How Duke Energy's Jim Rogers helped break down his industry's resistance to the carbon cap
In a May 26 speech, President Obama promised that the worst oil spill in U.S. history won't keep him from "fighting to pass comprehensive energy and climate legislation"—including a cap on carbon emissions. The cap faces ferocious opposition in Congress from oil- and coal-state politicians, Democrats and Republicans alike, who fear it will drive electricity rates to unsupportable levels and send jobs overseas. This adaptation from The Climate War, the new book by Bloomberg Businessweek Deputy Editor Eric Pooley, tells the story of one power company boss, Duke Energy CEO James E. Rogers, who is navigating these difficult choices for his shareholders, his customers, and, he says, his grandchildren.
When Jim Rogers introduces himself to an audience—something the president, chairman, and chief executive of Duke Energy (DUK) does many times a month in speeches and panels around the country—he likes to start by explaining how much pollution it takes to generate power for 12 million people in five states. "We're the third-largest emitter of CO2 among corporations in America because we generate 70 percent of our electricity at 20 coal-fired plants," he says. "Of all the companies in the world, we're the 12th-largest emitter of CO2. I share these numbers with you not to brag, but to give you a sense of my special responsibility, the daunting job in front of me. And for you to understand why I have such passion about confronting the climate issue."
Rogers says these things in a disarming Kentucky drawl that quavers slightly, like any good preacher's, as his sermon takes flight. He can talk the down off a duckling, but environmental activists—especially in Charlotte, N.C., where Duke Energy is based—dismiss him as a fraud, a greenwasher, a silver-tongued huckster with world-class PR. As proof, they point to a place 50 miles west of Charlotte, called Cliffside, where Duke Energy is building a new 825-megawatt coal-fired power plant that has no chance to capture or store any of the carbon dioxide it will be sending forth over the next 40 or 50 years. Rogers calls it "the last coal-fired plant I will ever build." But for those acquainted with climate science, which has concluded that emissions reductions are necessary to avoid potentially catastrophic global warming, that isn't good enough. So activists picket Rogers' annual meetings, chain themselves to Cliffside's bulldozers, and fall to their knees at conferences where he appears, begging him not to build the plant and asking how he sleeps at night.
"How I sleep at night," he tells them, "is Lunesta."
Coal-fired power plants like Duke's generate cheap, plentiful electricity. One reason they're cheap is that they spew their CO2 for free. When the industry finally starts to capture and store that CO2 in underground aquifers, in a process known as carbon capture and sequestration (CCS), coal-fired power won't be so cheap anymore. That's why keeping the lights on and the power affordable while cutting emissions is what Rogers calls "the greatest judgment of what I do. I have seven grandchildren. They will judge me someday. When they are my age they will look back and say, 'My granddaddy, he had this ecological crisis....What did he do?'"
What he did, beginning in 2006, was to join nine other Fortune 500 chief executives and the leaders of four national environmental groups to create a lobbying coalition intended to break the American business community's de facto veto power over climate legislation. The U.S. Climate Action Partnership (USCAP), as the coalition called itself, got its start early that year when two green leaders, Fred Krupp of the Environmental Defense Fund and Jonathan Lash of the World Resources Institute, recruited Jeffrey R. Immelt. The General Electric (GE) chief helped bring in the CEOs of nine other corporations (membership later grew to 25), including Alcoa (AA), DuPont (DD), Caterpillar (CAT), and BP America (BP). The companies had compelling business reasons for backing carbon regulation. GE, the biggest wind turbine maker in the U.S., was developing carbon-capture technology. A single wind turbine included 14 products made by DuPont. That made their participation logical—and diluted its impact. The coalition needed someone with plenty at stake, someone whose company spewed huge amounts of CO2. They needed a high-emitting, smooth-talking, coal-fired power boss willing to buck his own industry. They needed Jim Rogers.
A TRIAL RUN
In the late 1980s, as the newly minted CEO of PSI Energy—a small, beleaguered Indiana utility that, through of series of mergers and acquisitions, eventually became part of Duke Energy—Rogers got on the wrong side of some of his fellow utility bosses by supporting a mandatory declining cap on the sulfur dioxide pollution that causes acid rain.
His industry was almost universally opposed to this so-called cap-and-trade program, but Rogers saw a way to make money: The free allowances and rate increases that would come with the program gave his cash-strapped utility a capital injection. Rogers, who got his start as an energy lawyer at Akin Gump Strauss Hauer & Feld, also remembered a piece of advice that his former boss, the political fixer Robert Strauss, had given him: "When you see a parade form on an issue in Washington, you have two choices: You can throw your body in front of it and let them walk over you, or you can jump in front of the parade and pretend it's yours."
Up at the head of the acid rain parade Rogers met another young, energetic CEO: Fred Krupp of the Environmental Defense Fund (EDF), the centrist group that helped design the acid rain cap-and-trade program and push it through Congress in 1990. They didn't get to know each other well, but Rogers appreciated that Krupp didn't treat him like a villain. Krupp appreciated that Rogers was just about the only coal-fired utility boss to testify on behalf of the program.
