When the rich and powerful gathered for their annual meeting at Davos in January, at the World Economic Forum, climate change was on their collective minds. Signs reading MAKE GREEN PAY served as a backdrop for the usual panels, featuring CEOs and highend pundits holding forth on global finance and the terrorist threat. And, participants say, global warming was the number one topic amid the shmoozing, where the real business of the retreat is conducted.
There’s some good news here. Given the risk that a climate catastrophe could hit soon and suddenly, we’ve got to make some dramatic changes very quickly. What CEOs and portfolio managers think and do is an urgent question; we may not have time for mass movements to develop and force elites to do the right thing. They’ve got to get started now, or all could be doomed.
But you’ve got to wonder how serious they are about doing something. Chris Giles, economics editor of the Financial Times , said at Davos that there’s no evidence that CEOs and Cabinet ministers were about to make “tough decisions” to avert catastrophe.
Had I been invited to Davos, I could have earned an I AM OFFSET pin by paying a mere $93 to “offset” a New York to Zurich round trip flight a journey that produces more than six tons of carbon emissions. About 60 percent of attendees performed this act of penance, though as A.C. Thompson and Duane Moles show in this issue, carbon offsets are a pretty dubious business. The more serious question is Davos style jet setting sustainable? wasn’t likely to come up when consciences were assuaged by the offsets.
But maybe this is too negative. Let’s savor the spreading climate consciousness among the corporate elite. Amazingly, the CEOs of the Big Three US auto companies and Toyota appeared before a Congressional committee in mid March to endorse limits on carbon emissions and they failed to rise to the bait when a Republican panel member, Joe Barton, characterized the human contribution to greenhouse gas emissions as “trivial.” Even ExxonMobil, the most recalcitrant of the oil companies, has a statement of concern on its website. When the auto and oil industries feel they have to talk the climate change talk, then something is happening.
A milestone in the evolution of elite opinion was last October’s publication by the British government of the Stern Review , an overview of the economics of climate change, named after former World Bank chief economist Nicholas Stern. While many have (rightly) criticized the review for its excessive caution, its political contribution shouldn’t be underestimated: It promoted the idea in elite discourse that there would be substantial economic costs to doing nothing about climate change. As Stern showed, it’s not good for the GDP when crops fail, storms intensify, pandemics spread and coastal cities flood.
Another milestone was the creation in January of the US Climate Action Partnership (USCAP). Among the players are such noted friends of the earth as GE, DuPont, PG&E, Caterpillar and BP (which tries to be the greenest of the oil companies but is still an oil company, and one with a terrible worker safety record at that). Joining those firms are some of the most business friendly environmental organizations, like Environmental Defense (ED) and the Natural Resources Defense Council (NRDC). While USCAP’s manifesto calls for relatively modest reductions in greenhouse gas emissions, and seems in no hurry to get there, it is remarkable to see such bluechip corporate names signing on to any kind of green program, even if it is a rather pale shade of green.
And then in late March yet another group formed, Investors and Business for US Climate Action, a coalition of institutional investors (including not only union and public sector pension funds but also big private sector names like Merrill Lynch), foundations and businesses. Among their founding documents was a letter to George W., urging him to take serious action on the climate and asking for a meeting.
All that’s not to say the denialists have gone into hiding, and it’s no surprise that the dead enders at the Wall Street Journal editorial page are leading the resistance. The creation of USCAP was greeted by the Journal ’s Kimberley Strassel with a real screamer of a piece, denouncing the “jolly green giants” for secretly wanting to make money on carbon reduction while appearing high minded in public. True enough, but Strassel won’t cut them an inch of slack: “At least when Big Pharma self interestedly asks for fewer regulations, the economy benefits.”Reducing greenhouse gas emissions, in WSJland, has no upside at all.
Aside from overt denialists, there are some important players who are MIA, such as the insurance industry. Back in the early 1990s, I attended a conference co-sponsored by that industry and Greenpeace. Greenpeace wanted to prod insurers into countering the weight of the denialist auto and oil industries. After all, the insurance companies will have to pay out larger claims as hurricanes and floods get more severe. At the time, their European counterparts, especially the reinsurance industry (which insures the insurance companies), worried aloud.
But the US insurance industry would hear none of it; it was interested only in tighter building codes, better computer modeling and inventing new financial instruments. Though they were too discreet to say it openly, their plan for climate change was either to jack up premiums or to stop writing new policies—thus Allstate has largely pulled out of Long Island.
Nearly fifteen years later, little has changed. The US insurance industry is mainly concerned with technicalities, while the Europeans sound alarms. A 2006 paper from the Insurance Information Institute emphasizes scientific uncertainty about the relation between climate change and storm frequency and severity, notes that there’s no simple relation between storms and industry profitability, comforts readers with praise of the industry’s “resilience” and reminds them that they can always jack up premiums in dangerous areas (“where places, things, and people are expensive to insure, insurance will be expensive”).
By contrast, Swiss Re, the reinsurance giant, opened a 2002 paper on the topic by noting the necessity “to prevent global warming from accelerating to such [a] degree that humans are no longer able to adjust themselves in time,” which they identified as “a task for governments and the community of states.” A former consultant to the US insurance industry, who quit in disgust, told me that European insurers are “run by smart people who care about science” whose governments have been prodding them into action, while their American counterparts are “bottom line hacks” whose government has been just fine with their indifference.
