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(originally published by Booz & Company)


An Optimist’s Case for Climate Policy

Gernot Wagner, an economist with the Environmental Defense Fund, believes business will push for policy change.

Times are tough these days for environmentalists concerned about global warming. The political environment in North America has become downright chilly: The debate in the United States is heavily influenced by conservatives who insist global warming is a hoax, and centrists and liberals are unwilling to push for new policy action because they lack the necessary votes in Congress and fear being characterized as anti-business. Canada is moving aggressively to develop its vast (and dirty) reserves of oil sands. Even in Europe, long a climate leader, more immediate worries about economic growth, monetary and fiscal policy, and the future of the euro leave little room on the policy agenda for other concerns.

Meanwhile, global carbon emissions continue to increase at higher rates than experts had anticipated even a few years ago, as more evidence of the effects of global warming emerges, and oil exploration and development continue apace.

Despite these portents of climate gloom, Gernot Wagner, an economist at the Environmental Defense Fund in New York, remains optimistic that the policy debate will shift back toward the environmental position, and he sees encouraging signs of change in the marketplace. Wagner is the author of But Will the Planet Notice: How Smart Economics Can Save the World (Hill and Wang, 2011), which came out in paperback in September 2012. He discussed the outlook for climate policy with strategy+business earlier this year in New York.

S+B: Few business policymakers seem to doubt the evidence of climate change, but a fair number are uncertain about how aggressively we should act. Do you see the business community, on balance, supporting comprehensive policy action?

WAGNER: The only doubt that serious people have is the exact extent to which global warming is happening. This is something that businesspeople understand. It’s basic option theory: If there is a potentially irreversible situation, you want to keep open the option of avoiding it, or at least be able to do something about it later. Everything we know about option theory and climate change tells us we should be doing more now.

If you happen to be in the global auto business, the fact that extreme weather events can shut down a quarter of the global supply chain matters — not in a few decades, but right now. In recent cases like the flooding in Thailand or the earthquake in Japan, you see the impact in your quarterly earnings. In general, you may not see the impact of climate change so immediately, but there’s a reason that the world’s biggest insurance companies are the ones sounding the alarm and the ones with the most ambitious goals for global warming policy. These insurers of last resort see external events increasing every year, decade after decade.

S+B: You’re optimistic that policy will change. Where do you see encouraging trends?

WAGNER: In the U.S., what the Environmental Protection Agency is doing right now — using the Clean Air Act to reduce greenhouse gases under the legal authority that was affirmed by the Supreme Court — is fantastic. And California will have a cap and trade system in force January 1, 2013. California took the lead on vehicle emissions standards, and with the new nationwide rules the Obama administration has put in place, California’s standard has, in effect, gone national. None of these is quite enough to solve global warming, but they all point in the right direction.

S+B: How about in developing countries?

WAGNER: It’s interesting. The climate bill that fizzled in the U.S. Senate a couple of years ago mentioned two countries on its first page, in the context of “if they don’t act, we won’t”: China and India. Well, they are acting.

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