How Privatization Fuels Catastrophic Climate Change

Privatization deals in the realm of climate hand over decision-making from the public to private profiteers. That’s an untenable situation.

Donald Cohen and Allen Mikaelian

(Photo by Marcus Brandt/picture alliance via Getty Images)

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In a democracy, it is the public’s job — not the market’s — to decide what to cede to the private sphere. In some cases, even if something is not a public good in the economists’ sense, the public has the ability to decide that we will treat it as such. In a democracy, we get to decide that there should be no exclusions — no winners or losers — when it comes to education or clean water, or a fair trial, or a vaccine, even if it’s possible to do so. We decide there are things we should do together. We give special treatment to these goods because we realize that they benefit everyone in the course of benefiting each one — and conversely, that excluding some hurts us all. 

Privatization is the transfer of control over public goods into private hands. In all of our thinking about how public goods are created and distributed, our concern should be focused on control: Who has ownership, rights, and the power to make decisions? As public agencies go about their business of serving the people, they will use all manner of arrangements, including contracting, outsourcing, and public-private partner ships, to get things done. All of these arrangements should be judged by how much control the public retains. We should not object to government contracting or outsourcing per se, but we should resist giving control of a public good over to a private concern.

When it comes to the threat of climate change, public control over policy making is critical. Private forces guided by profit-motive, like fossil fuel companies, may seek to enrich shareholders at the risk of causing catastrophic environmental impacts. As such, privatization deals in the realm of climate hand over decision-making from the public, which stands to face the consequences of these impacts, to the profiteers who benefit from them. That’s an untenable situation if we hope to build an environmentally sustainable future where everyone is afforded the right to a healthy planet.

Under our current economic system, the contract is king. According to the ideology that embraces property rights above all else, according to those who wish to limit government and thereby limit public input, the contract can override public-policy choices and even the common good. Privatization contracts can remove public control over public goods by locking in a policy and forcing democratic governments to adhere to that policy for generations into the future. Environmental policy is especially vulnerable because to be effective it needs to be long term, flexible, and balanced against many trade-offs.

So these policies often run headfirst into privatization contracts, which are geared toward narrow interests and deliberately limit what the public can do. The looming environmental catastrophe of global warming, one that can be addressed only through a cohesive public commitment, does not figure into these contracts. Nor do public health, the public’s preferences, or democracy in general.

Locked In: The Power of Compensation Events”

When Chicago leased its parking meters to Morgan Stanley in 2008, the city agreed to compensate this multibillion-dollar behemoth for any public decision to take any meters offline for any period of time. The contract term for this is compensation event” — such events include street fairs, removals for improvements, and temporary closures of parking lanes for roadwork. Morgan Stanley has been merciless in squeezing the city for alleged loss of revenue, and won $61 million in a court battle over closed streets. It didn’t end there — compensation events totaled $21.7 million in 2017 and $20 million in 2018. Concerns over triggering a compensation event now factor into every effort to alleviate traffic or introduce new and cleaner modes of transit in the city. The contract has an outsized role in driving policy to reduce pollution and greenhouse gases (among other things) and is often at odds with what is best for the city. 

Chicago once had a vision for twenty Bus Rapid Transit (BRT) lines. These are attractive, inexpensive options for congested streets, but they involve closing the curb lane. After the parking meter deal went into effect, the city had to either provide Morgan Stanley with new meters in a new location when it introduced a BRT, or pay for lost revenue for the life of the lease. The city’s long-term plans are now in jeopardy. Chicago once had a plan for 645 bike lanes and cycle tracks by 2020. But these often involve moving parking meters, removing parking spaces at the end of the block for a longer turn lane, and taking some parking offline for construction. Now these plans are tied up in red tape. A frustrated planner behind the project explained, If we didn’t have this deal, they could remove the parking meter space and get it done today… It’s so easy to accomplish this but our hands are tied.”

The lease was never as simple as letting someone else maintain the meters: The parking meter lease creates a new jurisdiction over the streets,” one city transportation planner noted. The city gave up the freedom of future management options,” said another. The contract’s compensation events granted Morgan Stanley a de facto authority over what happens on Chicago’s streets and parking lots, introducing an unelected and unaccountable power into public decision­making. The corporations on the other side of such deals generally want the opposite of what the public wants, and what the public knows to be sustainable. These corporations want more cars on the road, more parking, and less public transit. Private water companies want more consumption and less conservation — and are in a position to charge their customers for not using water. Privatized trash disposal companies want more trash. It’s easy to see why a private company that specializes in getting rid of our trash would want to see more waste and less frugality. But some private disposal companies have taken it even further with private incinerators.

