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Between the Rio Earth Summit of 1992 and the United Nations climate conference (COP21) which began on Monday in Paris, the need to combat climate change has gained palpable urgency.
Countries once in denial or dithering have now fallen in line as they face the overwhelming science that demands action, the threat of food shortages and hotter years. The minimum expectation from the two-week Paris summit is an international agreement, with hopefully workable means to enforce it. Businesses, led by Microsoft founder Bill Gates, have pledged investments in technology to cope with climate change, hoping to persuade others to join in. Yet, all of this is still a beginning of sorts, according to experts at Wharton and the University of Michigan.
The presence of U.S. President Barack Obama at the meet along with leaders from more than 150 countries is “the first step in the process,” said Howard Kunreuther, Wharton professor of operations, information and decisions and co-director of the school’s Risk Management and Decision Processes Center.
“The starting point,” as Kunreuther saw it, was Obama’s move to “band together” with China and India “and highlight how they are committed to reducing greenhouse gas emissions as a way of trying to encourage all the nations who are in Paris to do the same.” Obama also noted that since 2000, the world has seen 14 of the 15 warmest years with 2015 set to close as the warmest of all. “No nation is immune to what this means,” Obama said.
The battle against climate change is like “a social movement” with “shifting beliefs and ideas,” said Andrew Hoffman, professor at the University of Michigan’s Graham Sustainability Institute and director of its Erb Institute for Global Sustainable Enterprise. He cited the Pope’s call in June for a social dialog on climate change as critical. “The religious community also has to be a part of this conversation — the church, the mosque, the synagogue, the temple,” he said. “That will have the power to convince and compel that will match or even exceed the monetary incentive.”
“[Climate change] is a long-term problem, and people have a challenge recognizing that in the short term.”–Howard Kunreuther
Kunreuther and Hoffman discussed the issues informing the climate change deliberations in Paris on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
Business to the Fore
The big surprise in Paris has been Gates announcing “Mission Innovation,” a coalition of 20 nations including the U.S., India and Saudi Arabia and 28 investors including Virgin Group founder Richard Branson, Saudi Arabian investor Prince Al-Waleed bin Talal and Salesforce.com chairman and CEO Mark Benioff. Gates has personally pledged $1 billion in investments to power and commercialize clean-energy technologies, especially in wind and solar; the others have so far committed $2 billion.
“If we are going to find any solutions it has to come from the corporate sector,” said Hoffman. “At the same time, governments need to play a strong hand if we’re going to have an agreement with some teeth.” Developed countries must also help developing countries like China and India with financial and other resources to do their bit to combat climate change, said Kunreuther.
A Difficult Balancing Act
However, Hoffman warned of a “difficult balancing act” between governments and business interests in that endeavor. He said any agreement could be “watered down with a more conservative approach from the business community,” which is why “the government needs to be at the table and be a strong player in that conversation.”
Hoffman predicted that “there would be some kind of agreement” from the Paris summit. The earlier rounds in Kyoto in 1997 and Copenhagen in 2009 are now widely seen as failures. “After the failure in Copenhagen, to walk away [from Paris] empty handed would be a tremendous stall in the process globally to deal with this issue,” he said. He hoped that “a framework will emerge that can be built upon, tightened and strengthened as we go.”
Hoffman was skeptical about the possibility of the Paris agreement including the target of restricting global warming to two degrees Celsius above pre-industrial levels. That would mean net emissions must come to zero in just 20 more years, according to various studies. “The two-degree number is not feasible to shoot for right now,” he said. He explained that the world has overshot that number “by such a great deal” that bringing it down so sharply would be “extremely challenging.”
Even if the two-degree goal is not feasible, Kunreuther said “the steps that can be taken today are critically important.” In order to get on that road, “innovation is critical,” he added. He noted that businesses are reluctant to make large upfront investments in solar and wind, calling them unaffordable.
“The more businesses and individuals adopt energy efficiency, the easier it will be to reduce [prices].”–Howard Kunreuther
Kunreuther called for short-term incentives to support such investments so that they eventually become profitable. “Bill Gates is complementing that by saying that if we have new developments, we will reduce the price of energy efficiency to a point where it will be competitive with coal and fossil fuels,” he pointed out.
Narrowing the Political Divide
One big obstacle is the conservative Republican position that disputes the threats of climate change, noted Hoffman. “We need to address the sharp partisan divide in this country where the majority of Republicans don’t think climate change is real and the majority of Democrats do,” he said.
However, public pressure to do something is increasing. Kunreuther pointed to a recent survey by the Yale Program on Climate Change Communication that said 71% of Americans feel it is important to reach an agreement in Paris. He noted that 85% of Democrats surveyed and nearly two out of three Republicans felt the same way.
According to Hoffman, the Yale survey revealed “that Republicans are starting to move on this issue in terms of the rank and file.” In the face of those changes, he questioned the “political calculus” for conservative Republicans on climate change. “Many of them are afraid to step out for fear that the voting base will hammer them,” he said. “Are they misreading a moving landscape?” Once conservative Republicans move toward accepting the science on climate change, “we can get more towards the question of what to do about it.”
The Paris summit highlights “the importance of dealing with this problem now [and] today Twitter ,” said Kunreuther. “It’s a long-term problem, and people have a challenge recognizing that in the short term.” He hoped the deliberations at the conference will help convert long-term goals into short-term action plans.
Next, enforcement of the commitments made in Paris will be critical, said Kunreuther. He suggested developing incentives for countries to adhere to the plan. He also called for regular meetings between nations to review their progress, perhaps more frequently than the current schedule of once every five years.
In order to see results, “the political groundwork has to be built here [in the U.S.] and in other countries to accept and act upon what comes out of Paris,” Hoffman added.
Kunreuther noted that the development of energy efficient technologies is critical to make clean energy price-competitive with fossil fuels. “The more businesses and individuals adopt energy efficiency, the easier it will be to reduce the price,” he said. Here, government policies will have to play the role of driving a market shift in consumer demand, he added.
All said, Hoffman wondered if technology alone could bring about the changes required within the global community. “As the population grows, and as people in developing countries want living standards equivalent to the developed world, is a new form of energy really going to solve the problem for us?” he asked. “Or, do we have to think more deeply about what we consume and the extent to which we consume?”
“If we can compel people to realize that this is a real issue, then we can compel them to do something about it.”–Andrew Hoffman
Hoffman pointed out another confounding factor: “You are asking the present generation to spend money for an uncertain outcome for future generations. And that’s a hard sell,” he noted.
The key, Hoffman said, is convincing the public that “the impact of climate change is happening now.” He cited a General Mills press release in October that warned of changing crop patterns and resulting food shortages if governments don’t do something in the short- to medium-term. “There is a real wake-up call to make this salient and personal, move beyond the ‘me’ to the ‘we,’ [and recognize] that we’ve got a problem.” Already, many companies are dealing with issues related to climate change in the form of water shortages and other changes, he added.
For businesses to get into the act, they need certainty and clarity of policy, said Hoffman. “If I’m going to make asset decisions that I am going to live with for the next 60, 80 or 100 years, I want to know what kind of climate regime [one could expect],” he said. “Just reduce the uncertainty so I know how to work it into my cost decisions and my investment decisions, and we can be done with this.”