Josephine V. Yam

5 Steps for Business-friendly Climate Agenda

Eric Pooley provides five steps that President Obama should take to address climate change in his second term. In his Harvard Business Review article, “A Business-Friendly Climate Agenda for Obama's Second Term”, Pooley outlines how the president can fulfill his promise to ensure that America "isn't threatened by the destructive power of a warming planet". He emphasizes that the following 5 steps can only be successful with the active support and participation of private industry.

1. Feed the conversation. President Obama can start by simply by talking about the issue and helping Americans see the relationship between emissions, climate change and extreme weather. This conversation is crucial as it engages the voices from private industry, including insurance companies, pension funds, banks and small business. To be politically viable, climate solutions must be economically sustainable.

2. Reduce climate accelerants. President Obama can take immediate steps to reduce potent greenhouse gases other than carbon, such as methane and fluorinated gases used in refrigerants and industrial applications. Although carbon is most ubiquitous, these substances are "climate accelerants", which means that they accelerate global warming the same way gasoline fuels a fire.

3. Start a clean energy race. President Obama can reduce subsidies for fossil fuels, continue tax credits for renewable energy while increasing R&D funding. Congress should pass national clean energy standards, which would require states to get more energy from renewables. Obama should also encourage private capital to invest in low-carbon energy by removing barriers to investments in efficiency and renewables.

4. Use the Clean Air Act. President Obama should use the Clean Air Act to reduce greenhouse gas emissions, under authority confirmed by the U.S. Supreme Court in Massachusetts v. EPA. This means vigorously defending the clean-air rules that his administration has already put in place, including the historic higher fuel economy standards for new cars and trucks and restrictions on the emission of mercury and other toxic air pollution for power plants. His administration should also set CO2 emission standards for new and existing power plants through flexible and economically efficient approaches.

5. Put a price on carbon. President Obama should heed the call of economists from across the political spectrum that believe that the most economically efficient way to cut carbon pollution is by imposing a price via a carbon tax or through cap and trade. Either would be a powerful incentive to produce cleaner power and could be accompanied by lower taxes on labor or capital, easing the impact on working families and business. As the U.S. moves toward a fiscal cliff, there is slew of discussions in Washington about raising revenue through a carbon fee. It could be in the form of a carbon tax starting at $20 per metric ton and rising at 6% a year that could raise $154 billion by 2021.

Carbon Finance: To Trade or Tax?

There are a lot of features of a Carbon Tax that make it an effective economic-incentive approach to address climate change:

  1. Carbon taxes lend predictability to energy prices. This allows for strategic decision-making involving energy to be made will full awareness of the carbon–appropriate price signals, whether it is design of new electricity generating plants to the purchase of the family car.
  2. Carbon taxes will provide quicker results. The taxes themselves can be designed and adopted quickly and fairly.
  3. Carbon taxes are transparent and are easier to understand than Cap & Trade. The government simply imposes a tax per ton of carbon emitted, which is easily translated into a tax per kWh of electricity or gallon of gasoline.
  4. Carbon taxes address all sectors and activities producing carbon emissions. They target carbon emissions in all sectors such as energy, industry and transportation.

Indeed, the three-letter word called “tax” can spell political suicide for some governments, especially in the midst of this global financial crisis. Thus, some governments may not be bold enough to espouse it as a strategic policy tool to fight climate change.

Written: 2011 November