The Paradox of 'Climate Profiteers'

You gotta love the conservative media. They'll grasp any available straws, however thin, to pooh-pooh climate action. For most of the past two decades, of course, the complaint was that any effort to stem greenhouse gas emissions would ruin the economy, forcing big business to all but fold up their tents and the global economy to go down the tubes.

Now that a growing corps of corporations are mustering the moxie to actually view climate change as an opportunity as well as a challenge, the complaint is something entirely different:

Big business is engaging in climate profiteering!

Hardy thanks to Wall Street Journal columnist Kimberly Strassel for unwittingly providing my Friday morning entertainment with her essay bemoaning self-serving corporate action on climate change. The news hook was last week's announcement of the U.S. Climate Action Partnership, a coalition of Big Business and Big Green calling on Congress and the Bush administration "to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions."

Clearly, such collaboration in the name of climate change was more than the Journal's editorial board could bear. Strassel took issue with the ten companies (the number has since grown) present at the creation of this new group:

Four of the affiliates -- Duke, PG&E, FPL, and PNM Resources -- are utilities that have made big bets on wind, hydroelectric, and nuclear power. So, a Kyoto program would reward them for simply enacting their business plan, and simultaneously sock it to their competitors. . . . DuPont has been plunging into biofuels, the use of which would soar under a cap. . . . Caterpillar has invested heavily in new engines that generate "clean energy." British Petroleum is mostly doing public penance for its dirty oil habit, but also gets a plug for its own biofuels venture.

Finally, there's General Electric, whose CEO Jeffrey Immelt these days spends as much time in Washington as Connecticut. GE makes all the solar equipment and wind turbines (at $2 million a pop) that utilities would have to buy under a climate regime. GE's revenue from environmental products long ago passed the $10 billion mark, and it doesn't take much "ecomagination" to see why Mr. Immelt is leading the pack of climate profiteers.

Shame on all you corporations! Shame for making money while doing the right thing! Shame for doing well while doing good! What were you thinking?

The Journal, of course, is being absurd, not to mention hypocritical. I'd be shocked if any members of its editorial board ever deigned to criticize "war profiteers," "Katrina profiteers" or "health care profiteers," never mind the windfall profiteering of Big Oil or Big Pharma.

The reality is that a good many large corporations stand to gain mightily from likely and imminent U.S. national climate policies, however timid they may be. We've already seen that in Europe, where the EU's Emissions Trading Scheme has produced winners (and losers). And in the be-careful-what-you-wish-for category, some of these companies aren't, suffice to say, environmentalists' heroes.

All of which is driven home in a recent investment advisory from Citigroup Research, part of the Citigroup financial empire. The 120-page report, titled "Climatic Consequences" (Download - PDF), by Edward M. Kerschner and Michael Geraghty, discusses "the investment implications of a changing climate." It is, in my opinion, one of the more sober and succinct discussions of the how companies will be affected, positively and negatively, as the impacts of climate change accelerate -- along with the market and political changes aimed at minimizing them. I recommend it highly to anyone interested in business and climate change.

Kerschner and Geraghty offer up dozens of companies that are well positioned to do business in a climate-constrained world. The companies will benefit from three different implications of climate change:

Physical: Select U.S. natural gas exploration and production companies, farm equipment suppliers, agricultural biotechnology companies, and select U.S. property insurers.

Regulatory: Select electric utilities, engineering and construction firms, capital goods companies, natural gas suppliers, select automobile companies, food processors, fertilizer suppliers, wind and solar power companies, and companies focused on building energy efficiency.

Behavioral: "Climate consultants" offering services that promote efficient energy usage, and companies that facilitate carbon trading.

(You can view an 11-minute interview with Kerschner, chief investment officer at Citigroup Investment Research, discussing his report here. You'll need to endure a 15-second commercial before it begins.)

