‘Climate Alarmism and Corporate Responsibility’ (2000 essay for today’s debate)

Corporate policy makers entering the fray should be guided by two principles, both reflecting the balance of evidence at the intersection of climate science and climate economics. First, mandatory GHG programs should be rejected in favor of voluntary approaches….  Second, voluntary actions by corporations should not go beyond win-win “no regrets” initiatives. Control practices that are uneconomic penalize either consumers or stockholders and politicize the issue of corporate responsibility.”

– Robert Bradley, “Climate Alarmism and Corporate Responsibility.” Electricity Journal, August/September 2000.

Upon the election of Donald Trump, the environmental Left has redoubled its effort to politicize business on the climate issue. In early 2017, for example, the subtitle to “Business Leadership on Climate Seen as Key” (Yale Climate Connections) was “With expectations of a much lower federal leadership role on controlling carbon emissions, key sectors of business community seen by some as maintaining momentum.”

And just this week out of the 24th UN Climate Change conference, the heads of France and Jamaica plead (in the Wall Street Journal, no less):

While government leadership on climate is essential, 70% of world economic activity is in the private sector. Humanity’s ability to correct course depends on how quickly companies adapt. The ones that will thrive in the long run are those that innovate green solutions and create jobs for a low-carbon future.

For reasons of product differentiation, virtue signalling, greenwashing, and old-fashion cronyism, many companies have gone along with the anti-fossil-fuel agenda. The latest is Kinder Morgan Inc, the subject of tomorrow’s post.

All this brings to mind an article I wrote eighteen years ago in Electricity Journal. (Vol. 13: Issue 7, pp. 65–71). I reprint this essay as a still-relevant statement of a free-market approach to the unsettled science and disjointed public policy concerning the human influence on global climate. The major takeaways are below:

Corporate policy makers entering the fray should be guided by two principles, both reflecting the balance of evidence at the intersection of climate science and climate economics. First, mandatory GHG programs should be rejected in favor of voluntary approaches.  Businesses should oppose the Kyoto Protocol, and they should work against lesser regulatory regimes that are costly, ineffectual, or both. 

Second, voluntary actions by corporations should not go beyond win-win “no regrets” initiatives.  Control practices that are uneconomic penalize either consumers or stockholders and politicize the issue of corporate responsibility.  Few will be satisfied, and the ineffectual measures will eventually have to be abandoned.

And:

Corporations working with environmental groups on various climate change initiatives should make these twin principles an understanding of the collaboration. This will ensure that real quality-of-life environmental improvements drive the process rather than hidden agendas at odds with economic growth, globalization, energy abundance, and progressive change.

The entire article (with footnotes) follows…

Political interest has proven minimal for two GHG regulatory starter programs. Early crediting for GHG reductions in anticipation of a future regulatory program has encountered strong opposition from left and right.  Anti-Kyoto legislators and interest groups exposed early crediting as “Kyoto Lite.” 

Environmental organizations opposed early crediting since psuedo reductions or business-as-usual reductions were being offered in place of “real” reductions.  Businesses not in the queue with early credits were also opposed because business-as-usual credits claimed by some would require additional cutbacks from the remainder to meet any aggregate reduction target.  The U.S. to date has chosen a course of free energy markets and wealth-is-health adaptation whatever the vagaries of future climate.

A carbon-trading program for the United States forwarded by economists at Resources for the Future also has not gained political legs. The proposed cap-and-trade program is entirely unilateral; no requirements were made of other countries, developed or developing, to follow suit with carbon reduction programs of their own.  The “modest” proposal would increase energy prices by around 10% by 2007.  Prices would increase more if cap-and-trade programs were introduced for the other five greenhouse gases and if the $25 per ton carbon cap was raised as invited under the proposal.[3]

In the place of front door GHG regulation, federal climate change policies have become same song, second verse to justify subsidies for non-conventional energies and energy conservation. Fossil fuel depletion was the rationale for such programs during the global cooling scare; the problem is now portrayed as long range global warming from hydrocarbon abundance.

Respect Political Reality (No Cap-and-Trade, Carbon Taxes)

Energy taxes are at or near their political ceilings.  For example, retail taxes on gasoline in the U.S. are roughly equivalent to the crude oil input cost to refiners to make gasoline.  Higher gasoline prices in 1999/2000 have sparked concern over $2.00 per gallon gasoline in different regions of the country and quieted environmentalists on the need to increase gasoline taxes or otherwise reduce the usage of transportation energy to move toward Kyoto compliance. 

