efore its cataclysmic fall, Enron had become the darling of the environmental movement. The company tirelessly pandered to environmentalists to bolster its green image and lobbied fiercely for environmental regulation, the crown jewel being the Kyoto Protocol, that would eliminate its competition. In hindsight, Enron should have paid less attention to politics and more to business.
Now environmentalists are demanding that other companies emulate Enron, even arguing that such behavior would increase shareholder value. Before companies heed this advice they should examine Enron's record.
A December 1997 memo written by John Palmisano, Enron's senior director for environmental policy and compliance, boasted that due to his company's support for the Kyoto Protocol, an international treaty to deal with global warming, "Enron now has excellent credentials with many 'green' interests including Greenpeace, World Wildlife Fund, Natural Resources Defense Council, German Watch, the U.S. Climate Action Network, the European Climate Action Network, Ozone Action, World Resources Institute, and Worldwatch."
In 1997, the Natural Resources Defense Council's (NRDC) Ralph Cavanagh credited Enron with helping to defeat the newly Republican 104th Congress's attempt to reform the nation's draconian environmental laws.
"When the infant 104th Congress went to town on the nation's environmental laws, we appealed for help from corporate community," Cavanagh said. "Many former friends were conspicuously silent. Ken Lay was [an] extraordinarily honorable and initially lonely exception, and he is part of the reason why the bad guys ultimately failed at most of what they attempted....On environmental stewardship, our experience is that you can trust Enron." In April 2000, NRDC listed Enron as one of several "progressive companies" that "support responsible global warming policy."
Jim Marston with Environmental Defense also praised Enron, saying, "They are smart. They think that being pro-environment is a good business and political strategy." The environmental movement is currently trying to convince U.S. corporations that being green is good for business, that supporting the eco-activist's anti-property, anti-free enterprise, pro-regulatory agenda increases shareholder value.
Campaign ExxonMobil, a coalition of corporation-bashing environmental groups, is at the forefront of this movement. It exists to browbeat ExxonMobil until it changes its opposition to Kyoto-style policies. A recent report by the group, targeted at the company's shareholders, claims that ExxonMobil's global-warming stance is risking shareholder value and that if it knows what good for it, it will embrace the environmental cause. In short, these groups want ExxonMobil to act like Enron.
The report puzzles over ExxonMobil's position. The report claims that ExxonMobil's equity value would not be harmed by climate-change regulation because "recent economic studies indicate" that the "oil and gas industry is able to pass much of the cost of taxes or permits onto consumers."
Opposition to Kyoto-style policies also prevents the company from taking advantage of emission trading, which "is looking like it may become a significant business in its own right." Indeed, says the report, "Estimates of the turnover in carbon credits range into the trillions of dollars." But emissions trading is nothing more than an elaborate wealth-distribution scheme masquerading as climate policy.
Ross McKitrick, an economist at Guelph University in Ontario, explains that the value of this newly created asset (carbon credits), "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."
The beneficiaries are companies like Enron that are in a position and are willing to use the force of government to engage in a zero-sum game of plunder that ultimately leaves the economy in worse shape, but provides financial windfalls for the resulting "carbon cartel."
The report also points out that as one of the world's largest suppliers of natural gas ExxonMobil could benefit greatly from Kyoto-style policies that would "most likely affect the coal industry," reducing its equity values by 30 percent. "ExxonMobil seems to be generously supporting the coal industry rather than its own gas business, for reasons that are not entirely clear."
But it is crystal clear to those who understand the U.S. energy situation. Coal is an integral part of the U.S. energy mix, used to produce over 50 percent of the electricity consumed in the U.S. There is simply no way that natural gas can replace significant reductions in coal-fired generation. Kyoto-style policies would cripple the coal industry and significantly harm the U.S. economy and all energy consumers, a lose-lose scenario.
Campaign ExxonMobil displays the same myopic thinking that infected Enron. As a major natural-gas distributor Enron could hardly contain its glee over the prospect of looting the Kyoto fallout. In his memo Palmisano also wrote, "if implemented, this agreement will do more to promote Enron's business than will almost any other regulatory initiative outside of restructuring of the energy and natural gas industries in Europe and the United States...."
"The endorsement of emissions trading was another victory for us," said Palmisano, no doubt referring to Enron's specialty of trading in phony assets. Finally, Palmisano said, "I predict business opportunities within 18 months," concluding that, "This agreement will be good for Enron stock."
Of course, we all know what happened to Enron. Instead of focusing on building a sound company, delivering a superior product to customers, and finding ways to become more efficient and cut costs, Enron spent its time and resources on manipulating electricity markets, seeking the praise of environmentalists, lavishing millions of dollars on politicians and seeing how it could beat its competitors through government regulation and sleight of hand. Even odder is the endorsement of this the type of cutthroat, winner-take-all competition by leftist environmentalists.
Paul Georgia is an environmental-policy analyst with the Competitive Enterprise Institute in Washington, D.C. and managing editor of Cooler Heads, a global-warming newsletter.