The cap-and-trade program proved enormously successful—cutting acid rain pollution ahead of schedule for a fraction of the projected cost—but utility bosses are a blunt group with little tolerance for flamboyance. Rogers was cast as a slippery self-promoter. "He was talkative and very public, and they resented him for it," says Entergy (ETR) CEO J. Wayne Leonard, who worked for Rogers for 10 years. "They called him the Elmer Gantry of the electric industry, but Jim had a lot more conviction than people gave him credit for."
By 2008, as the Lieberman-Warner Climate Security Act became the first global warming bill to move through committee to the Senate floor, Rogers was at it again, this time with carbon. Some of his peers thought global warming was an Al Gore hoax, and here was Rogers playing the visionary at climate conferences, drawing up plans to decarbonize Duke Energy by 2050 and spouting other radical ideas that could disrupt the industry and put whole companies out of business—maybe even Duke, if he wasn't careful. Rogers saw something most of his counterparts did not. "I've never had a polar bear moment," he says. Rather, he had come to view the climate problem as a business opportunity, just as acid rain had been. "I made money on sulfur," he would tell people, "and I'll make money on carbon."
Rogers wasn't sure whether he was going to be able to support the Lieberman-Warner climate bill, which would have put the U.S. economy on a carbon diet, cutting CO2 emissions by about 50 percent by 2050. He wanted to support the bill, but the numbers had to work for Duke: Congress had to give his company enough free carbon allowances—permits granting Duke the right to emit CO2—to make the transition to clean electricity affordable for his customers. He was the first to admit that he didn't know how it was all going to turn out. "I'm a work in progress, O.K.?" he likes to say. "I make it up as I go along."
One of Rogers charms is that he's so consistently, so gloriously indiscreet—about politicians ("what is she smoking?"), rival energy executives ("he's the ultimate shill"), even his colleagues at Duke ("some of them are way too Republican for me")—that he appears to be winging his way through life. It's a carefully calibrated illusion. "I'm real friendly and open and extroverted, in appearance," says Rogers. "But I'm constitutionally introverted."
Krupp, EDF's leader since 1984, didn't project such a vivid public persona. Yet he was uncommonly driven, intelligent, and shrewd, with an eye for an important idea—environmental economics, or using market mechanisms to drive the green agenda—and the audacity to appoint himself as its champion. Krupp was often attacked by the environmental left because he forged partnerships with industry and pushed for agreements that the left couldn't stand; he had a bias for action. What they called sleeping with the enemy, Krupp called dealing with the world as it is rather than as he wished it to be. Capitalism had gotten us into the climate mess, he believed, and capitalism was the only thing that could get us out of it.
Unless the U.S. embraced a global treaty similar to the one that led to nuclear disarmament—with concrete reduction goals, monitoring, and verification—Krupp didn't see how the world would make any progress on global warming. It was that basic; he had never heard another theory of victory. All the other scenarios amounted to voluntary measures that had been tried and had failed. Even a small carbon tax, which didn't have the votes to pass, wouldn't necessarily reduce emissions. Only a cap could do that, he believed. Only a cap.
The heart of a cap-and-trade program is simple: A mandatory, declining limit on pollution. The controversial and often misunderstood part of the program—the trade—is basically a way to smooth costs by allowing emitters to buy and sell the right to pollute. Trading establishes a price for the commodity and allows innovative companies to profit from going green. Although few outsiders realized it, Krupp had pushed cap-and-trade for sulfur dioxide as a test case, a precursor to the carbon cap he believed would come. Rogers had been an unlikely ally the first time, so naturally Krupp courted him again. Much of Rogers' industry was against him, as were important members of his team at Duke Energy. People throughout the organization were mystified that a utility CEO would make common cause with the greens. Don't get in bed with the enviros, they told him. They'll poison you in your sleep. By November 2006, Krupp could see that the CEO was wavering about committing to USCAP, so he called Rogers and suggested they meet for dinner. At a steak house near Duke's Charlotte headquarters, Rogers made it clear that he needed free allowances and a path forward for coal, or he couldn't stay onboard. He wasn't about to let Krupp know how many allowances he needed. He didn't really know himself.
By the time the plates were cleared, the two were feeling some rapport. Krupp decided Rogers really wanted to do something about Duke's carbon emissions, and that was Krupp's bottom line; either the guy meant it or he didn't. And if he did, Krupp would try to help him get there. If Rogers wanted to be part of a solution, it didn't matter to Krupp that he also wanted to get the best deal for his company. Rogers thought Krupp was smart as hell, and that he had the ability, rare among environmentalists, to see economic problems the way a businessman might. He walked out of the restaurant thinking, I'm really going to do this, if I can cover my ank on a couple of things.
