International Policy Framework for Climate Change and Business

THE INTERNATIONAL POLICY FRAMEWORK FOR CLIMATE CHANGE AND BUSINESS

Remarks of Eileen Claussen
President, The Pew Center on Global Climate Change

Climate Change and Business: The Australia-New Zealand Conference and Trade Expo

November 4, 2004

It is a pleasure to be in Auckland for this inaugural conference.  Of course I thought I would be in a country where people were not talking 100 percent of the time about the U.S. election.  But as it turns out, that has been the major topic of conversation since I arrived. 

Reflecting on the election, I think I can see with some confidence that Americans are of two minds about the Bush victory.  Fifty-one percent are very excited.  And forty-eight percent - well, they're moving to Canada.  And they’re going to get flu shots while they’re there too!

Seriously, I am honored to be here, and I congratulate the organizers and the sponsors of this conference for bringing much-needed attention to the important role of business in shaping climate solutions.

The fact that you are holding this conference—and the fact that its sponsors include leading companies, as well as the governments of Australia and New Zealand—reflects how far we have come on this issue in recent years. 

Instead of burying our heads in the sand and hoping it all goes away, the time has clearly come for business and government to begin serious planning for the risks and opportunities that this enormous problem presents.

I want to begin my remarks today with some comments on the central role of business in shaping climate solutions.  Then I want to talk about four things that business needs from government in order to play this role effectively.

In October, Lord John Browne, the CEO of BP, which I am pleased to see is one of the sponsors of this conference, gave an eloquent speech in the United States about the role of business in addressing environmental and other problems. 

He said that the role of business is to “offer new choices … to innovate, to apply knowledge and technology to problems and to turn them into opportunities.”

Turning problems into opportunities.  I cannot think of a better way to frame the discussion of climate change today and the role of business in shaping solutions.  This is what we are all here to talk about.  And it is also the reason why some of the world’s leading businesses are stepping up to the problem of climate change. 

Yes, they see and understand the risks of climate change, and they recognize the need to act to minimize those risks.  But they also see enormous opportunities in the development of new, climate-friendly technologies that will help our economies advance and grow—without continuing to pose a threat to the global climate.  And, finally, they recognize that government will act on this issue, and they would like a seat at the policy table. 

At the Pew Center on Global Climate Change, we currently work with 38 leading companies that are committed to climate solutions.  Our Business Environmental Leadership Council is a group that includes everyone from Alcoa, BP and DuPont to IBM, Toyota, Weyerhauser and many more. 

As of today, 27 of these companies have established targets for reducing their greenhouse gas emissions and/or their energy use.  And 11 of them already have met one or more of their targets.  In total, we believe that about 40 U.S. companies have voluntarily established targets for reducing their contribution to the problem of climate change.

Why are these companies voluntarily taking action, even in the absence of broader U.S. policies that might force them to?  The answer is that they want to improve their competitive position in the marketplace.  They want to be seen as part of the solution, not part of the problem.  And they want to get a head start developing the technologies and the strategies that will contribute to reduced emissions in the years ahead. 

But, of course, voluntary action by selected companies is not enough. In order to preserve our option to stabilize concentrations at roughly a doubling of pre-industrial carbon dioxide levels (a frequently cited goal), developed country emissions would need to be 50% lower in 2050 than they are today and coordinated with substantial developing country efforts as well.  And, as ambitious as this goal may be, it will not prevent all adverse impacts of climate change.  We are already observing impacts to natural systems, as the soon-to-be-released Arctic Climate Impact Assessment will show. 

But this objective is a tall order and impossible to envision without the participation of all businesses and all key industrial sectors.  So how can we get to a point where business is broadly engaged in this unprecedented effort?  I believe the answer lies with government.  At the international and national levels, government needs to provide business with four things: certainty of direction, flexibility in execution, an ability to compete fairly, and a willingness to enter into long-term research and policy partnerships.  I want to use the remainder of my remarks to talk about each of these. 