As electricity becomes a transparent commodity through retail open access in the next few years, price sensitivity will become an issue here as well.  The implication for corporate policy is that endorsing any GHG policy that increases energy prices—even backdoor emissions trading—runs the risk of a consumer backlash.  The social responsibility of business should include a covenant—a social compact with consumers—to not increase energy prices for consumers (including themselves) through the political process.

Reliability and not only price is an important parameter in the politics of energy constraint. The digital age requires virtually perfect electricity availability.  Whereas 99.9 percent reliability is acceptable for traditional energy hardware such as lighting, electric motors, and air conditioning systems, digital equipment is very different.  The “three nines” of reliability, equating to around 8 hours of outages per year, can crash networks and spoil data. 

Many more “nines” are necessary for information-quality power.  In this environment, intermittent energies propped up by government favor are less congruent to the power marketplace.  And in an age where interruptions and price spikes are not tolerated, any move away from workhorse coal-fired powerplant capacity in the name of climate change will be very difficult except where surplus backup power capacity exists to meet peak usage.

Climate Science: Where’s the Alarm?

Climate alarmism is not supported by the scientific reports of the Intergovernmental Panel on Climate Change (IPCC) on close inspection.  There is no direct linkage between the IPCC finding that “the balance of evidence suggests a discernible human influence on climate” and climate alarmism.  In fact, there is ample evidence in the scientific literature that the enhanced greenhouse effect is benign. 

Top climate economists have gone further to conclude that a warmer and wetter world predicted by climate models would produce net benefits in future decades for the United States and other areas of the world with the free market means to adapt.

Corporate policymakers can discount climate alarmism by understanding several key arguments and facts:

• Increasing atmospheric concentrations of carbon dioxide (CO₂), the preeminent anthropogenic greenhouse gas, benefit plant life and agricultural productivity and are not a direct human health issue (see Figure 1). It will be centuries before the plant optimum concentration is reached and exceeded, creating a long potential glide path for hydrocarbon energies to “green” planet earth.[8]
• The surface warming (“greenhouse signal”) of recent decades shows a relatively benign distribution. Minimum (night, winter) temperatures have been increasing twice as much as maximum (daytime, summer) temperatures.[9] Higher nighttime temperatures and longer growing seasons reinforce the aforementioned carbon fertilization effect to aid plant growth and agricultural productivity.
• Model-estimated warming from anthropogenic effects has fallen over time. An influential estimate of anthropogenic warming released in 1989 for use by the U.S. Environmental Protection Agency was between 5.4°F and 10.8°F for a doubling of greenhouse gas concentrations in the atmosphere, with the mid-point being 8.1°F.[10]   The first “best guess” consensus forecast of anthropogenic warming for the year-2100 by the Intergovernmental Panel on Climate Change was set at 5.8°F in 1990 and then dropped to 4.5°F in 1992 and 3.6°F in 1995.[11] With a nearly 40 percent drop in the IPCC estimate in five years, there is clear evidence that model revision and more realistic forcing scenarios have weakened the alarmist scenario.
• Today’s lower model-predicted warming estimates may still be too high. At the half way point of the feared doubling of the warming potential of greenhouse gases in the atmosphere, the model scenarios are over predicting warming by a factor of two or more.[12] The oft-cited reason for model overestimation, the cooling presence of sulfate aerosols, is in dispute since sulfates can warm as well as cool. Another cited reason, ocean absorption of heat to delay the warming, is plausible but begs the question of climate sensitivity to greenhouse gases.
• The two global temperature measurements from satellites and balloons in their two decades of existence have not picked up the “greenhouse signal” where it should be most pronounced or at least discernible—the lower troposphere.[13] This suggests that surface thermometers may be overestimating warming and/or the surface warming is primarily the result of other factors than just the enhanced greenhouse effect (such as increased solar radiation). A natural warming trend neuters the case for climate alarmism.
• The reduced growth rate of greenhouse gas buildup in the atmosphere in the last decade, as much as half the rate of some alarmist scenarios, extends the warming timetable to facilitate adaptation under any scenario. The reduced buildup is primarily related to greater carbon dioxide intake—the “greening of planet earth” phenomenon of robust carbon sinks.[14]
• Scientists who are confident about pinpointing the greenhouse signal from the surface temperature record have not substantiated a greenhouse signal with weather extremes. “Overall,” concluded the IPCC, “there is no evidence that extreme weather events, or climate variability, has increased, in a global sense, through the 20^th century, although data and analyses are poor and not comprehensive.”[15]

Climate Economics: The Benefits of Global Warming

The above scientific parameters have led leading climate economists to conclude that global warming, whether man-made, natural, or both, has many economic benefits. A recent anthology assessing agricultural, forestry, and recreational impacts from climate change by 26 specialists from 11 colleges and universities and other institutions, edited by Robert Mendelsohn and James Neumann, concluded that the United States would benefit on net from the predicted IPCC warming, precipitation increase, and sea level rise.[16] 

