BusinessWeek has a large and informative package of stories on the changing climate (har!) around climate change, both in the business world and in the halls of government. There are too many stories even to summarize here -- just go browse around.
One positive notion that crops up in several stories is that federal limits on CO2 emissions are inevitable. The science is solid and public opinion is squarely behind it, and in those circumstances there's only so long politicians can drag their feet (though a shout out here to the Bush administration, which has been amazingly effective at stalling, a perverse accomplishment of sorts). Businesses are already busy planning for it.
By planning and preparing now, [Cinergy CEO Jim] Rogers believes he'll position his company ahead of its competitors and make a positive contribution to the environment. In the utility sector, where plants take years to build and remain online for five or six decades, that has long-ranging consequences.
"Rather than all of a sudden having huge increases [when regulation hits], we need to smooth it out over the long term," says Rogers. "I want to make sure the decisions I make today on this C02 issue ensure that leaders of this company five decades from now will look back and say 'I'm really glad that guy positioned us that way'."
Also of particular interest -- and a refreshing change from typical media reports that say "business is coming around" but provide only scattered anecdotes -- BusinessWeek, Climate Group, and a panel of judges ranked companies based on their action so far on climate change. You can see a list of the top 10 overall performers as well as lists of the best management practices, best individual performers, and best financial-services companies.
This is a fantastic, comprehensive, balanced set of stories, and hopefully it will reach the right people.
It's hard to see sometimes, especially weeks like this when the U.S. is busy shaming itself at the Montreal conference, but the tide really is turning on global warming.
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John Whitehead Posted 7:04 am
07 Dec 2005
"There is no such thing as a free lunch." Does the adage not apply to the environment? Can strict environmental policy lead to "win-win" situations?
Business Week magazine seems to think so.
First, some economic principles. Textbook theory says that profit maximizing business firms that compete with other profit maximizers will produce goods and services at the lowest possible cost. Environmental policy leads to increased production costs as firms must divert labor and capital away from production and toward clean up activities.
The Porter Hypothesis, on the other hand, argues that environmental policy will actually reduce the costs of production as firms discover efficiencies (free money, courtesy of a suggestion from Uncle Sam).
An article in this week's Business Week mag, Top Green Companies, provides examples of the Porter Hypothesis. It seems that U.S. business firms are realizing that climate change is happening and that the government will attempt to regulate greenhouse gases at some point in the future. In response they are readying themselves in advance.
For example, if firms are expecting that the environmental policy involves marketable emissions permits, then a rational response is to develop technology to lower their abatement costs ("endogenous technical change") so that they can sell their permits on the open market, making money. Spillover efficiencies reduce costs overall.
In the BW article each of the top ten green companies claim that they have reduced emissions and cut costs. Number one reducer DuPont has:
Reduced energy consumption 7% below 1990 levels, saving more than $2 billion -- including at least $10 million a year by using renewable sources
Yet, much of the economic research leaves me wondering if these companies are fibbing a bit. From the abstract of a Sept 2005 JEEM article:
...in the presence of learning, implementing a stricter environmental policy with the aim to reach a certain target of emissions reduction has a stronger negative effect on industry profits, which implies quite the opposite as to what is described by the Porter hypothesis.
Another recent paper illustrates how and why some firms (8-24%) might experience increased profits with regulation while overall industry costs rise.
Most environmental economists, I think, remain skeptical that there is free money associated with stricter environmental policy. The research that supports the Porter Hypothesis always seems, to me, to focus on extreme situations and tortured logic (note: this observation is based solely on my shallow understanding of this literature). If anything, the "top green companies" are (1) picking the "low hanging fruit" that wasn't worth picking without the incentive to abate or (2) attributing unrelated cost savings to environmental innovation.
I'm sticking with my simple upward sloping marginal abatement cost curve that implies increased production costs with reduced emissions.
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