[Note: I’m back from a break in blogging while I wrote my 3rd book, The Big Pivot (out in early 2014). I have a few blogs to post here to catch up…]
A couple weeks ago, President Barack Obama gave what Al Gore called the “best presidential address on climate change ever.” It’s true: the actions President Obama outlined will likely reduce our contribution to climate change, possibly by quite a lot. And while the plan will have large impacts on business, it’s not a big enough vision to meet the scale of our climate challenge.
The majority of the speech focused on the mitigation of emissions — spewing less stuff into the air — and fell into four key areas:
- Enforcing the Clean Air Act rules, which mainly means more strict emission rules on new and existing power plants which are responsible for one-third of our emissions (this is something theSupreme Court gave the EPA power to do six years ago). President Obama made it crystal clear that greenhouse gas emissions are a pollutant subject to regulations — he used the phrase “carbon pollution” about 30 times.
- What the White House called “doubling down on” clean energy. The president wants to double the share of electricity coming from renewables (wind and sun mainly), after already doubling this percentage in his first four years.
- Improving energy efficiency standards for things like appliances and federal buildings, a worthy follow up to the aggressive auto fuel efficiency standards passed last year.
- Attacking “other” greenhouse gases, those that can be much more powerful warming agents than CO2, such as methane (which comes from animals/farms, natural gas leaks, and landfills) and HFCs (the class of chemicals used in refrigerants). Oddly, none of this was in the final text of the speech, but a White House briefing call I sat in on (while at the Corporate EcoForum) mentioned this category of action, and the full plan online features this category.
So what does this all actually mean for business?
Carbon-based energy will be more expensive and clean energy will be cheaper. The largest, glaring gap in the speech was any mention of a price on carbon, by far the most effective action we can take to tackle climate change. But when all the elements of the president’s plans are combined, carbon energy will less appealing relative to cleaner options. More restrictions on coal could raise dirty energy costs if utilities can’t reduce emissions profitably (which they’re already doing).
In other words, costs for energy will potentially rise if your power is heavily coal-dependent. Nationally, the percentage of coal feeding our grid has been dropping fast (to 37% in 2012), but there are major regional differences. But costs per kilowatt-hour don’t mean spending more if you’re getting efficient quickly enough and buying your own renewables (which many companies, for their part, are also already doing).
Still, if you’re dependent on coal-powered energy — or your value chain is — it’s time to rethink your energy strategy and reconsider the payback periods on clean energy investments.
Business will feel government action on many fronts. During the briefing call I sat in on, the White House called it a “whole of government approach,” with many agencies applying pressure or affecting markets in numerous ways. Regulations are just one path. Raising standards on appliances and cars another. But perhaps more importantly, many government entities are affecting markets, in a very good way, as customers — they’re buying cleaner economy products in large quantities.
The Department of Defense is one of the largest purchasers of biofuels (for Navy planes) and invests heavily in solar for forward Marine bases in Afghanistan and Air Force bases at home. The General Services Administration (GSA), with $500 billion of purchasing of its own, will continue prioritizing greener products in many areas. The President didn’t talk yesterday about this kind of purchasing power specifically, but he (and his predecessors) have issued executive orders before.
Business (outside of coal plants) will be leveraged as a partner. The President name checked Walmart, GM, and Nike, and for very good reasons. Walmart is the largest private user of solar power in the country, and has set goals to increase that amount 6-fold by 2020. GM and Nike (and 500 other companies including Starbucks, Swiss Re, and Unilever) have signed onto Ceres’ Climate Declaration, calling for much more action. These companies are doing important work, if nothing else because they provide the president cover from those claiming falsely that business hates climate action.
The president’s plan is extensive — with many elements I didn’t get to in the full outline — and it will accomplish a great deal. But the plan we have on the table isn’t fully up to the task we face. Our national goals (17% reduction from 2005 by 2020) fall short of what the science facts — and reports from number crunchers at McKinsey, PwC, and WWF/CDP — are telling us we have to do (and, importantly, can do profitably). As Al Gore put it, “The hard truth is that the maximum that now seems politically feasible still falls short of the minimum necessary to actually solve the climate crisis.”
We’re operating in a “what can we get done” mentality, which is what passes for vision in Washington these days. There’s also still a disturbing reliance on the “all of the above” energy theme — the president mentioned how great it is that we’re producing our own oil, which, regardless of the geopolitical benefits, is the opposite of fighting climate change.
I had hoped that a second term president could raise the stakes and firmly grab all those third rails. Talk about the need to price carbon so our markets can function correctly. Talk about our deep need to change how we operate fundamentally, but for the better.
The president is right to identify business as a partner in this, but he could go much, much further. We should be honest about the hard truth that there will be losers — like fossil fuel companies that can’t (or won’t) make the transition to a clean economy. But I’d like to see our political leaders really grasp the opportunity here. It’s not just innovation to avoid regulations — that’s old school. Instead, there are multitrillion-dollar markets in play — efficiency in general, but also entire sectors in buildings, transportation, and energy — and vast wealth creation opportunities available to the countries and companies that go for it aggressively (like China).
President Obama’s speech outlines the best plan we’ve ever had, though it’s more like playing defense. Still, with this very real push and help from Washington, business can go on the attack, building a massive clean economy much faster. And it should.
(This post first appeared at Harvard Business Online.)
