Print article

The year 2006 may be remembered as the year the one in which the US finally warmed to the idea that climate change is a genuine problem. A surge in media interest, a shift in public opinion and the beginnings of a sea change in the political climate were all in evidence. These changes present significant challenges and opportunities to the private sector.

Two events have been a catalyst for this change. The tragedy of Hurricane Katrina in September 2005 caused a rise in concern about global warming, particularly its impact on extreme weather events. At the same time, rising energy prices in 2005 and early 2006 generated greater awareness and raised public consciousness about issues such as energy efficiency and alternatives to fossil fuels – issues that are closely linked to the climate change debate.

Until recently, the US government was known internationally more for what it had not done on climate change than for what it had. By rejecting the Kyoto Protocol in 2001, the Bush administration had placed the United States in a very small group of industrialised countries. Only Australia had joined the US among the larger developed nations in what some cynics labelled a “coalition of the unwilling”. Meanwhile, some two dozen others, including the UK and its EU neighbours, as well as Japan, Canada and New Zealand, all went ahead and ratified.

Rejecting Kyoto

The Kyoto Protocol sets targets for countries to reduce their emissions of carbon dioxide and five other greenhouse gases scientists believe are contributing significantly to climate change – or “global warming” as it is still widely known in the US. Countries that have ratified the treaty are required to reduce their overall emissions by about 5% between 1990 and the period 2008-2012. Controversially, President Bush rejected the treaty, arguing that the science was still too uncertain, that the economic costs were too great, and that it would place the US at a trade disadvantage, since the accord exempts China, India and other developing countries from taking on mandatory emissions targets.

While some applauded Bush’s stance, critics argued that it had several flaws. First, a vast majority of mainstream scientists are now convinced climate change is being caused by human activity, and that significant increases in temperature and a rise in extreme weather events such as heat waves and powerful storms are highly probable. Such changes pose a profound threat to society, particularly in terms of human health and economic costs.

In addition, an increasing number of economists and businesspeople, led by those in the insurance industry, are arguing that not addressing climate change will actually be more costly in the long-term than dealing with it now. Climate modelling shows that, by acting earlier to rein in global emissions, the long-term impacts on our weather can probably be controlled, meaning the rise in extreme weather events and other economically-damaging consequences may be less severe. Finally, some experts have pointed out that combating global warming can bring a financial dividend: companies such as DuPont and BP that have introduced energy conservation and efficiency programmes have experienced significant cost savings in recent years.

In 2006, these arguments were been reinforced by a virtual avalanche of new studies confirming the benefits that can accrue to the private sector from taking early action on climate change. For instance, new research commissioned by Shell and reported in the UK Sunday Telegraph newspaper in early October 2006 suggested that global commerce could receive a US$1tn stimulus from “green business” over the next five years. Britain alone could experience a $28bn boost to its economy annually by 2010. Meanwhile, the Stern review published in the UK in late 2006 strengthened the economic case for climate action still further, while a report from Tufts University in the US warned of the costs of inaction, suggesting that failing to act in the short term would impose costs amounting to 6-8% of the global economy by the end of the century. This implies that the global economy would face multitrillion costs down the track if business fails to respond to the problem now – a threat that clearly sounds alarm bells ringing among shareholders.

Embracing voluntary action

So far, the US federal government has embraced voluntary action over regulation. Its rejection of Kyoto does not mean America is ignoring the climate change problem, though: far from it. A large number of initiatives have been introduced at the national, state and local levels to address the problem.

At the national level, the US government was one of the first to ratify the UN Framework Convention on Climate Change. This treaty recognises the seriousness of the climate change challenge, and obliges industrialised nations to develop policies and measures to reduce greenhouse gases. While the US subsequently rejected the Kyoto path that sought to build on the Climate Convention through mandatory targets, America has certainly not been idle in introducing policies and measures at home. Rather than imposing mandatory limits on business and industry, however, successive governments have generally favoured less prescriptive solutions, promoting voluntary partnerships with the private sector, states, local government and nongovernmental organisations.

Although critics increasingly seem to believe the problem is too severe for voluntary initiatives, the approach does have both repercussions and opportunities for those doing business in the United States. Since President Bush launched his Climate Plan in 2002, government-led initiatives focused on the private sector have grown. The Climate Leaders programme encourages companies to develop longterm, comprehensive strategies and set emissions goals. In early 2003, the Department of Energy launched “Climate VISION”, a Presidential initiative aimed at developing public-private partnerships to help limit the projected growth in US emissions.

President Bush’s aim is to reduce America’s greenhouse gas “intensity” by de-linking economic growth from the growth in fossil fuel use – basically, by ensuring that the economy’s ongoing growth does not bring about a similar rise in the use of fossil fuels and, by implication, more greenhouse gas emissions. While reducing energy intensity is not as ambitious as actually cutting emissions, Bush’s initiative does mean the private sector has avenues it can explore in areas such as energy efficiency.

The US Environmental Protection Agency (EPA) also has a long-standing voluntary labelling programme that has been in existence since the early 1990s. The ENERGY STAR initiative promotes energy-efficient products in over 35 product categories, and is believed to have had an impact both on the energy efficiency of products and on consumer demand for more costefficient goods.

