New climate for global energy policy
Business will do the heavy lifting
Friday, February 2, 2007
By Joe Nation
Like sleeping giants, governments are waking up to the challenge of climate change. In California, Governor Schwarzenegger and the legislature agreed to the most sweeping plan to reduce greenhouse gas emissions. Other states—43 by my latest count—are following California’s lead. In a moment that surprised both the left and the right, President Bush last week even uttered the words “climate change.”
Whew! I am relieved that government is finally in the game. Now we can all relax, can’t we?
Actually, we can’t. While governments’ actions are essential and long overdue, the reality is that government won’t save us. We need the private sector to engage—and now.
Some argue against the private sector playing a more significant role on climate change. After all, it is in large part the failings of the private sector—the greed and myopia of oil companies and automakers in particular—that have created this crisis. But as the villain Michael Douglas portrayed in the movie Wall Street said, greed may be good. Here’s why.
Government has been slow to respond to the threat of climate change, and it is still moving too slowly. Jim Hanson, the NASA scientist quieted because of his alarmist views, warned the Congress nearly 20 years ago that climate change was real. Many others followed. And we are just now beginning to see action.
Despite recent progress, government is still moving too slowly. Take California’s Assembly Bill 32. AB 32 will include all industries and force large reductions of all greenhouse gases, in part by creating a market for greenhouse gas emissions. But AB 32 doesn’t do enough. It doesn’t permit a tradable market until 2012, nearly five years from now. Recent science suggests that we simply don’t have that much time.
Government also doesn’t have the resources of the private sector. For example, the recent federal Office of Energy Efficiency and Renewable Energy budget request was a meager $1.2 billion, with only $44 million for wind energy. Beating climate change will require hundreds of billions of dollars. Dollars that only the private sector has.
For example, private investment in solar power is expected to hit $20 billion within three years. Global ethanol production is now $12 billion per year. BP alone invested $4 billion in U.S. wind power projects last year.
Finally, government—and many politicians—are too timid. Gas taxes are shunned and politicians rarely ask for sacrifice. A case in point. Last year a bill that raised the gas tax in California a nickel per gallon to fund rebates for solar energy and alternative fuel cars never received a hearing. Why? Because most legislators didn’t want to be forced to vote on such a “controversial” measure.
Beating climate change will require some sacrifice, at least in the short term. In the long-term there will be enormous gains, economically, environmentally, and morally.
Here’s why the market will respond and why, in the end, the private sector will do far more in this fight than government can.
First, fighting climate change is good business. Nearly 90% of American voters believe that more aggressive action is needed on climate. Are these “green” consumers more likely to stay with a company that ignores the climate challenge or migrate to those that meet the challenge head on? In a remarkable case of successful green marketing, the Carbon Neutral Company helped reduce a London-based cab company’s net CO2 emissions to zero. The result? The cab company picked up more than $3 million in new contracts.
Second, legal liability from CO2 emissions looms large in boardrooms. CEOs across America are (often, but not always) CEOs because they are smart. And most CEOs understand that the science on climate change is overwhelming. Any firm that uses fossil fuels, i.e., almost every one, knows that failure to reduce emissions will lead to legal liability in the future. It took us many years to win against big tobacco. This courtroom battle will be far easier, and far quicker.
Finally, the private sector has the biggest checkbook. As the examples above illustrate, investment dollars are flowing at a rapid rate into new “cleantech” opportunities and will wash like tsunami over the modest investments that government can make. In another example of the power of the private sector, the voluntary carbon emissions market, now perhaps $200 million in annual volume, is expected by some to grow to $100 billion in the next 3-4 years. Government simply can’t compete with that level of activity.
Does this mean there is no role for government? Of course not. The leadership shown in California and elsewhere in establishing the legal and institutional framework for aggressive action on climate has been exemplary. But once that job is done, then government’s job is to let the private sector work.
We should rejoice that government has awakened on the issue of climate change. That is a good first step. But from here on, we need the market and private sector to save us.
Joe Nation, a former Assembly member from Marin, teaches microeconomics and climate change at the University of San Francisco.