Burning Up: Ensuring Incineration with Put or Pay” 

Put or Pay is the name for the contract clause that forces a municipality either to give a company a certain amount of trash or to pay a fee. Put or Pay comes up a lot when an incinerator company hopes to burn trash for electricity. Lake County, Florida, started its tangled relationship with the Okahumpka incinerator, owned by Covanta Energy, in 1988, when the county helped build the $79 million trash burning monster (the company would own it, but the county floated low-cost municipal bonds to finance the project). In 2004, to keep the revenue flowing to Covanta, the county promised to feed the incinerator 160,000 tons of waste each year. If all went well, Lake County stood to receive a little over $500,000 a month from energy sales, which it could use to help offset fees paid to Covanta and payments on the bond debt. 

The delicate balancing act did not anticipate the depths of the 2008 financial crisis and how it forced people to buy less and hold on to what they had. In one quarter, trash volume fell by 16 percent. Falling below 70 percent of the promised volume of trash in any given month would mean a total loss of the $500,000 share in energy sales. So Lake County went on a trash hunt, sending officials to nearby towns to, in the words of one reporter, implore them to dump their garbage at the Covanta facility.” One Lake County manager insisted, We’re looking all around to find what waste we can… Not doing this will be very, very costly.” And while they got seven different cities to help them feed the beast they’d created, a Lake County official noted, We’re also not promoting recycling in a big way right now.”

This local government was lured into a free-market bear trap with the promise of trash for energy. Incinerators create the illusion of an alignment of interests between public and private, but what they really mean, in this case and elsewhere, is that a local government gets locked into a long-term commitment and an incentive to avoid recycling. As it happens, material that burns hottest and creates the most energy also gives us the best returns on recycling. Creating new paper, for example, takes three to five times more energy than recycling old paper for new uses. Burning that paper for electricity recaptures only a fifth of what went into making it and converts much of it into greenhouse gases. For the public, there’s little financial or environmental incentive to continue with incinerators, and yet they persist. 

Detroit was saddled with an albatross of an incinerator built back in the 1980s inside the city limits that provided heat to downtown through a steam loop. Although the city had issued $478 million in bonds to get the plant built and running, it sold it to a private company for $54 million just two years after it opened. Over twenty years of interest and upgrades added up to a cost of $1.2 billion for Detroit. With no money left to spend on finding alternatives, Detroit could afford no other options and signed a put-or-pay arrangement that guaranteed a revenue stream for the private operator. Still, with all the money residents poured into this facility, it ended up costing Detroit some $172 per ton of waste. 

At the same time that this plant was helping to bankrupt the city, the facility was taking trash from Detroit’s wealthier neighbors and charging them as little as $10 a ton. Detroit owned the land that the incinerator occupied, but had no direct authority over its operation,” according to a city official. Unaccountable and apparently indifferent, the incinerator company took some 70 percent of Detroit’s waste, and the city remained hampered in its ability to promote recycling, with one estimate finding a recycling rate of just 7 percent, compared to the national average of 34 percent. 

Meanwhile, health problems associated with the neighborhood near the incinerator, a place the Michigan Department of Community Health called an epicenter of asthma” — where childhood asthma rates were four to five times higher than statewide — represented another cost. Finally, the threat of an environmental lawsuit, with evidence of hundreds of violations, forced the incinerator’s owner to close suddenly in 2019. Detroit was free of this disaster but left in the lurch. It had no other solid waste disposal plan in place. 

Indianapolis, Indiana, also has a power-producing incinerator that needs to be fed, and a similarly low recycling rate. The incinerator, owned and operated by Covanta, had been burning trash since the 1980s, and in 2008 managed to lock in a ten-year contract with a put-or-pay provision to ensure the delivery of 300,000 tons of waste per year. The terms also gave the mayor the ability to extend the contract without city or county council approval. Once again, the contract displaced democratic decision-making. The city repeatedly failed to produce enough waste to hit this mark and burned through $2.3 million dollars in compensation payments by 2015 — ­again, that’s money spent for not providing the incinerator with enough trash.

