Rio +20 Earth Summit: Green Crony Capitalism

Reason's science correspondent sends his second dispatch from the United Nations Conference on Sustainable Development.

Rio de Janeiro—Some 2,000 businesspeople, activists, government officials, and U.N. bureaucrats are meeting at the Corporate Sustainability Forum here in advance of the United Nations Conference on Sustainable Development, the Rio +20 Earth Summit, at the end of this week. The slogan plastered over every venue is “Innovation and Collaboration and the Future We Want.” The Future We Want is in part based on a U.N. negotiating document with that title whose approval is supposed to be the main outcome of the U.N. conference later this week. Having now listened in on several panel discussions at the Forum, it is becoming clear that the future that many forum participants want amounts of crony capitalism.

A pretty good definition of crony capitalism comes from Investopedia: “A description of capitalist society as being based on the close relationships between businessmen and the state. Instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favoritism that is shown to it by the ruling government in the form of tax breaks, government grants and other incentives.” Nearly every panel discussion at the Forum strenuously advocates public/private partnerships as a way to achieve sustainability (whatever that means).

Let’s take the example of the "Green Gold—Financing the Green Economy" panel discussion on Sunday featuring representatives from leading banks and insurance companies. The former president of Costa Rica Jose Maria Figueres, who now heads up the Carbon War Room, kicked off the session by noting that the goal of everyone attending was “getting capital to move in the direction we want it to move.” The chief sustainability challenge is climate change caused by greenhouse gases produced by burning fossil fuels. As a consequence Figueres explained, “We are about mobilizing capital to finance the new low-carbon economy.”

The second keynoter was Rashad Kaldany, who is vice-president of Global Industries at the International Finance Corporation. “Does green growth mean slow or no growth?,” asked Kaldany. No. But green growth needs a helping financial hand to get started. “Green growth doesn’t need enormous subsidies, but it does need targeted subsidies,” explained Kaldany. The “key challenge” to jumpstarting the green economy is “addressing legal and regulatory hurdles that currently do not allow green investments to proceed.”

The croniest of would-be crony capitalists on the panel was Roberto Dumas from Brazil’s Itau Bank. “Governments must incorporate all positive and negative externalities in projects,” argued Dumas. He suggested that one way to get banks to finance renewable energy projects was for governments to offer tax incentives. Unless government support of that sort is forthcoming, then the corporate sector will not finance such projects because “the internal rate of return will not please shareholders,” Dumas explained. He had further advice on how governments could encourage companies to finance green projects. Set greenhouse gas emission thresholds and impose sustainability criteria that must be met for projects like hydro and thermal power stations.

In addition, Dumas even had advice for central banks; they could lower reserve requirements for loans to green sector projects. As an example of good government policy, he praised the Chinese government for drastically ramping up infrastructure spending including support for solar power generation at the beginning of the recent world financial crisis. All these government regulations and interventions are necessary to boost green development because, as Dumas concluded, “Believe me, banks and corporations will not do anything unless they make money.”

Interestingly, Karin Ireton from Standard Bank in South Africa hinted that all may not be well with government supported schemes to spin green projects into actual gold. She obliquely noted that the European Union’s Emissions Trading Scheme in which companies buy and sell permits to emit carbon dioxide is “in deep trouble.” Why does that matter? Well, it turns out that Standard Bank is financing a scheme to put up 210,000 solar hot water heaters on homes of poor people in South Africa. The homeowners would get the heaters for free, and Standard Bank would get 2.3 million certified emissions reductions (CERs) based on how much less coal-fired electricity homeowners would be using. The plan was to sell the CERs (credits equal to a metric ton of abated carbon dioxide) in the European carbon market as a way to finance the installation of the solar water heaters. Since the price of carbon has fallen to around €7 per ton, the financing is not looking all that great.

If there was one perspective endorsed by all of the finance panel members, it was that green projects often were just too risky for private capital to back without government guarantees. An interesting claim in light of the recent bankruptcies of Solyndra, Ener1, and Konarka in the United States.

Ultimately, the calls for regulations, mandates, thresholds, and tax incentives were little more than pleas for governments to guarantee corporate green economy profits. In other words, green crony capitalism.

Another panel, Aligning Business Practices with the Human Right to Water and Sanitation, offered some additional insight into the United Nations’ sustainability agenda. In 2010, the United Nations General Assembly “recognized access to safe drinking water and sanitation as a human right.” In addition, various U.N. agencies have been actively trying to engage business in recognizing and protect human rights, including the right to water and sanitation.

