Rent in a Warming World

James K. Boyce

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 CO2 emissions 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

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.

Triple Crisis welcomes your comments. Please share your thoughts below.

7 Responses to “Rent in a Warming World”

  1. […] By Jim Boyce, originally posted at Triple Crisis. […]

  2. Vilhelmo says:

    Dear Mr. Boyce,

    You have conflated the term “rent”, a payment for the temporary use of a good or property, with “Economic Rent”, defined variously as, the portion of income paid to a factor of production in excess of its opportunity cost or (unearned) income with no counterpart in technologically necessary costs of production.

    I’m afraid to say that the end result is a confused mass of nonsense, falsehoods, misunderstandings & factual mistakes.

    The failure to accurately define the key concept & topic of one’s essay renders not but an exercise in futility.

    My criticisms are not intended to insult or offend but are offered constructively in the hope that it may spur you on to further study of an important & much neglected topic.

    The Wikipedia articles on “Economic Rent”, “Land Value Tax” & the “Law of Rent” are a good start.

    I sincerely hope that you take another stab at the topic.
    I wish you all the best.



  3. HotFlash says:

    I posted this comment at Naked Capitalism, where the article is cross-posted, but feel I should post it here at the origin, too.

    There are so many assumptions in this article that I hardly know where to begin. I think I will start with “When polluters pay to use nature’s sinks, they use them less than when they’re free.” I have never seen any evidence of that. Polluters will fight tooth and nail, of course, to not pay costs, but if they are forced to, they will simply pass them on to customers, eg, us. How’s the price of gas these days, Hmm? Next is that imposition and payment of ‘protective’ rents will magically offset the damage to ‘nature’ — gee, will a big fine to TEPCO fix Fukushima? My guess is the reason that a team of international experts hasn’t been parachuted in to clean up the mess there is because *NO ONE* on earth knows how. Payments to govt will never reflect the real damage and most likely just melt away (like the mortgage ‘settlement’ bucks did). Dividends to taxpayers are simply blood money, corps give you some bucks (which, of course, comes from the customers in the first place) and you have to shut up. And the prices, set presumably by negotiation betw ‘stakeholders’? Hmm, that should work out well. Who will represent ‘nature’?

    And last rant, promise, for today: Why are we still talking about ‘growth’ on a finite planet, the limits of whose carrying capacity are being assaulted from both directions? Wouldn’t stability be a better goal? And don’t get me started on what passes for ‘growth’!

  4. […] TripleCrisis This entry was posted in Survive Food Crisis and tagged Rent, Warming, World. Bookmark the permalink. ← Biofuels scandal + food prices. Biofuel crisis, biofuel oil, biofuel production, cars, algae, systems and basics introduction to facts about biofuels. Conference keynote speaker Patrick Dixon […]

  5. […] By James Boyce, Director, Program on Development, Peacebuilding, and the Environment at the Political Economy Research Institute (PERI) and Professor of Economics at the University of Massachusetts, Amherst. Originally published at Triple Crisis. […]

  6. Walt says:

    HotFlash (above) offers so many objections I hardly know where to begin.

    “Polluters will fight tooth and nail, of course, to not pay costs, but if they are forced to, they will simply pass them on to customers, eg, us.”

    Polluters dumping in the public domain NOW pass their costs on to us. Some costs are readily understood, for example, the electricity bill. Most others go unrecognized, for example, in visibility impairment by regional “haze,” and in increased asthma and mortality.

    Presently, the consumer doesn’t — and can’t — know the true cost of production.

    I suspect that Mr. Boyce touched a nerve, and that “HotFlash” is trying to run interference.

  7. Jeff Smith says:

    Of course people should pay for polluting, which would encourage them to find clean alternative fuels. But it’d also be a good idea to quit paying corporate welfare to polluters. And to de-tax wages and investments to facilitate tech-progress to clean fuels and engines.

    Another crucial part of the puzzle is to charge people for merely occupying land; doing that would encourage owners to use land efficiently. In cities, they’d develop vacant lots, parking lots, abandoned buildings, and under-sized buildings — they’d infill. Compact metro regions have buildings side by side and shorter trip distances so they both consume fewer resources and emit fewer pollutants.

    Cutting demand for fuel weakens the grip of oil companies while charging landowners is something localities can do; without waiting for federal action, cities and counties can shift their property tax off buildings, onto locations, and that would trigger the cascade of benefits for both people and planet. As does Aspen CO and Singapore, they could even generate a surplus and pay residents a dividend — way cool.