Sunday, March 04, 2007
In today's Washington Post, there's an op ed by Daniel Estry, a Yale professor who is pushing the idea that companies can boost profits aby pursuing environmentally 'sound' policies. In the op-ed, he argues that KKR and Texas Pacific Group, the private equity buyers of TXU (a Texas based utility) agreeing to "scaling back construction of new coal-fired power plants, ramping up commitments to wind and solar power, supporting mandatory controls on greenhouse gas emissions and promoting energy efficiency" proves his theories. After all, he argues, if Henry Kravis, the head of one of the partners in the deal and the original 'Barbarian at the Gate', is willing to do all of the above it must mean that he too sees the profit potential in going green.
Well, not that it matters to the good professor, but Kravis is doing no such thing. The buyers agreed to those concessions in order to pre-empt public outcry and political pressure that could have derailed the deal. What Kravis did is akin to a real estate developer agreeing to set aside land for parks or bike paths. The developer doesn't do because he'll make more money by building playgrounds and parks than if he used that space to build more houses. On the contrary, doing so lowers the profits that he would otherwise realize. The developer agrees to do so because it's a condition of getting the government approvals he needs to build any houses. The parks and bikepaths and other space that is left developed represents a tax levied on the developer, a tax he agrees to pay in order to make any money at all.
And so it is with TXU. The buyers don't think they're going to make more money chasing the types of projects preferred by the environmental elite. They're doing so because it's a necessary condition of their being able to buy TXU at all. They're agreeing to make less money than they would if there were no such restrictions on, for example, the number of coal-fired plants that they could build. They'll still make a pretty penny, just less than they could have made.
And for the professor who thinks somebody agreeing to pay a tax indicates approval of the types of projects or services paid for by the tax? Well... let me just say I feel sorry for the parents of students at Yale who are laying out $40,000+ a year. You'd think that kind of money ought to buy an ideological-free education... but I guess not.