Subject: Re: [Homestead] Global warming and the media, was Re: Peak oil
Date: Sun, 4 Mar 2007 14:35:59 -0700
Here is current news pertinent to our discussion:
THE NEW ECO-CAPITALISM
When Being Green Puts You in the Black
By Daniel C. Esty
Sunday, March 4, 2007; Page B01
Are America's capitalist titans really going green?
This week's announcement that two of the country's largest private
equity firms, Kohlberg Kravis Roberts and Texas Pacific Group, will
purchase the Dallas-based utility TXU made headlines, and not just
because the $45 billion deal represents the largest private equity
transaction in history. The even bigger news was the environmental
dimension of the takeover proposal. It calls for scaling back
construction of new coal-fired power plants, ramping up commitments
to wind and solar power, supporting mandatory controls on greenhouse
gas emissions and promoting energy efficiency.
One can overdo the hyperbole here, of course. Henry Kravis --
allegedly the model for the 1980s bestseller "Barbarians at the Gate"
-- isn't just a Green Knight riding into the Lone Star State to save
it from a polluted future. He's a smart businessman who wants to make
money. And that is just the point.
This deal shows that we are in the midst of a revolution.
Environmental progress no longer depends on hundreds of bureaucrats
at the Environmental Protection Agency mandating what piece of
pollution-control equipment will be on each smokestack. Government
must continue to set standards. But the burden of innovation and
technology development will shift to the private sector.
Moving from "command and control" regulations to a market approach to
environmental protection means that there will be real costs for
pollution -- including a price to be paid for greenhouse-gas
emissions -- for every business. But these costs sharpen the economic
incentives for pollution control research and development, and create
big opportunities for companies that come up with solutions for
society's environmental problems.
At the recent World Economic Forum in Davos, Switzerland, CEOs fell
over one another stepping up to the issue of climate change.
Companies large and small are redoubling their environmental efforts
in the face of Wal-Mart's demands that its suppliers reduce waste and
improve energy efficiency. Billions of dollars of venture capital are
flowing into alternative energy and pollution control technology.
Leading companies -- call them "WaveRiders" -- have begun to fold
environmental thinking into their corporate strategies.
They recognize that we face a carbon-constrained future. While the
Bush administration remains opposed to the emissions limits of the
Kyoto Protocol, the European Union has imposed greenhouse-gas-
reduction obligations on its industries and set up a carbon market to
facilitate cost-effective implementation of these requirements.
Dozens of American states have likewise taken action in response to
the threat of climate change. In fact, five Western states, following
the lead of California Gov. Arnold Schwarzenegger, announced plans
last week to set up their own system for trading carbon emissions.
And more than 400 U.S. mayors have committed their cities to
emissions-reduction targets.
The next U.S. president is almost certain to bring the nation back
into climate-change negotiations and commit to a "beyond Kyoto" set
of greenhouse gas reductions.
With the prospect that carbon emissions will soon bear a price -- and
perhaps an escalating one -- the decision by the new owners of TXU to
steer away from a focus on carbon-intensive coal-based power makes
good business sense. In fact, leading-edge companies nationwide are
factoring in carbon charges and thus higher prices for burning fossil
fuels into their business planning models. This new approach has
several important implications. By making companies pay for every
increment of pollution, society puts an economic premium on vigorous
environmental effort, and forces executives to make pollution control
and management of natural resources a core part of their strategy.
Companies that fail to grasp this point put themselves at competitive
risk. Ford Motor Co. teeters on the edge of bankruptcy because it did
not spot the public's emerging desire for more fuel-efficient and
less-polluting vehicles. At the same time, Toyota reported record
profits last year because it put these issues at the center of its
design strategy, which includes hybrid engines, "lightweighting" of
its vehicles through the use of carbon fiber and other advanced
materials, and "smart systems" that use computer power to improve
efficiency and performance.
The environmental imperative on business arises not just from tighter
regulation, but also from the reality of higher energy costs,
shortages of natural resources and pressure from environmentally
oriented stakeholders, such as those who shaped the TXU deal. With
energy costs rising, an expanded focus on conservation and efficiency
will pay off in many areas. From high-efficiency LED lighting to
smart appliances and green buildings, opportunities to link
information-age technology to environmental challenges abound.
A growing number of companies are finding their business plans
pinched by limits imposed by nature. For example, Coca-Cola's ability
to sell soft drinks depends on access to water, something that cannot
be taken for granted in markets such as India. Today, many companies
are operating in communities that care deeply about the environment.
And employees increasingly want to work for companies that have good
environmental records in line with their values. Top corporate
leaders recognize that environmental issues represent more than a set
of regulations to follow or costs to bear. There are enormous profit
opportunities for companies that respond to climate change, water
shortages, air pollution and other problems. Jeffrey Immelt, chairman
and chief executive of General Electric Co., for example, is selling
off his plastics business to focus on high-growth, high-margin
environmental goods and services, such as more efficient jet engines,
wind power, solar energy and water purification.
This new approach to environmental progress has several important
implications. By making companies pay for every increment of
pollution, society puts a premium on vigorous environmental effort
and forces executives to make pollution control and natural resource
management a core part of their strategy. So KKR and TPG have most
certainly have not gone soft. The masters of the universe have not
given in to greenmail in a fit of political correctness. To the
contrary, they are super-sophisticated business people who have
learned that success in the marketplace now depends on getting
corporate environmental strategy right.
daniel.esty AT yale.edu
Daniel C. Esty is the Hillhouse Professor at Yale University and the
co-author, with Andrew Winston, of "Green to Gold: How Smart
Companies Use Environmental Strategy to Innovate, Create Value, and
Build Competitive Advantage" (Yale University Press).