Business Action to Tackle Climate Change (Reviews and Prospects of ICEF 2017 Concurrent Sessions)

Posted by Jun Arima October 31, 2017 Professor, Graduate School of Public Policy, The University of Tokyo

It was a great pleasure for me to have had an opportunity to moderate the session on “Business Action to Tackle Climate Change”. With excellent panelists, Mr. Ted Nordhaus (Breakthrough Institute), Mr. Hiroyuki Tezuka (Keidanren), Mr. Philippe Fonta (WBCSD) and Ms. Nicolette Bartlett (CDP), our discussion touched upon many issues including feasibility of the 2 degrees target, sector specific approach across countries, necessary policy/business environment for disruptive innovation and role of carbon related information disclosure. Here are some perspectives I have got from the discussion.   

First, I strongly concurred with blunt comments by Mr. Nordhaus that 2 degrees target is not likely to be achieved and that we should drive innovation not only for mitigation but also for adaptation and resilience. Compared with politically-correct but unrealistic narrative among climate circle, I found this assessment far more honest and persuasive. Nevertheless, no matter whether or not we are likely to achieve 2 degrees target, we need to go towards that direction and business sector must sit in a driving seat.

Second, in discussing business actions for tackling climate change, we need to have a broad perspective going beyond company/industry as well as national boundary. Both Mr. Tezuka and Mr. Fonta presented sector-specific approaches across countries aiming at improving carbon intensity in steel and cement sectors. While these activities are encountering various challenges such as data collection, data confidentiality and global coverage, such cross country approach is highly relevant in coping with global nature of climate change problem. In doing so, it is crucial to ensure cooperative, facilitative and encouraging exercise and to share BAT (best available technologies) among participating companies. Finger-pointing or hostile approach is simply counter-productive. We also need to pay attention to CO2 emissions based on LCA (life-cycle assessment). If company A produces intermediate products which could contribute to efficiency improvement of final products of company B, there could be a case where life-cycle CO2 emissions could be lower while company A emits more CO2 emissions. There could also be a case where company C produces a highly efficient final product consuming more energy, but ultimately contributing CO2 emissions reduction in the final consumption stage surpassing increased CO2 emissions in the production stage. Companies’ mitigation performance tends to be evaluated based solely on their own emissions. Carbon pricing policies such as carbon tax or emissions trading scheme have also been applied along this line. However, such approach is too narrow to capture CO2 emissions across companies/industries as described above.

Third, given the crucial importance of innovative and disruptive technologies for long term GHG emissions reductions, governments must play a crucial role including government R&D for high-risk and long- term technologies. In doing so, however, governments also need to be careful not to fall in a trap of “picking winners”. In particular, excessive subsidies to existing technologies could erode cost-effectiveness and should be avoided. In fact, innovation is increasingly occurring from “unexpected marriage” of various technologies in various fields. This is particularly true for such innovation using IoT or AI, which is not necessarily driven by climate agenda. From this viewpoint, it is the most important role of governments to ensure a good macroeconomic performance and corporate profit, which is the prerequisite for long-term R&D investment. Governments should also ensure that their regulation would not result in discouraging innovation.  

Fourth, business sector should be rewarded for their contribution to mitigation. In this regard, as presented by Ms. Bartlett, the on-going carbon related disclosure led by CDP is extremely useful since their assessment could incentivize possible investment flow. Internal carbon pricing is a useful “proxy”, but its level is not the sole criteria for evaluating business sector’s action on climate change. Since carbon related disclosure will become increasingly influential in investors’ decision, its metrics need to evolve so as to capture companies' holistic contribution based on not only their own emissions but also their contribution to CO2 emissions reduction beyond company/industry/national boundary. In this process, active dialogue with business stakeholders would be crucial.

While two hours’ time slot was too short to deepen discussion on these issues, I have learnt a lot from it and hope it was the case for the audience.