Polluters to the Rescue - Why Big Business Fights Climate Change

Finding scapegoats for global warming is becoming harder as more companies call for mandatory limits on greenhouse gas emissions and climate-friendly government policies. Are these companies committed to slowing climate change, or is it just make-believe and so-called greenwashing?

A Business Alliance against Climate Change

The Global Roundtable on Climate Change is one among a number of initiatives that gather businesses, scientists, and activists. The coalition calls for a post-Kyoto Protocol framework for clean energy and climate change action

The news read like a hoax: In January 2007, nine heads of major corporations like BP, the aluminum maker Alcoa, and the utilities company Duke Energy urged U.S. President George W. Bush to support mandatory reductions in climate-changing pollution and to establish concrete reduction targets – demands their peers had long opposed.

Insurers like Swiss Re, IAG, or Allianz had been calling for government action to fight global warming for years. Their interventions seem to make sense, even from a business perspective: Rising global temperatures will result in more natural disasters, more claims, and less profits. But recently, these usual suspects were joined by other companies, mainly from the U.S., some of which are among the world’s biggest CO2 emitters.

The Golden State going Green

British Prime Minister Tony Blair (right) and California Governor Arnold Schwarzenegger (center) are supporting strict caps on carbon dioxide emissions (Photo: Climate Group)

A coalition of the willing?

In February, some 85 business heavyweights gathered at the Global Roundtable on Climate Change, a post-Kyoto Protocol framework for clean energy and climate change action organized by Jeffrey Sachs from the Earth Institute at Columbia University. Among the companies were Air France, chemical companies DuPont and BASF, and the world’s biggest retail chain, Wal-Mart.

Similar business-led initiatives have emerged elsewhere. German companies recently inaugurated a group called “2° - German Businesses for Climate Protection.” Utilities Vattenfall and EnBW joined Deutsche Telekom, Allianz and others to support German Chancellor Angela Merkel’s bid for a post-Kyoto scheme to reduce greenhouse gas emissions. Their aim is to contain global warming to a maximum rise of two degrees.

Duke Energy, a major energy supplier that operates coal, nuclear, and gas power plants, surprised the energy sector by demanding mandatory carbon caps for an industry that, according to the International Energy Agency, produces more than 40 percent of all global carbon dioxide emissions. Even influential lobby groups like the US Chamber of Commerce or the U.S. National Association of Manufacturers reject such limits. They say the energy industry still has to invest billions of dollars to meet the growing U.S. demand for energy.

So why do executives from major polluters like Duke Energy or BP now call for laws and restrictions that would essentially increase prices for their commodities and impact their business? Motivations are manifold, but the bottom-line might well be: they can’t avoid it anyway.

The most striking example for this trend comes from the U.S. While its federal government still opposes the idea of mandatory carbon caps and prices for CO2 emissions, individual states are going ahead with climate-friendly initiatives of their own In 2006, California Governor Arnold Schwarzenegger signed legislation aimed at reducing greenhouse gas emissions from utilities, refineries and manufacturing plants to 1990 levels by 2020. Other states like Massachusetts or North Carolina have similar policies in place.

In the same year, the Congressional Budget Office said that any cost-effective US policy addressing global warming would require emissions taxes or a cap-and-trade system similar to the one installed in the European Union. And now that many of the leading candidates for next year’s presidential election have declared global warming a major campaign issue stricter climate legislation seems inevitable.

Choosing the lesser evil

When change seems unavoidable, companies usually go for the lesser evil. For the U.S. this means federal laws, because a multitude of differing state-level legislation would make business complicated. "It's the worst possible situation," Douglas R. Oberhelman of Caterpillar Inc. told the Chicago Tribune. "California is on the verge of banning imports of electricity generated by coal. What are you going to do if you have 50 of those, and they're all different?"

Similar arguments account for major European companies. While EU legislation provides a relatively homogenous regulatory framework, European business has long gone global and thus has to cope with the extremely heterogeneous climate change policies that exist globally.

Choosing the lesser evil is just one reason. Many companies realize that in a scenario of strict regulations, new opportunities appear. Cleaner coal-burning technologies, still too expensive to compete with dirty but cheap alternatives, could become competitive, along with alternative energy sources, such as wind and biomass.

A wave of new nuclear power plants

The apparent rehabilitation of nuclear energy could also prove interesting for certain energy suppliers. With global warming making the news, nuclear power, which produces near-zero carbon dioxide emissions, could lose some of its bad public image, utilities companies hope. The Washington Post reported that more than a dozen companies plan to apply for licenses to build new reactors in light of new U.S. federal tax exemptions and other incentives for nuclear power.

U.S. companies are also looking at the European example of emissions caps and trading. Energy managers like Rogers fear that EU policy – and the lack of similar action by the U.S. federal government – has given European competitors a head start, allowing them to adapt to emission caps years earlier. Without mandatory caps in the U.S., for example, climate-conscious companies would have to act unilaterally, which would reduce competitiveness and threaten market shares in the world’s biggest energy market.

Apart from providing new business opportunities, climate change action can even improve short-term profits. When the EU installed its emissions trading system in 2005, European utilities companies reacted by raising energy prices, telling their customers that they now faced higher costs.

But CO2-emissions are a market commodity, and as such, their prices are flexible. Because the system was new, national governments misjudged demand, and issued too many emissions certificates. Since 2005, prices for a emitting a ton of CO2 plummeted from 30 Euros to less than 2 Euros in 2007. Still, energy producers did not readjust their prices accordingly and thus saw their profits grow.

Greenwash or enlightened self-interest?

It is because of such profiting, however, that environmentalists have coined the term “greenwashing.” It refers to companies who shape their image and branding to appear environmentally friendly without actually delivering results. Environmentalist and author George Monbiot dedicated an entire website to exposing companies that do not keep their promises. And U.S.-based NGO Green Life publishes an annual report featuring “America’s ten worst greenwashers.”

Author and environmental consultant Joel Makower, dubbed the “guru of green business practices" by the Associated Press, takes a more pragmatic stance. He criticizes the “classic NGO-think,” - the notion that “business should move to more sustainable products and processes because it's the right thing to do, regardless of whether it's good business.” Instead, Makower opts for something he calls “enlightened self-interest.” Companies, he writes, will only improve their environmental reporting and processes if “it makes for a better-run, more-profitable business.”

Whatever the reasons behind the latest hype in environment-friendly behavior, effective action against climate change will not be possible without business and government involvement. And with growing public attention to business involvement, greenwashers are heading for a sobering wake-up call.