More on greenhouse gas caps

Earlier today, I noted that an unusual alliance consisting of representatives from both heavy industry and the environmental movement has released a report calling for mandatory action on greenhouse gas (GHG) emissions. The list of participating industries is impressive, particularly since all of them are directly tied in one way or another to GHGs - this isn't a case of non-polluters making suggestions to polluters; these are companies who will absolutely be affected by the legislation that they are proposing. Ordinarily, I would be extraordinarily skeptical about any proposal to fight climate change that GE, DuPont, BP, and Caterpillar were all supporting, but they are joined in this proposal by the Natural Resources Defense Council, Environmental Defense, and other non-governmental bodies that are not normally found on the same side of any argument as some of the participating companies (WalMart just issued a press release in support of the proposal, increasing the "strange bedfellows factor" a bit). Most importantly, the proposal appears at first glance to be reasonable and realistic, and if there are loopholes they are not readily apparent.

So why the shift? Why are industrial giants working with environmental groups on a proposal that will increase federal regulation, and that will cost them money in the short term? Why are representatives of Big Business proposing mandatory carbon emissions caps the day before a State of the Union Address when Bush shows every indication that he will continue to oppose such actions? Is someone drugging the CEOs? Is this a sign of rapidly approaching armageddon? Have the Illuminati finally come out into the open, or are we looking at something even more sinister?

Seriously, though, it's worth examining why major corporations are now demonstrating support for climate change legislation. As you might (well, should, actually) expect, the support from industry indicates mostly one thing: these corporations now believe that climate change legislation will be more beneficial to their bottom line profits than a lack of such legislation. To put it another way, their pragmatic, reality-based devotion to their bottom line outweighs Bush's ideologically-based opposition to any increase in government regulation of business.

Here's what I think they are seeing that Bush isn't:

1: Voluntary caps won't work. That one should be as obvious and non-controversial as the concept that voluntary homework won't work for fourth graders, but given the presidential obliviousness to the point, it's probably worth elaborating a bit.

With voluntary caps, there may be incentives (such as tax rebates) to participate, but there are no disincentives for refusing to participate. Therefore, unless the incentives outweigh the disincentives, companies who choose to participate in the plan will, at least in the short term, be at a disadvantage to companies who choose not to volunteer. This makes it much harder for even companies who want to be responsible to take action - they have to not only worry about the short term costs of taking action, but also worry about how severely they will be hurt by competition with companies who are not being as responsible. The only way that any kind of cap system will work is if everyone has to participate.

2: Caps are needed. Again, this should be a basic, noncontroversial point. Greenhouse gasses are real. They do lead to increased global temperatures. This is a bad thing. Capping emissions might not fix the problem, and it might not keep it from continuing to get worse, but not restricting emissions will make things worse than they would otherwise be.

3: Caps will happen. There is increasing pressure both at home and in other parts of the world to restrict carbon emissions. There is, at a minimum, a strong likelihood that we are starting to see significant effects from the warming trend, and the more effects people see, the stronger the pressure will get.

4: Climate change will be bad for the economic bottom line. When major insurance companies (like LLoyd's of London) start to take the economic risks of climate change seriously, you know it's a serious problem. Those are people who are paid to evaluate risk. Their bottom line rests on their ability to evaluate risk. Corporations tend to take recommendations from insurers seriously.

Given those points, the decision to push for action now rather than later is a fairly easy one. If you fight gas control mandates as long as possible, you push off the short-term costs of reducing emissions, but you take a number of risks in the process - the risk of stricter mandates later, the risk of damage from warming goes up, the PR exposure from obstructing save-the-world legislation gets worse, you get the drift. At the same time, if the laws are passed now, the corporations will no longer need to worry about what they will be later. This will make it easier to plan for the future, easier to make capital investments in infrastructure, and easier to see how to turn the new regulations into economic advantages.

There are a lot of negative things that can be said about America's CEOs, but stupidity is not one of them. They understand how to evaluate reality, and they have a reasonably good idea about how to plan things to make the future work as well for them as it can. It's just a shame that the same can't be said for the President.