One of President Bush’s first acts upon taking office was taking the US out of the controversial Kyoto Protocol on global warming. In the face of significant outrage from environmental groups and our European allies, the President announced in June 2001 that the U.S. would “work within the United Nations framework and elsewhere to develop with our friends and allies and nations throughout the world an effective and science-based response to the issue of global warming.” In doing so, he also recognized “the responsibility to reduce our emissions.” Yet, even its friends must admit that the administration has moved slowly on the global warming issue. It took until August 2004, for example, for the administration to formally acknowledge the role human activity plays in causing global warming.
I am not an expert on the climate. I don’t claim to know whether human activity causes global warming or not. Instead, my expertise lies at the intersection of business and law. And I believe a watershed event has just occurred at that intersection; namely, the Conference Board’s report on global warming:
Having said all that, however, I believe we will one day look back on this report as a pivotal moment in the regulation of greenhouse gases. The Conference Board is a highly regarded and generally nonpartisan association of over 2000 large international companies. Their economic and corporate governance recommendations have frequently been highly influential on company policy. In addition, the Conference Board's participation in this project was facilitated by Environmental Defense, which most analysts regard as relatively centrist by the environmentalist community's standards. (But see a critical report by Capital Research.) The combination of a centrist business group and a center-left environmental group will make a potent lobbying team both on Capitol Hill and in the boardroom.
On global warming, the business community thus has taken a double whammy in the last month. First came the Bush administration report on global warming asserting that “the approximate 0.5°C rise over the second half of the century, most pronounced in the last 30 years, can only be explained when factors related to human activity, such as carbon dioxide and other greenhouse gas emissions, are taken into account.” Now comes the elite Conference Board endorsing a report reaching the same conclusion and calling on business to respond.
How then will business respond? As Benjamin Hunt recently demonstrated in The Timid Corporation, business today is terrified of taking risk. In our highly litigious society, business men and women naturally are afraid of getting sued or, worse yet, indicted. Hunt argues, however, that they are just as afraid of appearing to be unethical or even insensitive to politically correct elite opinion. As a result, business self-regulates in the name of risk management. In addition, business becomes reluctant to oppose government regulation on sensitive issues like the environment. (Some observers even think that business men and women are influenced by their children, who come home from schools that teach the evils of capitalism and the blessings of environmentalism.)
What should those of us who believe in free markets do now? We could continue to stick our heads in the sand, hoping the problem would go away or that some major paradigm shift in the scientific community would prove it was all nonsense. Or we could adopt the anarcho-libertarian view that any regulation is inherently evil, putting us on a slippery slope to fascism. Either way, we would lose. We would be fighting not just the environmentalists, but also the business community and, perhaps, even the Bush administration (or, at least, segments thereof).
If we are not to let the perfect become the enemy of the good, we therefore must become proactive. We must work with responsible business leaders to come up with pro-market (or, at least, market friendly) solutions. Emissions trading programs spring to mind as but one example. In addition, since basic research has many of the characteristics of a public good, the government can and should fund research into technological solutions, such as carbon sinks and scrubbing technologies.
Regulation designed to prevent global warming is inevitable. Both the Bush administration and the business community have now caved on the basic question of whether human activity contributes to the problem. But while regulation is inevitable, Big Brother Kyoto-style command and control is not. There is still time for market-based approaches, but only if those of us who support free markets will pull our heads out of the sands of denial.
I am not an expert on the climate. I don’t claim to know whether human activity causes global warming or not. Instead, my expertise lies at the intersection of business and law. And I believe a watershed event has just occurred at that intersection; namely, the Conference Board’s report on global warming:
Concludes the report: “The Earth – for whatever the exact reasons – is on a trajectory toward an ever warmer climate. This cannot be avoided at this point, but the trajectory can be jiggled and potential risks associated with the warming can be mitigated. Ultimately the trajectory could be reversed.”
The report finds that “governments and markets are likely to act” on expanding scientific evidence and perceptions that climate change has become “an urgent priority that must be addressed through a variety of measures.” Participating scientists in the report strongly believe that “a reduction in human-caused emissions is an essential step in any overall strategy for dealing with climate change.” ...
Corporate boards will be increasingly expected to evaluate potential risks associated with climate change, says the report. It adds: “The frequently cited ‘Enron effect’ will likely result in increased pressure on boards to evaluate potential costs and risks associated with mitigation either of carbon emissions or the effects of actual climate changes.”Unfortunately, the entire report is locked away behind a firewall and available only to Conference Board members. Yet, a couple of observations can be made on the basis of what we do know. First, the report was prepared by "11 noted climate scientists who met this June under the auspices of the American Association for the Advancement of Science." As such, it's likely to reflect conventional wisdom. Indeed, it appears that none of the participants are known global warming skeptics. Second, it is not at all clear what the "Enron effect" has to do with the issue. Enron involved failure to disclose financial accounting fraud. We're not yet at the point at which failing to disclose emissions data is considered securities fraud. The securities laws, moreover, do not require boards to evaluate potential costs of anything; that is a question of state law duty of care.
Having said all that, however, I believe we will one day look back on this report as a pivotal moment in the regulation of greenhouse gases. The Conference Board is a highly regarded and generally nonpartisan association of over 2000 large international companies. Their economic and corporate governance recommendations have frequently been highly influential on company policy. In addition, the Conference Board's participation in this project was facilitated by Environmental Defense, which most analysts regard as relatively centrist by the environmentalist community's standards. (But see a critical report by Capital Research.) The combination of a centrist business group and a center-left environmental group will make a potent lobbying team both on Capitol Hill and in the boardroom.
On global warming, the business community thus has taken a double whammy in the last month. First came the Bush administration report on global warming asserting that “the approximate 0.5°C rise over the second half of the century, most pronounced in the last 30 years, can only be explained when factors related to human activity, such as carbon dioxide and other greenhouse gas emissions, are taken into account.” Now comes the elite Conference Board endorsing a report reaching the same conclusion and calling on business to respond.
How then will business respond? As Benjamin Hunt recently demonstrated in The Timid Corporation, business today is terrified of taking risk. In our highly litigious society, business men and women naturally are afraid of getting sued or, worse yet, indicted. Hunt argues, however, that they are just as afraid of appearing to be unethical or even insensitive to politically correct elite opinion. As a result, business self-regulates in the name of risk management. In addition, business becomes reluctant to oppose government regulation on sensitive issues like the environment. (Some observers even think that business men and women are influenced by their children, who come home from schools that teach the evils of capitalism and the blessings of environmentalism.)
What should those of us who believe in free markets do now? We could continue to stick our heads in the sand, hoping the problem would go away or that some major paradigm shift in the scientific community would prove it was all nonsense. Or we could adopt the anarcho-libertarian view that any regulation is inherently evil, putting us on a slippery slope to fascism. Either way, we would lose. We would be fighting not just the environmentalists, but also the business community and, perhaps, even the Bush administration (or, at least, segments thereof).
If we are not to let the perfect become the enemy of the good, we therefore must become proactive. We must work with responsible business leaders to come up with pro-market (or, at least, market friendly) solutions. Emissions trading programs spring to mind as but one example. In addition, since basic research has many of the characteristics of a public good, the government can and should fund research into technological solutions, such as carbon sinks and scrubbing technologies.
Regulation designed to prevent global warming is inevitable. Both the Bush administration and the business community have now caved on the basic question of whether human activity contributes to the problem. But while regulation is inevitable, Big Brother Kyoto-style command and control is not. There is still time for market-based approaches, but only if those of us who support free markets will pull our heads out of the sands of denial.
