The Momentum of Climate Change

It is stunning to me how the threat of climate change has moved so swiftly from a big, simmering news story to a gigantic, omnipresent news story. One question I hear a lot, however, is this: Does big business care about climate change as much as everyone else?

Judging from the pages of the Wall Street Journal, the answer is yes. Here are some of the headlines appearing in today’s edition:

While Housing Withers, ‘Green’ Materials Bloom

Ikea to Charge for Plastic Bags [“Proceeds from the surcharge will go to an environmental-conservation group”]

Arctic Melting May Clear Path to Vast Deposits of Oil and Gas [summarizing a Feb. 18 Boston Globe article]

Emissions Caps Could Be Ruinous [a letter to the editor challenging WSJ columnist Alan Murray’s declaration that “business opposition to global-warming legislating is melting faster than the polar ice cap”]

Biodiesel Powers Up on Financing [showing that North American venture capital investment in “clean technology” has nearly tripled in four years]

Group Seeks Greenhouse-Gas Cuts [reporting on the activities of the Global Roundtable on Climate Change]

EU Sets 20% Reduction in Emissions by 2020

And that’s just in the Journal‘s “Marketplace” section. One section, in one day, in one newspaper.


doriangravy

I agree with the recent WSJ article on this topic -- legislative & public momentum is inevitable, so it's time to jump on board and influence where they can rather than waiting to have everything "done to them." I'm hopeful that everybody wins.

dix

"Arctic Melting May Clear Path to Vast Deposits of Oil and Gas"

Are you sure this wasn't from The Onion?

Innocent Bystander

Doriangravy, agreed. (great name, BTW) I think at this point, companies just need to accept it as inevitable that changes will be made. I understand that there is some controversy over exactly how much human activities have contributed to the climate, but guys, creating astroturf groups to try to convince us that seals enjoy oil baths is not the answer. It's just a waste of time and money.

tmitsss

"It is stunning to me how the threat of climate change has moved so swiftly from a big, simmering news story to a gigantic, omnipresent news story."

Why should this surprise you, its a pattern Charles McKay was intimately familiar with.

At length corruption, like a general flood,
Did deluge all, and avarice creeping on,
Spread, like a low-born mist, and hid the sun.
Statesmen and patriots plied alike the stocks,
Peeress and butler shared alike the box;
And judges jobbed, and bishops bit the town,
And mighty dukes packed cards for half-a-crown:
Britain was sunk in lucre's sordid charms.

editorguy

'Lucre's sordid charms'?
Please.

fh_joe

This could easily be in the rumor bucket, but you all might have an interest in what Wal-Mart is reportedly attempting:

http://makower.typepad.com/joel_makower/2006/12/walmarts_solar_.html

egretman

This is so stupid. Energy efficiency is the last thing that this country needs. Without population limits, what's the use?

pkimelma

Big business will in general track the mood of its customers; few will risk the full wrath of the customer, at least if there is competition. So, while some will keep funding pseudo-scientists supposedly disproving it, most will publicly be making a show of their efforts to deal with global warming. That is why so much attention has been placed on informing the people, especially after the White House has worked so hard to suppress information.
Many companies are racing to show their "green cred", whether buying wind/solar credits, installing solar, selling or using CFLs, researching alternative fuels, or whatever. Few companies want to be on the wrong side of this issue.
As to the cost to business, losing customers can cost far more than some investment. Further, while you have the people all riled up about the issue, some/many will pay extra for "green" items. How much extra depends, but this knee-jerk reaction of whining about the costs is counter-productive. That said, the exact same reaction occurred over removal of Freon from products (spray cans, refrigeration, etc), but who remembers that now?

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NeverLimp

Fear sells.

chancekear

Enviromentalism has turned into a religion. I respect the environment. I like a clean planet. But I do not believe, based on what I have read, in "Global Warming" as it is being regurgitated everywhere.

this, from 1992: http://www.cato.org/pubs/regulation/regv15n2/reg15n2g.html

Andy from Houston

I worked with Wal-Mart. They are very serious about cutting their environmental exposure by 20% in the next half decade.

Say what you will about their labor practices, but Wal-Mart has definitely moved the ball forward in terms of environmental impact.

Heck, the CEO Lee Scott - who is about as Republican as you can get - did a joint speech about global warming with Al Gore.

David Peterson

I have two problems with this. The first is that these companies are more likely doing it for their own gain through politics than for the good of the planet. It's no secret that different industries lobby the government to alter the market conditions to be more favorable to them, how is it going to be any different in this case? I fully expect most of these companies to be switching to green technologies so that they will become more politically favorable and will be able to get "green" handouts (why this is bad is my second problem).
Further, I think it's worse than with many other causes because all a company will have to do is label something as "green" to get a pass from the electorate. It will get even less scrutiny than normal because of general concern for the environment.

The second problem I have is that I'm not all that convinced that "green" technology is always green. I consider myself Hayekian with respect to market function (see The Use of Knowledge in Society). As such I believe that prices tell us the relative use of resources involved in producing a good or service. Green technology tends to be pricier because it is more resource intensive. While a price may not tell us what resources it is that it uses more of, there is no reason to assume that the resources used in producing it, or producing what produces it are as green as the resource itself. I think that by circumventing the market in these cases we often cause more harm to the environment than we otherwise would.

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joelmakower

See also this post about the explosive numbers of reports and initiatives launched since New Year's Day.