The Wall Street Journal editorialists have a point when they say that the corporate members of USCAP are betterpositioned than their peers to make money from greenhouse gas reduction. GE, for example, which is busily touting its “Ecomagination” program, is poised to sell “clean coal”
products, solar panels and even nuclear power plants. But short of a revolution, there’s no imaginable way to reduce greenhouse gas emissions unless someone can make money off it.
It’s painful for someone like me, who instinctively gravitates to the more radical position on most issues, to admit that the “better deal for business” is still a lot better than nothing. But it’s worth examining the problems with their proposals, with the hope of agitating for something better. There’s the simple point that Stern’s and USCAP’s emissions targets aren’t ambitious enough. But there are also problems with their favorite strategy: cap and trade schemes.
These work by setting maximum emissions for polluting entities, be they individual factories or power plants or entire countries, based on historical baselines; these limits decline over time. Entities that come in under the limits are free to sell their remaining emissions rights to entities that can’t make the limits.
An early version of cap and trade was the 1990 domestic US agreement to limit acid-rain-causing sulfur dioxide emissions by coal burning electric utilities. Cap-and-trade was at the core of the Kyoto Protocol: Individual countries were capped and then free to sell their credits, and countries themselves were expected to develop cap-and-trade systems for their own polluters. Despite US rejection of Kyoto, the European Union established a cap-and-trade system to meet its obligations under the protocol.
The record of these models is mixed: The acid rain reduction agreement is seen as fairly successful; sulfur dioxide emissions are more than a third below what they would have been without the program. But SO2 emissions are mostly limited to power plants; by contrast, greenhouse gases come from millions of sources, from factories to lawn mowers, a more daunting administrative task.
The EU carbon scheme has had a less auspicious history Launched at the beginning of 2005, some 12,000 installations were covered, responsible for about 45 percent of the Union’s carbon dioxide emissions. Other greenhouse gases, and more installations, would be incorporated into the system in later phases. For the first sixteen months of the system, carbon permit prices more than tripled, only to collapse in April 2006 on the revelation that a number of countries had given their industries such generous caps that the industries were already in compliance and had no need to reduce emissions. This is just one of the problems with cap-and-trade schemes. Consider the burden of monitoring many thousands of sources just what should their baseline emissions levels be, anyway? The temptation to cheat, to game the system, would be enormous. Already an entire industry has grown up around the trading system analysts and brokers and traders who hope to make money from the scheme but contribute not much of anything to saving the planet. Also, cap-and-trade permit prices are tremendously volatile, more so even than the stock market. Volatility makes long term planning very difficult.
A far better approach would be to tax carbon. A carbon tax would be simple gasoline, coal and other fuels would be taxed based on their carbon content and nearly impossible to evade. It could be introduced quickly, unlike the multiyear phase in of the complicated EU cap-and-trade system. The tax rate could start low and then increase, to allow energy users to adjust. Unlike the market volatility of CO2 and SO2 permit prices, a carbon tax would be predictable, making it much easier for businesses and consumers to plan ahead. And as Charles Komanoff of the Carbon Tax Center argues, at least part of the proceeds of the tax could be rebated to poor and middle income households through the income tax system, neutralizing any inequities. The unrebated balance could be used to subsidize alternative energy research and production. Given the historical successes of government funding of basic research in computing and medicine, there’s every reason to believe the products of this work would be very promising.
But the corporate elite and their favorite enviros hate the thought of carbon taxes. (One exception: FPL, née Florida Power and Light, recently endorsed a carbon tax.) In a weird piece for the website Grist, ED’s chief scientist, Bill Chameides, said that carbon tax advocates would give Congress a big pot of money to play with, which they’d use to subsidize their favorite technologies in pork-barrel fashion. Sounding like he was reading from GOP talking points, Chameides declared, “History has shown that the marketplace does a better job of developing new technologies, and a tax takes money out of the marketplace.”
In fact, that sort of ideology ignores history, which is replete with examples of market failure and cases of state support in crucial economic and technological development. The point of a carbon tax is to raise the cost of energy, seriously, and encourage people to use less of it while developing new, carbon free sources. And the idea that Congress wouldn’t be tempted to play favorites with a massive carbon permit scheme is surreal.
That brings us to the crux of the problem: Raising the cost of energy means big changes in the way we live. Corporate friendly enviros don’t like to hear that. In an interview, NRDC’s global warming czar, David Hawkins, denied that sacrifice would be necessary because Associate Profesor yet unrevealed technological breakthroughs will allow us to gorge on energy and everything else. The investor and business coalition speaks confidently of “win-win” changes.
But the sailing might not be so smooth. Though advocates of cap-and-trade, like Hawkins, deny this, they seem seduced by a set and forget appeal to the technique. If, by some currently near unimaginable miracle, serious restrictions on greenhouse gas emissions were enacted, it might not look like win-win. Few things annoy Americans more than higher energy prices, or being forced to take the train instead of the Escalade.
For people on the left, it’s hard to parse the politics of the climate issue. We’re used to a world in which business interests and their favorite politicians will do the right thing only if they’re forced to by popular mobilization. That’s not true of the climate issue: Though there are activists seriously devoted to the cause, it’s a long way from being the foremost concern of millions. So it’s tempting to look at the latest elite mobilization as something that could get a head start on avoiding catastrophe while we hope for more action from below. But you really have to wonder how serious these freshly mobilized business interests are. Can we trust them? Do we have any choice? ■
By: Henwood, Doug