Before long, Rogers had become Corporate America's swing vote on climate. If he supported a bill, he'd bring other power executives and important politicians along with him and it had a fighting chance. If he denounced a bill, that meant it was probably dead. He wanted to fix the climate and make money for his shareholders and keep the lights on for his customers. He wanted it all. Was that even possible? He had no idea.
Throughout 2007 and 2008, while USCAP members were involved in protracted internal negotiations over the fine points of their cap-and-trade blueprint, Rogers was working both sides of the issue: Supporting cap and trade in theory, but doing his best to kill Lieberman-Warner, the cap-and-trade bill that actually did exist. It died, with his help, in June 2008, the same week Barack Obama clinched the Democratic Presidential nomination. After Obama won the election, Rogers could see the climate issue ripening. It was time, he thought, to join the parade.
THE OPEN WINDOW
As Obama prepared to take office during the worst economic crisis in 70 years, the President-elect promised to "mark a new chapter" in the fight against global warming. "That will start with a federal cap-and-trade system," he said in a video beamed to a climate conference hosted by California Governor Arnold Schwarzenegger on Nov. 18, 2008. "Delay is no longer an option. Denial is no longer an acceptable response."
Environmental leaders were thrilled that Obama was making the cap a top priority. But transition aides were soon telling reporters that the speech was not a signpost to governance. "Barack's video was still part of campaign mode," said a top climate and energy adviser. "It was about sending a message, not setting a timetable for legislative action." No decisions had been made about when or how to proceed.
In mid-January 2009, Rogers, Krupp, Immelt, and Frances Beinecke of the National Resources Defense Council met at Obama's D.C. transition office with transition chairman John Podesta, climate and energy adviser Carol Browner, and economic adviser Larry Summers. Walking into the meeting, the USCAP leaders expected the discussion to focus on the stimulus bill, but Summers stunned them with an argument for fast climate action because uncertainty was freezing investment decisions. "If you give executives a yes-or-no answer they can act accordingly," he said, "but when you tell them you don't know the answer, they tend not to act." That was only one reason to move forward now. "For the next two or three years we're going to have to fight the recession, and we're not going to do it by creating another wave of [information technology] spending," he said. Summers noted that the Japanese economy stagnated for an entire decade because it never found another source of demand. He saw the cap as the crucial demand driver. "It's like two blades of a scissors," Summers said. "Stimulus spending is one blade. And a cap-and-trade mechanism will be the other."
With an advocate for climate legislation moving into the White House, the environmental community saw a window of opportunity and quickly began to overreach. Rogers was unnerved when a coalition of 29 environmental groups—including EDF and NRDC, his partners in USCAP—sent a set of policy prescriptions called "Transition to Green" to the new Administration. It endorsed auctioning rather than giving away the pollution allowances in a cap-and-trade system; he was still hoping to get the allowances for free.
When he read the document, Rogers was beside himself. If EDF and NRDC blocked a USCAP plan calling for free allowances, he was going to walk. The problem wasn't so much Transition to Green; the enviros were always coming out with manifestoes. This one mattered because it was endorsed by EDF and NRDC, and he needed to know that Krupp and Beinecke had his back. So his people put out the word: Rogers wasn't going to sign on to the blueprint unless it gave the power sector 40 percent of the allowances. He also had to satisfy himself that EDF and NRDC would stick to the agreement. Which side were Fred and Frances really on? Rogers was going to find out.
On Jan. 15, 2009, the USCAP CEOs came to Capitol Hill to unveil their blueprint for cap-and-trade. The schedule was packed: a breakfast with senators, a press conference, and a hearing before the House Energy & Commerce Committee. The breakfast did not go well. "You all should be ashamed of yourselves," said Tennessee Senator Bob Corker, the first Republican lawmaker to speak to the CEOs. "If I was on your board and you came to me with a plan like this, I would fire you." He called their blueprint "a Rube Goldberg scheme" designed for their self- serving interests. The free allowances, he said, were "the equivalent of cash or marketable securities," windfall profits to be stuffed into the CEOs' pockets.
The room was astonished: A wealthy, conservative Republican was using talking points from the left to eviscerate two dozen of the most powerful executives in America. Rogers responded first, a slight quaver in his voice as he explained why the allocation of free allowances was not the allocation of profit. Allowances weren't like marketable securities—Duke wouldn't be able to sell them; they allowed it to operate its plants.
Jeff Immelt spoke last. "I can't let this stand," he said softly. "Senator Corker, I have great respect for you, we'd love to work with you, but I have to tell you that what you said this morning was way too personal. You basically said we're pigs at the trough, and I can't let that stand. We've worked for two years trying to find a way to move things forward. We made an honest effort, and the tone you have taken is just not right."
Rogers had no reason to believe the rest of the day would go any better. The hearing was the first to be run by Henry Waxman since the liberal from Beverly Hills unseated Detroit's John Dingell as Energy & Commerce chairman. On top of that, Ed Markey, the Massachusetts liberal who chaired Speaker Nancy Pelosi's select committee on global warming, took over as chairman of the en