First, certainty of direction.  In the United States, it is said that nothing is certain except for death and taxes.  But on the issue of climate change, businesses need some degree of certainty about something else.  They need to know that climate change is a priority, they need to understand the direction and the ultimate goal of national and international climate policies, and they need to realize that this is a serious endeavor, one at which we must be successful. 

Knowing and understanding these things allows business to invest with confidence in the technologies and the strategies that will get us where we need to be.  And this kind of certainty can only be achieved when governments establish clear and measurable, long-term goals. 

The most important feature of the Kyoto Protocol is that it sends a signal of government resolve—Kyoto is a strong declaration of multilateral will to confront a quintessentially global challenge.  But Kyoto is only a first step.  It was agreed at the outset that Kyoto’s emission targets would apply only to developed countries, and now, with the United States and Australia on the sidelines, the Protocol covers just one third of global greenhouse gas emissions—and only through the end of the current decade. 

This is helpful, but I do not believe it is enough certainty for business.  Both internationally and at the national levels, governments need to establish clearer, long-term goals that show business where we’re headed on this issue. 

British Prime Minister Tony Blair has committed his nation to a 60-percent cut in greenhouse gas emissions by 2050.  That is what I mean by directional certainty.  It is also the first instance of a world leader taking a long-term view on how to address this problem.  And it is backed up by a set of measurable shorter-term goals – for example, how much can be expected from efficiency improvements, and how that is to be achieved; how much can be expected from renewables, and in what time frame. We can only hope that the rest of the world follows Britain’s example, setting a goal and laying out a plan to achieve it, in the years to come. 

Governments, of course, can establish different types of goals. Goals can be focused on specific environmental outcomes—such as greenhouse gas concentrations (for example, 550 parts per million) or levels of warming (for example, not to exceed a 2 degree increase over current global average temperatures) although I do not believe that these kinds of goals can be negotiated.   Goals also can be focused on levels of emissions and desired reductions, as in the British example.  Or, they can be focused on specific sectors.  An example: we will all be driving zero carbon emission vehicles by 2050.  Or, we will achieve a 75-percent reduction in power plant emissions by 2040.   

Of course a goal by itself is not sufficient.  Business also needs to know the system that will be used to guide us toward the goal.  And this brings me to the second thing government can offer business: flexibility.  This means including all greenhouse gases in whatever approach we take, and it means taking advantage of all solutions, even ones that are temporary, like carbon sequestration in trees and soils.  Most importantly, it means taking advantage of the opportunities afforded by emissions trading.  By making trading the centerpiece of its national effort to reduce emissions, the European Union is ending a powerful message to the world.  And there is also the effort under way in the United States, where nine northeastern governors are developing a multi-state regional cap-and-trade initiative aimed at reducing carbon dioxide emissions from power plants. 

By establishing clear goals and then granting businesses a high degree of flexibility in how to meet them, these initiatives reflect a sophisticated understanding of how business works.

The bottom line is that any government response to the climate issue must create ample room for business to do what it does best.  The reason why emissions’ trading is a good idea is because it allows businesses to minimize their compliance costs through good management.  They reduce what they can internally, they try to find ways to reduce more cost-effectively than their competitors, and they pay others who can reduce their emissions more cheaply.  The smartest companies then go a step further—they invent new products and processes and set out to find new markets for helping others reduce their emissions.

Think for a moment about the amazing variety of activities that businesses can undertake to reduce their contribution to climate change.  They can implement green power programs and cogeneration projects, they can develop energy-saving processes and products, clean fuels, biomass energy, clean-burning vehicle engines and much, much more.  Let me offer a few examples from the companies we work with at the Pew Center:

  • Air Products and Chemicals’ larger hydrogen plants now function as cogeneration facilities, producing steam and power as byproducts of the production process and exporting them to a nearby user. 
     
  • Boeing is on the verge of launching production of its new 7E7 aircraft.  The 7E7 will be lighter due to the use of composite materials and will use 20 percent less fuel than comparable aircraft.

     
  • Weyerhaeuser pulp and paper mills supply more than two-thirds of their own energy needs through biomass fuels. Weyerhaeuser is also involved in the commercialization of gasification technology that significantly increases the amount of heat and electrical energy obtainable from biomass.
     