As I said, the 74 companies named by Citi as positioned to benefit from climate change trends aren't all darlings of the environmental set. True, the list includes more than a dozen companies in the solar, wind, and biogas energy business (such as Conergy, Evergreen Solar, Ormat, Q Cells, and SunPower), but also utilities dependent on nuclear power (Constellation Energy, Electricité de France, Entergy, Exelon), which "are well positioned in the long run, compared to operators of 'dirty' coal-fired plants." And biotech companies like DuPont, Monsanto, and Syngenta, whose products "offer the potential for greater ethanol yields." Some of the companies operate largely behind the scenes, less familiar to the public, such as BorgWarner, whose key products offer the benefits of higher fuel efficiency and lower emissions from internal combustion engines; Johnson Controls, which operates in automotive and building efficiency; and Emerson, whose business units offer a wide range of energy-efficient technologies.

Whether such companies garner obscene profits from solving climate problems remains to be seen, of course, but Citigroup's intention of bringing these companies to investors' attention makes perfect sense. Environmentalists and regulators similarly stand to gain from this report, as they come to grips with this brave new world of "profiteering," in which companies offering climate solutions are rewarded in the marketplace. And maybe some conservative media folks will learn something, too.

In her WSJ essay, Kim Strassel warns that the current wave of climate profiteering is merely a sign of what's to come. She notes that

Democrats want global warming as an issue through 2008. With Al Gore getting his Oscar nod, they've got a "problem" that captures the public imagination, as well as an endless supply of cash from thrilled environmental groups. No need to spoil it with a solution. And a Democratic president in 2009 would be more open to any ultimate legislation.

Best yet, they've got the "support" of the business community, or at least the savvier elements of it. Welcome, Big CarbonCap; we're likely to be hearing a lot from you.

I can only hope her worst fears come true.

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Comments

[Shep]

Joel, are you certain Kim Strassel isn't writing with tongue in cheek? If not, her argument makes Bush-speak seem subtle and sophisticated in comparison.

Assuming for the sake of argument that Strassel and the WSJ are not morons, I can only conclude that they are scared to death by the tidal wave they see coming. Just why, I'm not quite sure.

[Mark C R (Chemist) UK]

Hear Hear! Joel! This is probably the best post I've seen you make yet.

Very accurate.

"climate profiteering"?!?

Is this not the case that these companies that have successfully anticipated / innovated are now derided for being in an excellent position for economic success in the future? - Surely these business leaders in America should be congratulated for their foresight and vision?

Climate change is an enormous and challenging problem - and it is great that business is finally squaring up to actually face it.

I think the potential successes of business in the climate change debate - is related to "incentive based economics". There is a potential incentive to change - due to economic advantages of new technologies.

These companies have the right to make profit, and I hope share an appropriate amount of the wealth generated with the rest of society as is typical - I won't go into huge debate on the economic systems (its off topic).

As long as these companies pay a fair rate of taxation (to fund social programs and the other elements of government) JUST LIKE ANY OTHER INDUSTRIES then that's fine with me!

* by fair rates of tax - I mean, due to the problem of climate change - than this can start low and increase progressively as technology / infrastructure matures (becomes more economical)...

... the idea should be, that then the SUBSIDIES (plus other government help) are removed and taxation increased in line with other industries...

"climate profiteering"??!?? - where do these "conservative" elements believe the funds for the next generation of environmentally friendly technologies will come from? Indefinite government funding?!? Surely these "conservative elements" realise - this is where future wealth creation in the US will come from?

I hope and pray for every successes of companies challenging climate change. They have my full support! I suspect from the majority of right-minded indviduals.

*A funny quote I heard from a US commentator recently was describing "challenging climate change is like a semi-religious obligation in the UK"...

Indeed, doing this will certainly involve some changes to people's way of life.

I think that these won't be hugely drastic. Merely that people will change as they become more aware of their impacts. Consumer power is only increasing in the age of the Internet...

Therefore companies whom incorporate this into their practices will be at an advantage.

Those that don't will fail ultimately - with particular reference to Ford's current $12 billion loss (it's greatest in 103 years!!) , for failing to see the GLOBAL PICTURE... rather than just the US market.

Now Ford is scrambling to catch the innovations of Toyota and Honda...

[Mike Kilroy]

The Wall Street Journal board and many conservative outlets despise anything the government would do in the "public benefit," which is, IMO, the only reason to have government (or an economy, for that matter).

