Climate Change in Corporate Approach to Global Warming

The winds have begun to shift in the debate over how the United States should approach the problem of climate change, and an unlikely champion for reform has begun to emerge.  No longer relying on government alone to decide what direction to take, leaders of some of the largest corporations in America are beginning for the first time to publicly recognize that global warming is in fact taking place, and that human actions are a contributing factor.  Consequently, there has been a recent push both for businesses to adopt cleaner technologies and for the federal government to pass legislation that would cap U.S. emissions levels with the goal of significantly reducing the country’s overall output of carbon dioxide. 

Limits on emissions were flatly rejected by the United States when it refused to sign the 1997 Kyoto treaty, a decision explained by the Bush administration as one that was in the best interest of the American economy. [1] Lately, however, public perception of the problem has heightened, and the political winds have shifted far enough to the point that many have begun to believe that change is inevitable.  [2] It is this feeling of imminence which has lead business leaders to decide that they would rather be out in front of any changes that may come rather than be caught off guard when they arrive, and it is this call for a solution from the people who formerly refused to even admit that there was a problem that is the greatest indicator that real reform may be in the works. [3]

On January 22, 2007, a group of corporate CEO’s, including those from GE, BP, Alcoa and Lehman Brothers, announced that they would be forming a coalition along with several environmental organizations, to form the United States Climate Action Partnership, or USCAP, which will be dedicated to urging Congress to adopt legislation limiting U.S. emissions.  [4] The group’s plan, titled ‘A Call to Action’, focuses on imposing a mandatory “cap-and-trade” approach, which would allocate a certain number of emissions credits, and will allow companies to trade them depending on their need. [5] The plan is the latest indicator that companies are beginning to take the matter into their own hands.

In 2005, Jeff Immelt, CEO of GE, described the company’s plan to cut emissions by 40% by 2012 and double its portfolio of environmentally friendly products to $20 billion by 2010. [6] Similarly, ExxonMobil has begun to talk about reducing emissions rather than continuing its campaign aimed at casting doubt on the scientific evidence supporting global warming. [7] With this shift in its approach to the environment, Exxon moves closer to the stance taken by oil industry rival BP, which made waves and gained praise when its CEO, Lord John Browne, acknowledged in 1997 that there was a “discernible human influence on the climate and a link between the concentration of carbon dioxide and the increase in temperature.” [8] By doing so, Browne broke ranks with oil industry execs and accepted responsibility for helping to find answers to the problem, including reducing emissions and developing cleaner technologies. [9] Without actions such as these, the human influence on rising temperatures will persist, glaciers will continue to melt, water levels will continue to rise, and climate change will continue to manifest itself in a variety of cataclysmic ways, such as the spread of malaria and the intensification of hurricanes.  [10]

The world made its most significant attempt to curb the effects of global warming with the drafting of the Kyoto treaty in 1997.  [11] Ratified by 141 nations, it took effect in February 2005 after Russia agreed to sign.  [12] The treaty, which calls for 35 industrialized countries to limit emissions while granting developing nations an exemption in order to allow them to catch up, establishes a market for trading emissions credits. [13] However, the success of the treaty is largely symbolic at this point, as the United States, the world’s largest emitter of carbon dioxide, has refused to adopt the required protocols. [14] In defending its position, the Bush administration has said that in order to limit emissions to 7% below 1990 levels, as called for in the treaty, the U.S. economy would suffer losses of nearly 5 million jobs and over $400 billion per year, while China and India would be given a pass due to their status as developing nations. [15] Rather than set strict limits, Bush and several leading Republicans have proposed a voluntary effort to reduce emissions. [16] However, the political tide in America has begun to turn following the Democratic takeover of Congress in January, and while Democrats largely joined Bush in rejecting Kyoto, they are now advocating the implementation of a mandatory “cap-and spend” system. [17] 

In December 2006, forty Fortune 500 companies answered the EPA’s challenge to double their purchases of green power by the end of 2008.  Along with USCAP’s proposal, this demonstrates that instead of waiting around for Government to tell them what to do, business leaders are beginning to take the lead themselves. [18][19] In fact, the “Call for Action” was issued one day before President Bush’s State of the Union address, in which he called for a 20% reduction in gasoline consumption over the next ten years. [20] However, following the devastation of Hurricane Katrina, the success of the Al Gore movie “An Inconvenient Truth,” and the overall increase in temperatures across the country as of late, the public sentiment has increasingly seemed to favor a more strict and mandatory approach. [21] Gore describes the change in attitude in the business community as “an eagerness on the part of large numbers to find out how they can take a leadership position.  And a recognition, too, that there are profits to be made.”[22] Further, the idea that legislation is inevitable has lead many in the energy industry to call for change sooner rather than later so they can allocate capital in a way that will be profitable in the new marketplace. [23] And while the Bush administration continues to advocate only a voluntary approach, individual states, including California and several in the northeast, have begun passing their own legislation setting mandatory limits on emissions. [24]

The widespread effort for reform is not without its critics, however.  California’s passage of legislation requiring all businesses to reduce emissions and requiring many cars to use alternative fuels, while hailed by many, has also been seen as a danger to the state economy if businesses begin to flock to other states which have yet to pass restrictions. [25] Further, with China set to overtake the United States as the world’s largest polluter in just a few years, the allocation of emissions credits is ever more crucial as the right to pollute becomes commoditized under a “cap-and-trade system”. [26] In order for the free market to function, property rights in regards to future pollution must be established, which means that the world’s most powerful nations must submit to the laws of the new market place, and police themselves to ensure compliance.  But while many believe that it is it too much to ask more powerful nations like the United States to sacrifice and voluntarily limit their growth for the sake of allowing smaller, developing countries, as well as monoliths such as China and India, to catch up, others see the right to pollute as a golden opportunity to own a commodity that could be even more valuable than oil. [27]

In the end, the answers will not come without sacrifice, whether it is political capital or corporate profit.  Increasingly, however, those answers are coming from business leaders, who by working with government officials, and engaging the international community, are helping to create a much clearer forecast of how the global warming debate will take shape in the United States in the near future. 

