Industry Warms To Climate-Change Action

When John Browne, group chief executive of British Petroleum Co. PLC (now BP Amoco PLC) proclaimed in May 1997 that the time had come "to go beyond analysis, to seek solutions, and to take action" on global climate change, shock waves reverberated throughout business, government, and the environmental community. Here was a major multinational company -- an oil company, no less -- breaking ranks with what was then the virtually unanimous industry position: skepticism, if not denial, of a global-warming problem and opposition to steps to combat it. A few weeks ago Texaco Inc. made a similar announcement. In equally strong terms, the firm declared, "Texaco must be actively involved in the issue of climate change and believes that enough is known about it to warrant action now." To show its commitment, it commissioned an independent team, including environmental consultants, to audit its emissions of carbon dioxide (CO₂) and other greenhouse gases. Yet, in sharp contrast to the astonishment that greeted BP's announcement, Texaco's statement raised scarcely an eyebrow. Why the different reaction? The difference is four years. In the years since Browne's bombshell, industry's stance on the climate-change issue has shifted markedly, so much so that statements like Browne's no longer are unusual. To be sure, much of industry -- especially in the U.S. -- still questions scientific studies that increasingly contend the earth is warming and that human activity is a factor. In March the coal industry and coal-intensive utilities successfully persuaded President Bush to reverse his campaign pledge and drop plans to impose mandatory CO₂ emissions limits on powerplants. Most firms are pleased Bush does not want to pursue the Kyoto Protocol, the controversial agreement on climate change negotiated in 1997, as written. And small and midsized companies tend to ignore the issue altogether. But in marked contrast to the 1990s, many large multinational firms now acknowledge that the science shows a cause for concern. They're willing to accept government controls over greenhouse-gas emissions -- partly because they believe government action is necessary, partly because they want a more predictable regulatory environment. And they're voluntarily taking steps to cut emissions. "There's been a fundamental sea change in the thinking of most, if not all, industrial sectors," observes Michael Marvin, president of the Business Council for Sustainable Energy (BCSE), a Washington-based group of companies that has taken leadership positions on the issue. "There's now general recognition in industry that [climate change] is a serious threat that has to be dealt with. A few years ago you couldn't say that. We're just lacking a consensus on how to deal with it." Agrees E. Linn Draper Jr., chairman, president, and CEO of American Electric Power Co. (AEP), Columbus, Ohio, one of the first electric utilities to advocate climate-change action: "Industry's position is changing. A few years ago, there was skepticism. A lot of companies just hoped the issue would go away. Now only a relatively small number don't believe that sooner or later we'll have to take action." The Right Direction Environmental groups also note the transformation, although they'd like it to be even bigger. "Overall, there's been a lot of change in the last few years," assesses Sarah Wade, economist at Environmental Defense (formerly the Environmental Defense Fund), New York. Although "some companies are still quite opposed" to action, she says, "some are making a fundamental change in their position. Others are on the fence -- but not actively opposed." "Clearly, industry is moving in the right direction," declares Christopher Flavin, president of Worldwatch Institute, Washington. He is encouraged not only by the number of companies that now regard the climate issue "as an opportunity rather than something they must fight," but also by the emergence of private-sector groups that are "working positively" on the issue. Indeed, two such nonprofit organizations, the Pew Center on Global Climate Change and BCSE, have become important players in the climate-change debate. Experiencing sharp growth in their corporate memberships, both are staking out ground once claimed solely by the harder-line Global Climate Coalition (GCC) as business' policy voice on the issue. A third group, the new Partnership for Climate Action (PCA), consists of companies that are setting firm targets for reducing greenhouse-gas emissions. The Pew Center, established three years ago in Arlington, Va., by the Pew Charitable Trusts, includes AEP and BP as founding members along with such corporate heavyweights as Boeing Co., Enron Corp., Lockheed Martin Corp., Maytag Corp., 3M Co., Toyota Motor Corp., United Technologies Corp. (UTC), and Whirlpool Corp. Membership since has grown to 32 companies, a number that Pew Center President Eileen Claussen expects soon to swell to 50. To join, companies must agree to certain principles, two of which are controversial enough to deter many would-be members. Members are required to "accept the views of most scientists that enough is known about the science and environmental impacts of climate change" to warrant action. Moreover, they must buy into a principle that the Kyoto Protocol "represents a first step in the international process." Importantly, members also are required to inventory their global emissions of greenhouse gases, set voluntary but firm targets to reduce the emissions, and then meet the targets. Failure to fulfill any of these requirements can result in ouster from the group. BCSE, meanwhile, counts 39 corporate and trade-association members, including many natural-gas and renewable-energy producers and firms hoping to profit from trading of CO₂ emission credits. Formed in 1992 with Enron Chairman Ken Lay as its first chairman, BCSE has more than doubled in size in the last four years. It pushes two policy concepts: use of market mechanisms to cut greenhouse-gas emissions, and the importance of economic growth in climate-change policy making. A sister organization, the European Business Council for a Sustainable Energy Future, operates across the Atlantic. The newest group, PCA, created last October by Environmental Defense, is made up of seven of the world's most proactive corporations on the climate issue. Included are two oil giants, BP Amoco and Royal Dutch/Shell Group; a chemical manufacturer, Du Pont & Co.; a Calgary, Alta.