Coal, cronyism and corruption

by John Quiggin on March 3, 2019

The latest issue of Coalwire, a weekly newsletter covering the transition away from coal list three separate corruption cases involving coal: in Indonesia, South Africa and Bangladesh. These aren’t isolated instances: in just about every jurisdiction that isn’t moving away from coal at a rapid rate, the industry is associated with cronyism at best, and outright corruption at worst.

In Australia, for example, the push to develop the Galilee Basin is being driven by a set of politically connected billionaires (or pseudo-billionaires on the Trump model). In China, the move away from coal is being obstructed by provincial governments eager to keep the construction gravy train rolling. In India, there’s Coalgate. Crony capitalist governments like those of Trump in the US, Erdogan in Turkey and Law and Justice in Poland are among the leaders in resisting decarbonization.

The explanation is simple. Coal can’t survive in an open market environment, particularly one with a carbon price, nor under a coherently planned system. It’s only under the toxic mixture of markets and intervention represented by ‘business friendly’ government that money can still be made from destroying the global environment.

{ 12 comments }

1

P.M.Lawrence 03.03.19 at 5:09 am

Perhaps I’m missing something, but how is this “open market environment”, that supposedly “Coal can’t survive in”, compatible with “one with a carbon price”? Isn’t the whole point of measures like that to nudge towards that sort of outcome, on the principle that in a coal market left to its own devices that won’t happen, or won’t happen fast enough? Isn’t that itself a “mixture of markets and intervention”, even though the intention is not to be toxic? Sure, it uses a market mechanism, but by definition and by construction it isn’t open – unless I’m missing something.

I’m not arguing the case either way, just seeking accuracy in what the analysis and prescriptions describe.

2

Ben 03.03.19 at 11:26 am

I think the explanation may be simpler–natural resource extraction is a business that lends itself to corrupt actors. Copper/gold mining in South America, oil in Central America and sub-Saharan Africa, coal in the countries you list above, are all rife with bribery.

3

Murali 03.03.19 at 1:39 pm

I laughed a bit at Coalgate being from India. Colgate (the toothpaste) if said in an indian accent, is homonymous with Coalgate.

4

Michael Sullivan 03.03.19 at 3:12 pm

PM, even without a carbon price, coal is no longer competitive for new uses and even a lot of existing ones.

Also, while you could call a carbon price (or restrictions or taxes on other pollution) an intervention, it’s it a very different kind, attempting to limit damage caused to non-consenting third parties. It’s actually much more laissez-faire and business friendly than a classic natural law approach, normally beloved by glibertarians, where the right to emit would be a separate legal matter controlled by all property owners around you and you would have to bargain with them or be presumed to owe damages and subject to criminal penalties.

5

Chetan Murthy 03.03.19 at 3:40 pm

P.M.Lawrence @ 1:

Perhaps you are arguing that “open market environment” equals “laissez-faire market environment” ? I mean, that’s the sort of environment where a coal baron’s externalities are pushed-off on others, right? But in that case, you also believe that I should be able to rob banks, pollute anywhere and anyhow I want, sell any sort of tainted food, etc? I mean, what’s the *difference* between me doing that, and a fossil fuel baron selling a product that destroy’s humanity’s future?

6

Peter Erwin 03.03.19 at 4:29 pm

oil in Central America …

I think you mean South America (and/or North America), no? (There’s no oil production to speak of in Central America.)

7

bob mcmanus 03.03.19 at 5:01 pm

natural resource extraction is a business that lends itself to corrupt actors

James C Scott, Weapons of the Weak, pg 136

“The “inner circle” of four men, noted earlier, who control not only UMNO
but also the local unit of the Farmers’ Association and the Prayer House (surau)
Committee, are connected by a dense network of kinship ties. Thus, for example,
Basir is: the nephew of the village headman, whose son, in turn, is part of the
inner circle”

In the village Scott studied of 77 families, everybody poor by our standards but some near starvation, UMNO was one of two political parties, and the Farmers Association supplied fertilizer, loans, etc. This section is essentially about how being connected by kin, wealth, or politics was a key to economic status or survival primarily by means not intended according to law or policy, in other words corruption. That the amounts were small by PPP doesn’t mean they were even more important to the people involved.

