Look who's thawing on global warming

By John Carey in Washington Copyright 1998 Business Week November 9, 1998

For years, U.S. energy and utility execs had a simple and direct response to the threat of global warming: Rubbish! There's no evidence, they said, that emissions from the burning of fossil fuels are raising the earth's temperature. And trying to cut those emissions -- the goal of an international treaty hammered out last December in Kyoto -- would cripple the American economy.

Not every exec came to the same conclusion, however. American Electric Power Co. CEO E. Linn Draper and his environment chief, Dale E. Heydlauff, pored over the evidence -- including record temperatures in recent months -- and decided that human-caused global warming was the most likely explanation. "It's no longer possible to say there is not a problem," says Heydlauff.

Earlier this year, Draper broke ranks with the hard-line industry position. In May, AEP joined Boeing, Enron, Lockheed Martin, 3M, United Technologies, and seven other companies as founding members of the Pew Center on Global Climate Change, formed to search for ways to prevent global warming. When AEP signed on, the reaction of fellow utility execs ranged "from shocked and confused to pretty vitriolic," recalls Heydlauff. But now they are "saying maybe we're on to something."

The willingness of AEP and other such companies to take a fresh look at the issues is an important change that offers hope for resolving the current impasse over the Kyoto climate treaty. Delegates from some 165 nations will gather in Buenos Aires on Nov. 2 to begin tackling the vast unresolved issues in the Kyoto Protocol (table, page 104).

Final decisions are not expected in Buenos Aires, but pressure to take action is growing. "Science has told us we potentially have a very serious problem," says Robert N. Burt, CEO of chemical and equipment giant FMC Corp. The evidence includes record-high global temperatures in recent years and computer models that forecast a warming of 2 to 5 degrees Fahrenheit by 2100. LOGJAM. The central issue in the Buenos Aires talks will be whether developing countries should commit to emissions reductions -- and when. The Kyoto treaty requires developed countries to cut their greenhouse gas emissions below 1990 levels by 2008-12. The U.S.'s target is a 7% cut. But the protocol puts no limits on the amounts of gases such nations as China, Korea, and Mexico can spew into the atmosphere. For that reason, Republicans in Congress say the Kyoto Protocol is grossly unfair. Last year, the Senate passed a resolution saying that without developing country commitment, the treaty is dead.

Developing countries aren't ready to sign on. The current climate threat is the legacy of decades of emissions from the industrialized world, they argue. "Commitment is a dirty word in the developing world, and noncommitment is a dirty word in the developed world," says Atiq Rahman, director of the Bangladesh Center for Advanced Studies. "We have to break this logjam."

One way to do that would be to recognize steps countries are already taking. Cuts in subsidies for fossil-fuel energy in China, India, Mexico, and other nations have slowed the rise in emissions, says a new study from Washington's World Resources Institute. Meanwhile, Brazil has made a major push to use renewable fuels, Uruguay is reforesting 700,000 acres, and India is becoming a leader in wind power. "CHANGE IS NOT FREE." Negotiators in Buenos Aires also are encouraged by recent developments in Europe. The European Union has reached an agreement with auto makers to reduce average fuel use per car by 25%. And in late October, the new coalition government of the Social Democrats and the Greens in Germany unveiled a plan to raise taxes on fossil fuels and boost support for renewable energy.

The U.S. has far less progress to report. The Clinton Administration's plan to foster new, more energy-efficient technologies, viewed as inadequate at best, was watered down even more by Congress. But some hope is coming from a surprising source -- the U.S. business community. "Since Kyoto, the business community has taken a major step forward," says David Sandalow, the White House's point person for international climate policy. Eighteen major companies have joined the business council of the Pew Center on Global Climate Change, agreeing to take concrete steps to explore ways to cut emissions. United Technologies Corp., for instance, plans to reduce its energy use 25% by 2007. Given today's rock-bottom energy costs, "the pressure [to boost efficiency] has been off for some time," says Leslie Carothers, UT's environment chief. "But most of us, including our CEO, feel it is not unreasonable for the developed countries to take the first step."

The question is whether such efforts will save money. "Most of the economic studies on both sides are not believable," says Eileen Claussen, executive director of the Pew Center. "But serious change is not free." On the other hand, such change does offer enormous business opportunities. That was the message delivered at a news conference on Oct. 27 by execs from Monsanto, BP America, and General Motors. They called for a series of measures -- from eliminating fossil-fuel subsidies to fostering new, more efficient technologies -- that could reduce global warming and bolster their bottom lines. BP is making major investments in solar energy, for instance, while GM wants incentives for people to buy its advanced electric car. MOMENTUM. Even companies that don't see potential new markets have a strong self-interest. Case in point: American Electric Power. CEO Draper is dead set against the Kyoto Protocol. "It's much too prescriptive in terms of timetables," he says. But he believes that, politically, the momentum for a global accord is too strong to stop. "The science doesn't matter anymore," says AEP's Heydlauff. "The world has become convinced that this is a matter of considerable urgency, and they want to take action. But if we don't arrive at the right policies, it could be a stake through the heart of AEP." And AEP execs think they have a better chance of avoiding disaster "if we acknowledge there is legitimacy to the issue and have a hand in writing the policies," says Heydlauff.

Add it up, and "there's an undercurrent of honest exploration," says one GOP Hill staffer. "Industry knows it can't say 'Hell, no' forever." Indeed, the shift has yielded results. On Oct. 10, Senators John Chafee (R-R.I.), Connie Mack (R-Fla.), and Joseph Lieberman (D-Conn.) introduced legislation to encourage and reward companies for taking early, voluntary action to cut greenhouse gases.

These are early days yet in complex and intricate global negotiations. Most countries believe that the 11 days of negotiations in Buenos Aires will, at best, produce a timetable for making decisions on the many thorny issues. But with businesses around the world starting to take seriously the scientific and political threats of global warming, the chances of finding a sensible and effective policy have begun to improve.

The Hurdles in Buenos Aires

As delegates from around the world try to find a way to reduce the threat of global warming, here are some of the thorny issues they must resolve:

"MEANINGFUL PARTICIPATION" BY DEVELOPING COUNTRIES The U.S. won't agree to cut its emissions unless developing nations like China and India also agree to limits. Not fair, developing countries retort: Industrial nations are mainly responsible for the problem, so they must act first.

"HOT AIR" TRADING The Clinton Administration figures the U.S. could meet most of the negotiated emissions limits by buying emissions "credits" from Russia and Ukraine (whose economies and emissions have tanked since 1990) rather than actually cutting emissions at home. That's cheating, says the rest of the world. The European Union wants to require that at least 50% of reductions occur at home.

CREDITING CO2 REMOVAL In addition to reducing emissions of greenhouse gases,concentrations of CO2 can be cut by removing the gas from the atmosphere by, for instance, growing more trees or crops. But figuring out how much credit countries will get from such measures is a delicate issue.

"CLEAN" DEVELOPMENT The developing nations want the industrialized world to help them adopt energy-efficient, clean technologies. But they fear the U.S. will hold back until developing countries agree to measures such as emissions caps.

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