There has been a long-running narrative that big business leans Republican because both Republicans and big business generally oppose high taxes, heavy-handed regulation and mandates. But at least with respect to many of the largest corporations, that narrative, if it were ever true, is changing. And we can see that clearly in Wall Street Journal columnist Gregg Ip’s recent interview with Bank of America CEO Brian Moynihan.
Environmentalists are pushing for a global goal of net zero carbon emissions by 2050. Let’s call that goal aspirational, since hardly any country, developed or not, ever meets its pledged reduction of carbon dioxide emissions.
And even though funding that transition will take trillions of dollars, Moynihan thinks it’s doable—but the investments must come from the private sector. “Government doesn’t have the money, it has to come from the private sector,” Ip quotes Moynihan as saying. “If there’s a revenue stream, then the funding is infinite.” He’s probably right about that.
But here’s where Moynihan’s solution goes off the rails: “The role of government,” Moynihan says, “is to create revenue streams or demand signals or even mandates that opens up the market so the money comes in.”
Excuse me, but the role of government is NOT to “create revenue streams” or “mandates” to try and nudge businesses and investors to put money into politically popular projects favored by the party in power. That approach virtually always leads to malinvestment—i.e., bad investments “which inevitably lead to wasted capital and economic loses.”
For example, the Obama administration poured billions of taxpayer dollars into tax breaks, subsidies and loan guarantees for government-favored green energy projects. Many, if not most, of them failed.
Moynihan appears to prefer government mandates that will attract private capital. And he uses the example of sustainable aviation fuel (SAF), made from crops and food waste, perhaps similar to the ethanol mandate that Congress imposed on gasoline in 2005.
Ironically, environmentalists increasingly question the environmental benefits of ethanol mandates, since growing, harvesting, transporting and processing corn and other products to make ethanol emits lots of carbon dioxide.
Ip writes, “Mr. Moynihan says a mandate requiring airlines to use a certain percentage of SAF would instantly open the floodgates to investment.”
Maybe. But if it were a good investment, airlines would already be doing it.
The problem, as Moynihan notes, is that SAF is three times the cost of jet fuel. So the airlines would pay more for jet fuel, consumers would pay more for airline travel, and wealthy investors—including big banks—would make out like bandits.
November 9, 2021