On Jan. 2, 2008, California led a group of more than a dozen states in a lawsuit seeking to overturn the U.S. Environmental Protection Agency’s decision to deny a waiver that would have allowed the states to regulate greenhouse gas emissions from vehicles.
The lawsuit kicked off a year in which states, cities and the business community moved to fill the void created by a perceived lack of federal leadership in battling climate change. We saw big promises and goals as companies sought to make their operations leaner, take advantage of the opportunities created by climate change with the addition of new products and services, and begin moving to reduce associated risks, such as phasing out dealings with carbon-intensive interests. Meanwhile, non-governmental organizations stepped up to help businesses find their footing while reminding us how far we have to go.
In looking back over the past year’s coverage on ClimateBiz.com, it was difficult to settle on just five themes or trends that captured the entirety of climate change's impact on business. There are many threads woven throughout these five themes -- cleantech, carbon labels, electric cars, NGO partnerships, carbon trading, coal, ect. -- that will make more headlines in the New Year. In the meantime, here are some of the developments that have taken center stage on the pages of ClimateBiz.com.
States Take the Lead
The year was filled with legal wrangling between California and the U.S. Environmental Protection Agency, beginning with the EPA denial of a waiver that would have let the state regulate vehicle tailpipe emissions under the Clean Air Act in late 2007. The battle wasn't resolved in 2008 but California moved forward with its own climate change plans and, along with other states, laid the groundwork for what will likely become a national greenhouse gas cap-and-trade program.
California crafted a strategy that will serve as a guide for implementing the Global Warming Solutions Act of 2006, or AB 32, which mandates the state reduce emissions to 1990 levels by 2020. The cornerstone of the plan rests on a cap-and-trade scheme that will touch nearly every sector of the state’s economy, bolstered by land use changes that discourage urban sprawl, a boost in its renewable energy mix to 33 percent, and a low carbon fuel standard, among other initiatives.
But the state didn’t walk alone in its efforts. More than a dozen other states planned to adopt California’s strict vehicle emissions regulations and planned their own strategies to reduce emissions. Arizona, Montana, New Mexico, Oregon, Utah, Washington, British Columbia, Manitoba, Ontario and Quebec have partnered with California for the Western Climate Initiative, which will create a regional greenhouse gas cap-and-trade system that aims to reduce emissions 15 percent below 2005 levels by 2020.
On the other side of the country, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont launched the Regional Greenhouse Gas Initiative, another regional cap-and-trade scheme covering the power generation sector. The system saw two successful auctions of carbon permits, raising $38.6 million in September and $106.5 million in December for energy efficiency projects throughout the region.
The system is a work in progress and has its share of critics pointing out the cap is set higher than actual emissions levels during previous years. But it offers a chance for U.S. companies to gain experience with the system and begin factoring carbon into their budgeting. "This is like Spring Training in baseball before the real games begin," Terry Tamminen, an advisor of Pegasus Capital and California Gov. Arnold Schwarzenegger, told ClimateBiz in September.
Companies, such as Southern California Edison, are moving to position themselves to take advantage of a future where carbon dioxide pollution comes with a price. The utility offered a slew of emissions reduction projects ahead of California’s climate change rules in the hopes that its early actions will yield rewards when the greenhouse gas cap-and-trade system takes effect in 2012.
Businesses Call for Climate Action
Earlier this year, the U.S. Climate Action Partnership voiced its support for a national greenhouse gas cap-and-trade program while Congress debated the ill-fated Lieberman-Warner Climate Security Act of 2008. Leaders of 100 of the world’s largest firms then called for political leaders from around the world to deliver a strategy to cut greenhouse gas emissions by at least half by 2050.
The calls grew louder as Nike, Starbucks, Sun Microsystems, Levi Strauss and Timberland joined Ceres to create Business for Innovative Climate and Energy Policy, a coalition that will lobby Washington for comprehensive climate change legislation, including phasing out new coal power plants unless they use carbon capture and storage technology, doubling the historic energy efficiency rate and slashing greenhouse gas emissions to 25 percent below 1990 levels by 2020.
