EconomistonClimateChange

- Economistcom hllpzii’ww.fiPrinterFricndly.cf1n?siury licorzmnisttnm AL Cleaning up May 315 2007 From The Economist print edition Alamy

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Unformatted text preview: Economistcom hllpzii’ww.cconomistcomispecialrcporisfiPrinterFricndly.cf1n?siury_... licorzmnisttnm AL Cleaning up May 315': 2007 From The Economist print edition Alamy Business is getting down to cutting carbon, but needs more incentives to make much difference to climate change, argues Emma Duncan (interviewed here) Get article background WHEN the notion of global warming first seeped into public consciousness in the 1980s, business took a dim view of it. Admitting that human activity was changing the climate would involve accepting some responsibility, which was likely to mean coughing up cash. 50, in 1989, shortly after the establishment of the Intergovernmental Panel on Climate Change, the body set up under UN auspices to establish a scientific consensus on the issue, the big carbon emitters set up the Global Climate Coalition (GCC). It cast doubt on the science and campaigned against greenhouse-gas reductions. The GCC folded in 2002. Its line of argument enjoyed a final flowering last year, in a startlingly inane television commercial put out by the business-funded Competitive Enterprise Institute (CEI). It showed pictures of trees (breathing in carbon dioxide) and a happy little girl blowing dandelion seeds (breathing out carbon dioxide). The punchline was: “Carbon dioxide: they call it pollution; we call it life.” These days very few serious businessmen will say publicly either that climate change is not happening or that it is not worth tackling. Even Exxon Mobil, béte noire of the climate-change activists, has now withdrawn funding from the CEI and appears to accept the need for controls on carbon emissions. Businesses in every sector boast about their greenness. Annual reports elaborate on investments to offset companies' emissions. Of course the companies that do this tend to be those with few emissions, such as banks and retailers. Some oil companies do it too, but they offset only the greenhouse gases that they emit in producing petrol, not the emissions from the petrol itself. Power generators, which emit C02 on a huge scale, do not do it. Yet the corporate world's sudden conversion to greenery is not just fluff. Big emitters are beginning to ( if") . 10f3 NUMOOT 1.30 PM Economistcom http:ilwwweconomislcomispecialreportslPrinterFriendly.cfm‘.’siory‘". price carbon into their investment plans, and to alter them accordingly. As a result, wind and solar energy are getting an enormous boost, the price of electricity produced from renewable sources is dropping fast and a flurry of projects to sequester carbon emissions from power generation is beginning to get under way. On the transport side, money is flowing into biofuels and electric cars. Energy has become the hot new area for venture capitalists and universities. MIT's president, Susan Hockfield, has started an “energy initiative" to promote research into alternative sources, storage and cleaning up conventional sources; and student enrolment into energy-related courses has tripled over the past five years. In 2003, the most recent year for which figures are available, America's power-generation industry spent less on R&D as a proportion of turnover than did the country‘s pet-food industry, which suggests there is scope for more investment. What is driving this shift towards cleaner energy? First, moral pressure. Thanks to a potent combination of science, Hurricane Katrina, a heatwave in Europe, Al Gore's admonitions and starving polar bears, the fight against global warming has acquired the force of a religion enhanced by celebrity endorsement. Climate change has gone from being dull and marginal to cool and core. Businessmen, like everybody else, want to be seen to be doing the right thing, and self-interest points in the same direction. Firms that seem to be on the right side of the argument have a better chance of pulling in clever, idealistic young people to work for them. Reuters Al Gore, in the eye of the storm Second, there is economic pressure. Governments increasingly accept the need to put a price on the damage carbon does, and make polluters pay that price. Fears about energy security mostly push in the same direction as those about climate change. Many governments are keen to reduce dependence on Middle Eastern and Russian oil and gas. That means encouraging energy efficiency and promoting domestic energy sources—which, aside from coal, tend to be the clean sort, such as solar, wind and biomass. Europe already puts a price on carbon, through its Emissions-Trading System. The chances of a similar scheme being adopted in America rise with every passing hurricane. There is a plethora of subsidies on both sides of the Atlantic for clean-energy alternatives. Direct controls on emissions, for instance through vehicle fuel-efficiency standards, are being tightened around the world. Yet emissions keep on rising. If greenhouse-gas concentrations are to