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By Margaret Kriz, National Journal
© National Journal Group Inc.
Friday, July 6, 2007

Corporate America is fast approaching a crossroads on global warming. With Congress seriously considering proposals to curb carbon dioxide and other greenhouse-gas pollutants for the first time, most CEOs agree that climate-change legislation is inevitable. Now corporate executives are grappling with how to position their firms for the future.

"The challenge to the U.S. is to find opportunities in [global warming], not just to see problems in it -- because it's coming, one way or another," said Thomas Wilbanks, corporate research fellow at Oak Ridge National Laboratory and a lead author of the chapter on industry, settlement, and society in the influential report [PDF] by the United Nations' Intergovernmental Panel on Climate Change.

Many American companies, anticipating the adoption of federal controls, started drafting "greener" business plans long before the congressional debates began. This year, California and several other states passed their own global-warming laws, putting pressure on the federal government to act. Meanwhile, multinational firms have been forced to comply with the European Community's greenhouse-gas reduction mandates, and some have begun to apply the lessons learned overseas in developing company-wide programs to cut energy use, slash greenhouse-gas emissions, and shift from carbon-based fossil fuels toward renewable fuels.

"The business community, particularly those who have scientists, look at the data and they say, 'You know what? We're heading to a low-carbon world,' " said Jon Anda, president of Environmental Defense's environmental markets network and a former vice chairman of institutional securities at Morgan Stanley. "The business community thinks that it is clearly at risk. They understand risk. They're thinking, 'If I want to make money in a low-carbon world, I'd certainly better start getting ready now.' "

How is business responding? In this series of articles, National Journal offers takes on four American industries that will be increasingly affected by climate change, outlining the aspirations and fears of leaders in the chemical, pharmaceutical, insurance, and forestry industries. Within each sector, some companies are championing aggressive strategies for responding to global warming. Others are reluctant to commit resources to climate-change initiatives. Some worry that federal legislation will hike the cost of doing business and cause jobs to migrate to developing countries that don't have greenhouse-gas regulations but overflow with cheap labor and raw materials. Ready or not, each of these industries could undergo significant changes as the United States evolves into a lower-carbon economy and tries to cope with changing climatological conditions -- and the problems, ranging from dengue fever to droughts to fiercer wildfires, that they could bring.

Across the nation, some corporate executives are addressing global warming head-on. They see the growing public and political concern about climate change as an opportunity to capture new markets, introduce innovative products, and enhance their public images. Dow Chemical, for example, is promoting its insulation for homes and offices, lightweight plastics for cars, and solar technologies as ways to combat global warming. "Our view is, chemistry is going to solve this problem," said Rich Wells, Dow's vice president of energy.

Drug manufacturer Novartis is pouring money into its search for a cure for the painful and sometimes fatal tropical malady known as dengue -- or "breakbone" -- fever, already spreading as the mosquitoes that carry it find more of the globe hospitable. Meanwhile, major retailers -- such as Wal-Mart, the nation's largest corporate energy user -- are working to slash their electric bills and pushing consumers to buy energy-efficient lightbulbs. Home Depot is developing a green marketing campaign, requiring its suppliers to prove that their products, from house paint to lawn mowers, are environmentally friendly.

Xerox is funding research into creating a biodegradable plastic from wood-based ethanol. Tyson Foods and Syntroleum, a maker of synthetic fuels, are investing $150 million to reprocess animal fat into liquid fuel that can be mixed with gasoline.

Twenty-three major corporations have joined the U.S. Climate Action Partnership, an informal coalition that is asking Congress to cut domestic greenhouse-gas emissions 60 to 80 percent by 2050. On June 27, the group announced its most recent -- and most surprising -- recruits: Chrysler Group and Ford Motor. The third U.S. carmaker, General Motors, was an earlier convert to the cause.

Dissenting Voices
Not all business leaders see global warming as a golden opportunity. Thomas Donohue, president of the U.S. Chamber of Commerce, says that federal laws requiring companies to cut their greenhouse-gas emissions and power plants to generate more electricity from renewable fuels would cause energy costs to skyrocket and force U.S. businesses to move abroad. "The chamber believes that the economic consequences could be severe," he testified at a June Senate hearing.

