Dr. James Brander, the Asia-Pacific Professor of International Business in UBC’s Sauder School of Business, explains the significance of the conference, discusses the increased role of the private sector in reducing Green House Gas (GHG) emissions, and shares his thoughts on an ideal outcome from COP21.
Dr. James Brander. Photo credit: UBC Sauder School of Business.
How significant is this Climate Change Conference?
This conference is getting a lot of attention and I think that is the primary output of the conference – generating attention or consciousness-raising. Therefore I see the conference largely as a public relations activity. This is not criticism. The conference reminds people that climate change is important and energizes them to take action in the future. A lot of the benefits of the conference will come from the efforts of individuals and organizations that respond in the future to issues raised at the conference. So, I see the value more in terms of long-run potential, not in concrete current actions.
It appears there is an increase in interest from the business sector (for example, the Breakthrough Energy Coalition) at the conference, as compared to previous years. Why do you think this is happening now?
The seriousness of climate change is getting more and more obvious to the business community and to everyone else. Not that it wasn’t obvious ten years ago, but every year the effects of climate change are clearer. The scientific evidence is increasingly convincing that global warming is important and costly and that it is caused mainly by human activities. As consumers, corporate shareholders, and governments become increasingly concerned about climate change it becomes increasingly important for business as well. The growing concern about climate change implies both increasing opportunities and increasing potential concerns for business.
What contributions can the private sector make in meeting climate related goals?
Most economic activity is carried out in the private sector, including the use of fossil fuels that generate greenhouse gases and cause global warming, You can’t achieve significant environmental goals without having the private sector involved in a big way. The question is: what is the right way of harnessing the private sector activities? Should taxes and subsidies be used? What about regulation or emission standards for greenhouse gases? Should we rely on opinions of consumers and shareholders and executives to change corporate behaviour? What is the right role of governments, the role of non-governmental organizations or supra national organizations like the UN and so on? Figuring out who does what is one of the hard questions.
Where do the biggest challenges for business lie?
One big challenge for business is how to respond to consumer attitudes regarding the environment. The activities of companies are now monitored on a daily basis by various stakeholders, many of whom use social media. Twenty years ago, it was often hard to find out the effects of corporate actions on the environment. Now, when bad things happen, the news gets out very quickly. When good things happen, that news also gets out there quickly. So, in the information age that we belong to, the stakes regarding the effects of business on the environment have gone up. Companies now have a stronger incentive to do things that are seen as being in the public interest as it affects their bottom line (profitability). When companies pursue socially responsible actions out of concern over the bottom line we sometimes call that strategic Corporate Social Responsibility (CSR) because the action is a good strategy (doing well by doing good). If a company like Exxon or BP has an oil spill, people find out about it quickly and the spill has a negative effect on stock prices and revenues right away. Even if all the company cares about is the bottom line, they need to be much more focused on climate change and other environmental issues than they used to.
A second challenge for business is to assess how far to go in pursuing altruistic CSR -- undertaking environmentally friendly activities such as reducing greenhouse gas emissions simply because it’s the right thing to do. Many people have argued strongly that corporations have responsibilities beyond just maximizing profits for shareholders. They have responsibilities to the communities in which they reside, to their workers, to their consumer base and to the world as a whole. This idea has taken root more firmly in the private sector than before and many senior executives take it seriously. The Breakthrough Energy Coalition, led by business icons such as Microsoft founder Bill Gates, Facebook founder Mark Zuckerberg, and investor George Soros, is an example of a private sector enterprise set up to combat global climate change by promoting investment in alternative energy technologies.
A third challenge is competitive pressures. If some companies pursue a responsible policy towards the environment and other companies don’t, the less responsible company may gain a cost advantage. For that reason it’s important at the government policy level to try and make sure that it is difficult for companies to evade environmental standards. For example, it is important that some countries do not become “pollution havens”. While we can’t fully equalize environmental standards across all countries, we can improve on the current situation through international agreements.