A group of California businesses joined together to voice support for California’s climate change plan while AT&T offered its assistance to the EPA to find ways of cutting emissions using the innovation of the information and communications technology (ICT) sector, pointing a recent study that ICT-related solutions have the potential of reducing emissions by as much as 22 percent by 2020.
... and Offer Commitments of Their Own
Individual companies also took their own steps to make their operations leaner and less carbon-intensive, squeezing out inefficiencies in ways that fattened their bottom lines. The headlines included Dell’s moves to eliminate its carbon footprint saved the company $3 million through reduced energy consumption, while JohnsonDiversey vowed to cut emissions 8 percent during the next five years. It will spend $19 million achieving this by adding on-site renewable energy capacity and improving the efficiency of its fleet and manufacturing plants -- with an expected return of $31 million. The EPA Climate Leaders program gave kudos to Caterpillar, Sun Microsystems, Pfizer and Mack Trucks for making good on their commitments to cut emissions and setting new goals; the four companies achieved emissions cuts of between 20 percent and 42 percent in recent years.
Businesses are experimenting with ways to cut emissions without sacrificing future growth. For example, Best Buy set a target of reducing emissions 8 percent per square foot by 2012 while doubling revenue in five years. Bayer’s global production volume grew 5 percent while emissions inched up 1 percent.
For many businesses, the reductions only involve their own operations, not their their supply chains. As contributor Sarah Fister Gale pointed out, if companies really want to reduce their carbon footprint, they need to look beyond their front door. For example, a study from Carnegie Mellon University found that two-thirds of U.S. industries fail to address 75 percent of their total greenhouse gas emissions by considering only the impacts from their operations and direct energy use.
Many companies are working to get a handle on the emissions associated with their supply chains, which often span multiple borders and cultures. For example, AMD, which met its 2007 greenhouse gas emissions reduction goal and now plans to cut normalized emissions by a third by 2010, began the task of tracking the tricky Scope 3 emissions from its supply chain, distribution, employee commuting and business travel. And Method, the cleaning and personal products manufacturer, has begun putting some of the money it would spend on carbon offsets toward helping its suppliers become more energy efficient through direct financial incentives.
Sectors got into the act in 2008, offering their own ideas for cutting emissions. For example, the dairy and wine industries embarked on ways to measure and reduce their carbon footprints. The U.K. shipping industry suggested its own cap-and-trade scheme, ports committed to reduce emissions around the world, and the steel sector began collecting climate-related data.
In January, the nonprofit Ceres released a report finding many banks were failing to consider climate change in their financial decisions; a majority of banks scored below 50 points while the top ranked bank, HSBC, only earned 70 points. But as the year progressed, banks began taking steps to limit the risk exposure in their portfolios by tightening the purse strings for carbon-intensive projects. Citi, JPMorgan Chase and Morgan Stanley formed The Carbon Principles a month later to evaluate the regulatory and financial risks of greenhouse gas emissions, adding additional scrutiny for financing carbon-intensive projects. The banks then began exploring the development of similar guidelines for public utilities, and gained new members, including Bank of America, Credit Suisse and Wells Fargo.
Separately, five global financial heavyweights adopted the Climate Principles to help banks and insurers manage climate change across a broad swath of services and products, such as retail banking and asset management. Bank of America recently adopted a new coal policy
and announced it would stop lending to companies that use mountaintop extraction as their primary means of coal mining, though some questioned the number of companies this rule would really impact. HSBC said it would phase out lending to customers in Indonesia and Malaysia that are involved in palm oil, soy and timber production due to environmental issues. The bank also will review its relationships with companies involved in Canadian oil sands production because of potential future regulations.
Investor Activism Surges
Climate change and risk was on many minds when hundreds of investors and corporate leaders met in February for the third Investor Summit on Climate Risk to discuss the related pitfalls and opportunities in early 2008, which saw a wave of shareholder activism that pushed for additional corporate disclosure.
In the 2008 proxy season, 54 climate change-related resolutions were filed -- nearly twice as many as two years earlier -- to nudge companies in the utility, oil, gas, aviation and construction industries to address and plan for potential regulations, physical impacts and business opportunities. investors withdrew about a quarter of the resolutions after companies agreed to disclose possible impacts.
