BOOK 3: ENRON ASCENDING: THE FORGOTTEN YEARS, 1984-1996
Chapter 13 Internet Appendix
13.1 Sustainable Development: Two Views
References for Chapter 13 Appendix
13.1 Sustainable Development: Two Views
Chapter 7 described the formation of the President’s Council on Sustainable Development (PCSD); Internet appendix 7.1 examined PCSD’s definition of sustainable development. Stressing market failure within a Malthusian worldview of the limits to growth (or finite carrying capacity of the earth), the PCSD’s signature report, Sustainable America: A New Consensus for Prosperity, Opportunity, and A Healthy Environment for the Future (1996), reflected the “the dominant political approach to environmental issues” (Smith, p. 297).
In contrast, a private property, voluntary exchange model was codified in a 1991 book, Free Market Environmentalism. Authors Terry Anderson and Donald Leal defined their approach as follows:
Free market environmentalism emphasizes the importance of market processes in determining optimal amounts of resource use. Only when rights are well-defined, enforced, and transferable will self-interested individuals confront the trade-offs inherent in a world of scarcity (p. 222).
Private entrepreneurship seeking gains from trade is key to overcoming negative externalities:
As entrepreneurs move to fill profit niches, prices will reflect the values we place on resources and the environment. Mistakes will be made, but in the process a niche will be opened and profit opportunities will attract resources managers with a better idea (pp. 222).
“In cases where definition and enforcement costs are insurmountable, political solutions may be called for,” Anderson and Leal added, while warning that “those kinds of solutions often become entrenched and stand in the way of innovative market processes that promote fiscal responsibility, efficient resource use, and individual freedom” (pp. 222–23).
In a 1993 essay, “Sustainable Development—A Free-Market Perspective,” Fred Smith applied the Anderson/Leal framework as an alternative to the PCSD paradigm. Free market environmentalism, Smith states (p. 297), “recognizes that the greatest hope for protecting environmental values lies in the empowerment of individuals to protect those environmental resources that they value (via a creative extension of property rights).” He explained (pp. 298–99):
Sustainable development is not an artifact of the physical world but of human arrangements. Environmental resources will be protected or endangered depending upon the type of institutional framework we create, or allow to evolve, to address these concerns.
After going through examples of self-interested solutions to economic and environmental progress, Smith concluded: “the empirical evidence is clear: resources integrated into a private property system do, in fact, achieve ‘sustainability’” (p. 301).
Smith insisted that “government failure” be assessed alongside alleged market failures, noting how “individuals who make resource-use decisions in a bureaucracy are rarely those who bear the costs or receive the benefits of such decisions” (p. 304). He contrasted the politicization of drilling in the Alaska National Wildlife Reserve (ANWR) with drilling in the Audubon Society’s Rainey wildlife sanctuary in Louisiana in this regard (ibid.).
Energy Sustainability
In Capitalism at Work (p. 187), the present author defined energy sustainability in free-market terms:
A sustainable energy market is one in which the quantity, quality, and utility of energy improve over time. Sustainable energy becomes more available, more affordable, more usable and reliable, and cleaner. Energy consumers do not borrow from the future; they subsidize the future by continually improving today’s energy economy, which the future inherits.
The energy sustainability triad has concerned depletion, pollution, and climate change. A fourth area, energy security, primarily relating to unstable oil imports from Middle Eastern countries, arose in the 1970s and peaked with the Gulf War in 1990–91 (Enron Ascending, pp. 262–63, 317).
Ken Lay defined sustainability a 1993 interview as not “deplet[ing] resources that are essential to human survival and that are irreplaceable as we continue to expand the economy and expand the population” (Lay, 1). Energy done wrong was unsustainable; energy done right was part of the solution, Lay added, with natural gas being on the positive side of the energy ledger. Natural gas, in fact, was well represented on PCSD (Bradley, Enron Ascending, p. 555), intended by President Clinton to develop “meaningful” policy proposals (555).
The aforementioned energy-sustainability triad has been marked by open debate and empirical developments—not settled science. Depletion concerns resource exhaustion or Peak Oil (and Peak Natural Gas), where demand increases faster than supply to force real prices to rise (Hotelling’s Rule, described in Capitalism at Work, pp. 212–13, 217–18, 284–85). Pollution has centered around the criteria air pollutants carbon monoxide (CO), sulfur dioxide (SO2), particulate matter (PM), nitrogen oxides (NOx), lead (Pb), and volatile organic compounds (VOC). Climate change has shifted from brief worry about anthropogenic global cooling to an ongoing concern of anthropogenic global warming.
“Enron was at the pinnacle of the energy-sustainability debate,” I noted in Capitalism at Work, p. 188), “with its Ph.D. economists and MBAs preparing energy outlooks, organizing conferences, and writing articles and books on resource availability, climate change, and national energy policy.” Enron championed resource expansionism at a time when many inside and outside the industry saw mineral energy as an increasing cost industry. Enron also played the energy-security card in the early 1990s with the Gulf War. But more than any other major energy company, Ken Lay and Enron promoted the global warming/climate change issue from 1988 through the end of the company’s solvency.
References for Chapter 13 Appendix
Anderson, Terry, and Donald Leal. Free Market Environmentalism. Boulder, CO: Westview Press, 1991.
Bradley, Robert, Jr. Capitalism at Work: Business, Government, and Energy. Salem, MA: M&M Scrivener Press, 2009.
Bradley, Robert, Jr. Enron Ascending: The Forgotten Years, 1984–1996. Hoboken, NJ: John Wiley & Sons, 2018.
“Kenneth Lay: Guiding a Sustainable Energy Future,” Woodlands Forum, Vol. 10, No. 1 (Houston Advanced Research Center: 1992), pp. 1–4 (HARC Interview).
President’s Council on Sustainable Development. Sustainable America: A New Consensus. Washington, DC: Government Printing Office, February 1996 (PCSD).
Smith, Fred R., Jr. Sustainable Development – A Free-Market Perspective, 21 Boston College Environmental Affairs Law Review 297 (1994).
World Commission on Environment and Development. Our Common Future. New York: McGraw-Hill, 1987. (Also known as United Nations’ Brundtland Report).