March 26, 2010
The Coming Policy Debate Even Uglier Than Health Care
We are coming out of our long, national nightmare. One of the dirtiest political fights in memory is over (sort of). But if you think the health care debate got rough, wait until President Obama and Congress turn to energy and climate -- which they're most definitely going to do.
You see, the worst claims about health care -- that it's a huge expansion of government power or, okay, let's say it, a plot to kill Grandma -- were never based in reality. What we've ended up with is actually a fairly mild bill, including access to coverage for millions more people and restrictions on the harshest practices of insurance companies. But it's not remotely a government program. The so-called "public option" did not even end up in the bill. There is no new giant government health care program beyond the existing giant government health care programs that people seem to love (like Medicare).
But putting a price on carbon and changing our energy mix over the next generation? That kind of law will be a large program by definition. To tackle an economic externality -- those pesky costs to society that are not currently priced into markets -- you do have to get muddy, and it most likely will entail an awful lot of mud-slinging.
So many of the complaints about a cap-and-trade law that we will hear over the coming months will be different from the health care claims in one very important aspect: they will actually have some basis in reality. A cap will affect the cost of all energy and thus all aspects of our lives. It will, for some, raise the cost of doing business. There will be winners and very definable losers in a new energy and carbon regime. When it comes right down to it, there will be blood.
Those who produce mainly fossil fuels could be in trouble. Businesses that operate inefficiently will see their costs rise -- fast -- compared to the competition's. Companies that stick with a portfolio of less sustainable, more energy-intensive products -- anywhere in their value chain -- will face life-threatening challenges (think GM in 2008 when oil hit $145 a barrel).
I believe strongly that decoupling our economy from carbon will benefit us greatly (regardless of the debate on climate change). The benefits include...
- lowering our costs and increasing our profitability and resilience
- costing much less than inaction on climate (see the famous Stern Report for the macro-economics on this)
- reducing our reliance on fuels from parts of the world that fund our enemies
- making us healthier as we reduce air pollutants
- making us more competitive globally in the great race to multi-trillion-dollar environmental technology markets
Those impacts will not be felt equally across all aspects of the global economy. As we invest in efficiency, the sector that provides our energy will not fare well if it doesn't adapt. But the general position of organizations like the U.S. Chamber of Commerce that climate action is bad for business is absurd; these groups are placing the interests of one sector -- albeit a large and powerful one -- against the interests of all the others that will benefit from higher efficiency and lower operating costs.
So, in the place of death panels killing grandma, we'll have stories of how high energy prices will make heating homes in winter expensive... and, you guessed it, kill grandma. These arguments will ignore the countervailing levers of energy efficiency, retrofits, and weatherizing that will lower energy costs overall. And instead, we will hear (mostly made up) stories of businesses that will go under from new carbon laws.
But in this case, unlike with health care scare tactics, there will be some gems of truth hidden in the argument. So, yes, it will get ugly, but I have hope today that the forces of reason -- and the voices of the companies representing literally trillions in revenue that want climate action and more regulatory and market certainty -- can win out.
[This post originally appeared on Harvard Business Online]