May 08, 2007
Wal-Mart Goes Green: Our Tax Dollars at Work
Posted by Gordon Smith

Last summer Al Gore praised Wal-Mart's environmental initiatives, stating:

The message from Wal-Mart today to the rest of the business community is, there need not be any conflict between the environment and the economy. We will find the way not only to reconcile (those), but to find new profits and new opportunities as we do the right thing.

Today comes news of a plan to outfit 22 Wal-Mart stores in California and Hawaii with solar panels. (W$J) The panels will provide up to 30% of the energy for the stores. This is a pilot project designed to test the viability of solar energy in other Wal-Mart locations. And it is supported by tax incentives:

California and Hawaii have other appeals for solar panels beside abundant sunshine. Solar power typically costs more than conventional forms of energy based on fossil fuels, but those two states provide generous rebates because they are trying to get 20% of their energy from renewable resources by 2020.

Wal-Mart, Bentonville, Ark., declined to quantify its anticipated savings from the pilot program other than to say they will register "as soon as the first day of operation." What's more, Wal-Mart, not its solar providers, will retain the renewable-energy credits generated by the program. The credits recognize the value of producing energy from renewable resources like solar power that don't create greenhouse-gas emissions such as carbon dioxide. They could be valuable if the Democratic-controlled Congress introduces emission caps and such credits can be traded.

There are big subsidies for solar installations in some states, and these programs can cut the effective cost of a project by half. In the case of the 22 stores, Wal-Mart is buying the output of the solar panels sitting on its rooftops. But the vendors -- BP PLC subsidiary BP Solar, SunEdison LLC and SunPower Corp. subsidiary PowerLight -- said they are receiving a federal tax credit amounting to 30% of each installation's cost, plus ratepayer-funded rebates paid by utilities and other incentives. After all the subsidies, electricity produced by solar panels can end up cheaper than that from conventional sources.

As Conglomerate readers know, I am not inclined to bash Wal-Mart, so don't take it as a criticism of the company when I say that this is not "corporate social responsibility." This is good business. Cost savings + positive public relations = no brainer.

That said, Al Gore's feel-good notion that "there need not be any conflict between the environment and the economy" is dangerous because it leads many people to assume that clean air and clean water are costless. The obvious implication of Gore's reasoning is that corporate directors and officers are evil incarnate or wildly incompetent. How else could one understand environmental degradation in a world where the environment and the economy are not in conflict? In the case of Wal-Mart's new solar panels, the costs of moving away from fossil fuels will be borne, in part, by taxpayers. There is no free lunch.

These are the sorts of thoughts that prompted me to write The Dystopian Potential of Corporate Law, in which I respond to Kent Greenfield's call for corporate governance reforms that encourage greater corporate social responsibility:

The crucial point of departure for this section is the following incontrovertible fact: Professor Greenfield's vision of utopia would require boards of directors to make decisions that sacrifice potential shareholder value in favor of value for non-shareholder constituencies. When boards of directors are able to enhance employee welfare, make the environment cleaner, or improve human rights throughout the world without impairing shareholder value, they often do it. This is not "corporate social responsibility," but good management. And the failure to pursue such strategies would be a problem of managerial incompetence, not a problem of improper incentives.

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