Rent in a Warming World

What’s rent got to do with climate change? More than you might think.

Rent isn’t just the monthly check that tenants write to landlords. Economists use the term “rent seeking” to mean “using political and economic power to get a larger share of the national pie, rather than to grow the national pie,” in the words of Nobel laureate Joseph Stiglitz, who maintains that such dysfunctional activity has metastasized in the United States alongside deepening inequality.

When rent inspires investment in useful things like housing, it’s productive. The economic pie grows, and the people who pay rent get something in return. When rent leads to investment in unproductive activities, like lobbying to capture wealth without creating it, it’s parasitic. Those who pay get nothing in return.

Two other types of rent originate in nature rather than in human investment. Extractive rent comes from nature as a source of raw materials. The difference between the selling price of crude oil and the cost of pumping it from the ground is an example.

Protective rent comes from nature as a sink for our wastes. In the northeastern states of the U.S., for example, the Regional Greenhouse Gas Initiative requires power plants to buy carbon permits at quarterly auctions. In this way, power companies pay rent to park CO2emissions in the atmosphere. Similarly, green taxes on pollution now account for more than 5% of government revenue in a number of European countries. When polluters pay to use nature’s sinks, they use them less than when they’re free.

Four Types of Rent

Image: James K. Boyce

Extractive and protective rents both originate in nature, but one promotes resource depletion, the other conservation. The resulting tension between these two types of rent from nature is becoming more visible in a warming world.

A daunting obstacle to climate policy arises from the vested interests of fossil fuel corporations in continuing to reap extractive rent. The current value of the world’s oil, coal and natural gas reserves is estimated at $27 trillion. Much of this will have to be written off if we phase out fossil fuels. “You can have a healthy fossil-fuel balance sheet, or a relatively healthy planet,” Bill McKibben observes. “You can’t have both.”

Creating protective rent by capping or taxing carbon emissions will shrink extractive rent. Fossil fuel corporations have shown themselves willing to fight hard to defend extractive rent. But the question of who will receive climate protective rent– and who will fight for it – remains up in the air.

One possibility is to return climate protective rent to the people via equal per capita dividends – a policy known as “cap and dividend” in the case of permits or “fee and dividend” in the case of taxes. Another is to give free permits to polluters and let them pocket the rent as windfall profits – a policy known as “cap and trade” but more accurately termed “cap and giveaway.” A third option is to let the government keep the money, as in the case of Europe’s green taxes.

Dividend proponents argue that recycling rent to the people is necessary to secure durable public support for climate policy as fossil fuel prices rise during the decades-long clean energy transition. Cap-and-giveaway proponents argue that surrendering the rent to fossil fuel corporations is necessary to neutralize their opposition to climate policy.

Underlying these strategies are very different beliefs about who owns nature’s sinks, and about politics. Dividends are based on the principle that the gifts of nature belong to everyone equally. Cap-and-giveaway is based on the premise that the same corporations that profit from extracting nature’s wealth ought to be paid to leave it in the ground.

Dividends make sense if we believe that it’s possible to enact a policy that benefits the majority of people financially as well as environmentally. Cap-and-giveaway makes sense if we believe that might makes right, and that the power of the people can never match the power of the corporations.

The serial defeats suffered by cap-and-trade bills in Washington have cast doubt on the political realism of “realpolitik” environmentalism. When the chips were down, the fossil fuel industry proved unwilling to buy into the new-rent-for-old deal.

The only way we’ll see a switch from extractive rents for corporations to protective rents for the public will be if ordinary people join together to make this happen. The small-d democratic politics that this will demand may seem like a quaint idea in the political climate of the early 21st century. But nothing less is required. To change the rent we get from nature, we must change who gets it.