Commentary by Tom Catania, Executive in Residence at the Erb Institute
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In the March 30, 2013 edition of The Economist magazine, a piece was written with the sub-title, “Climate change may be happening more slowly than scientists thought. But the world still needs to deal with it.” There have been about 200 comments entered on the magazine’s website related to this article, and more than 1800 in connection with a related article. For many commentators from the scientific community, who believe global climate change is real and must be aggressively mitigated, the reaction has been one of the glass being half empty, rather than half full. Let me quote from one of the commentators who describes himself as a “young climate scientist,”
“In fact, my ultimate question after rea
ding this article was the following: If the Economist is capable of such partisan and shallow writing about climate change, then why have I been trusting the rest of their commentary?”
In addition, considerable effort has been devoted to explaining the perceived inaccuracies of the title’s first sentence, instead of celebrating the significance of the second. It is understandable; given the history of the political debate on climate science, to have the default assumption be that anything coming from the business media is likely to end up in some form of damning with faint praise. On the other hand, if the evolving view of business-oriented publications like The Economist presages serious engagement by the business community in mitigating the affects of global climate change, environmentalists shouldn’t assume that they would agree with how business proposes to attack the problem even if it agrees that the science is sound and the threat is imminent. The Economist articles are real evidence of business-oriented publications moving away from sarcasm and cynicism on the science to genuine acceptance and a shift to focus on policy and viable solutions–including exposing nonviable approaches.
Subsequent journalism from the magazine since March reinforces that the business oriented media’s view of this issue is evolving in the direction of getting serious about, not only the implications of the science, but deeply examining what needs to be done about it. Frankly, it is the business media that is in a better position to transmit this message to conservative political and business leadership around the world than the environmental, or self-styled “progressive” media.
I could cite several recent examples of neutral to supportive pieces in The Economist suggesting that the facts support seriously addressing climate change, but I want to focus in this commentary on a May 4th article, “Unburnable fuel: Either governments are not serious about climate change or fossil-fuel firms are overvalued.” Quoting from the article:
Markets can misprice risk, as investors in subprime mortgages discovered in 2008. Several recent reports suggest that markets are now overlooking the risk of “unburnable carbon”. The share prices of oil, gas and coal companies depend in part on their reserves. The more fossil fuels a firm has underground, the more valuable its shares. But what if some of those reserves can never be dug up and burned?
The article then, correctly takes the political and business community leadership around the world to task for the sharp contrast between its rhetoric and its actions. Sovereign government owned and controlled energy companies and their private counterparts–subsequent to independent audit of their balance sheets–would be forced to admit that they have every intention of extracting and monetizing these fossil fuel reserves. The proven reserves far exceed the global “carbon budget” between now and 2050, which would be required to avoid soaring past a 2 degree C rise in global mean temperature. Interestingly, the article moves on to discuss how about half of the $4 trillion in market capitalization associated with the world’s 200 largest energy companies is dependent on accessing and developing these reserves. My suspicion is that the holders of these reserves (and the holders of energy company stocks, such as public pension funds, which can ill afford to see trillions of dollars of their already underfunded pension funds go up (or not go up) in smoke) will vote for obfuscation and rationalization before they vote for sequestration of these reserves. The first rationalization will undoubtedly shift the discussion to the lower emissions profile of the natural gas portion of the reserves, followed by earnest but vaguely timed promises to move “Beyond Petroleum.” In fact, when high aspirations meet unfriendly markets, green slogans are often an early casualty.
Without getting into the substance of the analysis of global temperatures, the fact and nature of a serious discussion at all illustrates how the business Weltanschauung is shifting. It is reminiscent of the point in time when the business community moved from skepticism about the observed measurements of the ozone hole and its significance, to a collective conclusion that the scientific debate was over, and the Montreal Protocol rapidly came into force to address it.
