. At the early 1990s, the EU wanted to create a carbon tax to reduce emissions. The strong opposition from industries and from some member states led to the abandonment of the proposal and the EU ended up creating a carbon market.
In 2000, the European Commission consulted the “civil society” to know its stance on the design of the European carbon market. The main industrial lobbies argued in favor of the extensive use of credits to fulfill the environmental goals and the “grandfathering” of emissions rights (giving the rights for free according to historical emissions). They got what they wanted and the environmental NGOs that tried to influence the design of the carbon market instead of opposing it lost in all of their demands. This examples shows how the acceptance of the neoliberal doctrine by big environmental NGOs (with the notorious exception of Friends of the Earth) lead them to accept ineffective market policies and support measures that only benefit polluters.
The European carbon market has missed its goal of reducing emissions, at the same time as it allowed the distribution of large rents among big polluters and gave speculators a new toy to create speculative bubbles. It was this notion that was at the basis of the formation of a network of climate justice movements in Copenhagen, in the 2009 climate summit.
True solutions for climate change won't come from international negotiations dominated by corporations. In these negotiations, new technologies and market policies are discussed but the abandonment of fossil fuel use isn't on the table. The voices of the poor, who suffer from “natural” catastrophes like droughts, floods and hurricanes aren't heard in the halls of corporate power, unlike the voices of those who profit from other people's disgrace. Our task, therefore, is to tilt the balance of power, forming and strengthening social movements that can put politicians to work for those who elected them.
This is a summary of the book chapter “Rent Seeking and Corporate Lobbying in Climate Negotiations”, from “Upsetting the Offset: The Political Economy of Carbon Markets”, editedby Steffen Böhm and Siddhartha Dabhi. The book is freely available at Mayfly Books.