Why Big Business Is Defending California's Climate Regulations

>Could the closely watched ballot vote to repeal AB32, California's landmark global-warming emissions law, signal the emergence of a historic new coalition between corporations and advocates of emissions-control laws? The battle appears to be the latest front in the war of the emerging clean economy against the economic incumbents.

Signed by California Governor Arnold Schwarzenegger in 2006, the aim of the law is to reduce greenhouse gas emissions in the state to 1990 levels by 2020. In the absence of federal legislation in the Senate this year, let alone a global agreement at the failed Copenhagen climate negotiations, the law is the most significant climate change regulation in America today.

The advocates for the law include the environmental organizations you'd expect -- the Sierra Club, the Natural Resources Defense Council, the League of Conservation Voters -- but they also include hedge fund manager Tom Steyer, from Farallon Capital Management, who has committed up to $5 million of his own money to support the law. His co-chair in the effort is President Reagan's Secretary of State, George Schultz, who began driving an electric car a decade before it was fashionable. Venture capitalist Vinod Khosla has described the law as the single largest source of job creation in California in the last two years; Google's "clean-energy czar" Bill Weihl calls it a key to creating the companies of the future for California.

On the other side are Tea Party funders David and Charles Koch (recently profiled by Jane Mayer in the New Yorker) along with a collection of out-of-state oil refiners, like San Antonio, Texas-based Tesoro and Valero. The Koch brothers own a variety of businesses from asphalt to paper to oil.

But the coalition behind the libertarian approach to the climate espoused by the Koch brothers -- the American Enterprise Institute, the National Association of Manufacturers and many Chambers of Commerce -- seems to be fracturing.

An increasing number of the largest companies in the world are becoming active advocates for climate change legislation. Recently, Marius Kloppers, the Australia-based BHP Billiton chief executive, called for a carbon tax. BHPBilliton, one of the largest mining companies in the world, recorded revenues of $10 billion in its coal business last year, but that didn't stop them from trying to lead the debate in the newly formed weak coalition government in Australia. The World Wildlife Fund's Climate Saver program engages companies to make voluntary binding commitments to reduce their own emissions. It includes cement-maker LaFarge, IBM, Coca-Cola, and drug-maker Novo Nordisk. The U.S. Climate Action Partnership calls for climate legislation with a membership that includes Duke Energy, PG&E, Johnson & Johnson, Dow Chemical, Ford Motor Company, DuPont, and General Electric. Walmart's call to its supply chain to report and reduce their greenhouse gas emissions has catalyzed CEO-level conversations in their 60,000-member supplier base.

Part of this enthusiasm for robust government action on climate change undoubtedly springs from the fear that companies will be subjected to more vexing regulation if they do not participate. If you're not at the table, the saying goes, you're on the menu. But there are three additional factors forcing change: employee demand, changing business models, and increasing CEO engagement in policy.

  • Employee Demand: As younger workers in forward-looking companies begin to assume management positions, they demand that their employers be ahead of the curve. Recruiting the best talent means presenting your company as an innovator, a leader of the future.
  • Changing Business Models: Companies like General Electric and Google view the clean energy boom as a business opportunity, and must rationalize their policy positions with their business objectives. As new analyst groups, like the Goldman-Sachs Sustain framework, gain more prominence, companies that have more of their portfolio hedged against commodity shocks and climate change will become more highly valued.
  • CEO Engagement: CEOs are personally driving corporate advocacy of climate change regulation. For some it's a way to curry favor with particular board members, for others it's a personal belief, often encouraged by their children, for others it's a way to move their reputation from technocrat to statesman.

With the recent Supreme Court ruling in Citizens United vs. Federal Election Commission that corporate spending on election campaigns is a protected form of speech, many Democrats have predicted that corporations would overrun the political system. In the words of President Obama, the ruling allows corporations to "... drown out the voices of everyday Americans." Instead this might be setting up a clash of the titans -- corporations that are moving towards the future versus those corporations with business models that are wed to the past.

We may not see Ralph Nader and BP CEO Robert Dudley in a warm embrace anytime soon. But we also didn't see companies rushing to BP's defense after the Gulf of Mexico disaster based on the principal of corporate solidarity. The split between those companies that oppose rational emissions-control legislation like California's will continue to grow. The companies gathering together to defend the law are doing so for the same reason that corporations have banded together before. There's money to be made.