Josephine V. Yam

Sustainable Development: Intersection of Economy & Environment

It is crucial that you get the attention of the "people who hold the purse strings", namely Finance Ministers, if you want countries to strategically move towards sustainable development, said Rachel Kyte, World Bank VP for Sustainable Development, In her blog "Why Finance Ministers Care About Climate Change & Sustainable Development",

She said that climate change was front and centre of discussions among the world's Finance Ministers at their annual World Bank/IMF Spring Meeting in Washington this weekend. Climate change "isn’t just an environmental challenge, it’s a fundamental threat to economic development and the fight against poverty... If the world does not take bold action now, a disastrously warming planet threatens to put prosperity out of reach for millions and roll back decades of development."

Fortunately, there has been great progress around the world in the fight against climate change. For example, an increasing number of countries have or are in the process of establishing their carbon markets to link with each other and put a price on carbon. This market-based approach will effectively help drive greenhouse gas emissions (GHGs) down and spur clean energy investments. Through the Partnership for Market Readiness (PMR) established by the World Bank, countries around the world explore innovative and cost-efficient ways to drive down GHGs while building financial flows.

Indeed, it is crucial to have had that discussion among the Finance Ministers, to discuss with them that the fight against climate change is a win-win proposition for both their countries' valuable environments and value-based economies.

Energy and Climate Change in Obama's To-Do List

In the New York Times article, “A To-Do List for the Next For Years”, Carol Browner proposes the need for President Barack Obama to finally execute on a climate change agenda. Ms. Browner was former director of the White House Office of Energy and Climate Change Policy from 2009 to 2011 and the administrator of the Environmental Protection Agency (EPA) from 1993 to 2001.

“Energy and climate change, two issues that deeply divide the country, stand out as major pieces of unfinished business for the Obama administration,” she notes. Nevertheless, she points out that President Obama has unequivocally stated that “even for those who don’t believe climate change is real, the benefits of clean energy -- cleaner air, energy independence, American jobs and enhanced global competitiveness -- are just too important to ignore.”

How then can President Obama execute on a climate change agenda? By using his executive authority and by leverage existing energy laws.

The U.S. Supreme Court has affirmed the EPA’s authority to limit greenhouse gases that endanger public health. Browner recalls that during his first term as president, Obama used an energy bill signed by George W. Bush to reach an agreement on cleaner, more fuel-efficient cars. Car manufacturers had business certainty, consumers saved money at the pump and the environment became cleaner. She notes that President Obama can use this existing authority to work with the electric utilities to reduce carbon pollution and secure greater energy efficiency while providing business certainty.

Ms. Browner also recommends that given the abundance of natural gas, the Obama administration must ensure that “fracking” is done in accordance with strong public health standards. Also, instead of 20 to 30 different state regulations that are imposed on fracking businesses, the Obama administration should just develop one set of national requirements based on the best available science and technology while leaving the oversight and enforcement up to the states.

Indeed, by executing on a strong climate change agenda in the next 4 years, President Obama can ensure that the U.S. moves steadily and unconditionally towards a sustainable, clean energy future.

New Sustainability Metric: Total Return on Resources

The Boston Consulting Group (BCG)'s recent report stated that, in order to succeed in this new world of sustainability, companies will need to treat "resource management" as essential to their business. To do this, companies must focus on their “total return on resources” in order to optimize their inputs and outputs to maximize profits.

For inputs, companies will need to monitor the payback from natural resources in order to minimize the consumption of scarce supplies. Thus, power companies, for example, put a lot of money in improving the efficiency of their generating plants to reduce how much coal or natural gas they need in order to produce each megawatt of electricity.

For outputs, companies will also need to manage the "putback", which is the effect of their actions on the future supply of natural resources and on the climate so as to limit damage to the larger ecosystem. In such cases, for example, power companies put a lot of money in scrubbers and other processes to reduce the harmful emissions they release into the air.

The BCG report cites many stellar examples of companies focusing on their “total return on resources”. One of them is the Florida Ice & Farm, a Costa Rica-based beverage company. Its highly visionary CEO, Ramón de Mendiola Sánchez proclaimed that 40 percent of the variable portion of executive pay would be dependent on the company’s performance on environmental and social measures. He established a framework of strict measurements and strong managerial focus on environmental metrics, such as solid waste, water use and carbon dioxide emissions. The company set very lofty goals of achieving zero net solid waste by 2011, becoming water neutral by 2012 and carbon neutral by 2017. Thus, it comes as so no surprise that one of its bottling plants has become the most efficient in the world in terms of water usage. At the same time, the company’s revenues and market share have continued to grow through a tough economy. Mendiola firmly believes that this commitment to sustainability is the only way to achieve continued growth and to sustain Florida’s position as one of the most influential and admired companies in Costa Rica.

Indeed, the BCG report notes that, as resource supplies fail to keep up with burgeoning demand, companies will start treating sustainability as a central part of management rather than thrust it to the amorphous office unit of corporate social responsibility. The world as a whole is on the verge of a new wave of innovation in resource management, the report observes. And, as with all innovation, this will create opportunities for companies to teach others how to thrive in a carbon-constrained, resource-constrained world.

Norway Sets One of World’s Highest Carbon Tax Rates

The International Herald Tribune recently reported that Norway is set to almost double its CO2 tax rate for offshore oil and gas production beginning in January 2013. Indeed, the Norwegian government is setting one of the highest carbon tax rates in the world by increasing the CO2 tax rate from 210 Norwegian Krone (about €28) to 410 Krone (about €55) per ton of CO2. A substantial part of the newly generated tax revenue will go into the government’s investments in clean energy, the environment and public transportation.

Many have lauded Norway’s sharp increase in carbon taxes for energy producers as exemplary. “The higher the tax, the more aggressive a signal the government is going to send about the need to lower carbon emissions,” said Janet Milne, a director of the Vermont Law School’s Environmental Tax Policy Institute. “You have to get fairly high carbon tax rates in order to get a significant long-term change in behavior,” she said.

“The EU prefers a system that taxes more of what we burn and less of what we earn. If we want to consume less energy, we need a smarter way of taxing,” said Isaac Valero-Ladron, the EU Spokesman for Climate Action.

According to the Australian Climate Commission, by 2013, 33 countries and 18 states and provinces (referred to as "sub-national jurisdictions") will have some sort of levy associated with the emission of CO2.

The Race for Water

There is a “new race for water” that has farmers from the arid heartlands of Colorado, USA, competing against energy companies for the purchase of this increasingly scarce resource, reports the New York Times. What has aggravated this rivalry even more is this summer’s record-breaking drought that has scorched the already parched land and has ruined farmers’ crops.

The article notes that farmers in Colorado pay about $30 - $100 per acre foot of water. This is juxtaposed to the oil and gas companies that pay about $1,000 - $2,000 for the same amount of water from city pipes. While this revenue is a boon to local water utilities, farmers complain that they lack the deep pockets to compete with these companies.

Energy companies are buying tons of water that is needed for their hydraulic fracturing techniques to crack the ground and release the oil and gas that is stored beneath it. They estimate that they will use about 6.5 billion gallons of water in Colorado this year, which is about 0.1 percent of overall water use. This is almost nothing compared to the 85.5 percent that is used for irrigation and agriculture in Colorado.

Said Mike Chiropolos, a Colorado lawyer: “Water flows uphill to money… It’s only going to get more precious and more scarce.”