Enron Sought Global Warming Regulation, Not Free Markets

Enron Sought Global Warming Regulation, Not Free Markets

Georgia Op-Ed in The Roanoke Times
February 02, 2002

It’s not surprising to most people that Enron delivered truckloads of money to politicians in an attempt to influence the political process. What may surprise many, however, is that Enron believed that one of its main opportunities to make money by gaming the political system was global warming.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


Enron became one of the biggest corporate boosters of the Kyoto global warming treaty, which would require huge reductions in energy use by consumers and industry. According to an internal Enron memo, quoted by The Washington Post, the Kyoto treaty 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.”


In addition to all its political lobbying and contributions, Enron became a founding member of the Pew Center on Global Climate Change’s Business Environmental Leadership Council, a leading industry front group pushing the Kyoto agenda. Enron chairman Ken Lay also served on the board of the Heinz Center for Science, Economics, and the Environment, along with Fred Krupp of Environmental Defense, and former Alcoa CEO and current Treasury Secretary Paul O’Neill.


Even after President Bush decided to withdraw the U.S. from the Kyoto treaty, Enron continued to push for a domestic regulatory scheme known as cap-and-trade, whereby the government would set a cap on the total amount of carbon dioxide emissions allowed in the U.S.


It would then distribute permits or allowances to companies affected by the cap giving them the right to emit a certain amount of carbon dioxide. Those allowances could then be traded in the open market.


Enron executives believed that a cap-and-trade program would put them in a position to dominate the U.S. energy market. Electric utilities, required to reduce emissions of carbon dioxide, would be forced to switch from coal to natural gas as the only practical alternative to electricity production. As a leading trader of natural gas, Enron would be the recipient of a huge financial windfall.


Moreover, Enron is already a major trader of carbon dioxide emissions throughout the world, making it similarly positioned to take a fee with each and every ton of carbon dioxide traded within the United States.


The potential redistribution of wealth involves more than just energy companies. As noted by Ross McKitrick, an economist at The University of Guelph in Canada, “If emissions are controlled by tradable quotas, this creates a new, artificial scarcity in something that hitherto had been free: the right to release carbon dioxide.”


He also explains that the value of this newly created asset “represents the capitalized value to existing users of fossil fuels of the right to emit carbon dioxide at no charge. This value is already counted into balance sheets, investment portfolios, collateral for loans, etc., all through the economy.”


Putting a price on carbon dioxide emissions, says McKitrick, “extracts that money from its current use and hands it over to the beneficiaries of the policy.”


One of the main selling points of a cap-and-trade system is that it is allegedly less costly than other policy options, because trading allows reductions to take place where it is least expensive. But when uncertainty, which is pervasive throughout the economy, is taken into account, costs have been shown to be significantly higher.


When government caps emissions, there is really no way to forecast future permit prices. Mistakes in forecasting lead to large social costs. The emissions trading program to reduce sulfur dioxide has been plagued by wildly fluctuating prices, making it difficult for businesses to plan long term, thereby creating large costs that trickle down to the consumer.


A study by Resources for the Future found that given uncertainty about costs and benefits, emissions trading is about five times costlier than a carbon tax. Moreover, revenue collected from a carbon tax could be used to at least partially offset the higher energy costs. This isn’t the case with emissions trading.


If Enron’s lobbying efforts had succeeded, the United States would have ended up with a costly regulatory scheme designed to redistribute wealth from the American people to politically powerful companies like Enron.


So why would elected officials pursue such wrongheaded policies? Because cap-and-trade is a complex regulatory scheme that hides the true costs of compliance from taxpayers. Politicians can regulate energy use through the hidden tax of cap-and-trade to avoid accountability, creating the perfect cover for vultures like Enron to swoop in and capture the rewards.


Enron is gone, but the threat of energy rationing lingers on. Other companies are waiting in the wings to fill the political void. For example, on the day that the Pew Center on Global Climate change took Enron off its business council list, 29 major corporations were still listed. If these companies are successful, the cost in terms of money and jobs would dwarf anything seen since the reckless energy policies of the 1970s.