This conclusion reinforces the findings of an earlier book published by economist Thomas Gale Moore that warmer is better.[17]  The Mendelsohn/Neumann study also gives credence to an educational campaign by the Greening Earth Society that higher concentrations of carbon dioxide (CO₂) in the atmosphere from hydrocarbon combustion are a windfall to plant life and agricultural productivity.  In Mendelsohn and Neumann’s words, “Agronomic studies suggest that carbon fertilization is likely to offset some if not all of the damages from warming.”[18]

“No Regrets” Corporate Strategies

“No regret” policies—policies that are economical whether or not GHG emissions are worth addressing—should be pursued in their own right to help defuse the climate change issue. A prominent example is for businesses to profitably lower their energy usage wherever possible.  Energy service companies in recent years have executed long-term contracts with guaranteed savings to completely manage the energy function of commercial and industrial users. Total energy outsourcing improves the allocation of core competencies and creates new incentives for optimal energy usage to benefit each party to the agreement.

Other pro-market “no regret” public policies that would have the effect of profitably reducing greenhouse gas emissions over time include:

• Reducing criteria air pollutants in urban areas not in compliance with the Clean Air Act.
• Modernizing and simplifying the tax code to provide more incentives for capital-intensive businesses to modernize their physical capital, thus lowering energy usage and related GHG emissions.
• Maintaining incentives (or removing disincentives) for hydroelectric and nuclear power generation facilities that produce carbon-free electricity.Increasing energy conversion efficiencies of new electric generation capacity and a growing market share of natural gas-fired power relative to coal are natural market processes that will complement the above public policy reforms. Together, they will ensure that GHG emissions are not greater than their free market levels and will continue to fall per unit of output (the decarbonization phenomenon).

A Cautionary Tale: BP

BP has changed is name from British Petroleum to Beyond Petroleum.  Under great pressure in Europe from Greenpeace and other groups, BP is trying to impress its critics with a “greenwash” of solar and internal trading of greenhouse gas emissions—and the beyond petroleum tag line.

Toward an Open Debate

A more diverse, open, and scholarly debate on the science and economics of the climate change issue is needed to help corporations understand the balance of evidence in a very unsettled debate.  During the Clinton/Gore era, the machinery of government has joined with non-governmental organizations and many large private foundations to bypass balanced discourse on the topic.  To redress this imbalance, the following groups in the climate change debate are encouraged to consider the following reforms.

• • The Pew Center on Global Climate Change should commission studies on the positive side of the human influence on climate and move away from their bedrock assumptions of alarmism and the “first step” of the Kyoto Protocol. 
  • Resources for the Future, a prominent think tank on energy and environmental issues, should include skeptics of climate alarmism in its conferences, seminars, and publications. 
  • The Business Council on Sustainable Energy should refocus its effort from climate change to other more tangible environmental issues.   
  • Panels on climate change politics hosted by the World Economic Forum and American Bar Association should include economists and skeptics rather than just alarmists and alarmist sympathizers. Collaboratives at the Aspen Institute should invite critics of greenhouse gas regulation and proponents of CO₂ fertilization to make their case along side the alarmists. 
  • Seminars by the Environmental Protection Agency and other government bodies should offer balanced views of the climate debate if they are offered at all. 
  • The alarmist cartel of mainstream environmental groups should be weakened with at least some members and groups welcoming the benefits of enhanced CO₂ fertilization and a warmer/wetter biosphere for a more sustainable future.

If Al Gore is elected president of the United States, the pressure will continue for intellectual censorship against critics of climate alarmism. If a George W. Bush Administration comes to power, greater balance can be expected in the debate to help corporations and the public reach consensus on how to allocate scarce resources to the most important environmental issues.[19]

Conclusion  

Very real risks exist for embarking on a global program to regulate greenhouse gas emissions. The administrative costs of even a partial global effort are huge, and the feasibility of such a program is in doubt.

Any enforcement mechanism would have to consider trade sanctions and investment embargoes against the countries that either refused to participate or violated their agreement to participate. This could trigger retaliatory tariffs and poison the liberalization of global trade achieved by recent trade agreements. The world energy market would also be politicized with a variety of energy-suppressing interventions in the futile crusade to “stabilize climate.” These results are antithetical to the robust business environment of the New Economy.

Agenda-driven climate alarmism should be rejected by corporate America on pragmatic and social responsibly grounds. Not only does the balance of evidence point toward net social benefits from a carbon dioxide enriched and moderately warmer and wetter world. Energy reality concludes that any short-term regulatory approach is futile and wasteful compared to perfecting business-as-usual strategies and using the wealth of energy abundance and free global markets to adapt to any weather and climate conditions in the future.

