While companies often pretend to view the free market as their preferred economic arrangement, that’s not really the way of things. Like most people, they would rather have things skewed to their advantage and they will press government to try to achieve that. After all, would you prefer?
- To compete with other firms that are working on putting out products that are better than yours and cost less
- To have the government pass a long requiring consumers to buy more of your product every year, ideally at prices that are mandated to increase
That utopia is what biofuel producers have achieved for themselves, in the form of mandatory volumes for renewable fuel production and purchasing. For example, the 2005 U.S. Energy Policy Act mandated that 7.5 billion gallons of biofuel be produced by 2012, regardless of the cost. It is also what mandatory levels of construction of renewables like wind and solar give to firms.
In the first case, that is deeply inappropriate given that today’s biofuels don’t help with climate change and tomorrow’s may never exist. In the second case, the mandate is actually quite defensible. For economic reasons, we need to boost the volume of renewable capacity installed, since that is what will drive technological advancement and the development of economies of scale. Politically, we need to produce a group of companies that are invested in renewable options and which deliver jobs, tax revenue, and votes.
For firms, the free market is a consolation prize. If I can’t get special treatment, at least I can try to stop my competitors from getting it. Something like that dynamic eventually needs to emerge for climate change. It is unfair and probably ecologically disastrous to give away the right to pollute to big firms that have been doing so heavily so far. Instead, we need to establish common rules for everyone, like an economy-wide price on carbon. Realistically speaking, we also need to work towards a situation where the inevitable political favours that will be granted will be given to firms that are actually doing things that will help us avoid global climate calamity – not those that are doing all they can to hasten it.