Carney on Pepsi going green

In his latest column, former CEI Warren Brookes Fellow Tim Carney looks at how rent-seeking opportunities based on  feel-good environmental campaigns, which are currently in vogue among some large corporations, can backfire, hurting shareholders, in this case those of Pepsi.

Last spring, PepsiCo bought “renewable energy certificates” covering all the energy consumed in its manufacturing, distribution and corporate facilities. In effect, Pepsi is indirectly paying someone, anywhere, to generate electricity from windmills or solar panels.

But Pepsi is not just changing it’s behavior — it’s trying to use government to change everyone else’s too. Last May, PepsiCo joined the United States Climate Action Partnership, a coalition of environmental pressure groups and corporations united to lobby the federal government to impose regulations that curb greenhouse gas emissions in the form of a “cap-and-trade” scheme….

PepsiCo may think it can make a profit from these restrictions: The firm can seek CO2 credits for the renewable energy certificates it has bought; also the company outsources its bottling, including some to other countries that have no greenhouse restrictions. At the same time, new CEO Indra Nooyi is hoping the public image of Pepsi as an environmentally friendly company will generate good will and thus business.

But Pepsi is learning that the environmental game — both on its PR front and its lobbying front — is full of pitfalls. Pepsi has firmly come down in support of the notion that industrial activity contributes to harmful climate change — the very argument that lies behind the current crusade against bottled water products.

Pressure groups have started anti-bottled-water campaigns, and the mayor of San Francisco has prohibited city employees from buying bottled water. The top-selling brand of water in the United States — and thus the chief target — is Pepsi’s Aquafina.

The regulatory front is more treacherous. Any cap-and-trade legislation will be complex and nuanced, with the details determining who gets rich and who suffers, meaning he who has the best lobbying team usually wins.

Pepsi may have plenty of resources to hire good lobbyists, but so do other large corporate players in the Washington rent-seeking game, so even getting into this game can be said to create unnecessary risks for shareholders.