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."

Just so.

Tomorrow, I will drop by to see what's going on at the People's Summit.

Science Correspondent Ronald Bailey is the author of Liberation Biology (Prometheus).