At the same hearing, coal-industry executive Robert Murray took aim at the corporate members of the U.S. Climate Action Partnership, blasting them as "un-American." Murray, president and CEO of Cleveland-based Murray Energy, charged that the executives "have demonstrated a willingness to devastate the overall American economy for their own short-term gains."

Trade groups that represent smaller companies are struggling to find a voice in the global-warming debate. "Exactly how this is going to impact our members is really not clear at this point," said Joseph Acker, president of the Synthetic Organic Chemical Manufacturers Association, which represents makers of "specialty" chemicals. "On one hand, our companies are more flexible, more entrepreneurial. On the other hand, they have limited resources."

A February draft of the IPCC report on industry noted that the immediate effect of climate change will be harsher for businesses that have expensive, long-lived physical plants, that are vulnerable to bad weather, and that rely on long-distance transportation to get their products to market. The report singled out the agriculture, energy, food, mining, and retail-distribution industries as sectors that may be in the economic bull's-eye. The draft added, however, that those sectors "are likely to have the technological and economic resources necessary both to recover from the impacts of extreme events ... and to adapt over the longer term to more gradual changes."

A 2006 economic report to the British government by former World Bank chief economist Nicholas Stern calculated that significantly cutting greenhouse gases could cost as little as 1 percent of the annual global gross domestic product. That's a bargain compared with the business-as-usual scenario laid out in his report. "If we don't act, the overall costs and risks of climate change will be equivalent to losing at least 5 percent of global GDP, now and forever," it warns. Stern noted, however, that some types of companies, such as big users of coal, natural gas, and oil -- would bear more of the cost of curbing greenhouse-gas pollutants.

Such predictions offer little solace to American manufacturers that are already paying significantly more for energy than they did in the 1990s. Energy-intensive companies worry that climate-change mandates could further inflate the cost of energy -- and price their products out of the global market.

"The chemical industry and every industry that has a lot of energy input -- including the fertilizer industry, the paper industry, glass industry, steel industry -- every one of them is already being hit by the rising energy prices pretty dramatically," said David Denton, business development director for the Eastman gasification service company. "We're starting to lose our industrial base. Jobs are being exported."

Of course, U.S. jobs were migrating to Brazil, China, India, and other cheaper production sites long before Congress turned its attention to global warming this year. "Climate change is not going to be the main driving force on jobs," Wilbanks said. "It may be one of many forces." But the Oak Ridge researcher acknowledged that small companies are especially vulnerable. "They're going to say, 'We don't need something else adding to this pressure.' "

In Europe, where businesses are already required to cut their greenhouse-gas emissions or buy pollution "credits" from companies that have slashed their own, some government officials are wrestling with how to treat imports from higher-polluting countries. One proposal is to impose an emissions fee on "dirty" imports, an idea that is also being floated in the U.S. "There is a very legitimate trade issue here," noted Anda of Environmental Defense. Import fees, he said, might discourage companies from moving to countries with no global-warming pollution controls. "We'd tell them, 'If you go to China, when you try to bring your products back in here, you're going to have to pay,' " he said. Critics contend that such fees might run afoul of world trade rules.

Foul-Weather Forecast
In May, the United Nations' Intergovernmental Panel on Climate Change released its long-awaited report on the science behind global warming. Written by more than 160 scientists and cleared by the Bush administration, the study warned that the world's inhabitants must reduce their greenhouse-gas pollution by 50 to 85 percent from 2000 levels by 2050 if the planet is to avoid the worst effects of global warming. The paper predicted that without dramatic action, snow cover will diminish; Arctic and Antarctic sea ice will shrink; and extreme weather, ranging from heat waves to heavy rains, will become more frequent.

Evidence that Earth is warming is "unequivocal," the report declared, concluding that the temperature increases of the past 50 years were "very likely" caused by human activity.