be stabilised, then the carbon price or the support mechanisms for clean energy, or both, will have to rise or be adopted worldwide, or both. And if that happens, the returns on clean-energy investments will increase even further and the companies that have already invested in such businesses will have a head start over those that have not. Moral and economic pressures have become intertwined, driving investors to push managers to go for cleaner investments. The Carbon Disclosure Project allows companies to report their emissionsrand thus allows investors to see which companies don't. A group of investors, organised by Ceres and the Investor Network on Climate Risk, wielding $4 trillion and including powerful funds Such as CalPERS, the Californian public employees‘ pension fund, and CaISTERS, the Californian teachers‘ pension fund, 2 of 3 9l17f200? 1:30 PM Economisl.com htip:i’i’ww.oconomislcomfispecialrcpo rtslPrinlerFriond1y.ct‘m?story_... discriminates in favour of cleaner firms. The recent buy-out of TXU, Texas's main power-generator, led the company to abandon eight out of 11 planned coal-fired power stations because the private equity firm concerned, Texas Pacific, wanted to square the environmental movement. Yet the shift towards greenery is also driven by more positive factors. For some huge firms, such as (3E, Alstom and Siemens, a move towards clean energy spells opportunity. They sell power-generation equipment and aircraft and train engines. New regulations requiring companies to adopt cleaner processes will mean that capital equipment is replaced more quickly, to the benefit of such companies. Even their customers increasingly realise that although climate change may push up their costs, it will also provide new I Something to work on n opportunitiesunew markets, new technologies, new businesses gm Wemwwgas,mmmmsem, and new money to be made. This could be disruptive. If carbon zoom controls are tightened, the companies that will flourish are those T _ _ EL , _ that have positioned themselves well. In power generation that ,3???“ . .... W: l— means companies such as Exelon and Pacific Gas 8: Electric, which Waste 34-5 have invested heavily in nuclear or renewable energy, whereas 3.5 coal—heavy ones such as AEP will suffer. In the petroleum business, Agriculture the winners will include BP, with its enthusiasm for renewables, and “’5 the iosers Exxon Mobil. In the automotive industry, producers of fuel-efficient cars, such as Toyota, are more likely to do well out of carbon constraints than companies such as BMW. Ottiez $2.? agar-estati o n ; icdustry 38.2 WWW 13. 8 Technological change may also allow some parts of the energy and summingastigmatism transport business to invade each other's turf. The power utilities hope to gain from the enthusiasm for piug—in electric cars, which could spell trouble for the oil companies. Biofuels, too, are a potential threat to them, not only because every farmer and forester may build a cellulosic ethanol plant in his backyard, but also because companies such as DuPont may prove better at making the fueis of the future. The power utilities, in turn, may suffer if fuel-cell technology turns cars into net producers, rather than consumers, of electricity. But these things will happen only if carbon constraints are tightened. This survey will examine how climate change is affecting business, and how business can affect climate change. It will concentrate on industrial emissions rather than on agriculture and deforestation (which produce lots of carbon dioxide without involving business much) but will leave out air travel, on which this newspaper will publish a survey in two weeks' time. It will examine what is driving change in the sectors responsible for most emissions, the nature and extent of that change, and its likely impact. It will argue that business has changed nothing like enough to have a chance of averting global warming-wbut that, given the right incentives, it can. Whether that happens or not will be largely determined in America. Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved. 3 of3 9l17i’20(]71:30 PM Economisi.com hilpflwwweconomisi.comi’survcySKPrinlcrFricndlycl‘m'?slory_id=92... RESEARCK ms Econmnisttom Everybody's green now May 315i: 2007 From The Economist print edition How America's big companies got environmentalism Get ' ack round MEETINGS of the Edison Electric Institute, the trade association for the American power utilities, do not normally make waves. But the one that took place at Scottsdale, Arizona, on January 10th of this year was different. AP Power and positive thinking Up until then, the EEI had been split between the companies arguing for carbon constraints—usually those, like Exelon, PG&E and Entergy, with more gas and nuclear energy than coal—and those arguing against—usually those, like TXU and Southern, with lots of coal. Since coal provides 50% of America's power, the coal utilities had mostly had the upper hand, and the organisation had advocated only voluntary restraint. But this year the new chairman, Jim Rogers of Duke Energy, asked each of the 50 chief executives