Corporate Environmental Conscience?

Stephen DeAngelis

December 10, 2007

The principal reason that the Bush administration rejected the Kyoto Protocol aimed at dealing with global warming was the negative economic impact he believed it would have. He was supported by businesses that would have had to invest billions in new technology to meet proposed emission quotas. In a new twist, 150 multinational companies are demanding that mandatory emission reductions be enacted [“150 Global Firms Seek Mandatory Cuts in Greenhouse Gas Emissions,” by Juliet Eilperin, Washington Post, 30 November 2007].

“A sizable fraction of the international business community launched an effort to press for mandatory cuts in greenhouse gas emissions yesterday, on the eve of a major round of climate negotiations set to begin Monday in Bali. In an unprecedented show of solidarity, leaders from 150 global companies endorsed the idea of a legally binding framework in a statement published in the Financial Times newspaper. Some of the world’s largest firms — including Coca-Cola, General Electric, Shell, Nestlé, Nike, DuPont, Johnson & Johnson, British Airways and Shanghai Electric — said that the scientific evidence for climate change is ‘now overwhelming’ and that a legally binding agreement ‘will provide business with the certainty it needs to scale up global investment in low-carbon technologies.’ A separate coalition of environmental groups and U.S. companies, including Honeywell, Shell Oil and Pacific Gas & Electric, helped underwrite a report, released yesterday by the consulting firm McKinsey & Co., that analyzes how much it would cost to reduce U.S. emissions significantly by 2030. The report, which examines 250 options, concludes that the United States could cut emissions by 3 billion to 4.5 billion metric tons a year through existing approaches and ‘high-potential emerging technologies’ if the federal government signaled that it was determined to reduce greenhouse gases dramatically. That would represent a 7 percent to 28 percent reduction from the 2005 levels.”

Obviously, these corporations are sincerely concerned about the environment; but they are just as concerned about not giving other companies a competitive advantage. They hesitate to invest millions (or billions) in new technologies only to find themselves undercut by competitors who don’t. They are also looking for some financial incentives to be corporate citizens.

“‘At some point, we need to establish a clear national commitment,’ said Jack Stephenson, one of the report’s authors. ‘You’re probably going to need standards, mandates and financial incentives.'”

Eilperin writes that McKinsey & Co. report describes how reductions can be made and how much those reductions will cost.

“The report suggests that these reductions, which would rely on a significant improvement in energy efficiency, can be achieved at a cost of less than $50 per metric ton. Nearly 40 percent of these efforts would save money over the long term, the study says, and the measures would range from storing carbon dioxide emissions from power plants to adopting no-till farming practices. ‘Global warming is becoming a core driver for business and the American economy,’ said Frances Beinecke, president of the Natural Resource Defense Council, one of the report’s sponsors. ‘McKinsey has drawn up an excellent roadmap. But it’s up to Washington to get us out of the driveway. We have a chance to get this right, but the window of opportunity is very short.'”

Eilperin also reports that these companies are likely to be disappointed with the U.S. response to their plea.

“In an interview … with Washington Post editorial writers and reporters, James L. Connaughton, chairman of the White House’s Council on Environmental Quality, said the Bush administration is committed to reducing U.S. greenhouse gas emissions, even though it opposes a mandatory, economy-wide carbon cap. ‘We know enough to know we need to make substantial reductions in emissions,’ Connaughton said. ‘Then the question is: How much?’ Connaughton and John H. Marburger III, Bush’s chief science adviser, said the president seeks to reduce greenhouse gas emissions through measures that include making it easier for businesses to write off the cost of new equipment, pushing for more stringent fuel economy standards, and implementing new appliance efficiency standards.”

Britain’s Prince of Wales, who helped organize the business leaders and who discussed their communiqué, insists, as do the companies, that voluntary measures won’t work.

“In a news conference … at Clarence House, the London home of Prince Charles, the business executives calling for a binding framework said that voluntary measures are not adequate. Representatives of 20 U.S. firms signed the statement, which was organized by the Prince’s Corporate Leaders Group on Climate Change. ‘You may find it surprising that someone from business would sit here and talk about regulations,’ said James Smith, chairman of Shell UK. He noted that enforceable standards are necessary to ‘give business the confidence to make those long-term investments in lower-carbon technologies.’ Tony Juniper, executive director of the British arm of the advocacy group Friends of the Earth, said the announcement in Britain yesterday was ‘remarkable’ because businesses were so opposed to mandatory greenhouse-gas reduction targets when government officials were negotiating the Kyoto Protocol climate change treaty in 1997. This announcement ‘couldn’t be more different,’ he said. ‘These businesses get it. They see the threat of climate change, and they know that action needs to be taken, and that it makes economic sense to tackle climate change.'”

Regardless of this new turn of events, the Bush administration (joined by China) has (as promised) rejected mandatory caps on greenhouse emissions at the most recent meetings held to address the issue of climate change [“U.S. ‘Not Ready’ to Commit at Bali,” Associated Press, New York Times, 9 December 2007].

“The world’s top two polluters, the U.S. and China, say they are not ready to commit to mandatory caps on greenhouse gases. But that’s not a worry to the organizers of [the] U.N. climate conference, who say they only want to jump-start the world’s talks toward a new climate accord. ‘This meeting is not about delivering a fully negotiated climate change deal, but it is to set the wheels in motion,” the U.N. climate chief, Yvo de Boer. … Presidents, prime ministers and environmental ministers prepared to join discussions on how to head off the impacts of rising temperatures, from rising oceans to deadly droughts and diseases. … One of the reasons Washington did not sign on [to the Kyoto pact] was because the pact did not set targets for fast-developing countries like China. The two nations are the largest emitters of climate-changing gases, though scientists do not always agree which tops the list. The chief U.S. negotiator said Washington would come up with its own plan to cut global-warming gases by mid-2008, and would not commit to mandatory caps in the coming days.”

Regardless of America’s and China’s recalcitrance, this announcement will undoubtedly spur economic activity in the environmental systems and alternative energy sectors of the global economy. Many believe that a “green economy” will not only be good for the environment, but will stimulate new job growth as well. The fact that NGOs see this announcement as remarkable and a break from the past should encourage anyone interested in the environment. Since all of these companies are multinationals, their suppliers and partners in emerging market countries like China and India are also going to have to take notice. If those countries get on board with the movement, something different really would have been accomplished.