Last year, the Business Roundtable created quite a buzz when it released a new Statement on the Purpose of a Corporation that moved “away from shareholder primacy” as a guiding principle and opted in to a kind of “stakeholder capitalism” (see this PubCo post). Now, just in time for climate week, in another striking sign of changing perspectives, the Business Roundtable has released a new principles-and-policies guide endorsing a new approach to action on climate change. According to the press release, the BRT is now advocating
“new principles and policies to address climate change, including the use of a market-based strategy that includes a price on carbon where feasible and effective. Such a strategy would incentivize the development and deployment of breakthrough technologies needed to reduce greenhouse gas (GHG) emissions. To combat the worst impacts of climate change, Business Roundtable CEOs are calling on businesses and governments around the world to work together to limit global temperature rise this century to well below 2 degrees Celsius above pre-industrial levels, consistent with the goals of the Paris Agreement. In the United States, this means reducing net-greenhouse gas emissions by at least 80 percent by 2050 as compared to 2005 levels.”
As this article in the WSJ observes, it’s not that the principles and policies break new ground—they don’t—rather, “the significance of the statement is that it shows how business is shifting from a source of resistance to a force for action on climate.”
Although, the press release indicates that the BRT has been calling for collective action to address climate change since 2007, the WSJ points out that, in 2007, the BRT, an organization of over 200 CEOs of major companies in every sector of the economy, “didn’t endorse mandatory measures such as carbon prices because of internal disagreement and warned against policies with ‘unacceptable’ economic costs.” And, in 2010, the WSJ reports, several corporate lobbying groups, including the Chamber of Commerce and the National Association of Manufacturers, were instrumental in finishing off a Congressional effort to develop a national cap-and-trade system; although the BRT stayed neutral in that fight, it also failed to endorse the effort. In addition, the BRT opposed the previous administration’s Clean Power Plan to reduce carbon emissions from electricity generation.
The first sentence in the BRT’s principles-and-policies guide is a clear declaration that “[t]here is scientific consensus that the climate is changing and that human activities are contributing to that change.” The threats that may result if climate change is left unchecked are dire and may be irreversible. Although the U.S. has made some progress, the BRT acknowledges, it has still fallen short of what is required to avoid the worst consequences of climate change. In addition, the “existing patchwork of federal and state regulations, tax incentives, subsidies and other policies is inefficient and has negatively affected the long-term investment strategies of many U.S. companies by creating regulatory uncertainty. The existing fragmented policy approach is insufficient to meet the challenges posed by climate change. It is time for a new approach.”
What is that approach? Well, the BRT is not all that specific: it encourages the adoption of “a more comprehensive, coordinated and market-based approach to reduce emissions. This approach must be pursued in a manner that ensures environmental effectiveness while fostering innovation, maintaining U.S. competitiveness, maximizing compliance flexibility, and minimizing costs to business and society.” If done thoughtfully, policies to achieve the goals set in the Paris Climate Accord can “deliver long-term environmental, social and economic benefits while creating new jobs and minimizing potential negative impacts on businesses, workers and households.” The BRT advocates that the U.S. lead the way, with robust international engagement, cooperation and accountability, in adopting a credible climate strategy and developing new technologies and low-emissions energy sources.
Although the BRT does not endorse any particular mechanism, it did advocate that the following principles guide the effort:
◗ “Align policy goals and GHG emissions reduction targets with scientific evidence.
◗ Increase global engagement, cooperation and accountability.
◗ Leverage market-based solutions wherever possible.
◗ Provide for adequate transition time and long-term regulatory certainty.
◗ Preserve the competitiveness of U.S. businesses, including avoiding economic and emissions ‘leakage.’
◗ Minimize social and economic costs for those least able to bear them.
◗ Support both public and private investment in low-carbon and GHG emissions reduction technologies along the full innovation pipeline.
◗ Minimize administrative burdens and duplicative policies while maximizing compliance flexibility.
◗ Ensure that U.S. policies account for international emissions reduction programs.
◗ Advance climate resilience and adaptation.
◗ Eliminate barriers to the deployment of emissions reduction technologies and low-carbon energy sources.”
With regard to disclosure, the BRT recommends that companies “continue to engage on, and disclose when appropriate, material risks that may be driven by climate change as well as the business opportunities associated with advancing low-carbon solutions. Effective disclosures should focus on the company’s approach to risk management and its connection to the company’s strategy and governance. These disclosures should be voluntary and industry supported and should consider leading disclosure frameworks.”