Other government initiatives involving business include the EPA’s agreements with the semi-conductor and aluminium industries and with industries that emit methane. The government has also supported and encouraged fuel-efficient motor vehicles and trucks, and introduced the ‘Smartway’ Transport partnership with the ground freight industry. It has developed a ‘WasteWise’ scheme to reduce municipal solid waste, as well as initiatives involving the forest and agriculture sectors. Other examples of federal government initiatives include the Department of Energy’s ‘BestPractices’ scheme to improve energy efficiency in industrial plants, and the National Industrial Competitiveness for Energy, Environment and Economy Demonstration Project programme.

The Bush administration has also placed a strong focus on research and development in new technologies in areas such as hydrogen (a possible long-term solution to our reliance on fossil fuels) and carbon capture and storage (which could possibly offer a more short- to medium-term approach, with particular implications for companies that extract, refine and rely on fossil fuels).

National legislative framework

The US federal government has also enacted various environmental laws that are relevant to the climate change problem. These range from the National Environmental Policy Act of 1969, which sets out a national charter for protecting the environment, to the 1970 Clean Air Act and 1990 Pollution Prevention Act. The Clean Air Act, which was established to address problems such as acid rain and ground-level ozone rather than the greenhouse gas predicament, nevertheless has relevant provisions dealing with cleaner fuels and transportation policies. For more information on US environmental laws, visit: www. epa.gov/epahome/laws.htm

In August 2005, the US. government passed the Energy Policy Act 2005. The new law offers $14.5 billion in tax breaks over a ten-year period – mostly to businesses – to support energy conservation efforts, increase domestic production, and support renewable sources of energy such as solar, wind, and biomass power. It also offers support for clean-coal technologies. While some environmentalists complained that it gave away too many tax breaks to producers and users of oil, gas and coal, the legislation did include tax breaks for a wide range of businesses, as well as for consumers (including those buying hybrid cars). A tax credit for manufacturers of energy-efficient refrigerators and other appliances was also included.

State and local action

At the state level, the response to climate change has been mixed. However, an increasing number of states have been taking a pro-active approach. In some cases, action at the state-level has arguably been more progressive than the federal response. States such as California and New Jersey have introduced emissions targets, while others such as Massachusetts have set in place limits for specific industries. At the city level, many approaches are being tried. Some cities have even backed a controversial lawsuit against the federal government accusing it of a “failure to evaluate the impacts of its actions on the earth’s climate and US citizens.”

Looking ahead

Businesses looking to invest in the US – or in many other countries for that matter – are likely to find a somewhat fluid situation both in terms of the politics of the issue and public perception. The US perspective on climate change does appear to be changing quite rapidly, though. Opinion polls suggest a shift in opinion and an acceptance of the need for stronger action.

On the one hand, there seems no likelihood that the Bush administration, or either the Senate or House of Representatives for that matter, will have a sudden change of heart on the Kyoto Protocol. In fact, some governments that ratified Kyoto and agreed to mandatory emissions cuts now seem uncertain whether to take on targets beyond 2012, or indeed how to achieve their current targets. Major “pro-Kyoto” countries, including Japan, Canada, and even the UK, appear to be struggling to meet their Kyoto pledges.

The refusal of many developing countries, including China and India, to consider taking on targets of their own for the foreseeable future only adds to the quandary, as emissions in these emerging economic giants continue to grow rapidly. This may change in the next two to three years as the international community starts to discuss what happens after the current Kyoto commitments expire in 2012. But it is uncertain what the future may bring multilaterally. At the same time, though, the scientific evidence for climate change and the magnitude of the problem is also growing, thus increasing the pressure for urgent and more concrete action. While voluntary measures are all well and good, questions remain over whether they can deliver the sort of emissions cuts the experts believe are actually needed.

While the US is almost certain not to rejoin Kyoto, the pressure to develop a stronger legislative framework on climate change is growing. Such a domestic framework may well bear more than a passing resemblance to Kyoto. In fact, this is already happening in the northeast and California, where market-based “cap-and-trade” systems that place limits on greenhouse gas emissions are being developed. With public opinion and the views of an increasing number of states and municipal authorities running in this direction, the political mainstream may not be far behind. Already, many companies are embracing this approach, too, taking on voluntary emissions reduction commitments that promise valuable cost savings.

For the private sector, the key message is that the US. and the rest of the world for that matter, is still wrestling with how to respond to what scientists are highlighting as a massive challenge. The regulatory environment is still developing, and in the US may move forward considerably in the next few years. Investigating and preparing both for the impacts of global warming, and for possible changes in the long-term investment climate, would be wise. Climate change presents opportunities as well as the obvious risks, and the best-prepared companies will obviously be more likely to avoid exposing themselves to unnecessary threats. As any visitor to London quickly discovers, even if there’s barely a cloud in the sky when you leave for the office in the morning, it stills pays to prepare for the possibility of rain.

Chris Spence is a climate change expert and the author of Global Warming: Personal Solutions for a Healthy Planet (Palgrave MacMillan, 2005). E-mail: chris@iisd.org

Top

All pages are copyright © of Roxby Media Ltd. American British Business is a Roxby Media publication - Disclaimer