-based natural-gas firm, Suncor Energy Inc.; a Toronto utility, Ontario Power Generation Inc.; and the world's second- and third-largest aluminum producers, Alcan Inc., Montreal, and Pechiney SA, Paris. In recruiting additional members, PCA is seeking geographical and industry-sector diversity. Firms "must be serious about the climate-change issue," emphasizes Environmental Defense's Wade. Besides setting firm targets, they must be willing to share their experiences. A main PCA purpose, Wade explains, is to act as a clearinghouse for best practices and help other companies "make a business case for taking action." As for GCC, it continues to play an important policy role, even though it no longer is business' sole actor. But the Washington-based organization has restructured. No longer is it a coalition of companies; following defections of AEP, BP, Ford Motor Co., General Motors Co., and others, it reverted last year to its original 1989 incarnation -- a coalition of trade associations. Among its 15 members are the U.S. Chamber of Commerce, the National Assn. of Manufacturers, the American Petroleum Institute, the American Mining Assn., the Edison Electric Institute, and the American Iron and Steel Institute. Moreover, GCC has softened its tone. "We're less focused on the science," says spokesman Frank Maisano. "Now we're talking more about issues we can influence -- voluntary programs, the economic impact of government actions, and new technologies." Voluntary Programs If GCC and the other three groups have one thing in common, it is their espousal of voluntary corporate programs. They have much to talk about. In the U.S. alone 201 companies participating in the Dept. of Energy's greenhouse-gas voluntary reporting program in 1999 conducted some 1,715 programs that achieved reductions topping 226 million metric tons of CO₂. Companies that have taken the lead in curbing emissions and speaking out on climate-change policy became involved in the issue in varying ways. AEP, for example, began tracking the issue in 1988 when National Aeronautics & Space Administration scientist James Hanson first warned of the climate-change problem in testimony before a U.S. Senate committee. "We were a skeptic for some years," admits AEP's environmental affairs Senior Vice President Dale Heydlauff. But the company shifted its view following increasingly alarming reports by the United Nations' Intergovernmental Panel on Climate Change. Another factor, says Heydlauff, was CEO Draper's personal interest in the issue. Explains Draper: "It's not hard to find information about the topic. I can read. And I participated in a lot of forums. I became a believer in taking action -- but not unreasonable action. We need to figure out a way of arresting the concentration of greenhouse gases and to do it in a reasonable period of time." Six years ago AEP pledged to sequester (by planting CO₂-absorbing forests) or avoid 10 million tons of CO₂ annually by 2000. The utility now is setting a new, higher target. Another company, DuPont, came by its climate-change activism differently -- as an outgrowth of its leadership in the ozone-depletion issue during the 1980s. "We became well connected with the global scientific apparatus," explains Thomas Jacob, manager of international and industry affairs. "Many of the same individuals and institutions now are involved with CO₂." DuPont made its initial commitment to reduce greenhouse-gas emissions in 1991, a year before international negotiations on a climate-change treaty began in Rio de Janeiro. In 1999 the firm set three tougher goals for 2010: to reduce global greenhouse-gas emissions by a startling 65% below 1990 levels; to hold total energy use even with 1990 levels; and to use renewable resources for 10% of its energy use. A third company, Hartford-based United Technologies Corp. (UTC), cites yet another background for its activity. In 1990 the firm was hit with an EPA lawsuit for violating environmental regulations at several of its plants. As part of its settlement, it began auditing its environmental compliance -- an activity that led to adoption in the mid-1990s of emission-reduction goals, including greenhouse gases. "That put us ahead of the pack, rather than being a follower," says Judith Bayer, UTC's environmental government affairs director. In 1998 UTC adopted a new goal of trimming global energy and water use 25% from 1997 levels by 2007; greenhouse-gas emissions would be reduced by about the same percentage. Rather than focusing on greenhouse-gas use specifically, the company uses total energy consumption as its metric. "The use of BTUs in generating sales dollars -- that resonates with our facility managers," says Bayer. "It's something they can measure." Not surprisingly, critics argue that corporations taking climate-change action are doing so simply to score public-relations points. To that, AEP's Draper responds: "The reason we're doing this shouldn't matter, as long as we're doing it." But even if the charge were true, companies point out that it is expensive PR. For instance, UTC estimates that costs of meeting its 2007 goals will reach some $200 million. A stronger motivation for companies to take action, observes the Pew Center's Claussen, is "to position themselves for the future." That's surely the case at AEP, which, like other proactive firms, reports no short-term, bottom-line benefit from its activity. "Someday, though, we believe we'll get credit for early action," says Draper, anticipating government regulation. Moreover, indicates Heydlauff, "By acting now we're buying ourselves a seat at the policy-making table." DuPont similarly is eyeing the long term. "By getting ahead of the curve," says Jacob, "we're putting ourselves in a position to be more competitive in a society that we foresee will be more constrained by greenhouse-gas emissions." UTC, meanwhile, foresees a quantifiable, bottom-line benefit. Chairman and CEO George David has projected that the company's 10-year, $200 million environmental expenditure will produce an impressive 10% to 15% return on investment. Payoffs like these are compelling. More companies are realizing it. That's why statements such as the one John Browne made in 1997 aren't shocking in 2001.