President Trump’s announcement that the U.S. intends to withdraw from the Paris climate accord has focused a wide array of government and business interests on meeting the goals of the accord — with or without involvement of the current administration. At last count, mayors of nearly 300 U.S. cities and more than a dozen states — representing 40% of the U.S. economy — have said they will continue to work toward reducing fossil fuel emissions. The 2015 accord signed by 195 countries seeks to limit global warming to two degrees Celsius – 3.6 degrees Fahrenheit – above pre-industrial times.
Business is taking a leadership role. Amazon, Apple, Target and other large companies are pledging to work toward the metrics established by the Paris agreement. Can state and local government fill the void left at the federal level? Or is this a job best left to business?
It’s not an either/or proposition, says Eric W. Orts, Wharton professor of legal studies and business ethics and faculty director of the Initiative for Global Environmental Leadership. He notes that even before Trump decided to make a statement with respect to the Paris agreement, the answer to this question has been known for some time: “Both business and government have to play a role in addressing climate change — which is probably the most complex and challenging question of our time, with the possible exception of reducing the proliferation and risk of use of nuclear weapons,” says Orts. “The Paris agreement in fact contemplates a need for business and consumers, as well as government and citizens, to step up to the plate and contribute solutions. In the last few decades — in a trend that culminated in the Paris agreement — experts have been increasingly accepting of the view that government alone cannot solve the problem of climate change. The problem is simply too large, and the forces of government — and particularly international law — are too weak.”
The Trump administration’s intention to withdraw means that a greater share of responsibility now falls on businesses, says Brian Berkey, a Wharton professor of legal studies and business ethics. “The statements that many have released express a commitment to the moral leadership that is necessary,” he says. “But what really matters is whether they act on the commitments that the statements express over the coming years. Businesses have an opportunity to take the lead on this important issue, and they should.”
Orts points out that former New York City mayor Michael Bloomberg’s proposal to the United Nations on behalf of mayors, governors, university presidents and business leaders to be a party to the Paris accord would not be a case of substituting for government. “It is that forward-thinking and science-believing businesses will partner with state and local governments, as well as other organizations such as environmental groups, to coordinate actions so that the U.S. can meet its targets expressed by the Obama Administration. In other words, the idea is to do an end-run around Washington and the Trump administration. A large majority of Americans believe that climate change is real — and that we’ve got to do something about it.”
A silver lining to Trump’s decision to withdraw from Paris “may be that he helped to galvanize a broad-scale social movement that is necessary for long-term progress in any event,” says Orts.
“Businesses have an opportunity to take the lead on this important issue, and they should.”–Brian Berkey
Toward a Moral Imperative
The need for government involvement in climate change is critical, many argue, and other parts of government are indeed stepping into the void left by the Trump administration. Hawaii became the first state to pass a law committing to the goals of the accord, and at least 12 states and Puerto Rico have so far joined the U.S. Climate Alliance, a coalition that pledges to adhere to the accord.
But there is much at stake for the federal government, too. The U.S. military is concerned about global climate change, since “climate change is likely to carry significant and destabilizing geopolitical impacts, contributing to poverty and food and water scarcity, and thereby increasing the likelihood of armed confrontations between nations over access to resources,” writes Sarah E. Light, Wharton professor of legal studies and business ethics in “The Military-Environmental Complex,” published in the Boston College Law Review. “The exceptional alignment between the military mission and the need to conserve energy, address climate change, and develop renewables, brings equally exceptional potential: for stimulating the development of new technologies, providing large-scale commercial support for existing technologies, and helping to drive behavioral changes on a grand scale.”
Wharton professor of legal studies and business ethics Robert Hughes points out that in their Business & Professional Ethics journal article titled “Business, Ethics and Global Climate Change,” Denis G. Arnold and Keith Bustos “have made a compelling argument that when governments fail to regulate emissions adequately, firms have a moral responsibility to limit their emissions voluntarily. Emitting greenhouse gases affects everyone,” says Hughes. “For many people, including many of the world’s poor today and many people who will live in the future, the harms of climate change resulting from high emission levels greatly outweigh the benefits of economic production methods that produce high levels of emissions.” The economic preferences of people currently living in the U.S. and other rich countries do not justify large net harms to future people and to the world’s poor, Hughes notes. “How much firms are morally required to limit their emissions is a difficult question that is a topic of debate in environmental ethics,” he adds. “One aspect of the debate: Do firms with a long history of producing greenhouse gases have a greater responsibility than other firms to limit emissions going forward?”
Government regulations, in fact, have not offered easy solutions to many of today’s most challenging environmental problems, write Light and Orts in “Parallels in Public and Private Environmental Governance,” published in the Michigan Journal of Environmental & Administrative Law. They argue that climate change, biodiversity loss, deforestation, loss of arable land, nitrogen over-fertilization, destruction of the ocean’s fisheries, and fresh water shortages require multi-faceted legal approaches that combine local, regional, national and international public law. “Recognizing the parallel forms of public and private governance is important in the quest for solutions to global environmental problems because they represent a diverse set of tools, the contemplation of which may lead to new and even surprising approaches. These tools include such options as private emissions trading systems, private carbon fees, private supply chain management, and private insurance, as well as their corollaries in public law.”
