Cap-and-trade: A Cash Cow of Corporatism

A history of backdoor political lobbying.  Questionable influence on national energy policy.  A betrayal of those who trusted them with their savings.  A profit-driven desire to see cap-and-trade  implemented.  Surprising as it may be, these descriptors apply to both Enron and Goldman Sachs.

Yes, strange parallels indeed, particularly the push for cap-and-trade.  Few would think that Enron—an energy company now synonymous with “free markets run amok” and “Republican cronyism”—would seek the enactment of such an industry-crippling policy; the interest of a leading investment house like Goldman Sachs in cap-and-trade is also not too obvious.  However, if one will look at cap-and-trade’s pre-Obama history, it quickly becomes apparent that the scheme is little more than corporatism disguised as environmental concern.

Enron revealed depths of unethical corporate behavior which few had seen before.  Executives encouraged pensioners and shareholders to continue their investment in the company, knowing full well of the imminent collapse.  This is all laid out beautifully in the book, Smartest Guys in the Room.  What is never spoken of, however, is Enron’s push for a regulatory novelty known as “cap-and-trade”. 

Enron, known for its dislike of regulation, ardently pushed for industrial regulation in the form of cap-and-trade.  Of course, all of this took place during President Clinton’s time in office, circa 1997.  Few will recall that it was Ken Lay whom Bill Clinton appointed to the Council on Sustainable Development.  Specifically, Lay was a co-chair on the “International Task Force”.

Of the group’s ten goals, the first is to “Ensure that every person enjoys the benefits of clean air, clean water, and a healthy environment at home, at work, and at play.”  Its third goal, “Equity,” is aimed at making sure “all Americans are afforded justice and have the opportunity to achieve economic, environmental, and social well-being.”

John Palmisano was the head of environmental policy at Enron, and was the other Enron executive involved with the Council of Sustainable Development.  Regarding agreements over emissions trading reached at the Kyoto Protocol, Palmisano stated the following in a memo to other Enron executives:

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…

…a carbon emissions trading system will be developed.  While the trading system will be implemented in 2008, I am sure that reductions will begin to trade with 1-2 years.  Finally, Enron has immediate business opportunities which derive directly from this agreement.

I predict this agreement will have very significant influences on the energy sector within OECD and transitional economies and will accelerate renewable markets in developing countries.  This agreement will be good for Enron Stock!

As you can see, Enron was more than simply a giant corporation that sought deregulated markets and political favors from the Bush Administration.  These statements also make it quite apparent that cap-and-trade is not a socialist policy aimed at hurting Big Business.  Rather, cap-and-trade is a cash cow for whatever businesses manage to get in on the action.

We all know what happened to Enron a few years later; but what about the cap-and-trade idea?  Like a tumor, the scheme lay dormant for years, until certain conditions emerged that allowed it to resurface:  the election of Barack Obama and a Democrat-controlled Congress.

Anti-corporate as Obama’s rhetoric may be, he has his favorites.  Goldman Sachs was the president’s biggest political contributor in the 2008 election.  The kernel of Goldman Sachs’ interest in carbon trading is summed up nicely in Matt Taibbi’s excellent article on Goldman Sachs’ involvement in every economic bubble since the Great Depression:

Goldman wants this bill.  The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure they’re the profit-making slice of that paradigm and (3) make sure the slice is a big slice.  Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues.  (One of their lobbyist at the time was none other than [Mark] Patterson, now Treasury chief of staff.)  Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank’s environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation.

In explaining cap-and-trade’s popularity within the culture of Wall Street and high finance, Taibbi says the following:

…the ‘cap’ on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year.  Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time.  The volume of this market will be upwards of a trillion dollars annually; for comparison’s sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.

The overlap between politicians and officials who appear to be against one another’s interests is mind-boggling.  Presidents Bill Clinton, George W. Bush, and Barack Obama, Treasury officials such as Hank Paulson, Robert Rubin, and Mark Patterson—they’re all promoters of cap-and-trade, in one capacity or another.  At one point, a crook like Ken Lay stood to benefit from this agenda.  Lay is out of the picture, and someone like Goldman CEO Lloyd Blankfein fills the vacuum.  (In all fairness, Barack Obama did refer to Blankfein as being a “savvy” businessman, even though the Justice Department is now investigating Goldman Sachs for marketing securities that were simultaneously being shorted.)

Do you see why those in high office have no problem with accusations of socialism?  Ron Paul got it right when he corrected those who would call Obama a socialist; in practice, the president behaves like a corporatist.  It is somewhat amusing that those who supported ObamaCare believe President Obama has really “stuck it to those greedy insurance companies.”  No, in actuality, he has just mandated that the entire population must buy their product.  With cap-and-trade, the result is similar.  Most people have absolutely no idea that the system is only an ingenious way to funnel money to the very class it purports to despise.  It’s the perfect crime.