present what they thought the government should do about carbon. “It was pretty clear going round the table that the vast majority wanted to move on,” says Mr Rogers. Afterwards the EEI announced that it was calling for “regulation”. It balked at the word “mandatory”, but the implication hung in the air. Power generation is the biggest source of C02 in America. America is the biggest source of C02 in the world. If America continues to refuse to control its carbon-dioxide emissions at the federal level, there is no chance that countries such as China and India, whose emissions will soon overtake America's, will control theirs. The EEI‘s turnaround was therefore significant. Similar things have been going on in other industries. Companies that once pooh-poohed the idea of climate change have gone quiet; others have come out loudly in support of emissions controls. The shift culminated, in January this year, in the establishment of the United States Climate Action Partnership '1 of 2 1199007 11:32 AM Economislcom hiip:iiwwweconomist.comisurveysrPrinicrFricndly.cl‘m‘:‘siory_id=92... calling for “strong” federal action to combat climate change. The initiative was launched by ten blue—chip companies, along with four NGOs. Membership has now doubled, and includes GM, GE, BP, Alcan and Alcoa. Attitudes in corporate America have changed in part because a federal system of controls has come to look like the lesser of two evils. America's states have already started to legislate to cut emissions. California is leading the charge. Last September it passed Assembly Bill 32, under which carbon emissions are to be cut to 1990 levels by 2020 and to 80% below 1990 levels by 2050. It will probably be implemented through a European-style cap—and-trade scheme. And California has adopted a low-carbon fuel standard that will require oil companies to cut the carbon content of their petrol. Other state governments have been watching California's initiative carefully and seem likely to follow its lead. For companies, a diverse patchwork of state—wide systems is much harder to cope with than a single nationwide system. According to Ken Cohen, vice—president of public affairs at Exxon Mobil, “we need a uniform and predictable system. If the states are left to their own devices, we won‘t get that. It needs to be a federal system.” And since the Democrats took over Congress last November, the chances of America adopting federal controls have risen sharpiy. Bills are proliferating. Dan Kammen, of the Energy and Resources Group at the University of California at Berkeley, says he has never had so many calls along the lines of: “I'm Congressman X and I need to write a high-profile bill on climate change. What should it say?" But in accepting the idea of federal regulation, companies are not just bowing to the inevitable. There is money in it, too. If the American government adopts a cap-and-trade system (see article), it will hand out permits to pollute. They are, in effect, cash. According to Paul Bledsoe of the National Commission on Energy Policy, those allowances are likely to be worth in the region of $40 billion. Companies therefore want to be involved in designing those regulations. As Mr Rogers explains: “There's a saying in Washington: if you're not at the table, you're on the menu.” The process has become self—reinforcing. In order to be seen to be green, companies have to lobby for emissions controls. That increases the pressure for emissions controls, which in turn increases the need to be seen to be green. The more that American businessmen examine the European system, the less alarming the prospect of carbon constraints begins to look. Not only has it resulted in a lot of cash being handed over, but it has also created a whole new business: the carbon market. Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved. 2 of 2 1'1fli2007 l 1 :32 AM Economistcom hllp:iiwww.economist.comfhackgroundiPrinierFriendly.cfm?Siory_l... RESMCH 11m Ectniiimlisttom A coat of green Sep 7th 2006 From The Economist print edition A fair wind Business is becoming more environment-minded, but only because government is pushing CARBON DIOXIDE is a waste product from turning heavy oil into hydrogen. Pumped into greenhouses to boost plant growth, it is also an input into the market-gardening business, where it can increase productivity by a quarter. In the Botiek area of the Netherlands, a Shell refinery used to release around 1m tonnes of C02 a year into the air. Meanwhile the greenhouses in the area were making their own C02. In the winter it was a by-product of their heating systems, but in the summer they had to burn gas to make C02 and release waste heat. Shell realised that its supply of CO2 and the market gardeners' demand for the stuff could be put together to both businesses' advantage. So, since last year, it has been pumping some of its C02 directly into 500 greenhouses full of roses, tomatoes and cucumbers. As a result, its C02 emissions into the air are 170,000 tonnes a year down, and the greenhouses are using 95m fewer cubic metres of gas. Business seems to be buzzing with green activity. Newspapers are full of advertisements from companies parading their environmental credentials. Some of this is driven by consumers. Greenness has become a moral issue, and companies such as Wei-Mart, which are seen by some as oppressing their workers and destroying communities, can improve their image by looking good environmentally. Some of it is driven by recruitment. Oil companies need talented graduates, many of whom want to make the world a better place. Chris Mottershead, BP's adviser on energy and the environment, says the company is happy with the green splash it has made: “We are attracting the best graduates again. When they come for an interview, they find that people are talking about things that resonate with them.” 1 of3 9i17i’20'i]? 