[1] Shankar Vedantam, Kyoto Treaty Takes Effect Today, Impact on Global Warming May Be Largely Symbolic, WASHINGTON POST, Feb. 16, 2005, at A04, available at http://www.washingtonpost.com/wp-dyn/articles/A27318-2005Feb15.html.

[2] Id.

[3] Steve Hargreaves, Energy industry: Give us something solid, Utility execs see carbon restrictions as inevitable, want regulations 'soon rather than later;' seek stability in oil markets; questions linger over nuclear power, CNNMONEY.COM, Dec. 1, 2006, http://money.cnn.com/2006/12/01/news/economy/energy/index.htm?postversion=2006120111.

[4] CNNMoney.com, CEOs seek tough global-warming laws, January 22 2007, http://money.cnn.com/2007/01/22/news/companies/climate_emissions/index.htm.

[5] Id.

[6] David J. Lynch, Big Business Sees the Light: Corporate America warms to fight against global warming, USA TODAY, May 31, 2006, available at http://www.usatoday.com/weather/climate/2006-05-31-business-globalwarming_x.htm.

[7] Marc Gunther, Exxon Mobil greens up its act, The oil giant reaches out to its critics, says Fortune's Marc Gunther, FORTUNE, Jan. 26, 2007, available at http://money.cnn.com/2007/01/25/magazines/fortune/pluggedin_gunther_exxonmobil.fortune/index.htm.

[8] John Browne, Breaking Ranks, AN OIL EXECUTIVE SERVED NOTICE ON HIS INDUSTRY AT AN INTERNATIONALLY BROADCAST SPEECH AT THE BUSINESS SCHOOL IN MAY, STANFORD GRADUATE SCHOOL OF BUSINESS, 1997, http://www.gsb.stanford.edu/community/bmag/sbsm0997/feature_ranks.html.

[9] Id.

[10] Shankar Vedantam, Kyoto Treaty Takes Effect Today, Impact on Global Warming May Be Largely Symbolic, WASHINGTON POST, Feb. 16, 2005, at A04, available at http://www.washingtonpost.com/wp-dyn/articles/A27318-2005Feb15.html.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] Steve Hargreaves, Global-warming laws: What may be ahead, The Democrats will likely push for some type of carbon-emissions controls when they take control of Congress, CNNMONEY.COM Dec 6, 2006, http://money.cnn.com/2006/12/06/news/economy/global_warming/index.htm?postversion=2006120612

[17] Id.

[18] Grace Wong, America's largest firms pledge to go green, From Wells Fargo to Hewlett-Packard, some 40 Fortune 500 companies pledge to purchase green power, CNNMONEY.COM, Dec. 4, 2006, http://money.cnn.com/2006/12/04/news/companies/green_challenge/index.htm?postversion=2006120413.

[19] CNNMoney.com, CEOs seek tough global-warming laws, January 22 2007, http://money.cnn.com/2007/01/22/news/companies/climate_emissions/index.htm.

[20] Matt Crenson, Washington Wakes Up to Global Warming, Associated Press, Jan. 28, 2007, available at http://www.forbes.com/feeds/ap/2007/01/28/ap3368938.html.

[21] [6] David J. Lynch, Big Business Sees the Light: Corporate America warms to fight against global warming, USA TODAY, May 31, 2006, available at http://www.usatoday.com/weather/climate/2006-05-31-business-globalwarming_x.htm.

[22] Id.

[23] Steve Hargreaves, Energy industry: Give us something solid, Utility execs see carbon restrictions as inevitable, want regulations 'soon rather than later;' seek stability in oil markets; questions linger over nuclear power, CNNMONEY.COM, Dec. 1, 2006, http://money.cnn.com/2006/12/01/news/economy/energy/index.htm?postversion=2006120111.

[24] Id.

[25] Elaine S. Povich, California tries to terminate greenhouse gases, Arnold's risky power play: The Golden State's small businesses worry that a new energy mandate will dim their prospects, FSB MAGAZINE, Nov. 30, 2006, available at http://money.cnn.com/magazines/fsb/fsb_archive/2006/12/01/8395107/index.htm?postversion=2006113010.

[26] CNNMoney.com, CEOs seek tough global-warming laws, January 22 2007, http://money.cnn.com/2007/01/22/news/companies/climate_emissions/index.htm.

[27] Shankar Vedantam, Kyoto Treaty Takes Effect Today, Impact on Global Warming May Be Largely Symbolic, WASHINGTON POST, Feb. 16, 2005, at A04, available at http://www.washingtonpost.com/wp-dyn/articles/A27318-2005Feb15.html.

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