Manure, Methane, and Mercantilism

Adam Smith would smirk.  The latest iteration of old-fashioned mercantilism now links, in a ludicrously appropriate way, the fecal matter of Kansas cows with the green activism of California legislators.  In a “we-shoulda-seen-it-comin’” development, California’s Low Carbon Fuel Standard plan is incentivizing  Kansas dairies to sell—no bullshit-–cow methane to California industrialists.  Talk about a (ahem) windfall…

The idea, though technically feasible, is not what you might hope–i.e., a rational market use of an otherwise wasted by-product.  No, this scheme is instead the result of purely artificial market tinkering by fatally conceited bureaucrats prosecuting a self-declared crusade on carbon emissions. And, not surprisingly, some businesses are complicit, crudely exemplifying Smith’s warnings about the eagerness of business to collude with government rule-makers:

To widen the market and to narrow the competition, is always the interest of the [business] dealers…The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it. 

It’s a bit unclear exactly how (or if) businesses and policy makers colluded, but the end result is clear enough: taxpayers will shoulder an enormous price tag, politicians will get credit for “tackling” the climate problem, and big business will do fantastically well pretending to do its part.

 

Here’s how it works:

California has imposed carbon emissions caps in an effort to reduce greenhouse gas emissions to politically determined targets (never mind these targets’ dubious efficacy, that’s another story). Knowing, however, that mandatory reduction quotas would further debilitate California’s business environment, it instead allows a nominal “free-market” trading scheme in which high-emitting industries purchase offsetting “credits” from other agents who can prove to be lowering their emissions by a commensurate amount.

For a truly frightening look inside the belly of this beast, MIT’s Technology Review has done a deep dive—spoiler alert, many of the programs actually incentivize the increase in emissions.  That aside, in some ways the program sounds vaguely sensible in theory: the rise in total gas emissions gets flatlined.  Such a scheme, after all, arguably helped reduce sulphur dioxide emissions a generation ago (a much clearer threat than carbon dioxide, but again, that’s a different story).

The real question here, however, is not so much about carbon emissions reductions but at what cost and who is benefitting?  Enter the humble Kansas dairy cow.  For certain scales of industrial livestock producer, the California carbon credits are juicy enough to warrant spending the significant sums required to install digester-tanks that can collect, break down, and siphon the methane that would otherwise be lost to the atmosphere in traditional manure lagoons.  The captured methane gets compressed and ultimately injected into natural gas networks which link, however tangentially, to the Golden State’s targeted reductions.

All of this would be fine if it actually made some kind of broad financial sense.  But like the riddle wrapped in an enigma, this is a Ponzi scheme wrapped in a shell game.  In this case, an actual, literal Shell game.  Shell, U.S.A–subsidiary of the former Royal Dutch Shell oil conglomerate—has been credibly accused of a vigorous greenwashing campaign, spending $55 million a year on “eco-branding” its image.  It is, in fact, the source of capital investment for the Kansas methane concentration plant, part of its “Downstream Galloway” biomethane program.  Shell is no fool: it will sell the credits from its carbon offset program (“Renewable Compressed Natural Gas”) on the California exchange, thereby greenwashing its image at California taxpayer’s expense while recouping its capital outlay in just a few short years (I tried to call their information line to find out how long exactly, but it’s been disconnected…)

The deception, such as it is, is in the fleecing of California citizens to “fight climate change” while lining the pockets of large midwestern agriculture syndicates and their partners in the oil industry.  Not that I blame the dairy operators or oil companies, mind you: as businesspeople, they respond to price signals and opportunities, however ridiculous, as much as any of the rest of us.  Rather, I blame legislators for failing to see the absurd implications of their feel-good policymaking.  And, to the extent that corporate interests were involved in promoting the legislation, for failing to heed Adam Smith’s advice to “carefully examine…with the most suspicious attention” schemes that invariably deceive and oppress the public.

It is ironic, perhaps, that California’s climate policy is incentivizing further industrialization and centralization of an ever-more consolidated agricultural industry.  Now we have a heavily subsidized milk industry, paid at taxpayer expense to develop ever-larger dairies that create (among other things) ever-larger disposal problems like giant manure lagoons.  Now these same dairies can extract further taxpayer funds by collecting the gas from these lagoons, and selling it back to oil companies so that the companies can comply with a taxpayer-funded climate cap.  It’s hard to tell anymore who’s milking whom.

The only thing that seems certain in this convoluted mess is Adam Smith’s centuries-old warning:

“There is no art which one government sooner learns of another than that of draining money from the pockets of the people.”

 


Paul Schwennesen is Director of the Agrarian Freedom Project and is a PhD candidate in 16th Century New Spain at the University of Kansas. Paul holds a Master’s degree in Government from Harvard University and studied History and Science at the United States Air Force Academy.