1:32 PM Economistcom http:iiwrw.economist.comfbackgroundiPrintchricndly.cfm?Story}... Some of it is about saving money. In most companies energy consumption has not, until recently, been much of an issue. “Nobody ever became vice-president by cutting the electricity biil," says Alex Farrell, of the Energy and Resources Group at the University of California at Berkeley. But rising eiectricity prices have focused attention on energy, and companies that cut their electricity bills also cut their emissions, and can boast about that. Most of the wave of greenery, however, is driven by government. Companies are investing in climate-friendly products and processes because governments have changed the rules to make it worthwhile doing so, and because companies believe that there will be more of the same in the future. That is the main reason for the advertising, the public relations and the quieter but energetic lobbying. If there is going to be regulation, companies want to help shape it. “We started looking at this issue a few years ago,” says David Hone, Shell's group climate-change adviser, “and realised that there would be new products and new rules. It was in our interest to be part of the discussion, in a constructive way." Companies that were hostile to green regulation were not going to be invited to the table, so those that wanted to be involved had to acquire some green credentials and flaunt them. There were indeed new rules, in the form of Europe's Emissions-Trading Scheme, and industry did well to be involved in the discussions. Economists were arguing for a carbon tax. Industry wanted emissions limited by quantity, rather than by price. “We didn't want a tax,” says a BP executive. “We didn't want a system in which the level was set by the budget deficit rather than by the cost of carbon.” Industry won. Economists argued that the most efficient way to run the system would be to auction permits to emit C02. Industry wanted permits handed out free. Again, industry won, and has profited niceiy from the scheme. The fact that so many European polluters have done so well out of the ETS is one reason why some airline bosses, including Sir Richard Branson of Virgin and Sir Rod Eddington, the former chief of British Airways, are arguing for a trading scheme for their industry; and why American companies are now less hostile to the idea than they were before the 'ETS started up. But there is more than just lobbying going on. Climate-change regulation, and the prospect of more of it, is changing the way business thinks about carbon and leading it to invest in new areas. The Shell greenhouse project is an example of how regulation drives investment. Thanks to the ETS, says Mr Hone, “(302 gets attention from people like oil-refinery managers these days. There's a clear price signal. Projects to control emissions are worth investing in." And there is a bit more investment in cleaner technology and renewable energy than there used to be. The wind business, for instance, is booming, thanks to subsidies in Europe and America. “We've had a wonderful run," says Lorraine Bolsinger, head of GE's green Ecomagination division. “The business is growing at 18%. We've sold out to the end of 2008. We're investing $70rn annually in R&D." Flaunt it But the green—business boom needs to be kept in perspective. Take BP, which announced last November that it would be investing up to $8 biilion in renewables and alternatives over ten years. It sounds a lot, but at this year's rate of capital spending it would be only 4% of BP's total over that period. Shell is spending $1 billion on renewables over five years. GE has made much of Ecomagination, which is made up of 32 clean-technology products. Ecomagination recently announced revenues of $10 billion last year, and forecast that at the current rate of growth they would rise to $20 billion by 2010. R&D spending on Ecomagination products is to rise from $700m (out of a total of $5 billion for GE as a whole) to $1.5 billion by 2010. Ecomagination is certainly ahead of the rest of the business, which is growing at around 6% a year. But there is a bit less to all this than meets the eye. First, GE's overall revenues are $150 billion, so Ecomagination does not loom very large. And second, the division's products are not that different from the rest of GE's offerings. 2 of 3 9i’l7i200? 