Environmentalists and public officials who have been urging action on the climate change issue are both naive as to the complex socio-economic and political problems associated with too rapid a shift from business as usual to a carbon free economy; and particularly for the politicians, are being disingenuous about their own political will or ability to enact the required changes. There is also a collective naivety in the advocacy community of the “unknown, unknowns” as illustrated by the impact of high oil prices on accelerating new extraction technologies that have led to dramatic increases in fossil fuel reserves. Publications like The Economist, even if they choose to endorse the scientifically based need to mitigate climate change, will not hesitate to call out sloppy science, sloppy policy prescriptions, or sloppy or incomplete economic analyses of what ought to be done.
Climate change scientific consensus is a far cry from climate change mitigation policy consensus. The article speculates that both businesses and sovereign nations exposed to the risk of being prevented from extracting the economic value embedded in their fossil fuel-based energy reserves are acting as if they assume the world will: a) allow the global temperature to stay on track to soar, b) invest in massive adaptation or geo-reengineering of the climate, and/or, c) develop a technological solution to remove the changing climate characteristics of fossil fuels as an energy source. The recent behavior of governments tends to support the reasonableness of these assumptions. So put the champagne back on ice if you are part of the 350.org movement hoping for an imminent inflection point on public policy. In addition to the article’s references to the failure of the European Parliament to prop up the failing emissions trading system, the global attacks on renewable energy subsidies—one could cite Germany’s aggressive pursuit of coal plants as a partial solution to their pulling back from nuclear energy), and a short to medium term global emphasis on cost-competitive (read: fossil fuel-based) energy as an essential ingredient to emerging from recession as indicative of a disconnect between rhetoric and action.
Business community engagement and exploratory ideation in serious business publications like The Economist around addressing climate change should not be expected to take the form of falling into alignment with the mainstream panoply of solutions that have emerged thus far. Once business truly embraces global climate change as a critical problem that must be solved, it is likely to advocate a hybrid approach that is neither as absolutist as the 350.org movement desires, nor as disingenuous as the world’s political leadership has offered. Do not expect ExxonMobil or the Chinese National Offshore Oil Corporation to announce to private or public sector shareholders in the near future that, as a result of an epiphany on global climate change, they will be writing down all existing fossil fuel reserves on their balance sheets. We will see expansion of the current market driven race to less emissive fossil fuels (coal to gas, diesel fueled trucks to natural gas vehicles, devaluing coal and petroleum reserves on balance sheets and increasing the value of natural gas, renewables and sustainable bio and geo based energy assets) as a transition to a more permanent long-term set of clean energy technologies.
In the realm of “be careful what you wish for,” awakening the sleeping giant of the private business sector–that in many cases has been managing the global climate change issue through its marketing, communications or public policy functions—is likely to take the solutions in very different directions than those that civil society or the scientific and academic communities currently envision. If business truly engages on trying to drastically reduce global emissions, it has the will and resources to drive the solutions and timetable that it believes make the most sense.
I do think that it is important not to lose perspective on the profound nature of the societal, political and economic changes that are required to make a transformational change in the way the globe produces and consumes energy. I started this commentary with a reference far in the past to ancient Troy, but perhaps a somewhat more modern city has some perspective to offer. It has often been said that Rome was not “built in a day.” I would urge the “young climate scientist” I quoted above to not despair of those portions of The Economist article that he found inaccurate, but to observe with amazement what has been written in only a few subsequent months. That is the good news. Specifically, the mainstream business media seems to be moving rapidly away from aiding and abetting the climate change denier camp. From a climate scientist’s perspective the stakes are very high for the future of the planet, but the stakes are also very high for the world’s politicians and prosperity generating businesses. There has been much clamoring for business to engage and own this issue. If it is now prepared to do so, do not expect it to be an absentee landlord, or to turn management of the process of adjusting to a low carbon economy over to some set of philosopher-scientist kings.
Tom Catania is Executive in Residence at the Erb Institute for Global Sustainable Enterprise, and was formerly Vice President of Government Relations and Senior Counsel for the Whirlpool Corporation, as well as, former Special Assistant Attorney General for the State of Minnesota. The views expressed in this blog are the author’s own and should not be interpreted as representing the views of the Erb Institute, the University of Michigan, or any of his former employers, or organizations of which he is a member.