Meanwhile, a May report by the U.K.-based charity group Christian Aid predicted that global warming, together with natural disasters, large-scale development projects, and armed conflicts will force the migration of 1 billion people from poor nations to richer countries by 2050.

Within the United States, weather changes triggered by global warming could cause summer droughts that drastically lower water levels in many rivers, particularly in the Colorado and Columbia River basins. The results would escalate the fierce competition for water -- with cities contesting with farmers, industries, and hydroelectric dams, according to an April IPCC report on North America. That study also predicted rising tides and storm surges that could flood cities and wetlands along the mid-Atlantic region. North American wood and timber producers could suffer massive losses if climate change leaves forests more vulnerable to disease, insects, and fires, according to the report.

"Climate change will touch every corner and every community on this planet," Achim Steiner, the U.N.'s environmental program executive director, said at a May science forum. "But, equally, overcoming climate change can touch on every facet of the global economy in a wealth of positive ways. Measures to reduce emissions can, in the main, be achieved at starkly low costs, especially when compared with the costs of inaction," he said. "Indeed, some -- such as reducing emissions by 30 percent from buildings by 2020 -- actually contribute positively to the GDP."

Some industries are already feeling the effects of global warming. In recent years, insurance companies have paid out billions of dollars in claims from hurricanes, droughts, floods, and other weather-related catastrophes, many of which have been blamed at least in part on climate change. Now some insurance firms are pushing their clients to shift to less polluting technologies and practices. "We're developing a set of new tools that can be helpful to companies in responding to climate change," said Gary Guzy, senior vice president for emerging environmental risks at Marsh, the world's largest insurance broker. "We see ourselves as a strategic risk partner with our clients."

Others in corporate America are just waking up to the potential effects of global warming. Many pharmaceutical companies say they are not yet factoring climate change into their planning or research, despite warnings from the IPCC that higher temperatures will increase the prevalence of malaria, sleeping sickness, and a host of other diseases, and will raise the frequency of injuries from floods and landslides.

Flooding The Capitol
Early this spring, global warming engulfed Capitol Hill as lobbyists from industry and environmental groups flooded hearing rooms and lawmakers' offices, seeking to influence energy and climate-change legislation. In mid-June, the Senate took the first step, passing an energy bill that would require U.S. automakers to produce cars, light trucks, and SUVs that average 35 miles per gallon by 2020. That's a significant increase from today's fuel standards, which require each automaker's car fleet to average 27.5 mpg and light truck/SUV fleets to average 22.5 mpg.

The Senate-passed bill would also require oil companies to blend 36 billion gallons of ethanol into their gasoline by 2022. The legislation stipulates that more than half of the ethanol come from "advanced" biofuels distilled from switchgrass, woody materials, or other noncrop plants. The measure would provide research funds for companies seeking to capture carbon dioxide from coal-burning electric plants and render it harmless by sequestering it underground.

In a statement, Senate Energy and Natural Resources Committee Chairman Jeff Bingaman, D-N.M., described the Senate bill as proof that "we can -- and should -- lead the world when it comes to developing the new technologies that will produce clean, alternative energy and help address the threat of global warming."

In the House, Speaker Nancy Pelosi, D-Calif., is pushing an energy package that would boost efficiency, set up an infrastructure for distributing ethanol and other alternative fuels, and provide loan guarantees to update the national electricity grid. Democratic leaders say they hope to begin full House consideration of the legislation (which does not include automobile fuel-efficiency standards) by the middle of this month.

The debate over the Senate bill was merely the prelude to more-contentious global-warming battles on the Hill. Lawmakers this year have introduced more than a dozen measures to cut U.S. greenhouse-gas emissions.

Nevertheless, many insiders predict that no legislation directly addressing climate change will reach the White House until after the 2008 elections. The Republican leaders of the House and Senate have vowed to block any greenhouse-gas reduction mandates. Sen. John Warner, R-Va., recently undercut his party's leaders, however, by announcing that he'll work with Sen. Joe Lieberman, ID-Conn., to write an ambitious global-warming bill. Lieberman is the chairman of the Senate Environment and Public Works subcommittee with jurisdiction over global-warming legislation; Warner is the subcommittee's ranking Republican.

