A correspondent asks a common question:

If cutting greenhouse gases hurts economies, why is it that corporations that have cut their greenhouse gas emissions all show drastic savings on their bottom line?

The answer is that the question relies on two blurred lines. The first is that all successful corporations will try to make efficiency gains where and when possible. Inefficient energy use has a by-product of more greenhouse gas emissions, so greater efficiency, ceteris paribus, will almost always lead to decreased emissions. That doesn’t mean that the greenhouse gas reductions were the aim, and the two should not be confused, although in the current climate (ahem) companies that make efficiency gains will be happy to parade their incidental emissions reductions as if they were the driving force when that is rarely the case. As my boss Fred Smith has said:

GE makes wind turbines and nuclear facilities and combined gas turbines—all good things—and (in the short run) activities that might become more profitable if anti-carbon fuel policies are enacted. The temptation—and one of the major problems with GE flirting with the CSR [Corporate Social Responsibility] movement — is that they will move from being justly proud of their technology advancement program to rent-seeking regulations and subsidies designed to make their programs profitable (after taxes and subsidies). The ethanol scandal [whereby ethanol producers have secured both a mandate that their product be used and subsidies for its production] is non-abstract evidence that this risk is very real, as are lobbying efforts (in the past by Enron, today by Cintergy and others) to achieve in Washington what they’ve failed to achieve in the market.

The second blurring is between corporations and the economy as a whole. In Europe, where certain sectors have had greenhouse gas reductions mandated, those sectors, mostly energy-related, have done very well. This is because they have found ways to transfer the cost so as to make the whole shebang profitable. The trouble is that this results in increased costs for the end consumer and therefore an overall slowing down of consumer activity. In Germany, for instance, household energy costs have rocketed and independent analyses have found that the European emissions trading scheme is mostly responsible. the energy companies, however, have done very well. In economic terms, this represents a transfer of the new scarcity rents from the economy as a whole to the “carbon cartel” who can make money out of greenhouse gas emissions. Because this is not new money, the rents are diverted from their current uses to the general detriment of the economy. Ross McKitrick explains this all here and his analysis entirely predicted what we have seen happen in Europe. As we shall see, there are many in the US keen to set up a carbon cartel here. As Fred intimates, this was one of Enron’s prime goals.