Climate Wars: Episode Two

With the skeptics almost silenced, businesses are fighting over how to cut carbon emissions

Remember the arguments for not taking action against global warming? Just a few years ago the claim was: "There's no evidence that the climate is changing." Then it became: "Well, maybe it is, but humans aren't to blame." That morphed into: "Warmer could be better, and we can easily adapt." And all along, we heard that cutting emissions would cripple the economy--and wouldn't make much difference because China and India weren't on board.

Forget all that. For most companies, the science debate is ancient history. The current argument, which could turn ugly, is about how the government should act to curb carbon emissions. "We've reached a tipping point on this issue," says Jeff Sterba, CEO of Southwestern utility PNM Resources (PNM ). Where automakers once fought the Kyoto Protocol, they're now backing mandatory greenhouse gas limits that could go beyond Kyoto. The Edison Electric Institute, a utility industry group, has come around despite its members' coal-fired plants. "Looking back, I wouldn't have believed it was possible EEI would evolve to where we are today on this issue," says James E. Rogers, CEO of Duke Energy Corp. (DUK ) On Apr. 11, ConocoPhillips (COP ) became the first major U.S. oil company to call for carbon caps. Even Exxon Mobil Corp. (XOM ), which has spent millions to raise doubts about climate change, now claims to have been misunderstood. "Our approach to this has evolved," says Kenneth P. Cohen, vice-president for public affairs.

There are still holdouts, not the least George W. Bush. His mantra is that China and India must sign on if the U.S. is to impose curbs. Peabody Energy (BTU ) has hired ex-House Majority Leader Richard A. Gephardt to lobby against carbon curbs. And while many companies are waving green flags, environmentalists worry that some are more interested in protecting themselves than in saving the planet, since those not willing to negotiate could face higher costs. As Charles Territo of the Alliance of Automobile Manufacturers says: "If you're not at the table, you're on the menu."

Whatever the motivations, a profound shift has occurred on global warming. With Congress beginning work on a slew of bills, "the entire discussion has progressed from 'nothing is going to happen' to wrestling over the details," says Philip E. Clapp, president of the National Environmental Trust. "The jockeying has begun."

ExxonMobil's Cohen, for instance, is talking up large reductions in carbon dioxide that could come from better auto-fuel economy. Wait a minute, the Big Three carmakers retort: Since cars generate just 20% of the nation's emissions, it's not fair for us to bear the brunt. Meanwhile, utilities are wrangling over how to dole out the rights to emit under a national cap on emissions. "All the groups are trying to get the best deal possible," says Brent W. Dorsey, director of corporate environmental programs at New Orleans utility Entergy Corp. (ETR )

The leading approach, found in most of the bills in Congress, is a system called cap and trade. The idea is that individual industries and companies must reduce emissions to a certain level. If they are unable to do so, they can buy rights or allowances from others who emit less than their set limit. The market then finds the least costly ways to cut emissions most quickly.

There are a host of thorny issues. If a power plant already produces a million tons of CO2 a year, does the utility have to buy allowances, or is it initially granted free credits for most of those million tons? Or if a utility has already cut emissions in anticipation of regulations, does it get credit for those reductions? Utilities such as Entergy, which have nukes and renewable energy sources, are complaining that their coal-heavy counterparts are angling for additional allowances and so will gain a competitive advantage.

Heavier coal burners, such as Duke and American Electric Power Corp. (AEP ), in turn say treating utilities equally would give the lower emitters a windfall. And the timing of mandatory reductions is crucial. "If we have to reduce carbon before we have the new technology to do it, we will put ourselves in a world of hurt," says Sterba.

Even as this fight over allocations heats up, many groups that once challenged the science are taking aim at the whole idea of cap and trade. Better to pass a tax on carbon, they say, which would be a more efficient way of encouraging business and consumers to make less carbon-intensive energy choices.

That's a favorite idea of Exxon, too. But cynics note that taxes have always been political suicide and therefore are unlikely to be enacted. It would also take a lot of trial and error to come up with a tax that limits emissions to a desired target.

Why the dramatic shift from resisting the science to wrestling over policy? One reason: The long contrarian campaign has lost credibility. The main goal, stated in company and trade-association documents, was to sow as much doubt as possible. As a 1998 American Petroleum Institute memo says: "Victory will be achieved when...recognition of uncertainties becomes part of the 'conventional wisdom.'"

The contrarians got years of mileage out of the early finding that satellite and balloon data didn't show atmospheric warming. Mainstream scientists discounted the data since such measurements are indirect, tricky, and prone to errors. Skeptics, however, had no such reservations. The data are "screaming that the...climate models are wrong," wrote Cato Institute senior fellow Patrick J. Michaels and two others in a 2004 Washington Times op-ed piece. "The science is settled. The 'skeptics,' the strange name applied to those whose work shows the planet isn't coming to an end, have won."

Not quite. With better analysis of the satellite measurements, the data changed. Even Michaels says: "Clearly, there has been warming." As for his earlier claim, he says, "who was going to anticipate that the satellite data were going to be revised?" Growing evidence knocked out a half-dozen other objections to the science.

In addition, contrarians have taken a hit from a savvier media. Instead of just quoting a scientist on both sides of the debate, journalists increasingly have assessed the weight of the evidence and explained who was behind the opposing views. "Once a story says 'funded by ExxonMobil,' it loses credibility," says Greenpeace Research Director Kert Davies. The oil giant has now closed its cash spigot to some groups challenging global warming. "The funding was unfortunately becoming a distraction," says ExxonMobil's Cohen.

The doubters haven't disappeared completely. Michaels now says: "It's hardly news that human beings have had a hand in planetary warming," but he still argues that warming could be beneficial. "Who's to say we have the best climate now?"


Companies find it's no longer worth arguing this point. They're coming to the bargaining table for many reasons beyond the science. On Apr. 2 the U.S. Supreme Court ruled that the Environmental Protection Agency can regulate CO2 as a pollutant. That could bring legal challenges and EPA-imposed mandatory curbs. "The fear that the next Administration's EPA would have its hand on the lever is a great motivator," says Natural Resources Defense Council attorney David D. Doniger. Plus, a growing patchwork of state carbon-emissions limits has prompted industries to push for a preemptive national law. And as energy executives face decisions, such as what kind of power plants to build for the next 40 years, they want regulatory certainty.

Despite the tough road ahead, proponents of action inside companies are thrilled that the policy fight has finally begun. "We are long past debating the science," said Entergy CEO J. Wayne Leonard in a recent speech. Waiting for stronger evidence is "the equivalent of bleeding out of every orifice of your body and hearing your doctor say: 'Before we rush to judgment, let's wait until all the facts are in'--meaning your autopsy."

By John Carey, with Adam Aston in New York

    Before it's here, it's on the Bloomberg Terminal.