1:32 PM Economisl.com http:i’fmnveconomislcomi'backgroundi’PrimerFriendly.cfm'?Story_1... To qualify as part of Ecomagination, says Ms Bolsinger, a product has to be both “environmentally better or inherently green” and also “economically better than what it's replacing”. But new products tend to be more efficient than old ones (which is one reason why rich countries' energy efficiency increases by around 2% a year); and if some of that efficiency is used to cut fuel consumption, they can be defined as environmentally better. It would, therefore, be surprising if quite a lot of GE's newer—generation products were not environmentally better than the older ones. Indeed, much of the Ecomagination product list is made up of new, somewhat more efficient, versions of old products. The GEnx aero-engine, for instance, is 15% more fuel-efficient than the one it is replacing. The new Evolution rail engines are 4% more efficient. Both qualify as Ecomagination products, but sound more like the consequence of run-of-the-mill product improvement than a green revolution. Shareholders should draw comfort from this. If GE really were the revolutionary it makes itself out to be, it might be quite a risky investment. But the bet it is making is small and perfectly sensible. GE, BP, Shell and their peers all believe that governments will regulate C02 a bit more in the future than they have done in the past. That will tip the market towards greener technologies, and the modest investments they have made in environment-friendly products will pay off. “This is contingent investment,” says Mr Mottershead. “We think the political commitment to renewabies around the world will grow, and we'll have more of the answers than our competitors will. We're happier with our position than we were three years ago, because the world seems more inclined to change." There is some evidence that managers are rewarded for being green. “We have made a notabie attempt to make this part of the way we analyse people," says Abby Cohen, Goldman Sachs's chief American investment-portfolio strategist. “When you look at the at—risk industries—those that make their living out of environmentally challenging businesses—some players have made a much better job of moving the technology forward." Ms Cohen points to important pools of assets—such as CaIPERS, the Californian state employees' pension fund, and CaISTRS, the Californian teachers' pension fund—that prefer to invest in green companies. The number of such investors may be increasing. At the first conference of the Investor Network on Climate Risk, in 2003, participants represented assets of $600 billion. Last year, they represented $2.7 trillion. In a paper published last year in the Financial Analysts Journal, Jeroen Derwall of the RSM Erasmus University in Rotterdam and colleagues found that the average annual return between 1995 and 2003 on a portfolio of companies that ranked high on greenery was 12.2%, compared with 8.9% for low—ranked companies. Maybe easier access to capital (which the green investors presumably offer) _ helps. Maybe it's just that companies that are well-managed overall also tend to pay attention to their environmental profile. Either way, greenery seems to go with success. Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved. . _ j 3 of 3 9i’17i’200? 1.3- PM Economisl.com htlpjfwwcconomist.comfibackgroundiPrintorFriendly.cfm‘?Slory_l... Rollover to Make it happen EC“ ['1 {'3 {1'1 S I .Cffl'fi Green America Waking up and catching up Jan 25th 2007 | AUSTIN, CHICAGO, LOS ANGELES AND WASHINGTON, DC From The Economist print edition Getty Images Belatedly, and for many reasons, America is embracing environmentalism Get amigle background WHEN Jim Webb, the new Democratic senator from Virginia, replied to George Bush's state-of—the-union message, he could bear to endorse only one of the president's proposals. This was the idea of cutting America‘s petrol (gasoline) consumption by 20% in ten years, by increasing ethanol production to 35 billion gallons a year and raising fuel—efficiency standards for cars. Such a plan would reduce America's dependence on imported oil from dangerous places (as would Mr Bush's plan to double the country‘s petroleum reserves). But it would address global warming only tangentially. The Democrats in Congress are weighing much more dramatic measures, including across-the-board cuts to the greenhouse gases that are heating up the planet. At the state level, politicians of all stripes are already taking more radical steps. Even big business is coming round. Mr Bush may be dragging his feet, but America is greening fast. The Democrats‘ victory in last year's elections means that Congress's stance on environmental issues has changed dramatically. In one race for the House of Representatives, a Democratic consultant on wind power defeated a Republican ally of the oil industry. Barbara Boxer, an ardent advocate of firm action on climate change, has taken over the chairmanship of the Senate Environment Committee from James Inhofe, who often described global warming as “the greatest hoax ever perpetrated on the American people". Since Congress convened earlier this month, the Democrats have got to work fast. The House has passed a bill that would eliminate a tax break for oil production in America, and would impose penalties on firms that refuse to renegotiate the absurdly generous leases the government accidentally granted 1 of5 WITHOUT 1:34 PM Economistcom hltp :iiwmv.oconomist.comi’hackgroundi’PrinlerFriend 1y .ci‘m'.’ Siory_l them in the late 1990s. The proceeds—perhaps $15 billion over the next decade—would be used to fund renewable energy schemes. Nancy Peiosi, the new speaker of the House, is now turning her attention to global warming. She is setting up a committee to address both that issue, and America's dependence on imported fuel. She wants to see legislation before July 4th, so that she can declare “energy independence" on the same clay that the founding fathers severed political ties with Britain. Meanwhile, some half-dozen bills on global warming are circulating in the Senate. Several propose cap-and-trade schemes, whereby the government would create a fixed number of permits to produce greenhouse gases and then auction them or allocate them to businesses. Firms with0ut enough permits to cover their emissions would either have to pollute less, or buy up spare ones from firms that had managed to cut back. John McCain, a leading Republican presidential candidate, and Joe Lieberman, a former Democratic one, are behind the most prominent cap-and-trade scheme. Barack Obama, one of the Democrats' current presidential aspirants, is a co-sponsor. It is the most ambitious of the bills with serious backing: it would cut carbon emissions to 2004 levels by 2012 and then mandate further reductions of 2% a year until 2020. Although these targets are less onerous than those of the Kyoto protocol, the United Nations' treaty on climate change, most analysts reckon they will prove too exacting for Congress. An alternative cap-and-trade scheme, sponsored by Jeff Bingaman, chairman of the Senate Energy Committee, suffers from the opposite problem: excessive modesty. His plan would aim to slow the growth of emissions, and ultimately stabilise them at their 2013 level by 2020. It includes a safety valve, under which the government would automatically issue more permits to pollute if the price of those permits rose too far. The economic impact would be much smaller than under the McCain-Lieberman plan but so, too, would the reductions in emissions. Dianne Feinstein, a Democratic senator from California, is proposing a third approach. She wants to create cap-and-trade mechanisms within industries rather than across the economy as a whole. She has, for instance, proposed legislation that would cut power companies' emissions by 25% of their projected levels by 2020. All these initiatives face an uphill battle. The previous Senate rejected the McCain—Lieberman plan twice—by a bigger margin the second time around. Any bill that involves mandatory caps on greenhouse-gas emissions would need 60 of the chamber's 100 votes to succeed, since Mr Inhofe has pledged to filibuster all such measures. In the House the Energy Committee is chaired by John Dingeli, a Democrat from the carmaking hub of Detroit who has long opposed mandatory caps. Mr Dingell, who says Ms Pelosi's new committee is “as useful as feathers on a fish”, will still have a big say in any legislation. And even if a bill overcomes all these obstacles, it would risk a presidential veto. A matter of security But whatever the fate of these proposals, the political climate is changing faster than the weather. Almost all the leading presidential candidates favour emissions caps. One of them, Hillary Clinton, has condemned the Bush administration's failure to act as “unAmerican”. That is a remarkable change since 2000, when Al Gore toned down his environmental rhetoric during his presidential campaign for fear of sounding pious and obsessive. Indeed, activists are so convinced that the next president will be greener than Mr Bush that they are debating whether to settle for immediate but modest measures on global warming, or wait for a new administration to take bolder steps. The Democrats have always been the greener party, but environmentalism is budding among Republicans too. Take Saxby Chambliss, a moderate senator. He voted against the McCain—Lieberman bill in 2005, but changed his mind after visiting Greenland to view the melting ice cap. “There really is something to it,” he now says. AP 2 of 5 911792007 1:34 PM Economistcom hiip:llwww.economistcom’backgrounlerinterFricndly.cfm'?Siory_l... ,_ you r- gas from? "on H! Iiiflfll staining: '- A no-bralner in Missouri Many factors lie behind the party's shift. Most have to do not with sudden sentimentality in the face of Nature, but with national security (a motivation that lies, too, behind Ms Pelosi's new committee and Mrs Clinton‘s patriotic posturing). Fiscal hawks fret about the impact of growing oil imports on the dollar. Military types fear global conflict for dwindling resources in the event of catastrophic global warming. Neoconservatives worry about America's dependence on oil imports from