“One aspect of the debate: Do firms with a long history of producing greenhouse gases have a greater responsibility than other firms to limit emissions going forward?”–Robert Hughes
Orts argues that dreams of a comprehensive centralized policy solution to climate change are too utopian. In “Climate Contracts,” published in the Virginia Environmental Law Journal, he writes: “The dynamic complexity of the climate change problem suggests that the best solutions will leverage broad-based social movements favoring the production and maintenance of many kinds of legal, economic, and political agreements involving many institutions — not just nation-states negotiating international treaties, but also other agreements involving regional and municipal governments, non-profit organizations (including educational, religious, and environmentalist groups), business firms, and consumer groups.”
Still, he says: “It’s true that the path toward meeting U.S. Paris targets without the help of the federal government makes the going much more difficult.”
Needed: More Than Just Great Public Relations
Is it already too late? Former U.S. Secretary of State John Kerry, who helped to shape the Paris accord, says that with the participation of businesses, states and cities, the U.S. will achieve the goals set forth in the accord, despite Trump’s announcement. “We will meet the Paris standards, I believe, in the United States,” he said in Oslo recently. “So, I want people not to be dismayed.”
The Montreal Protocol on Substances that Deplete the Ozone Layer is a helpful reminder — of both what can be achieved with a strong government-business response to a seemingly insurmountable problem, as well as the resiliency of Earth. In 1987, alarmed that the ozone layer was becoming depleted, nearly every country in the world signed onto the protocol, which banned the use of chlorofluorocarbons, the source of atmospheric chlorine eating away at the ozone layer. It worked. A team of MIT scientists recently found that the Antarctic ozone hole has shrunk by more than four million square kilometers since 2000, when ozone depletion was at its worst.
“Science was helpful in showing the path, diplomats and countries and industry were incredibly able in charting a pathway out of these molecules, and now we’ve actually seen the planet starting to get better. It’s a wonderful thing,” lead scientist Susan Solomon told MIT News.
“It’s true that the path toward meeting U.S. Paris targets without the help of the federal government makes the going much more difficult.”–Eric Orts
What matters now on global warming, says Berkey, is action. “The response from much of the business community is, at least to some extent, encouraging,” he says. “A number of companies have released fairly strong statements opposing the administration’s decision and announcing their commitment to working to limit greenhouse gas emissions.”
If firms can reduce their own emissions, or those deriving from their supply chains, they should be doing that – even if doing so would cut into profits somewhat, says Berkey. “They also ought to support government efforts to implement policies that would contribute to addressing the threat of climate change, where these efforts exist. At the very least they ought to refrain from lobbying against such efforts.”
In some cases, big money from big business is getting behind ideas to combat climate change. Bill Gates and a group of more than two dozen billionaires have banded together to form the Breakthrough Energy Coalition to invest in research on new energy technologies. The group – which includes Jeff Bezos, Richard Branson, Jack Ma, and Mark Zuckerberg and Priscilla Chan – has pledged billions of dollars, and will work with Mission Innovation, a consortium of 22 countries, including the U.S. plus the European Union, that will increase spending to $30 billion a year on clean energy R&D by 2021.
In other cases, though, the corporate responses may not be much more than PR moves, he notes. Public support for the Paris agreement is high, and opposition relatively low. Expressing support for the agreement, without committing to doing anything in particular, is costless for many companies, given public sentiments. “Some of the companies that have expressed support for the Paris agreement, however, continue to oppose regulations that would also help to address the threat of climate change, such as stricter emissions standards for vehicles,” Berkey points out.
“It will be very interesting to see what all of the companies that have released statements supporting the agreement do over the next few years.”–Brian Berkey
Others, like Exxon, have strong reasons to appear friendly toward addressing the threat of climate change, given that the company is currently under investigation in New York on climate change-related matters, he notes. “It will be very interesting to see what all of the companies that have released statements supporting the agreement do over the next few years,” Berkey says. “Some have clear economic interests that align with efforts to mitigate climate change, but others may be faced with decisions that require prioritizing either greater profits or reduced emissions. If the Administration’s actions make it more appealing for companies to forego efforts to reduce their contributions to climate change, then at least some business leaders will face challenging moral choices, and their actions will indicate how committed they are to the support that many have expressed recently to working to fight climate change.”
Many scientists and other experts believed that the Paris agreement was too lax to begin with, and that the world should commit to even more rigorous targets for transitioning away from fossils fuels to a low-carbon economy, says Orts. “I don’t think that the overall consensus about the severity of the climate change problem will change,” he says. “The U.S. will be seen as an outlier….”
Orts believes that President Trump’s position on Paris will be seen as a minor aberration in the long run. “The Paris agreement will go forward, and the U.S. will eventually rejoin it. As for whether it is too late? Perhaps. But we learn from Penn professor Martin Seligman that it pays to be optimistic and to work as best we can for a better tomorrow for our children and grandchildren. And the way forward in the U.S. right now on climate change is to look to states, cities, and businesses — as well as environmental nonprofits — for leadership.”
capital market February 24, 2020