This particular panel at the Corporate Forum on Sustainability featured Robert ter Kuile from PepsiCo who explained his company’s adherence to the CEO Water Mandate [PDF] which is part of the U.N. Global Compact. Companies that join the Global Compact commit to observing various human rights and environmental principles. Ter Kuile said, “It is quite critical that we respect the human right to water.” He noted that his company operates in 80 countries and regions that are identified as being water-stressed.

The main company effort to respect the human right to water is to help farmers from whom PepsiCo buys products to use less water. For example, the company buys 4 million tons of potatoes every year and it takes 30-times more water to grow those potatoes than its factories use to process them. In India, the company has direct contracts with 24,000 farmers which the company has helped move from traditional water intensive flood irrigation to drip irrigation systems. The result is that they use 30 percent less water. In addition, the company has set a goal of reducing water consumption in all 350 of its plants around by world by 20 percent by 2015.

Ter Kuile then turned to Shama Perveen, a researcher at Columbia University, who works on water issues funded by a $6 million grant from PepsiCo. Shama cited projects in India and Brazil where she and her colleagues have been helping communities conserve and gain access to water. In particular Perveen worked with wheat and rice farmers in the Indian state of Punjab who get their water from deep wells to irrigate their crops. The water table there has been falling steeply for years.

One big problem is that the Indian government pays a flat fee for rice and wheat which has the effect of encouraging farmers to overproduce those crops instead of switching to less water-intensive crops. This means that farmers douse their crops with lots of water. Her team did a field trial where they offered farmers a simple cheap gauge that tested for soil moisture. This extra knowledge helped farmers to maintain their yields but reduce their water usage by 20 percent.

It’s hard to discern how the PepsiCo Foundation's support for Perveen’s work qualified as sustainable business development since it was basically an example of normal business philanthropy. After the panels, I asked ter Kuile if the 20 percent water reduction goal by 2015 was saving the company money? He said yes. So why does that count as some kind of special sustainability initiative then? “Frankly, as with all sustainability initiatives, if there is no business case for them, then businesses won’t do them.”

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  • sarcasmic||

    it is becoming clear that the future that many forum participants want amounts of crony capitalism.

    That's all its been from the very beginning. Are you only now figuring this out?

  • R C Dean||

    No kidding. I'm struggling to think of anything the greens want on the anthro-CO2 front that isn't some form of crony capitalism.

    Cap and trade? Pure quill crony capitalism.

    Sustainable energy? Ditto.

    Efficiency mandates? Yep. Even that.

  • JeremyR||

    By feigning ignorance of this, he gets to travel to all these conferences, which of course are always held in luxurious locations

  • James Ard||

    Two sentences on the jump. Ron has outdone himself.

  • ||

    Once again, for you, Ron.

    Also, Ron, you and this Rio +20 and Agenda 21 nonsense is Another Ultimate Brick Joke.

  • Tim||

    The UN never has summits in places like Buffalo.

  • ||

    Why would they? How does the local climate compare?

  • NotSure||

    Does anyone remember the carbon trading schemes that were supposed make trillions from buying and selling air ? Well they have not delivered (shockingly), sadly the news of this financial failure has been buried by the world economic problem stories.

  • NotSure||

    Oops sorry, they are mentioned in this article.

  • Old Dave||

    "The former president of Costa Rica Jose Maria Figueres...kicked off the session by noting that the goal of everyone attending was “getting capital to move in the direction we want it to move.”

    Well, at least they're open about it.

  • John||

    Ron,

    Why don't you go back to Rio 1992 and take a look at the predictions that were made then and compare them to reality 20 years later?

  • Almanian's Evil Twin||

    HOT TUB TIME MACHINE!!!!!!!

  • T o n y||

    Why can't all energy markets work like the free non-crony-capitalist oil and coal markets?

  • Almanian's Evil Twin||

    You really are that fucking stupid.

  • T o n y||

    Here's the problem with laissez-faire economics. Even if it works in principle, you'll be competing with other countries that subsidize their industries and thus you will be outcompeted. Similarly, oil and coal cronyism is so entrenched and has been for so long, expecting clean energy to suddenly start competing as if there existed a free market in energy is to effectively root for their failure before they are given a chance.

    I expect a true libertarian would be against massive government favoritism toward oil and coal in principle, but as libertarianism is basically a Koch-funded enterprise, it's no big shock that the crony capitalist enemies of capitalism you find are overwhelmingly in clean energy.

  • sarcasmic||

    Even if it works in principle, you'll be competing with other countries that subsidize their industries and thus you will be outcompeted.

    What is so bad about other countries taxing their citizens to make goods cheaper for consumers in this country?

    Seems like a good deal to me.

