[Editor note: From time to time, MasterResource will publish excerpts from Bradley’s forthcoming book, Political Enron: A Business History, (John Wiley & Sons and Scrivener Publishing, 2016). The first two volumes of his trilogy on political capitalism, inspired by the rise and fall of Enron, are on worldview (2009) and industry background (2011).]
Enron’s two-front civil war within the fossil-fuel industry in the late 1980s and early 1990s had natural gas warring against coal on the one side and petroleum on the other. But Ken Lay’s well researched, ably orchestrated effort inspired another split, this one within the hitherto anti-fossil-fuel, anti-industrial environmental community.
“Natural gas has, until recently, tended to be lumped in with the ‘bad guys,'” wrote natural gas scribe Daniel Macey. “Now the question is whether to let natural gas into the environmental camp.” Behind the rethink? “Natural gas executives are trying to turn the blue flame green as they find in environmentalists a new marketing tool for their ‘clean-burning fuel’.”
The most notable gas-is-green convert was Worldwatch’s energy specialist Christopher Flavin. Flavin took a liking to Lay and vice-versa. Flavin understood that not only was natural gas environmentally superior, but industry infighting could break hydrocarbon’s grip on government policy. “A major political realignment in the energy world could lead to enormous policy changes and, ultimately, to a new energy system,” Flavin strategized. Ken Lay, he knew, was a powerful industry friend, a change-maker, for the environmental Left.
The National Wildlife Federation also took to gas. “Considering natural gas as a bridge fuel means just that,” stated president Jay Hair. “Accelerated work has to go forward on renewables and efficiency so that the bridge gets us where we want to go.”
Not so fast, retorted Greenpeace. “Natural gas is paving over these clean renewables and efficiency programs,” stated Fred Munson of the organization’s global warming campaign. “Natural gas is not clean and is not any better than oil and coal as far as emissions go,” referring to methane leakage in particular, a potent greenhouse gas.[1]
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The gas/enviro alliance was an example of the Bootleggers-and-Baptists lobbying strategy, whereby profit-seekers (Bootleggers) ally with public-interest groups (Baptists) to win a special regulation, tax provision, or check written on the U.S. Treasury. Compromise and short-sightedness was necessary. Gas interests sold out their fossil-fuel brothers to join environmental pressure groups that might later turn on them; environmentalists had to embrace the least-polluting fuel for the time being. The alliance, which would not outlive Enron, was the result of the business plan and salesmanship of Ken Lay.
The alliance reflected something else: the demotion of ad hoc, command-and-control policies by environmental groups in favor of holistic emission fees and tradable permits from which decentralized choice would result. “In shifting more to market-oriented solutions,” Lay noted, “environmental leaders are speaking the businessman’s language.” The Environmental Defense Fund, in particular, would champion setting an overall allowance cap for trading the right to emit carbon dioxide emissions, joining air-permit trading for SOX and NOX legislated in the 1990 Clean Air Act.
Enron as an emission market-maker was more interested in cap-and-trade than in a carbon tax. Enron-ex James E. (Jim) Rogers, who was eager to convert his electricity units from coal to gas to receive CO2 credits to sell, was even more partial to cap-and-trade.
Rogers was waging civil war with his fellow electric utility executives using Lay’s political-capitalism model.
Getting gas to green needed a fractious industry to come together for common goals. In late 1991, the major gas trade groups (AGA, INGAA, NGSA, IPAA) came together to form the Natural Gas Council. Its $15 million advertising budget was intended to improve methane’s image and increase annual demand 13 percent in five years (to 22 Tcf by 1996).[2]
“The gas industry has talked for a long time about burying the hatchet and then burying coal, and this council seems like the right thing to do,” an industry analyst opined in the Wall Street Journal. A somewhat skeptical John Jennrich, editor of Natural Gas Week, reminded his readers that this was new territory. “Competition within the gas industry is just as keen as interfuel competition,” he remarked. “History has seen members of this new Natural Gas Council at each other’s throats in courtrooms, commission hearing rooms, and legislatures all over the land.”
But incremental cash flow was a great peacemaker, and the gas industry writ large—facing low prices and squeezed margins on one end and disgruntled customers on the other—would give it a try.
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[1] The 5 percent methane leakage rate claimed by Greenpeace compared to less than 1 percent estimated by others, including U.S. EPA. Greenpeace, however, recommended new gas plants to retire nuclear plants.
[2] The Natural Gas Council was chaired by AGA chairman and head of Southern California Gas Company, Richard Farman. SoCalGas was AGA’s largest member, and AGA was the largest Council member.
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Sources
“Natural gas … camp” (Macey, “Gas and Environmentalism,” 27); “Natural gas … fuel'” (Macey, 24); “A major political … system” (quoted in Macey, 27); “Considering natural gas … we want to go” (quoted in Macey, 26); “Natural gas … programs” (quoted in Macey, 27); “Natural gas … go” (quoted in Macey, 27); “Bootleggers and Baptists” (Bradley, 499–500); “In shifting … language” (Lay, HARC Interview, 2); $15 million, 22 Tcf market (Natural Gas Week, July 27, 1992, 2); “The gas industry … right thing to do” (Thomas Driscoll [Salomon Brothers], quoted in Johnson); “Competition … all over the land” (Natural Gas Week, August 3, 1992, 2)
Bibliography
Bradley, Robert Jr. Edison to Enron: Energy Markets and Political Strategies. Hoboken, NJ: Scrivener Publishing and John Wiley & Sons, 2011.
“Kenneth Lay: Guiding a Sustainable Energy Future,” Woodlands Forum, Vol. 10, No. 1 (Houston Advanced Research Center: 1992), pp. 1–4 (HARC Interview).
Macey, Daniel. “Gas and Environmentalism: Strange Bedfellow?” NG Magazine, Summer 1993, 24–27.
Natural Gas Week, various issues (1992)
Johnson, Robert. “Natural Gas Industry Forms Council to Increase Demand, Improve Image.” Wall Street Journal, June 19, 1992, A7a.