Trump is not the only one to favor his children. Chelsea and Malina are protected and empowered.

My guess is that if you did a study like this of a small town in Texas or an Atlanta neighborhood you would find the same types and levels of corruption. The rise of NGOs and foundation grants (Deray McKesson is worth looking at, just as an example) over the last decades are the Democratic equivalent of the Republican money machine, and I thought that part of the story of the 2016 primary (and continuing) was the decades of network development by the DLC/Clinton/Obama machines that controlled local “rice bowls” that Sanders couldn’t overcome. His younger supporters could if they behaved get patronage and largess from the county chairperson, but they saw and wanted the power to distribute. Harris and Gillibrand are the current beneficiaries of these machines of corruption and control.

So how do we approach corruption? Do we bother, or do we work with it? Only at the top, or locally even though that is harder and more dangerous. Create ideologies of resistance, whether socialism or good government? Is “disinterestedness” that great a virtue? The Chinese apparently have a model or plan.

8

Kiwanda 03.03.19 at 7:44 pm

Maybe the situation is related to the “resource curse”, and the tendency of extractive industries generally to lead to corruption and exploitation. Here corruption is critical to the survival of an industry that used to be a spigot of money for a wealthy few, and now is not competitive. (As noted in previous discussions, the levelized cost of *new* wind and solar is now competitive with the marginal cost of *existing* coal plants.)

9

Peter T 03.03.19 at 11:46 pm

All true, but I did pause to wonder where this “open market environment” is (or the coherently planned one, for that matter). Agriculture? Nope. Labour market? Nope. Hydro or solar power? Nope. Motor vehicles? Any large industrial plant? Infrastructure? Can’t think of anywhere in these fields the market operates without connections, politics, subsidies, permissions, grants…In short, coal is perfectly business as usual.

10

MFB 03.05.19 at 6:39 am

As Peter T points out, cronyism and corruption are noticed whenever the oligarchy needs a distraction, preferably one which does not in any way affect their interests.

In South Africa, for instance, the entire campaign against coal-generated power boils down to a desire to privatise the state-owned power company. Everything else is window-dressing.

11

ozajh 03.06.19 at 11:47 am

Kiwanda @ 8,

As noted in previous discussions, the levelized cost of *new* wind and solar is now competitive with the marginal cost of *existing* coal plants.

True, but one thing I haven’t seen discussed (at least, not without ideological heat taking over the conversation) is the impact of rollout speed. I could imagine a situation where existing coal plants are uneconomic even to run, but renewable generation/storage rollout can’t yet cover the entire load.

Maybe there might need to be (horror of horrors!!) a centralised government solution involving keeping some fossil fuel capacity operating for a period. Perhaps even providing a subsidy . . .

12

P.M.Lawrence 03.07.19 at 12:42 pm

Sorry for the delay replying (browser trouble).

Michael Sullivan, I think you’re answering a different question to what I had in mind. Perhaps my answer to Chetan Murthy will clarify what I was wondering and why I wanted clarification for that.

Chetan Murthy, no, I was taking “open market operations” as being of the same general sort as a central bank’s open market operations in the bond market. That is, that’s when the action is given effect through the same sort of transactions as are available to ordinary participants in the market. Yes, the scale and source of funding is different, but from the focus or perspective of the market involved, ordinary stuff is going on.

In practice, yes, my – possibly wrong – understanding of an open market will often overlap with laissez-faire or a notionally free market, but only because other effects will often not be stopping it being like that. But that’s almost a coincidence, not anything to do with that particular market’s essential nature; open market operations as I thought they were could also happen in a very imperfect market.

So my confusion and request for clarification come from a carbon price not being something that can happen from going in there and buying or selling like everybody else. If you tried to move prices that way, a raised price would actually incentivise digging up more coal, only to have it put into a coal mountain like the proverbial E.E.C. butter mountain of yore, with little bang for the buck in terms of cutting down carbon combustion (I suppose it would depend on the elasticities involved). When people talk of carbon pricing, though, they are generally talking about something that changes the parameters that constrain or work on the market – and I see that as something of a different sort to that central bank sort of thing.

Oh, and I thought I was quite clear that I was asking for clarification, not pushing a line for or against any of this. I do have my own views, but I didn’t want to muddy the waters with them, at any rate at this stage.

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