Energy producers and environmentalists are mining the same regulatory fields these days, thanks to fears surrounding global warming, and the ‘Baptists and Bootleggers’ effect. ‘Baptists and Bootleggers’ is a familiar phrase to those who examine the incentives and consequent effects of a policy, not just what the policy was intended to do.
In the literal Baptists and bootleggers story, Baptists want a legal prohibition of alcoholic beverage sales for religious reasons. But moonshiners and bootleggers support the prohibition as well. Although Baptists oppose the sales on moral grounds, their policy benefits bootleggers, who join the prohibition bandwagon to protect their own territory—the illegal booze market.
The recent endorsement of carbon taxes by Duke Power and other energy producers now make environmentalists and power companies the equivalent of ‘Baptists and bootleggers.’ Odd bedfellows with the environmental interests, power companies are advocating regulation of their own industry in the form of taxes and mandatory reductions in greenhouse gas emissions. Advocates on the environmental side hope these regulations will cause power producers and consumers to turn more seriously to alternative energy technologies (more on this in another FMM) and alternative energy sources. The end result is supposed to be turnaround in an undesirable climate trend.
But Duke Power has a strong financial incentive to see its own product regulated. A carbon tax will drive up the demand for and the price of their low-carbon natural gas supplies, a good reason to advocate taxes on the high-carbon coal and oil that make up the bulk of their competitors’ energy resources.
Here’s how Duke Power’s interest are served by a seemingly antagonistic regulation: Duke Power CEO Paul Anderson announces that his company is ready to take steps to ‘reduce the carbon intensity of our economy,’ and claims that a mandatory carbon tax is attractive because ‘it allows us to share the costs of reducing greenhouse emissions gasses across all sectors of the economy—minimizing the disruption in any one area.” Duke Power stands to gain considerably by diffusing the costs throughout the economy—forcing others to bear them, while positioning itself to take advantage of alternatives which will be exempt from those carbon tax costs; natural gas as well as nuclear. Thus the bootlegger climbs into bed with the Baptist, happy but odd bedfellows.
The question of whether or not carbon dioxide emissions leave a ‘carbon footprint’ that is associated with measurable effects on the environment, or if so, whether we can change that effect, is really irrelevant to the Baptist and bootlegger incentive structure. What is relevant is that regulation, once in place, will be used to create changes in markets that impose costs on others, but narrowly benefit advocates of the policy.
Some would ask why markets can’t or shouldn’t just adjust to cleaner, greener fuels. They can, but at significant cost. Manipulating the energy market through regulation—a carbon tax or similar mechanism—does rely heavily on prices to generate the policy results. But a reduction in energy use caused by government regulation should not be confused with a market solution to energy needs. These interventions always substitute government’s plans for consumers’ plans; in other words, they deliberately undermine market choices.
There are winners and losers in this Bootlegger scenario. As energy prices to climb, consumers and manufacturers will be forced to make adjustments they did not otherwise believe were in their own best interests. They are losers, even though they and the markets will be forced to adjust. The winners are the players, like Duke Power, who stand to gain from the specific market adjustments, and higher energy prices, they create. Because markets are remarkably responsive if prices are allowed to adjust upward, economic disruption should be minimized. For consumers, that’s the good news, and the bad news.
Finally, let us consider the consumer who truly believes his carbon footprint is too big, and wants to do something about it. For those who experience personal guilt over their CO2 contributions—from driving, breathing, or using virtually anything connected with contemporary society—organizations exist for the purpose of, literally, paying your climate dues. According to one such organization, with a cash contribution you can erase your harmful impact on the environment. Available for a fee, environmental absolution will take your green, keep you ‘green,’ and never require that you give up your car or your lifestyle. Second-order bootleggers, if ever there were any.