With Warner's support, the Senate Environment and Public Works Committee is likely to pass a climate-change package during this Congress -- a complete turnaround from the previous Congress, when Sen. James Inhofe, R-Okla., chaired the committee. Inhofe refused to hold hearings on legislation to cut greenhouse-gas emissions and famously branded global warming a "hoax." He has said he would filibuster any bill mandating emission reductions, so Democrats would probably need 60 votes to get climate-change legislation through the Senate.

In the House, global-warming legislation is on the agenda for later this year. At a June 27 hearing, House Energy and Commerce Committee Chairman John Dingell, D-Mich., said he will introduce a bill cutting U.S. greenhouse-gas emissions as much as 60 percent -- possibly as much as 80 percent -- by 2050. "How to get there will be the hard part," he added.

Although Inhofe; Joe Barton of Texas, the ranking Republican on Dingell's committee; and a handful of other lawmakers still doubt that human activity is dangerously changing Earth's climate, a growing number of their colleagues are focused on how to curb U.S. emissions of the chemicals that scientific consensus links to global warming. Many Republicans side with President Bush in opposing government-mandated reductions in carbon dioxide and other greenhouse gases, fearing that controls would hurt U.S. businesses. They favor voluntary industry cutbacks and federally subsidized research to help businesses develop cleaner technologies.

Industry officials are likewise split over how to approach global warming. Some argue that technologies to curb greenhouse gases are too expensive for small businesses. They insist that before the federal government even thinks of imposing pollution control mandates, taxpayer dollars must pave the way toward a low-carbon economy. Jack Gerard, president of the American Chemistry Council, compared the challenge of global warming to the government's plan in the 1960s to put an American on the moon. "If climate and the carbon issue are the issues for this generation," he said, "then we need to devote the resources necessary to solve that problem."

A growing number of CEOs, on the other hand, are actively backing aggressive legislative proposals. Anda of Environmental Defense says that corporate America wants to know what Uncle Sam will expect of it so that it can plan accordingly: "Why would 20-some companies [in the U.S. Climate Action Partnership] stand up to their government and say, 'Please regulate us?'" he asked. "What they're really saying is, 'Look, at the end of the day, we have really long-lived assets, like power plants that last 40 or 50 years. We know some kind of regulation is going to happen. So make a decision. Make the rules clear. And let us figure out how to innovate.'"

Observers inside and outside government generally agree that the federal government will eventually regulate greenhouse gases. Once Congress and the White House agree on how to proceed, investors' dollars will flow to new technologies, said Truman Semans, director of markets and business strategy at the Pew Center on Global Climate Change. "Ask any of the venture capital investors or corporate development folks looking at investment in these technologies," he said. "They'll all tell you the same thing: 'The most important thing is -- when is carbon going to be priced in the U.S. markets?'" In other words, when will business know the charge associated with emitting a given amount of carbon dioxide?

Consider ethanol and other biofuels, said Semans, who heads the Pew Center's Business Environmental Leadership Council, a group of 43 corporations that support market-based solutions to cut greenhouse-gas emissions. Once Congress passed the 2005 Energy Policy Act requiring oil refiners to blend more ethanol into gasoline, Wall Streeters flocked to invest in ethanol plants and technologies.

Even before the government takes action, global warming is already triggering massive changes in the way American companies do business. Corporations are beginning to recognize that climate change could forever alter their products, their manufacturing processes, and their long-term investment strategies. Eventually, Congress will almost certainly accelerate the nation's transition to a low-carbon economy, a prospect that some companies fear and others welcome.

Anda brushes aside the fear that global warming will hurt some companies and even some entire industries. "There is a notion we have that we can't have any losers," he said. "Well, if nobody can lose, it's very hard to have winners -- meaning new technologies." The trick, he contended, is to provide a safety net for the losers while encouraging the competition that makes winning possible -- both for corporate America and for the planet.

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