  • Alcoa has reduced the electricity required to produce a ton of aluminum by 7.5 percent over the last 20 years.
     
  • Between 1999 and 2002, United Technologies reduced energy consumption by 27 percent and reduced water consumption by 34 percent, resulting in a 15 percent reduction of GHG emissions. 

Again, here we have business doing what it does best—innovating and identifying opportunities for future growth, all while contributing to the larger effort to reduce emissions.  And I believe this is something we can encourage at both the global and the national levels—by creating flexible policy frameworks that unleash the power of the market to help shape climate solutions.

In the United States, 16 states, including Texas, now require electric utilities to generate a specified share of their power from renewable sources.  They don’t tell them how to do it; they established the goal.  The proposed California vehicle GHG standards also take this approach, establishing performance standards but leaving it to companies to determine how best to meet those standards and allowing them the flexibility to average the standards over their entire fleets. 

Even in the absence of a long-term goal, some auto companies are adopting differing takes on what the best near-term and long-term solutions are for both reducing vehicle GHG emissions, and coping with increasing oil prices and the increasing concentration of dwindling oil supplies in unstable regions in the world.  Some see hydrogen fuel cells as the answer, others see the hydrogen internal combustion engine, others see a future for diesel or biodiesel, and still others see hybrid technology as a key enabler of any near-term or long-term answer. 

Every company is different.  Every company goes about its business in different ways.  And every company needs to be engaged in climate solutions in a way that suits it best.  This means government needs to steer clear of prescribing or dictating the specifics of what businesses need to do, or how they should or should not go about reducing their emissions.  In the same way, government should not be in the business of picking technologies.  Rather, it is government’s job to set goals, as I have said, and then to give companies the flexibility they need to achieve those goals. 

But let’s not forget or underestimate the power and the need for goals, and I mean not just long-term goals, but also shorter-term milestones.  Without these, and without a way to measure success, we could end up several decades from now with little to show for our efforts.
 
I have talked about certainty and the need for goals and objectives.  And I have talked about flexibility. 

The third thing business needs from government is the ability to compete fairly, or what we sometimes refer to as providing a level playing field.   That phrase reminds me of a comment by John Rowe, the CEO of Excelon, a large generator of electricity in the United States, that was made at a conference held by the Pew Center.  John gave an excellent speech, and was unequivocal in his statement that mandatory carbon controls were essential, but that they needed to be fair.  A questioner got up and, as a point of clarification, asked if the CEO was advocating for a level-playing field, to which he responded that he “had never wanted a level playing field in my life.”  But that said, at the very least, government needs to follow the Hippocratic oath and “do no harm” to the competitive position of individual companies that are playing by the rules.  This means clear and consistent policies that promote superior environmental performance across the board, without treating some companies more or less gently than their competitors. 

At the international level, fairness means developing a policy framework that engages all major emitters of greenhouse gases.  Initially the biggest flaw of the Kyoto Protocol, in the eyes of its opponents was the fact that it forced industrialized countries to reduce their emissions without requiring any action, at least in the short term, on the part of China and India. 

Now the Kyoto Protocol’s biggest flaw is that it does not include the United States, which is responsible for a quarter of global emissions and has a responsibility to lead on this issue.  At the same time, emissions from China and India and other developing countries are rising fast and soon will overtake those from the United States.  So we do need a global policy framework that asks something of everyone.  It is the only fair way to do this.  And it is the only way to bring the United States back into the process.

I am not saying that all countries—or all companies—need to have identical obligations.  Flexibility is key.  Different countries are at different stages in their development, and they have different resources to invest in climate solutions.  But we need to create a framework where all major emitters are involved in ways that they and their competitors view as fair.   

There are a number of options for achieving this goal.  For example, countries could negotiate national emission targets that differ for different categories of countries.  Countries could agree to targets for specific sectors.  Developing countries might agree to a set of measures that promote both greenhouse gas reductions and economic development.  Targets can be bottom-up or top-down, near term or long-term, sectoral or national, climate-based or energy-based.  What matters is that we begin the process of figuring out a new kind of global framework, one in which healthy competition can help us move forward growing the global economy and protecting the climate at the same time.   

