U.S. Economy Threatened by Global Warming 'Baptists' and 'Bootleggers'

U.S. Economy Threatened by Global Warming 'Baptists' and 'Bootleggers'
March 1, 1999



When the general public, looking through the prism of the American media, look at the Kyoto Protocol, what do they see? Nothing more than a well-intentioned worldwide effort to reduce the greenhouse gases thought to be responsible for global warming. But a closer look reveals intense maneuvering by nations, companies, and various groups eager to create for themselves significant economic opportunities at the expense of others.

If such opportunities are to be successfully exploited, observes economist Bruce Yandle, much will depend on how successfully special interest groups attract support from those in political power. Yandle, alumni professor of economics and BB&T scholar at Clemson University, is the author of "Bootleggers, Baptists, and Global Warming," a policy brief prepared for the Political Economy Research Center (PERC) in Bozeman, Montana.

"The Kyoto Protocol creates a new and enhanced stage upon which nations, groups, and companies can pursue their special interests," writes Yandle. “The treaty opens up opportunities for rent-seeking that were previously closed. This post-Kyoto drama is not a pleasing sight."

To illustrate his point, Yandle compares environmentalists and those jockeying for economic power to Baptists and bootleggers, respectively. Both groups have successfully lobbied in some southern states for laws banning liquor sales on Sunday, but for different reasons. One group opposes such sales on religious and moral grounds, while the other uses the laws to secure the market for itself. Both are winners, while legal liquor outlets are the losers.

The alternative energy field, both in the U.S. and abroad, already has become a key arena in which the players are cashing in on concerns about global warming.

Corn-based ethanol, originally developed to make the U.S. more energy self-sufficient, now offers the added advantage of being cleaner burning, according to its producers. Since ethanol’s production costs are higher than its economic value, it benefits from a 5.4 centers-per-gallon federal tax break. Not surprisingly, the American Corn Growers Association opposes efforts to eliminate the tax break.

So great are the economic prizes created by Kyoto that certain major players, once opposed to the treaty because of its flawed scientific basis, have come full circle and are echoing the environmentalist position while planning to enhance their bottom lines, notes Yandle.

Such is the case, says Yandle, with Shell Oil Co. and British Petroleum Corp. (BP), which ended their memberships in the Global Climate Coalition, a group of major oil companies and others fearful of the negative impact Kyoto will have on world economies. Trumpeting their newfound concern for the environment, Shell and BP are actively promoting the use of natural gas in China and India, countries with large reserves of coal, a dirtier-burning fuel.

“What may not be obvious to the public is that tough implementation of Kyoto implies growing demand for natural gas," notes Yandle, adding that British Petroleum also expects a growing demand for oil, its chief product.

Not only companies, but countries, have emerged as bootleggers in the global warming debate. Yandle counts Costa Rica, Japan, and Russia among them.

"Even before ratification, some governments were taking steps to capitalize on the opportunities stemming from Kyoto," said Yandle. "One country (Costa Rica) even found it possible to gain additional wealth for actions it was going to take anyway."

Last spring, Costa Rica announced a new version of a plan to save 1.2 million acres of rain forest--a plan the Costa Rican government hopes will generate $300 million during the next 20 years.

The plan involves the sale to industrial companies of environmental bonds called Certified Tradable Offsets, which are linked to the amount of carbon that can be absorbed by trees left standing. "By paying Costa Rica to protect its rain forest,” Yandle explains, “polluters elsewhere can release more carbon emissions.”

Not to be outdone, Yandle writes, Japan and Russia are working together on what is probably the world’s first greenhouse gas emissions swap. Under the agreement, Japanese technicians will help to cut emissions in about 20 Russian power plants and factories. In exchange, the country will receive Russian emission credits that will help Japan meet its emission reduction target.

What makes the arrangement so workable is that--because of its ruined economy--Russia has no difficulty meeting its Kyoto target, a zero increase in carbon emissions above the 1990 level. Japan, on the other hand, must reduce its emissions by 6 percent and faces costly changes in fuel consumption to do so.

Both countries also will share information about nuclear energy production. Japan is a leading producer of nuclear energy technology; Russia a major force in developing breeder reactors. In addition, Japan will boost its investment in the search for offshore gas and oil in Russian waters.

Warning that the United States would be most hurt by the Kyoto treaty, Yandle concludes that too much media attention is being paid to the "Baptists" and their environmental crusade, while the "machinations of the bootleggers" seeking to control the world’s energy economies go virtually unnoticed.

"If global warming is an illusion, the treaty will be a waste of time and a misuse of our resources," he writes. “If global warming turns out to be genuine, those economies that maintain market flexibility will be best equipped to adapt to it. Yet Kyoto’s bootleggers are doing everything they can to destroy that flexibility. Either way, we are heading down the wrong road."