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Talking Business About Global Warming:

Outlook Strong for Climate Action, Despite Diplomatic Bumps US Political Landscape More Favorable that Before

With scientific consensus more firmly established than ever, the global warming debate has shifted almost entirely to policies and measures to address the problem. While there is fierce debate both over climate solutions policy, both domestically and at the international level, it has become clear that U.S. business and industry will have to address the issue in some form or another. The question is when, under which rules, and at what cost.

Following is a very basic guide for businesses considering whether and how global warming should fit in their energy and environmental strategies. It explains the basic treaty commitments and current status of negotiations to fill in treaty details, along with voluntary climate actions by U.S. companies and the outlook for domestic policy measures.

Current Developments

Earlier this year the Bush Administration declared it would not pursue the Kyoto Protocol, an international treaty signed by the US and 168 other countries in 1997 but as yet un-ratified by the Senate. The President argued that achieving the emissions targets were unrealistic, and would put the US at a disadvantage to both developing countries and our industrialized competitors. Mr. Bush continues to acknowledge that global warming is a real phenomenon, and one that his administration plans to address.

Despite the uncertainties surrounding Kyoto, the enduring domestic debate confirms what many companies already believed: that global warming remains a real and serious business issue regardless of who controls the White House. Policy frameworks for addressing it may differ - perhaps dramatically - but the challenge is here to stay.

Congress will also be considering new rules for power plants this session that include controls on CO2. Known as a "four-pollutant" strategy, such a measure would bring greenhouse gases under federal environmental regulations for the first time. The state of Massachusetts just passed a law that does just that, and many states have begin experimenting with global warming policies.

Many companies are discovering the opportunities available under treaty mechanisms that foster market approaches and competition for pollution savings, and a number have voluntarily set emission targets in line with Kyoto. Others - including some major utilities - have urged the White House to stick with the Kyoto process.

Backgrounder: The Treaty Process

Global warming emerged as an international scientific concern more than a decade ago, but didn't register as a serious matter for most American businesses until 1997, the year negotiators from 160 countries crafted the first binding agreement to stem the problem. While still a long way from Senate ratification, the accord came as major wakeup call. Industries that had either ignored or opposed such efforts began to conclude that the global warming issue was here to stay, and many responded with new strategies for dealing with it - in both practical and political terms.

Named for the Japanese city in which it was signed in December, 1997, the Kyoto Protocol requires its 160 signatory countries - both industrial and developing - to develop strategies to prevent global warming and begin accounting for their emissions of greenhouse gases like carbon dioxide (CO2), methane and nitrous oxide, which trap solar energy in the atmosphere, warming the planet. Carbon dioxide is the most common; others are more powerful.

The protocol specifically requires 39 industrialized nations including the United States, the European Union, Japan and many former communist states to cut their combined emissions of heat-trapping greenhouse gases to at least 5 percent below 1990 levels by 2012. The U.S. target is 7 percent below 1990 levels. While developing country emissions are rising, these nations still produce a minority share of greenhouse gases - especially on a per capita basis. Nonetheless, the fact that they were not held to binding cuts in the Protocol has been a source of substantial controversy, especially in the US.

The accord allows companies and countries that exceed their targets to sell emissions credits, reducing costs for everyone by fostering savings where they are cheapest. In addition to cutting emissions, developed countries can also claim credit for greenhouse gases absorbed by forests and soils. Making sure these "flexibility mechanisms" are credible and verifiable is the centerpiece of ongoing treaty negotiations. There are also measures that provide for financing and technology to help curb emissions in poor countries.

As of May, 2001, 84 countries had signed the Protocol, including the U.S., most EU members, Canada, Japan, China and other developing countries. 34 countries have ratified the agreement so far, but this number so far includes none of the major industrial emitters. The pact comes into force 90 days after countries accounting for 55 percent of global emissions follow suit.

Shifting Politics

Perhaps the most interesting shift in the global warming debate is the changing role of business in the political and policy processes. Businesses and business groups that once fought a bitter public relations war against any climate treaty have repeatedly come to the negotiating table as part of the process of working out the rules that will underpin the Kyoto deal.

By no means does this constitute wholesale embrace of the environmentalist viewpoint. But the fact that many companies chose to engage in the talks instead of fighting them marks an important milestone, and a shift that few would have imagined just three years ago.

Even the Global Climate Coalition, with changed membership since the days when it led the charge against a treaty, has urged negotiators to move swiftly to set fair, predictable rules. And while the American Farm Bureau continues to oppose Kyoto in its current form, the organization is backing congressional action to explore the benefits to farmers of a carbon sequestration scheme.

A November, 2000 poll of Fortune 500 executive conducted for the National Environmental Trust by American Viewpoint, a noted Republican polling firm in Washington, D.C., found remarkably strong support among business leaders for action on global warming. More than a third support Senate ratification of the Kyoto treaty (another third said they didn't have enough information to say yes or no). Seventy-five percent believed global warming is a somewhat or very serious problem.

Eighty-two percent of the executives expect that the U.S. government will regulate emissions of CO2 and other global warming gases by 2010 (47 percent say "very likely"), and they strongly favor the measures in the Kyoto Protocol: Sixty-one percent favor domestic trading of emission credits, and 65 percent support giving credit to U.S. companies for investment in energy efficiency and other emissions-cutting projects in developing countries. Seventy-seven percent favored increased fuel efficiency standards for cars and trucks, a move that is not part of the treaty.

Companies Seeing Opportunity

Hitting the Kyoto targets - or anything like them - will involve every part of the economy, which is why many companies have approached the issue with caution. Now that the rules are shaping up, businesses are taking a second look. Many are finding opportunity in the form of lower energy costs, as well as emissions trading and other ventures. A growing number of companies are publicly positioning themselves in a leadership role on climate, either through voluntary emissions targets or other active efforts.

Driven by technological advances and deregulation of the utility industry, the clean and efficient technologies necessary to achieve greenhouse emissions cuts are blossoming into an industry worth billions of dollars. Traditional fossil energy companies are investing heavily in fuel cell and solar technologies, while energy outsourcing is opening vast opportunities for profit-making energy efficiency investments by companies like Enron and others. Many of the new frontiers exist thanks to better information technology, which facilitates better energy resource management.

Putting all these developments together, it becomes clear that progress toward a global warming solution will continue in some form.. Indeed, the combination of technological advances with changes in domestic business and political thinking appear to improve the overall outlook for action.

Poll Shows Fortune 500 Executive Support for Climate Action