The fourth and final thing that business needs from government in order to play its rightful role in the climate effort is partnerships.  And I am talking here about both research partnerships and partnerships in the development of climate policy.

First let me talk about research.  Public-private partnerships can play a vital role in developing new technologies and new ideas in the pre-competitive phase of research.  At the Pew Center, we recently put out a report on technology policy that said that partnerships between business and government could achieve an array of benefits.  An obvious benefit is that these partnerships leverage government funds so business isn’t bearing the costs of ambitious and sometimes open-ended research efforts on its own.  Another benefit is the fact that partnerships foster inter-firm collaborations, especially vertical collaborations between suppliers and consumers of energy.

Let me offer an example of the kind of partnerships I am talking about.  In the state of California, a groundbreaking coalition called the California Fuel Cell Partnership is working to help put up to 300 fuel cell vehicles on the road in a series of independent, fleet demonstration projects.  This group includes most of the world’s major car companies and leading energy providers, as well as fuel cell technology companies and government agencies. 

To date, California roads are home to 55 fuel cell cars and 3 fuel cell buses as a result of this voluntary partnership.  It is certainly a start, and a testament to the power of business and government to get things done by working together. 

Another partnership example is the one in which Shell Hydrogen is working with partners such as Norsk Hydro, Daimler Chrysler and an Icelandic consortium of government and business entities.  Their goal: to figure out how to create the world’s first hydrogen economy in Iceland.  And they want to do it by 2050.  That’s what I call directional certainty – and it is going to take strong partnerships to get there.   
 
Beyond research partnerships, business and government also need to work together to develop climate policies.  The benefits of business involvement in environmental policy making first became clear to me during negotiations on the Montreal Protocol.  This was the agreement, of course, that set out to address the man-made threat to the Earth’s protective ozone layer.  And, an important reason for the success of the agreement is that the companies that produced and used ozone-depleting chemicals—and that were developing substitutes for them—were very much engaged in the process. 

As a result, there was a factual basis and honesty about what we could achieve, how we could achieve it, and when. And there was an acceptance on the part of industry that the depletion of the ozone layer was an important problem and that multilateral action was needed.  

On the issue of climate change, we can see the importance of business involvement in policy in a recent decision in the United Kingdom.  After receiving input from affected companies, the U.K. government revised its so-called “renewables obligation”—a program that sets targets for the nation’s renewable energy generation.  The revision did not water down the targets or extend the timetable in any way, but merely sought to provide the companies and their investors with more certainty about what was expected of them—and when. 

And this raises an important issue.  In bringing up policy partnerships, I am talking about business having a constructive input on policy rather than acting as an impediment to solutions.  In the United States, you could say that some in the business community have been in partnership with government on the climate issue for several years now.  And the result is that we’ve seen nothing happen – at least not in Washington.  While many businesses in the United States support climate solutions, those businesses with the most influence in the White House and Congress have succeeded in blocking even modest efforts to address this problem. 

Obviously, there is a better way.  And it begins with governments taking the initiative on the climate problem.  Whether at the global or the national level, governments have a responsibility to act on the overwhelming evidence that this problem is very serious and very real.  And they have an obligation to stand up to the opposition from some corners of the business community and to say you’re wrong.

However, at the same time, government has a responsibility to acknowledge the central role of business in shaping climate solutions.  That means giving business what it needs so it can be a positive force for change.  And what business needs, as I have said, are certainty, flexibility, a level playing field, and partnerships. 

In the speech I quoted at the start of my remarks, BP’s John Browne said, “Business is one of the most creative and progressive elements of society.”  Today, our challenge—and it is a global challenge—is to create the frameworks and partnerships that will allow business to live up to these words and to play its rightful and essential role in protecting the climate. 

He went on to say that climate change is a “manageable problem … but only if we start now.” 

This is not business-as-usual.  And it is not government-as-usual either.  It is business and government working together toward a common goal: stabilizing the global climate so we can ensure a safe and prosperous future for our businesses, our communities, our nation and our world. 

Thank you very much.