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[1] Back in April 1999 Paul Portney, president of Resources for the Future, stated: “I can find virtually no one—in government, in the environmental advocacy community, in business or in the press—who thinks that the Kyoto Protocol has even the proverbial snowball’s chance in hell of coming into effect in anything approaching its current form.  This is every bit as true internationally as it is in the United States.”  Paul Portney, “The Joy of Flexibility,” Presentation to Energy Information Administration, U.S. Department of Energy, March 22, 1999.  On the other end of the political spectrum, Christopher Flavin of the Worldwatch Institute warned in late 1998, “The challenge now is to renovate the baroque structure that the Kyoto Plan has become—or else scrap it and get ready to start over.”  Christopher Flavin, “Global Climate: The Last Tango,” Worldwatch, November/December 1998, p. 18.

[2] Energy Information Administration, Annual Energy Outlook 2000 (Washington, D.C.: U.S. Department of Energy, 1999), p. 37.

[3] Raymond Kopp et al., “A Proposal for Credible Early Action in U.S. Climate Policy,” Weathervane, February 16, 1999.

[4] Energy Information Administration, Annual Energy Outlook 2000, p.  37.

[5] William Nordhaus and Joseph Boyer, “Requiem for Kyoto: An Economic Analysis of the Kyoto Protocol,” The Costs of the Kyoto Protocol: A Multi-Model Evaluation, International Association for Energy Economics, 1999, p. 125.

[6] James Hansen, “How Sensitive Is the World’s Climate?,” National Geographic Research & Exploration, 9(2), 1993, p. 143.

[7] T. M. L. Wigley, “The Kyoto Protocol: CO₂, CH₄ and Climate Implications,” Geophysical Research Letters, Vol. 25, July 1998, p. 2287.

[8] Intergovernmental Panel on Climate Change, Climate Change 1995: The Science of Climate Change (Cambridge: Cambridge University Press, 1996), pp. 21-26 [Hereafter cited as IPCC, Climate Change 1995—The Science]; Sylvan Wittwer, Food, Climate, and Carbon Dioxide (Boca Raton, Fla.: CRC Press, 1995), pp. 89-91; New Hope Environmental Services, In Defense of Carbon Dioxide (New Hope, Va.: Greening Earth Society, 1998), p. 1.

[9] IPCC, Climate Change 1995—The Science, pp. 4, 42, 61, 141, 144-45, 151, 168, 172, and 201.

[10]J. Smith and D. Tirpak, The Potential Effects of Global Climate Change on the United States: Report to Congress (Washington, D.C.: U.S. Environmental Protection Agency, 1989), cited in Robert Mendelsohn, The Greening of Global Warming (Washington, D.C.: American Enterprise Institute, 1999), pp. 3-6.

[11] Intergovernmental Panel on Climate Change, Climate Change: The IPCC Scientific Assessment (Cambridge: Cambridge University Press, 1990), pp. 138-39; IPCC, Climate Change 1995: The Science, pp. 5-6, 34.

[12] With a 50 percent increase in the atmospheric concentration of greenhouse gases compared to pre-industrial concentrations, the global surface temperature has increased by around 1 degree Fahrenheit, and some of this increase was from natural forces.  Model estimates of surface warming from a doubling (100 percent increase) range from about 3 to 6 degrees Fahrenheit with a best guess of around 4.5 degrees Fahrenheit.

[13] National Research Foundation, Reconciling Observations of Global Temperature Change (Washington, D.C.: National Academy Press, 2000), pp. 11, 22, 42-44.

[14] James Hansen et al., “Climate Forcings in the Industrial Era,” Proceedings of the National Academy of Science, October 1998, p. 12758.

[15] IPCC, Climate Change 1995—The Science, p. 173.

[16] Robert Mendelsohn and James Neumann, The Impact of Climate Change on the United States Economy (Cambridge, UK: Cambridge University Press, 1999), p. 321.  The authors state elsewhere (p. 5): “Efficient private adaptation is likely to occur, even if there is not official (government) response to global warming.”

[17] Thomas Gale Moore, Climate of Fear: Why We Should Not Worry About Global Warming (Washington, D.C.: Cato Institute, 1997).

[18] Robert Mendelsohn and James Neumann, The Impact of Climate Change on the United States Economy, p. 321.

[19] The Bush position on climate change policy is as follows, “Global warming must be taken seriously but will require any decisions to be based on sound science and a thorough cost/benefit analysis, opposes Kyoto Protocol.” [www.georgewbush.org]