unstable if not openly hostile countries in Latin America and the Middle East. Some think the solution is simply to pump more oil at home, but others argue that America needs to move away from oil altogether. One such figure, Jim Woolsey, a former director of the Central Intelligence Agency, pointedly drives a Toyota Prius, a famously fuel-efficient car. At the same time, a growing number of evangelical Christians are beginning to see global warming as a moral issue. They argue that mankind, as steward of God's creation, has a duty to protect the environment. One outfit, the Evangelical Climate Initiative, encourages prominent pastors and theologians to sign a “Call to Action”. Another group, the Evangelical Environmental Network, runs a website called “What would Jesus drive?" Last year Pat Robertson, a prominent televangelist, told his flock, “We really need to address the burning of fossil fuels.” The Republican Party has a strong, albeit fitful, tradition of environmentalism. Teddy Roosevelt expanded America's national parks. Richard Nixon created the Environmental Protection Agency (EPA). Mr Bush's father, when he was president, signed off on America‘s first nationwide cap—and—trade scheme to control emissions of the gases that cause acid rain. But the strongest force propelling environmentalism among Republicans is self-preservation. Arnold Schwarzenegger, the decidedly green governor of California, was one of the few luminaries in the party unaffected by last year's electoral meltdown. Republicans in other western states, where a Democratic tide is rising and a pristine landscape is a major tourist attraction, are following Mr Schwarzenegger's moves with interest. They fear the party may lose ground with moderate middle-class types who dislike urban sprawl and unfettered oil-drilling. The destruction wrought by Hurricane Katrina in 2005 had a big influence on voters, according to Jonathan Lash of the World Resources Institute. Americans seem to view the increasing incidence of freakish weather as proof that climate change is real. Many of them paid to see Mr Gore's film on the subject, making it the third—most-successful documentary of all time (and now a candidate for an Oscar). Polls show that Americans are gradually growing more exercised about global warming, although they are still less anxious than Europeans or Japanese. The business view Even big business, which stands to lose most from stricter environmental regulation, is beginning to accept that change is in the air. Exxon Mobil, led until recently by a fierce sceptic of global warming, . .3 _ 3 of S 9l17f-0{l7 1.34 PM _—______________ Economistcom http:{MW.oconomist.comlbackgrounlerinlerFriendly.cfm‘FSioryfil... now concedes that there is a problem, and that its products are contributing to it. Last year four-fifths of utility executives polled by Cambridge Energy Research Associates, a consultancy, expected mandatory emissions caps within a decade. If regulation is indeed on its way, many firms would like Congress to fix the rules sooner rather than later, to help them plan investments in factories and power plants with long Iifespans. Earlier this week ten companies, including Alcoa, Caterpillar and DuPont, called for Congress to set up a cap-and-trade system for greenhouse gases as quickly as possible. Since most of the firms involved produce clouds of emissions, they would obviously like to influence future legislation. But the firms' bosses claim to see emissions caps as an opportunity, not a threat. GE, a member of the group, wants its executives to use their“ecomagination". By the same token Rick Wagoner, the head of GM, the world's biggest carmaker, recently hoped aloud that oil prices would remain high, so that his firm would keep its incentive to develop fuel-efficient cars. Wal-Mart, America's biggest retailer, hopes to double its sales of low-watt lightbulbs. Lots of firms are growing healthily on the back of America's sudden enthusiasm for alternative energy. Americans invested almost $30 billion in the sector in 2006, according to New Energy Finance, a research firm. American venture capitalists lavish seven times more on greenery than their counterparts in Europe. Ethanol production was expected to double in the next few years, even before the latest boost from Mr Bush. Wind and solar power are also booming. And the bigger green firms become the more influence they will have over politicians. States to the fore At the very least, businesses want to avoid a patchwork of conflicting local regulations on environmental matters in general, and greenhouse-gas emissions in particular. There is already a bit of a muddle, since several states have taken much bolder and more experimental steps than the federal government. California, the boldest of all, has taken on carmakers, electricity companies and the EPA, to name a few. Its politicians vie to out-green one another. Some 40 of its legislators drive hybrid cars. Mr Schwarzenegger, not to be bested, has converted one of his fuel-swigging Hummers to run on hydrogen. Congress may be thinking about tackling greenhouse-gas emissions, but