In another similar surprise, the CFTC’s Climate-Related Market Risk Subcommittee, which included members from “financial markets, the banking and insurance sectors, as well as the agricultural and energy markets, data and intelligence service providers, the environmental and sustainability public policy sector, and academic disciplines focused on climate change, adaptation, public policy, and finance,” has released a new Report concluding that “[c]limate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy,” calling for U.S. financial regulators to “move urgently and decisively to measure, understand, and address these risks.” (See this PubCo post.)
What should be the critical elements of the “well-designed market-based mechanism that would drive innovation” that the BRT advocates? The BRT identifies the following as key components:
- Price on carbon. The BRT believes that placing a price on carbon—where “environmentally and economically effective and administratively feasible”—would “provide an effective incentive to reduce GHG emissions and mitigate climate change, including through the development and deployment of breakthrough technologies…. Establishing a clear price signal is the most important consideration for encouraging innovation, driving efficiency, and ensuring sustained environmental and economic effectiveness.”
- Preserving U.S. competitiveness. The BRT encourages the development of policy mechanisms, such as rebates, allowances and “border adjustments,” that could deter “leakage” of economic activity and associated emissions to less-regulated jurisdictions. Policy makers should also ensure that U.S. companies are not disadvantaged by carbon pricing policies overseas.
- Use revenue to maximize benefit. Importantly, the BRT recommends that any revenues generated by the market mechanism that accrue to the government should be used primarily to “support economic growth, reduce societal impact, and provide assistance for those individuals and communities most negatively affected.” Federal funding to support R&D—the innovation pipeline, the breakthrough technology—should be at least doubled. R&D programs should also “be better coordinated across economic sectors and focused on technologies that are most likely to reduce GHG emissions on a life-cycle basis and to achieve global cost-parity with high-emissions competitors.” R&D can also be an important factor in “transitioning to a more environmentally sustainable economy.”
The BRT also encourages policymakers to be sensitive to the potential disruptions of an initially high or sharply escalating carbon price through transition periods and incentives.
Tailored, complementary policies for unique circumstances
Although the BRT recommends that the new market-based climate strategy apply broadly across the economy, the BRT also recognizes that unique circumstances, such as technological challenges or separate international agreements, may require tailored policies.
Address duplicative policies
Current climate regulations and policies, the BRT contends, can be uncoordinated, redundant and inefficient. A comprehensive federal climate strategy could provide an opportunity to rationalize these regulations. However, there are some circumstances, the BRT acknowledges, where regulation may be more effective than markets. For example, the BRT suggests that building energy codes are an example of regulation that is more environmentally effective than a price on carbon.
Even as we continue to seek innovative technologies, the BRT reminds us that we still need to continue with more mundane improvements in energy efficiency. The BRT challenges both business and government to “demonstrate leadership by committing to improve energy efficiency and low-carbon technologies in their supply chains, buildings and fleets.” In addition, the “transition to a low-carbon economy will require massive public and private investment in new infrastructure”; the planning, design and construction of new infrastructure must take into account the likelihood of the negative and even severe impact of climate change.
For the most part, the BRT still sees government regulation on climate change as clogging up the pipes of the economy, leading to administrative complexity and regulatory uncertainty. However, it does go farther than some other business organizations. According to the WSJ, neither the Chamber nor the NAM has endorsed a price on carbon. In addition, the WSJ notes, some businesses that support carbon taxes and emissions permits argue that the revenue should be used to offset other taxes or be remitted to taxpayers, not to fund other government programs. The BRT, however, “doesn’t call for such revenue neutrality. It says some of the money should be used to reduce the impact on ‘individuals and communities most negatively affected’ by climate policies, and to double federal research and development of GHG-reduction technology.” In addition, the WSJ observes, many businesses expect “a carbon price to substitute for other regulations, such as energy-efficiency requirements and renewable-energy mandates.” As noted above, recognizes that regulations may be appropriate in some, albeit limited, circumstances. The president of the BRT told the WSJ that it doesn’t want to “stand in the way of ‘a result that isn’t entirely perfect from our perspective but is actually a dramatic improvement in the country’s approach to climate….We don’t support the Green New Deal, and we don’t support continuing business as usual; both of those impose significant costs. The right policy would both significantly reduce emissions and keep our economy strong and competitive at the same time.’”
Just as with the BRT’s new Statement on the Purpose of a Corporation, some may question whether the BRT is perhaps just virtue-signaling or whether it will walk the walk when the time comes. What steps will the businesses that are BRT members actually take to help bring these new policies and market mechanisms to fruition? Will the BRT support actions proposed by Congress or a subsequent administration that are relatively consistent, but maybe not on all fours with the principles and policies that the BRT lays out here?