Covanta was growing increasingly unpopular as the end of its contract neared, so it remade itself as a recycling company — it would sort through all of Indy’s trash for recyclables and burn what it couldn’t recover. The city got a break on the put-or-pay requirement, but it had to make new promises to keep Covanta’s investment in recycling profitable. For the next ten years (until 2028), the mayor promised, Indianapolis would not undertake or even promote any new recycling or allow the small existing program to grow by more than five percent. If it did, the city would pay up to $4 million per year until the contract ended. Now the city could be penalized both for not producing enough trash to burn, and for recycling too much.

This is how privatization ties the hands of policymakers and stands in the way of democratic decision-making. And the way in which this contract was approved is particularly egregious. The mayor’s office claimed that this was merely an extension of the old contract, ignoring the fact that it involved a whole new facility, new penalties, new restrictions on future policy decisions, and $4 million in tax breaks, handed quietly to Covanta while both the corporation and the mayor claimed the new recycling program was costing the taxpayers nothing. 

The deal was bad through and through, but it came undone because it was also undemocratic. The Indiana Court of Appeals overturned the contract because it had flaunted public bidding and participation. The city had argued that because the new facility was privately owned, it was exempt from public scrutiny. The court, quoting an amicus brief, decided the opposite was true: The fact that the decision to create the facility might have originated with the private corporation — motivated, at least in part, by a desire to increase profits — ­simply underscores the importance of an open and transparent decision-making process.”

Back Rooms and Fake Crowds: Winning the Contract, Undermining Democracy 

An open and transparent process, along with multiple opportunities for public input, is exactly what privately run municipal services do not want. And when they can’t get around it, as they tried to do in Indianapolis, they’ll resort to tactics worthy of autocracies. Entergy, a corporation with annual revenues of $11 billion, wanted to build a gas­fired power plant in New Orleans, Louisiana. It anticipated grassroots opposition at the city council meetings and hired a PR firm to attack the opposition. This firm went to an outfit called Crowds on Demand that offered an amazing astroturfing solution. Crowds on Demand boasts on its website, If you need to hire protesters, we can get a crowd on the street, sometimes within 24 hours time. If you need speakers to present at a council meeting, we can provide talented and well-spoken individuals to advocate for the cause.” 

In New Orleans they packed city council meetings with paid protesters” wearing bright orange shirts that read Clean Energy. Good Jobs. Reliable Power.” Some of them received $60 dollars just to cheer loudly for the plant and boo whenever someone mentioned wind or solar energy alternatives. Others were professional actors who auditioned for speaking roles and delivered prepared speeches. One later told a reporter he thought he’d been hired to appear in a commercial, adding, I’m not political. I needed the money for a hotel room at that point.”

The strategy wasn’t merely to influence the opinion of the public and the council members. It was also to pack the room early, so those opposed to the plant couldn’t get in. In other words, it was part of their plan to suppress opposing views, to drown out public voices, and to thwart the democratic process.

And it was disturbingly effective. The council voted in Entergy’s favor. One of the council members, after learning about the rent-a-crowd scheme, which she described as morally reprehensible,” claimed that it had a phenomenal impact on public opinion.” What we do with our trash and what we put into the air affects us all.

We have to start thinking about water, air, and land as limited resources that are removed from public use — actually consumed — when a corporation pollutes them. Retaining public control over these resources isn’t about restricting profits or restricting freedoms, it’s about enforcing corporate and individual responsibility for the consequences of their choices. That’s hard to do, however, when our elected representatives agree to contracts that are expressly designed to put private corporations’ bottom line before public demands for a cleaner environment and better city planning while removing any exposure to financial risk. Compensation events” and put or pay” are not just clauses in contracts, and they are not just bad for the environment — they are shackles on democratic decision-making.

Copyright © 2021 by Donald Cohen and Allen Mikaelian. This excerpt originally appeared in The Privatization of Everything: How the Plunder of Public Goods Transformed America and How We Can Fight Back” published by The New Press. Reprinted here with permission.

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Donald Cohen is the founder and executive director of In the Public Interest, an Oakland, California – based national research and policy center that studies public goods and services. His opinion pieces and articles have appeared in the New York Times, Reuters, Los Angeles Times, and the New Republic, among others. The co-author (with Allen Mikaelian) of The Privatization of Everything (The New Press), he lives in Los Angeles.

Allen Mikaelian is a New York Times bestselling author. The co-author (with Donald Cohen) of The Privatization of Everything (The New Press), he lives in Washington, DC.

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