In my work world of technology, the government set mandated standards for high-definition content from cable companies (which created the current craze for flat-panels), and mandatory e911 for cell phones, which created opportunities for location-based services such as real-time directions.

Government policy ALWAYS creates market opportunities (or stunts them). And that policy should be made in the best interest of the citizenry, then the market can respond. Isn't that American democracy and capitalism at its best?

[Mark C R (Chemist) UK]

Agreed Mike, and when it allows the best parts of human nature to flourish - like altruism .
I refer to a single example - "The Clinton Foundation" (an APOLITICAL organisation) - where people don't need money to make a contribution - even if it's merely encouraging others to do things to benefit society. And the fact that no contribution is too small...

Or the philanthropic endeavours of Mr Bill Gates or Warren Buffet...

The point is - we've probably reached a fundamental turning point in history.

Agreeing with some of the points that HRH Prince Charles mentioned at Harvard Medical School yesterday.

The conservative element (*note - I'd class myself as a moderate) need to understand that the classic sense of the "industrial age" is over - and that we are now in the "information age". If this is not understood correctly then these conservative elements once again could find themselves becoming irrelevant...

[John Powers]

Wow, this is heavy stuff

Mark C R says it all..
"classic sense of the "industrial age" is over - and that we are now in the "information age"

Such deep thought! How could a conservative fathom such a profound statement?

No no wait..Mike Kilory does...definitively refuting 170 years ago Fred "if we only broke more windows, more glaziers would have work" Bastiat canard-bait.

Can someone also refute Adam Smith's "more than two businessmen talking together in a corner justifies the suspicion that they are discussing devices in restraint of trade" as I think the Godfather of capitalism got it right here, 250 years ago, despite the profound thoughts of Kilroy and the Chemist.

JBP

[Mark C R (Chemist) UK]

John,

Thanks for the complement - I doubt very much anything I have said has been called "profound" before! Thats a new one on me.

By the way - I simply am a moderate - not that I'm part of the "conservative-element" in anyway. I'm as middle ground as you can get.

I'm not overly sure about what you say - I'll do some reading on the people you mention! (e.g. John Adams - all I know is that he was once a President of the United States.... from memory)... it's not high on the list for history education for people in the UK. So I think I did well there.

But I think (the "climate profiteers" and associated topics i.e. post-kyoto) its about being pragmatic here. That is go with what works - or what CAN BE MADE TO WORK!

Personally I don't think emission limits will limit the economy. I have copious amounts of confidence scientists (like myself) and engineers will be stimulated to develop new ways of getting around a problem. The implementation of limits themselves will be simple further impetuous. *with extra spending on R&D resulting from the limits... and the Carbon-Trading Schemes...

If anything these things will benefit the US/EU (western-) economies - since they force everyone to innovate technologically. This can then be sold on to other economies.

Remember we can't compete with low wage economies like-for-like!! We have to compete on our wits...

So think around the problem is what I believe. This is a long term strategy...

Look at the successes in the IT sector. Mr Gates and company... are a precursor of what I imagine regarding the "information" or "knowledge-based-economy" ... but spanning every sector...

Contrary to what you think - I believe that the limits on CO2 emissions - WILL STIMULATE TRADE - ah la an anti-John Adams-situation you quoted.

We are forced to develop technologies to get around that problem... and can sell them to each other.

I don't think this is an unrealistic vision. Infact, I'm pretty confident about it.

Regards,

"The Chemist"

Now off to * read up on John Adams (it's not too hard to know who that is) AND * what is meant by "Fred Bastiat: "if we only broke more windows, more glaziers would have work"" - I think he refers to Frederic Bastiat (1801-1850)... a French Economist...

**** Economists Bloody' economists!!! I suspect John Powers is one such specimin.

[Mark C R (Chemist) UK]

Oh my mistake - its Adam Smith.

Excuse my ignorance - I have NO IDEA who that is...

Probably yet another economist!...

[Mark C R (Chemist) UK]

Ok... I have the jist... of Adam Smith (AND John Adams!)

I have to point out - that these works were when economics took place between nations when the boundaries of the economics were well within the limits of the environment!

We've past those limits - so to prevent the collapse of the environment AND therefore the economy...