Donut

David is right - companies are trying to ride the hype and make money. I think that these moves are moral-neutral, i.e. you don't have to believe in something to make a quick buck off of those who do. I say this as a stockholder of Whole Foods.

The bigger question is why this hype is happening everywhere now. There hasn't been any spectacular real world event that points to global warming. The science part of the UN report is months away. Gore will win his oscar no matter what. It feels real orchestrated, and I wonder where this is heading, and if all of this sudden pressure is going to make the bubble burst.

johnleemk

David:

"The first is that these companies are more likely doing it for their own gain through politics than for the good of the planet."

Well, isn't that what the free market is all about? Yes, I know there's government distortion - but we'll get to that in a moment.

"As such I believe that prices tell us the relative use of resources involved in producing a good or service. Green technology tends to be pricier because it is more resource intensive."

The problem is simply that of externalities. The market does not set the price according to the cost imposed on society by a good's production, but according to the cost imposed on the producer. On the demand side, it is only the private benefit of the consumer that is taken int account, and not the overall social benefit.

That is why carbon taxes and subsidies for green technologies are important - they try to reduce the impact of externalities. If my car pollutes, it contributes to health problems for others, but this is not part of the pricing for my car or its fuel. That's why there's a carbon tax. When I want to buy a catalytic converter, I find it too expensive because it costs too much relative to my personal benefit, but with a subsidy to account for the social benefit of my car being less polluting, I decide to buy the converter.

I know I've oversimplified things a bit, but I find externalities to be an often overlooked concept in economics, which is a sad thing. There's a reason Pigovian solutions like a carbon tax are advocated even by libertarian/right-wing economists like Greg Mankiw - because they address the problems of externalities.

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David Peterson

John, I see your point about externalities. However I think that the idea of regulation because of externalities faces a major problem: Immeasurability. Most of these models assume that the level of disutility a certain externality causes is quantifiable outside of the individual experiencing the externality.
Not only that, but I think there's a tendency to over-state how much harm an externality costs when someone else is footing the bill for cleaning it up.
I think when externalities are moved to the public arena the costs of them tends to be assumed to be a single or handful of people's arbitrary levels rather than what the true cost is.

Further, my point about subsidizing green technologies is not that the technologies themselves may not be green, it's that the production or contributing technologies might make the greenness of that product have a net negative effect on the environment when compared to the alternative. For example I read about a study from Cornell (here) that showed that in the production of all forms of ethanol, MORE gasoline was used (in farming the crop and by virtue of the fact that it can not be transported by pipeline like oil can) than was displaced from the marketplace from the ethanol. A subsidization of ethanol can in effect cause the opposite of the intended effect and because we only looked at ethanol in itself, but not in total. The price of ethanol tells us what we need to know.

Now I support regulation by which the tax is set equal to the cost of cleanup. That is very neutral, it is not targeted towards special interests (which is probably why it's probably politically unviable), it puts higher cost on more pollutive technologies and encourages cheaper third party solutions to arise.

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pkimelma

David, although I agree it would be great if we could tightly index gain/cost to subsidy/fine, that is not really practical. Many subsidies are not equal in cost to the benefit, but still advance the technology, which drives down the producer cost over time (or creates a large enough market to bring in competition). Some subsidies are actually much lower than the beneficial value, but create the "push" to get consumers to do the right thing. This includes allowing Hybrid and other ULEV cars in the carpool lane.
You are right that there is a risk of some "green" item producing more CO/CO2 in its production or transport, but these things settle in the market over time. The Energy Star program has gone through such evolutions to resolve these kinds of problems, at least for the most part. Much of the resolution has come from competitors turning in each other for violating the rules (or tipping off an investigative reporter), and I expect that to happen in this case as well. So, if we quickly get to 30% valid, 30% pure hype, 30% better, we are moving in the right direction. The hypesters are likely to get called on it, and so the whole process moves forward. Waiting on regulation is a major mistake, and likely will have unintended consequences, especially as it will encourage more fraud.

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Dan at CTC

David's concern about the possible downside of subsidizing ethanol is legitimate and important. A carbon tax is a far better approach that subsidization of ethanol, since the externalities reflected in the carbon tax would be incorporated in both gasoline and ethanol. To the extent carbon is used in the production and distribution of the ethanol, it's cost will be incorporated in the price. Consumers will receive an accurate signal and will have an economic incentive to reduce their use of fossil-fuels through increased efficiency or, perhaps, by using less carbon-intensive fuels. For more information on carbon taxes, see our website at www.carbontax.org.

Pedro48

Dear Stephen,

That you would go and look in the Wall Street Journal for an answer to your question is a real worry....

Might be a better course of action to go trawling through a few corporate mission statements "We will leave the planet in healthier condition than we were given it." or some such, don't expect you would be overwhelmed just yet... and then of course there is the little challenge of espoused corporate missions vs enacted ones "Our people are our greatest asset.." really does sounds a little tired does it not .....Pedro

So my view may be somewhat different to yours...

fergusmacdonald

I think it is safe to say that many large businesses want to 'appear' that they care about climate change (or any other environmental issues), but i would argue that they really still only care about profits.

Increasingly, it is profitable to be environmentally concious, and hence they are following the latest fad strategy. I just hope that consumers don't get slack in a few years and allow these hugely important issues to get swept under by the next new trend.

The environment affects us all, think global and act local.