The International Energy Agency estimates that coal companies ought to be spending $2 billion a year for ten years on clean coal technologies, and Credit Suisse suggests they should be spending at least $1.5 billion. Actually, coal companies are spending a fraction of that on development, and half again as much in lobbying. To what end?
The Facts
The American Coalition for Clean Coal Electricity (48 coal and utility companies in the US) spends the equivalent of 350 million a year (for ten years) on clean coal technology development, and the US government adds 190 million more. At the same time, the Center for American Progress reports that coal companies are spending $125 million/year to lobby against carbon emission standards, and a further $45 million on advertising to consumers: $170 million a year total for communications and lobbying.
Assessing the value
How do we assess if that is a smart investment for the companies, or money that would be better spent working on technology development?
A smart investment is an investment that 1) minimizes a company’s costs both in the short term, and in the long term; 2) serves as a profit center; 3) builds relationships with key stakeholders.
- Cost minimization It can be argued that the lobbying minimizes short term costs as it serves to keep investment costs at 1/4 those recomended by the IEA (1/3 if we include the amount spent on lobbying). Longer term it would be surprising if the costs of buying themselves out of the obligation didn’t rise substantially – after all, as an industry they are relatively easy to regulate: a narrow sector with few companies, responsible for 27% of the US greenhouse gas emissions. The Obama administration has already signalled that it supports cap-and-trade policies. Thus the ability to simultanously reduce their own emissions and sell the unneeded credits would be rewarding in the US as well as in Europe.
- Profit Center European companies are working on developing carbon capture and storage capabilities – witness the Vattenfall plant in Schwarze Pumpe, in the former East Germany. While this is smaller than standard plants, it has been in operation since September, 2008, and the learnings will enable Vattenfall to sell carbon offsets for the recaptured carbon, as well as selling the technology, thus making their investment pay twice over. The carbon market today is over $64 billion according to the World Bank, and is predicted to grow to $100 billion by 2010. This will stimulate demand both for carbon reduction technologies, and for carbon credits. Given their current focus, US coal companies may deprive themselves of the opportunity to develop a profitable technology and to lower their emissions. Worse – they may end up buying both the technology and carbon credits from their European competitors. Were they to use their lobbying resources to grow public investment in clean-coal technologies instead, they might get the kind of returns Vatenfall is foreseeing (and quite possibly realising).
- Building Relationships Short term, relationships are built at the political level – but lobbying relationships aren’t loyal relationships – they depend on a constant infusion of cash. Furthermore, the approach taken by the industry has raised such ire among environmentalists, that the latter are paying for ads to counter the coal industry “clean coal” advertisements. So the positive feelings that the clean coal campaign is seeking to engender in consumers, are being undermined publicly by sources fundamentally more credible – including Al Gore.
A Shining Example
Lest this be seen as too hypothetical, let us take the case of GE – which in 2004 developed its “Ecomagination” green initiative. At the time, their green products were worth $4-5 billion per year. Today, four years later, they are worth $18 billion. To take this to the next level, GE’s CEO Jeffrey Immelt is lobbying Washington to extend tax credits for Renewables, as well as to invest in Smart Grids. And he lobbies in conjunction with environmental partners as well as with unexpected business partners like Google. (Jeffrey Immelt discusses their business centered environmental approach – “not CSR” he emphasizes- at Google Zeitgeist. video below)
Has the industry done a cost-benefit analysis on its lobbying strategy? Undoubtedly specific companies are seeing benefits to their lobbying: several companies including Duke Energy, Consol, and Southern Co., have projects in which the government puts in twice as much money as the private companies do. But most do not see these benefits. Overall, the strategy the coal industry is taking seems liable to cost it considerably more than it saves: in terms of cost of doing business, in public good will, in future investments, and in relationships with the new administration and its allies. But perhaps most humiliatingly, the industry and its executives could be seen as backwards, much as the American car company executives are today.
In light of climate change and the mechanisms that are pricing carbon globally, the opportunities to make money from doing the right thing by the climate are huge. Why choose a rear-view mirror for steering?
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Investment on any product may also change for only conditions apply,to i think there is no way to lose money for any company for there investment for clean coal.
There is a big difference between: The International Energy Agency and The American Coalition for Clean Coal Electricity in their estimations in clean coal technology.