Maybe it is wise to establish some "limits" on the free-markets until technology catches up? Knowing very well human ingenuity - that shouldn't be very long! Especially in the "information age"
(SEE MY PREVIOUS COMMENT)

As they've (I'm quoting Stern) - economists have failed to account for the problems of environmental limits yet. A grosse market failure!! That could destroy the very basis of the economy - too much in the "here-and now" and not in the long term.

Stick that one - economists!

1-0 to the Scientists.

[John Powers]

Breaking these laws of economics is about as likely as breaking the laws of gravity...they are not time dependent.

It is not going to happen.

JBP

[Mark C R (Chemist) UK]

The laws of gravity get broken everytime the space shuttle goes into space John...

[Mark C R (Chemist) UK]

PS. I dont think economics is as "strictly defined" as the laws of the universe either.

They are the results of human nature and psychology ...

Therefore as human constructs - they can be changed at any time of our choosing.

Unfortunately, the "physical laws of the universe" have no input from human nature.
"Economic laws" do have.
So there's a fundamental difference...

[John Powers]

"The laws of gravity get broken everytime the space shuttle goes into space John..."

Wow, Newton would have a field day on that one. The massive amount of wrong in that statement would astonish most 8th grade physics students.

JBP

[Martin Edic]

There is a difference between 'profiteering' and 'profiting'. Profiteering is when a commodity company like Exxon Mobil reports its highest profits ever because they didn't simply maintain their margins and raise prices based on increased costs of goods sold (underlying increase in oil last year) but instead took the opportunity offered by the increase and increased their margins to increase profits. Given that oil prices are driven by war, more demand, terrorism, climate change, etc. this is not good business (profiting) but criminal activity (people are dying over oil and they are taking advantage of the consequent price run up).
This, of course, is my simplistic opinion.

[Mark C R (Chemist) UK]

"Wow, Newton would have a field day on that one. The massive amount of wrong in that statement would astonish most 8th grade physics students"

John,

I'm highlighting the fact it depends on the context you're talking about.

The law of gravity says that to go into space you must break the force of gravity...

Just like the economics you talk about - physics likewise is open to debate...

Anyway John.

I think we're all in line for a "new structure" to the economic system. And I think clean tech and alt energy will give a fairer more balanced element to it, that everyone has a stakehold in.

Thats my humble opinion.

[John Powers]

"The law of gravity says that to go into space you must break the force of gravity..."

No, it does not break anything. As related to the launch of rocket, the law of gravity allows one to understand the vertical force necessary to overcome gravitational attraction. People have known this for at least 400 years.

My point is, when tried and tested science is not fitting with political opinion, a certain element, both Right and Left want to change science.

When I read things like "clean tech and alt energy will give a fairer and more balanced element" on top of GE and Caterpillar trying to capture regulations before they even get started, it makes me cringe.

Why can't we let the energy market take care of itself? If gasoline costs $4 (in the USA), there are literally hundreds of alternatives that will develop. Why do we insist on using the energy market to drive some bizarre oligarchical socialism that deems our corporate saviors necessary to prevent global warming, that somehow will provide an equitable distribution of resources?

JBP

[robert veach]

Excellent article Joel!
I have been talking to anyone I meet about the advantages of buying green products and most people do not have the time or energy to educate themselves about products or services that meet this criteria. I have also been promoting a new company that will make it VERY EASY FOR ANYONE TO GO GREEN AND REALLY (I MEAN REALLY)EFFECT THE ENVIRONMENT!! TAKE A LONG LOOK AT THIS:
WWW.JOINTHESOLUTION.COM/YORKVILLE
thanks;
Robert Veach

[TJIT]

Sorry to inform you of this, but you need to know.

GE, ADM, et al are not meeting a market need they are creating a market for their unwanted product via mandates. Mandates often have unintended but very harmful impacts on the environment. The impact of increasing demand for biofuels provide a good example of this.

Virgin rain forests are being destroyed to plant palm oil plantations. The palm oil from these plantations is used to feed the growing demand for biofuels. These biofuels, which caused the destruction of the rain forests, will then be marketed by self serving companies as a green, environmentally friendly fuel.

We need less of this not more.

[Sue]

This is a very nice post, and I want to see how others react to this.