California has already done it. Its Global Warming Solutions Act, which was passed last year, aims to cut them to 1990 levels by 2020—an ambitious target for a state that has grown rapidly in the past 15 years and will probably continue to do so. The details have yet to be fleshed out, but the reductions will come from both a cap-and-trade scheme for industry and regulations of various sorts. Mr Schwarzenegger issued the first such regulation earlier this month, obliging producers of petrol and other fuels to cut the emissions of carbon dioxide from their products by 10% by 2020——presumably by mixing in more ethanol and other biofuels. It is not California's first attempt to reduce emissions from transport: its legislature voted for stringent cuts in 2002. That move has become snarled in a court battle over whether states have the right to set fuel-economy standards. Meanwhile, the politicians keep trucking. In September, the state Showin sued six car manufacturers, alleging they had damaged its climate. It is also suing the EPA, for failing to regulate greenhouse—gas emissions. The redder, the greedier Electricity terisumption per pe'son, awn, '000 w flame-Liters states" w flernotratic states“ WUSaveiage W California ....l “.1”..i.i.m...z.t.i1ttct.s' “Mimi... D 1969 65 F0 '35 30 8'5 90 '95 2003 ‘A: Ruth; presidentiaé eiectinn mun-r; i‘alimu in £2.11?in indium Mon California's politicians are keen on renewables too. State law requires utilities to generate 20% of the power they sell from sources such as windmills and biomass plants by 2010, and 33% by 2020. Solar power has won even greater favour: under the “million solar roofs” scheme, the state plans to spend more than $3 billion over the next decade subsidising the installation of solar-power panels. 4 of 5 9H 7l'200? 1:34 PM Economistcom htipu'i’wmvcconomisi.comlbackgrounlerinichriend|y.cl'm'!Siory_l... California has also pioneered the practice of “decoupling”, which deprives power firms of their incentive to sell as much electricity as possible. Instead, the local regulator has devised a formula to reward firms whose sales are lower than expected, and to allow the recovery of the costs of energy-efficiency schemes. Such measures (along with high power prices to pay for them) have helped California rein in its electricity consumption—although lover weather and a relative lack of heavy industry have also played a part. Power use per person has remained roughly stable in the state since the 19705, even as it has doubled in the rest of the country (see chart above). As a result, California‘s greenhouse-gas emissions per person are on a par with those of Denmark. Relative to the size of its economy, they are lower. But California is not America's only green enclave. Nine states in the north-east have combined to reduce emissions from power generation through a cap-and—trade scheme. Two of them plan to auction all the permits, unlike the countries in the European Union's Emissions Trading Scheme, which handed them out for nothing. Ten states have signed up to follow California‘s standards on car exhaust, including its requirements on greenhouse gases. Many more promote ethanol, or renewables, or energy-efficient buildings (see chart below). On the whole, left-leaning states are keener on greenery than right-wing ones, which tend to be more energy-intensive. But fires“ at heart politicians of all stripes in the Midwest are keen to promote Numlm wramnfldh: ethanol for the sake of local farmers, who grow the corn from which it is made. And Texas recently overtook California as the 0 10 2'53 3C *9 country's biggest generator of wind power. we: y-effioenty stare aids for buildings Greenery is also popular at the local level. Almost 400 cities have trcentfimrnrezhanol devised plans to curb or reduce their greenhouse gas emissions. mandatesfor Many buy only fuel-efficient cars for their municipal fleets. Laura reraewabiepmr Miller, the mayor of Dallas, has spoken out against the plans of inwnfivesiw fuelmoffici ent ca rs local utilities to build 17 new coal-fired power plants. What is the h, , ,g. point of her city buying police cars fuelled by natural gas, she riggfirggu221v‘5wm asks, when they will soon be overshadowed by clouds of soot? iimitsonerm'ssions from cars Despite all this grassroots environmentalism, America remains the 509Mmiicelfwéirrrl farm-21W: biggest contributor to global warming, accounting for roughly a MW”WWWJMWQM fifth of all the world's emissions. The federal government's recalcitrance on the subject remains the biggest obstacle to an effective global scheme to tackle the problem. But whereas in Europe or Asia new ideas often flow from the centre to the regions, in America the states are the incubators of big shifts in policy. This means that change is comingu-fast. Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved. 5 of 5 9113200"! 1:34 PM ...
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- Economistcom hllpzii’ww.fiPrinterFricndly.cf1n?siury licorzmnisttnm AL Cleaning up May 315 2007 From The Economist print edition Alamy

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