The biggest factor is still the bottom line
An influential group of CEOs, senior officers and trustees of institutional investors, asset managers, and corporations called for action (PDF) on climate change back on March 19. It’s a good thing the rich and powerful in the U.S. are starting to recognize that action must be taken. But as should be expected, what they call for is the minimum they think they can get away with rather than what is needed.
1. The government must establish a mandatory national policy that will stabilize and then reduce national greenhouse gas emissions economy-wide. The policy should include a target for sizeable, sensible, long-term reductions in greenhouse gas emissions in accordance with the 60-90% reductions below 1990 levels by 2050 that scientists and climate models suggest are urgently needed to avoid dangerous climate change.
The evidence is overwhelming that greenhouse gas reductions must take place much more quickly than this. Paul Baer and Michael Mastrandrea give an excellent explanation of this in their November 2006 paper “High Stakes: Designing emissions pathways to reduce the risk of dangerous climate change” (PDF). If we take that long, there is a high risk of hitting a dangerous and uncontrollable feedback cycle.
My personal take: dangerous amounts of global warming have already occurred, and more is locked in. At this point, we are trying to preserve enough agricultural capability to save our technical capacity as a civilization.
If we put enough labor into it, we can feed the world even in the worst scenarios. But the reason we have things like engineers and computer programmers and journalists and economists is that we don’t have to spend all our time growing food. Not all our population is going to be in the labor force. So if it takes one in three people to produce food, and most of the rest to perform other vital functions like clothing, shelter, basic tool making, child care, and so on, that doesn’t leave a lot of spare capacity to maintain education or perform the kind of intellectual labor a technical civilization requires.
Our goal has to be 90 to 95 percent reductions in the U.S. — over 20-25 years, not 50.
Such ambitious long-term targets not only improve the odds of avoiding the worst impacts from climate change, but also enable businesses and investors to make investments with a known long-term planning horizon. Wherever possible, this national climate policy should include mandatory market-based solutions, such as a cap-and-trade system, that establish an economy-wide carbon price, allow for flexibility, and encourage innovation. However, we recognize that other regulations and policy tools may be most effective in some areas. The policy should not disadvantage businesses that have acted early to reduce their emissions.
We’ve discussed carbon taxes vs. carbon trading on Grist. In the larger world, it is becoming more and more widely understood that carbon taxes are simpler, more transparent, more effective, and less subject to gaming than carbon trading. Trading and taxing are theoretically equivalent. In the abstract, you can do anything with one you can do with the other. But in practice, trading let you hide what is going on a lot more easily than taxes.
For the rich and powerful, this is a feature, not a bug. Both trading and taxes discourage emissions by putting a price on those emissions — a price ultimately passed on to consumers. A Kyoto-style trading system that gives large numbers of permits away captures little of this price increase, which means it cannot be returned to ordinary citizens, thus making it regressive in effect. It hits ordinary people more than the rich, and tends to reduce consumer demand.
With cuts large enough to substantially drive up prices, you risk recession or even depression. If you want to avoid both massive injustice and serious economic consequences, you need somehow to return most of the price increase to ordinary people. I’m going to do another post on best way to do this.
2. The government must take action to stimulate deployment and uptake of new and existing technologies. Simply putting a price on greenhouse gas emissions through market mechanisms like a cap-and-trade system will not be enough. The government should therefore realign other national energy and transportation policies to achieve climate objectives, including a range of policy measures to provide the financial incentives that are needed to stimulate research, development, and deployment of cleaner, more efficient technologies at the scale necessary. The government also must eliminate misaligned incentives and barriers to taking action. The government has an important role to play in assisting the private sector in deploying existing large-scale energy, fuel, and transportation technologies to reduce emissions in the near-term, and in supporting research and development of new technologies that will be needed in the longer-term. To stimulate rapid deployment of new technologies, the government will need to provide transitional incentives and support. Such an approach should not pick technological winners, but rather should aim to bring forward a portfolio of technologies that both enable reductions in greenhouse gas emissions and promote America’s energy security.
As with everyone who seriously looks at what it will take to lower emissions, the CERES group understands that putting a price on carbon will not by itself reduce emissions on the scale needed. We need public initiatives and old-fashioned rules and regulations. Naturally, as representatives of the rich and powerful, CERES does not mention the latter; they want lots and lots of carrots but none of those nasty old sticks. “Bribe us to do what is right. Don’t tell us what to do with the money.”
3. The Securities and Exchange Commission and other financial regulatory bodies must assist both businesses and investors by better defining the material issues related to climate change and clarifying what companies should disclose on climate change in their regular financial reporting. This will help investors understand the risks and opportunities that businesses face — and will help them determine with more accuracy the level of climate risk and opportunity in their investment portfolios–as America leads a global transition to a clean energy economy.
I suspect that what CERES is looking for here is a way to limit liability. Climate change is a known risk, and has been for some time. I wonder if some CEOs, corporations, and investment trusts already have liability for not having taken adequate precautions to deal with the risk, or for not having disclosed known risks. Paper trails tend to arise no matter how careful people at the top are — underlings want documentation that they were following orders rather than acting on their own initiative.
Bottom line: We need to do more than CERES proposes, and do it faster.
Capital to the Capitol: Investors and Business for U.S. Climate Action (PDF). March 19, 2007, Washington, D.C. Imperatives of Climate Risk and Opportunity: A Call to Action from Leaders in Investing and Business.
Baer, Paul and Michael Mastrandrea High Stakes: Designing emissions pathways to reduce the risk of dangerous climate change (PDF). Institute for Public Policy Research. November 2006.
Mufson, Steven. “Europe’s Problems Color U.S. Plans to Curb Carbon Gases,” Washington Post, Monday, April 9, 2007; Page A01.