  • ||

    Even if it works in principle, you'll be competing with other countries that subsidize their industries and thus you will be outcompeted.

    In that particular industry, probably, but taking the money to prop up that industry damages other industries, and you've got a market opening.

    I expect a true libertarian would be against massive government favoritism toward oil and coal in principle

    I find all the wailing about renewable energy subsidies on Reason to be ridiculous, as if things like state monopoly electrical generation and interstate highways arose through distributed Hayekian processes. I don't support the green subsidies, but I do have some perspective on what's actually being subsidized, and how.

  • MoreFreedom||

    "Similarly, oil and coal cronyism is so entrenched and has been for so long, expecting clean energy to suddenly start competing as if there existed a free market in energy is to effectively root for their failure before they are given a chance."

    You are arguing that since government has their greedy fingers "regulating" the oil/gas market for crony crapitalists, that we should do the same for "clean energy."

    Economists (and libertarians) would argue that all business profit should be treated equally before the law, and that doing otherwise amounts to playing favorites and engaging in crony capitalism at our expense.

    Very little "regulation" of the energy industry is needed other than limiting pollutants provided consumers can choose among producers. Unfortunately most governments prefer to grant monopoly privileges (typically in return for campaign cash), take away our freedom to choose, and ensure a nice return for the utility.

    Do you have a reference for "libertarianism is basically a Koch-funded enterprise"? Libertarianism is a political philosophy, not an enterprise. Politicians in power make politics a business, one where they use government force (or the threat of it) to extract money from us. Libertarians want to minimize government to prevent this abuse.

  • Mr. FIFY||

    Tony gets his marching orders from people who think the way Van Jones does. He'll never change.

  • Mr. FIFY||

    BTW, Tony... I've yet to receive a check from anyone named "Koch", so those fuckers need to get on the ball with my back-pay.

    Yo.

  • T o n y||

    Well I've never received a check from George Soros. Yet the Kochs put Soros to shame in terms of political influence--they are probably the most powerful force in the Republican party today.

  • Almanian's Evil Twin||

    Also, worldwide political and science "elites" gather in sexy resort locale essentially for no other purpose than to determine ways to enrich themselves and/or increase their own power, with little or no benefit to "society at large" [read: "others"].

    This is my shocked face, and this line was delivered with all the emotion that can be mustered from the combination of Kristen Stewart, Justine Bateman and Steven Wright put together.

  • ||

    "Unless government support of that sort is forthcoming, then the corporate sector will not finance such projects because “the internal rate of return will not please shareholders,” Dumas explained. "

    "All these government regulations and interventions are necessary to boost green development because, as Dumas concluded, “Believe me, banks and corporations will not do anything unless they make money.” "

    To paraphrase Roberto Dumbass: "This bullshit isnt profitable because more energy input is required than produced, resulting in a greater CO2 output than current systems and the wasting of vast sums of capital. Therefore we must force people to engage in our schemes using the power of the state. We can keep the bankers happy by bribing them with stolen taxpayer money in place of legitimate profits, at least until that runs out."

    I am wondering if anyone there mentioned that there is no actual warming?

  • ||

    "...the United Nations General Assembly “recognized access to safe drinking water and sanitation as a human right.” In addition, various U.N. agencies have been actively trying to engage business in recognizing and protect human rights, including the right to water and sanitation."

    Trying to engage business in recognizing ( providing for free ) positive rights. Again, forcing them using the power of the state is required. Positive rights and crony capitalism?These fuckers are communists straight up.

    Good article Bailey. I am saving this one.

  • Lindsey||

    I read an amazing article earlier today also pointing out the bad rep of capitalism...... http://truthalert.net/Top Partisan Misconceptions Haunting Rio+20.htm

    He even talks about a green bubble.. http://truthalert.net/Doubling Down on Fascism.htm

    I agree with that author though. People on BOTH sides of the debate need to face certain stereotypes. It sucks people are so stuck in their opinions.

  • genericuser||

    How about all you folks that think my money is somehow YOUR money come try to take it from me in person instead of hiding like school girls behind the armored skirts of Government? C'mon, I dare you, you cowards.

  • ||

    The homeowners would get the heaters for free, and Standard Bank would get 2.3 million certified emissions reductions (CERs) based on how much less coal-fired electricity homeowners would be using. The plan was to sell the CERs (credits equal to a metric ton of abated carbon dioxide) in the European carbon market as http://www.lunettesporto.com/l.....-3_12.html a way to finance the installation of the solar water heaters. Since the price of carbon has fallen to around €7 per ton, the financing is not looking all that great

  • دردشه عراقية||

    Thanks

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