A month later, Texas utility Dynegy agreed to report how it would adopt greenhouse gas reduction targets. Around the same time, Ford divulged to shareholders its strategy to reduce its fleet’s greenhouse gas emissions 30 percent by 2020; a month later, it became the first automaker to join the Climate Registry, a voluntary reporting program whose members measure, report and independently verify greenhouse gas emissions from facilities in the U.S., Canada and Mexico.
Investors also received a helping hand from the state of New York, which subpoenaed five U.S. utilities to force a thorough public analysis of the financial and physical risks from climate change. Xcel, which made no admission or denial of wrongdoing, agreed to report past and current emissions levels and mitigation strategies, and reveal whether environmental performance factors into corporate pay or bonuses. Dynegy reached a similar settlement in October.
The San Francisco-based NGO As You Sow took a cue from Ceres -- one of the most prominent advocates for climate change risk disclosure that coordinates the Investor Network on Climate Risk -- and experimented with using shareholder resolutions to get IT companies to report emissions data through the Carbon Disclosure Project. So far, Novell has agreed. “We’re basically saying that this needs to be on their radar screen,” said Conrad MacKerron, As You Sow’s corporate social responsibility program director.
Barack Obama and His Vision of a Green Economy
In April, President George Bush announced a new national goal of halting the rise of greenhouse gas emissions in the U.S. by 2025. Yet many scientists are calling for emissions cuts of 80 percent by 2050 to avoid the worst effects of climate change, and Congress couldn’t muster the votes needed to pass federal legislation but support appeared to grow.
After eight years of federal foot-dragging, the outcome of the 2008 presidential election signaled the start of a new approach to the climate change battle with President-elect Barack Obama’s promise of reducing greenhouse gas emissions to 1990 levels by 2020, and to 80 percent below 1990 levels by 2050. He also committed to creating a $150 billion Apollo project that will open the pathway to a greener economy, create scores of green collar jobs and joining the international climate change effort.
He’s assembled quite a team -- a "Green Dream Team" -- to accomplish these goals: Steven Chu, the Nobel Prize-winning physicist, director of the Lawrence Berkeley National Laboratory and renewable energy researcher, was nominated Energy secretary; Lisa Jackson, a former EPA staffer who ran New Jersey’s Department of Environmental Protection, will head what is expected to be a more activist EPA; Carol Browner, a former Al Gore advisor, will assume the newly created role of Assistant to the President for Energy and Climate Change to coordinate energy policy among federal agencies; Nancy Sutley, the Los Angeles deputy mayor for energy and environment, will chair the White House Council on environmental quality.
President-elect Obama may also get a more receptive Congress, where Democrats expanded on their majority: Los Angeles Rep. Henry Waxman will chair the House Energy and Commerce Committee after ousting Rep. John Dingell of Michigan, who some saw as too friendly with the automotive industry.
The wild card is, of course, the economy. How will businesses pursue their green agendas and climate commitments in 2009 in what many are calling the most trying economic time since the Great Depression? How will the international climate negotiations play out in pivotal 2009 with a new Commander-in-Chief in charge during a recession?
Already the economy has taken some climate casualties -- the state of Washington, for instance, will pare down its climate change agenda because of the tough times and state budget deficit. The European Union plans to move forward with its own climate change path but has met resistance from some of its members who worry about how the regulations will impact their major industries, agreeing to loosen some of the rules relating to carmakers.
But as an expert panel assembled at the GreenBiz-Business for Social Responsibility (BSR) Leadership Dinner pointed out in November, Obama's hope of transforming the U.S. economy may depend on how successfully he ties recovery to green policies. Adding energy security or patriotism to the argument resonates more powerfully than the general green agenda, according to Eric Olson, a panelist, BSR vice president of advisory services and ClimateBiz.com Editor-at-Large.
"If the assignment is we have the opportunity to harness some of the activities that our companies desperately need anyway ... and put that in the context of service to country, the broader economic agenda and community agenda," Olson said, "I don't think that's something we need to wait that long for."