On the first day of the conference, Canada announced an increase in investment in clean technology development by $300 million ($100 million per year for green technology producers and $200 million per year to support the use of clean technology in the natural resource sector). How much of an impact do you think this will have?
An investment of $300 million per year is not a large amount. Many individual companies spend much more than that on R&D in a year. However this subsidy has symbolic value. In addition, it might generate useful specific innovations, depending on exactly where it goes. If we are talking about seed research in the private sector or university-based research, you can do a lot of early stage development for that amount of money. However, when it comes to converting early stage research to commercialization – converting ideas and prototypes into useable energy technologies, that is very expensive and will require a lot of private sector investment.
Meeting of delegates at UN Climate Change Conferene in Paris. Photo credit COP Paris, Flickr.
What would be, in your opinion, an ideal outcome from the conference?
My answer is pretty simple. It’s not an original idea, as economists have been saying this for a long time, but I think that by far the most important policy is a carbon tax. I would like to see the conference start to build a consensus that a substantial carbon tax is the right way to go. And I would favour significant tariffs on relevant products from countries that did not adopt significant carbon taxes.
There is a lot of talk about carbon trading regimes, cap and trade systems, and related policies. However, much of their appeal is that not many people understand them. And they are often implemented in a way that provides a financial benefit to companies that are responsible for greenhouse gas emissions, in effect “buying off” those who do understand the policy and might be able to block it. If such systems work well, they are really just like a carbon tax as companies have to pay to purchase the right to use carbon-based fuels. Like most economists, I favour a tax as is simpler, more transparent and typically more effective. But there is a lot of resistance. People don’t like higher taxes of any sort, particularly gasoline taxes that they see every time they buy gas.
Gas Station in Vancouver's Coal Harbour. Photo credit Cord Rodefeld, Flickr.
If we wanted to be serious about reducing greenhouse gases, we would tax carbon emissions significantly. We have a carbon tax here in BC and I’m all in favour, but it is small. I think to get an efficient tax that would have any impact on global warming, we need to think about doubling the price of gas in BC and something similar in other parts of the world, particularly China, India, Russia and the United States, However, such taxes are very unpopular with consumers.
Carbon taxes can be used to dramatically reduce other taxes. Like many economists I favor a big increase in carbon taxes and large reductions in other taxes. Carbon taxes set at an appropriate level in Canada would allow for Canadian income taxes to drop by perhaps 40% or more. This is not a free lunch, however. The income tax reductions would be offset by paying much higher taxes on gasoline, heating oil, airline travel, etc. But the use of carbon-based energy and the resulting greenhouse gas emissions would be dramatically reduced and the average quality of life would rise. Economists sometimes refer to a “double dividend” from carbon taxes. One dividend is a better environment and the other dividend is a better economy – generating highly quality of life.
I personally think the economic case for a carbon tax is very strong. However it would be a fantasy to believe that all 150 plus participating nations at the conference would impose a uniform binding carbon tax as they cut other taxes. We could rebalance the tax system in a way that makes us better off, not worse off, but that’s very hard to achieve and it’s very unpopular. Even if you say it will be revenue neutral, people don’t really believe you. Many people will expect carbon taxes to be used as way for governments to just increase revenues instead of lowering other taxes. And, in fairness, such suspicions are not unfounded. Carbon taxes are also very unpopular with the business community. This is largely due to entrenched interests. If a significant carbon tax was introduced it would be very damaging to businesses that produce, sell and consume carbon-based products – oil companies, airlines, taxis companies, the motor vehicle sector, etc. Those companies know who they are and lobby vigorously against such taxes. Carbon taxes would create opportunities that other companies—companies developing alternative technologies, for example. But most of those potential beneficiaries do not even know who they are at present. They are not in a position to lobby in favour of carbon taxes. Nor are the future generations who would benefit from slowing global climate change able to vote or lobby.
What can universities do when it comes to these issues?
Universities play a fundamental role in addressing global warming. One important contribution is providing education and understanding of the issues for both current students and for the broader community. University-based research is also an important contributor to finding alternative technologies and other innovations that will help us meet our energy needs while reducing global warming and other type of environmental harm.