Absent rules and bad incentives

by Milan on July 26, 2010

in Climate change, Ethics, Power plants

If we are going to succeed in dealing with climate change, one of the most important things government must do is make industry confident that there will be ever-more-restrictive laws on greenhouse gas emissions in the future. That way, they will devote their energies to developing and deploying low- and then zero-carbon forms of energy. If firms do not have this confidence, they will continue to invest in the energy sources of the past, most notoriously coal. Furthermore, lack of certainty about the direction of future legislation will make companies continue to devote money and energy to lobbying, trying to keep new rules from affecting them.

An example of what not to do comes from Alberta: in 2002, Capital Power made a voluntary commitment to offset half the emissions from a coal plant outside Edmonton. At the time, they expected regulations on emissions to be tougher by now. Of course, the Alberta government has failed to take climate change seriously, and continued to allow firms in Alberta to endanger members of future generations around the world. Now, Capital Power wants to abandon its past commitment. To do so would set a terrible precedent:

[A]llowing companies to renege on environmental commitments made at public hearings once projects are operating would be set a dangerous precedent and completely undermine the credibility of the Alberta approvals process.

“Why would citizens participate in hearings in good faith if they knew that inconvenient approval conditions can simply be deleted from the government approval after the plant is operating?” asked Ruth Yanor, a landowner who participated in the initial round of consultations, after hearing about Capital Power’s requested amendment.

Confidence that laws restricting emissions will get tougher and tougher – while the price of emitting a tonne of carbon continues to rise – is the only thing that can drive infrastructure investment toward a zero-carbon future. Governments need to be establishing their credibility on this issue, at the same time as it becomes post-partisan, ideologically.

Unfortunately, governments in North America are doing nothing of the kind.

Report a typo or inaccuracy

{ 1 comment… read it below or add one }

Tristan September 4, 2010 at 4:38 am

Unfortunately, businesses are only allowed to have short term interests. The average CEO term is ludicrously short, and they are expected to, through their genius, increase quarterly profit through their great ideas.

According to market logic this isn’t a problem – share price is, after all, supposedly the expected value of dividends. So, a company which is better prepared for high carbon taxes should have a better dividend forecast. Unfortunately, governments have very little long term credibility because of democracy, especially with business since they buy elections. So, when we talk about making ” industry confident that there will be ever-more-restrictivue laws on greenhouse gas emissions in the future”, we need to be aware of the fact that businesses are not “policy takers” to coin an expression – they respond rationally to policies which threaten their profits by changing governments through lobbying and public relations campaigns (they are far better organized than labour in the regard of pooling efforts to pursue their common interests against the interest of the species).

Leave a Comment

Previous post:

Next post: