The Role of Business and the Free Market in Combatting Climate Change

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The Role of Business and the Free Market in Combatting Climate Change

By Thomas L. Forman II, Senior Editor

Since the presidential election in November, 2016, uncertainty has surrounded U.S. policy on climate change and the country’s move to renewable energy sources.  In June, the President announced that the United States would withdraw from the Paris Climate Agreement, an agreement signed by 195 nations and regarded as a “monumental success for the planet and its people.”[1] This announcement came after the President’s decision to terminate the Clean Power Plan,[2] and the administration’s continued pledge to revive the nations coal industry.[3] While to this point, President Trump appears to be signaling a shift away from Obama-era clean energy initiatives, other actors in the U.S. and around the world are not following the presidents lead.[4]  Other major players, such as foreign governments, cities, states, universities and the private sector have all seemingly stepped up to fill the void, and help continue the transition to clean energy. While U.S. policy is significant, both in actuality and symbolically, the majority of progress in combatting climate change has been, and will continue to be, carried out by other important actors.  Going forward, it is likely that the free market and businesses will play a more significant role in this pursuit moving forward, building off of progress already made.  This is a result of lower costs of renewable energy sources as well as major corporate initiatives to combat climate change.

The turn away from the federal government, and to other major stakeholders, for solutions to the climate change crisis is not unprecedented. While the U.S. government has in many ways been ineffective on the issue, other actors such as foreign nations, cities, and states have played a significant role in combatting climate change.  For example, California has enacted policies that promote the use of clean energy and reduce greenhouse emissions, and plans to continue enacting such legislation irrespective of federal action or inaction.[5]  New York, a state that already receives over a quarter of its power from renewable sources, has also pledged to continue the transition to renewable energy.[6] Other states around the nation have followed suit and have pledged to transition to clean energy, and reduce greenhouse gases through legislation in the coming years.[7] Other nations have also taken leadership roles in combatting climate change. For example, Denmark now generates as much as 140 percent of its daily electrical demand through wind power alone.[8]  Stockholm, Sweden has announced a plan to be fossil fuel free by 2040,[9] and countries such as Germany, the UK, Ireland, and China, have all committed to clean energy, regardless of what the U.S. decides to do in regards to the Paris Agreement.[10]

The fact that cities, states, and foreign nations have not been deterred by the lack of a clear U.S. policy in their pursuit to combat climate change is significant insofar as it shows that progress in the commitment to clean energy does not need to come from the federal government alone.[11] Due to the comparative economics of conventional energy sources and clean energy sources, as well as the commitments made by private companies to combat climate change, it appears that significant progress will continue to be made in combatting climate change, regardless of U.S. policy.

Following the Trump Administration’s announcement in June, 2017 that the U.S. would withdraw from the Paris Climate Agreement, over 360 companies and investors publicly called for the President to remain in the Agreement.[12]  Their message was clear: The future of energy in America would not be conventional sources such as coal, but renewable sources such as wind, solar, and water. This was not only because it was the right thing to do, but also because it made the most sense financially. For the first time, transitioning to renewable energy is cost-effective for energy companies and corporations alike. As the Bloomberg New Energy Finance (BNEF) Chairman, Michael Liebreich wrote, “renewables are robustly entering the era of undercutting” fossil fuel prices.[13] This is due to the fact that the cost of solar is now competitive with coal. According to a report by the World Economic Forum, solar and wind is now either the same price, or cheaper than fossil fuels in more than thirty countries.[14] As Michael Drexler, Head of Long Term Investing, Infrastructure and Development at the World Economic Forum, recently stated, “solar and wind have just become very competitive, and costs continue to fall. It is not only a commercially viable option, but an outright compelling investment opportunity with long-term, stable, inflation-protected returns.”[15]

This past summer, the BNEF announced that their analysis now predicts that renewable prices will continue to plummet across the sector, “suggesting that by 2040 prices will fall by sixty-six percent for solar, forty-seven percent for onshore wind, and seventy-one percent for offshore wind.”[16]  Solar prices already rival coal prices in countries such as the U.S., Spain, Italy, Germany, and Australia, which will only lead to a sharper decline in the use of coal, and a rapid increase in the use of solar.[17]  Moreover, while solar power is already cheaper than coal in some parts of the world, analysts suggest that it will likely be the lowest-cost option almost everywhere in the world in the coming decades, at which point it will no longer make financial sense for energy companies to manufacture or purchase coal over solar and wind.[18] This progress will be made even more rapidly due to the massive improvements and investments in battery storage of solar energy.[19]  According to this same report by the BNEF, $10.2 trillion is expected to be invested into power worldwide between now and 2040, seventy-two percent of which will be channeled into renewables.[20] To put the comparison in numerical terms, ten years ago, it costs about $600/megawatts per hour (MWh) to generate electricity through solar, compared to about $100/MWh for coal and natural gas. Now, it costs about $100/MWh for solar, and $50/MWh for wind.[21]

Not only is investment into clean energy increasing, but global demand for coal has been decreasing substantially. According to a BP analysis, global coal demand has declined the past two years, with consumption falling by 1.7 percent in 2016.[22] Moreover, the decrease in consumption in the U.S. fell by 8.8 percent in 2016, and by 52.5 percent in the UK.[23]  Some analysts predict that the decrease in consumption will continue, with coal power generation falling in the U.S. and Europe by eighty-seven and forty-four percent respectively by 2040.[24]

The transition to clean energy can be explained not only by relative costs of solar and wind compared to fossil fuels, but also due to the commitments made by companies to combat climate change.  Jeffrey Immelt, Chairman of General Electric, recently stated at the Yale Climate Conference that innovation can address climate change while also creating good jobs.[25]  Moreover, it appears that corporate sentiments have changed in recent years to combat climate change.  For example, 111 RE100 companies[26] have made a commitment to go “100% renewable”.[27]

Mars, Inc. recently pledged to invest one billion dollars to cut greenhouse gas emissions by sixty-seven percent in its supply chain.[28] Last year, Google announced that the company would be powered by 100 percent clean energy in 2017, with greater investment in clean energy to come.[29] Salesforce followed suit, announcing that a portion of their main headquarters will be one-hundred percent powered by clean power.[30]  This was in addition to their announcement earlier in the year that the company will become net-zero greenhouse gas emitters.[31] Apple has been another global leader in corporate responsibility in regards to clean energy.  In 2015, the company announced a clean energy plan that would convert all of its energy use to clean power sources, including operations in China, allowing the company to be one-hundred percent renewable dependent worldwide.[32] In 2016, the company received ninety-six percent of its electricity from renewable sources, reducing carbon emissions by nearly 585,000 metric tons.[33] Wal-Mart, the world’s largest retailer, announced plans last year to generate half of its energy needs from renewable sources by 2025.[34]  Similarly, Amazon recently announced plans to install solar panels at its warehouse and distribution centers around the world.[35] The initial projects will produce as much as forty-one megawatts of power, and the company additionally plans on building similar projects at fifty of its facilities by 2020.[36]

In April, the World Wildlife Fund released a report on the largest U.S. companies and their role in combatting climate change.[37] According to their report, forty-eight percent of the 2016 Fortune 500 have a target for greenhouse gas emissions reduction, renewable energy, energy efficiency, or a combination of these.[38] In addition, sixty-three percent of the Fortune 100 companies have such initiatives.[39] Not only were these initiatives announced due to executives belief in corporate responsibility, but also due to the savings that the company’s saw as a result of their clean energy investments.  In 2016, data showed that two-fifths of the Fortune 500 companies saw a collective savings of $3.7 Billion.[40] “The report shows that these efforts are improving companies’ bottom lines and driving the business case for renewable power.”[41]

The focus on transitioning to renewables has not been limited to companies, cities, and states. Universities have begun to enact policies and initiatives aimed at combatting climate change. Rob Sargent, energy program director for Environment America, stated that “by adopting plans for a rapid and steady shift to one-hundred percent, clean, renewable energy, America’s colleges and universities can play a vital role in the country’s efforts to reduce climate-altering carbon pollution.”[42]  Schools such as Cornell University have taken steps to become Carbon neutral, a significant step as colleges collectively spend about fourteen billion dollars per year on energy.[43] University-private partnerships have also increased in recent years, allowing universities and energy companies to partner in their goal of increasing renewable energy use. For example, Georgetown University and Origis Energy recently announced a power purchase agreement to develop an offsite solar power system that will provide about fifty percent of  the university’s electricity needs.[44]

While these initiatives and projects are key in combatting climate change through the transition to renewable energy, they are just the beginning of the private sectors role in combatting climate change. In addition to the decreasing costs of clean energy, and the increase in corporate clean energy initiatives, companies are forming that sell products that have the potential to confer a tremendous impact in combatting climate change. Consider, for example, Tesla.  Elon Musk, the CEO of Tesla, laid out his vision for the company this past year, focusing on its role in decreasing the use of fossil fuels. “Musk paints a picture of a renewable energy enterprise, with goals such as creating solar roofs that are seamlessly integrated with battery storage, and an expanded vehicle product line that includes heavy-duty trucks and large passenger transport vehicles.”[45] Musk further explains in regards to his company’s vision, that “the point of all this was, and remains, accelerating the advent of sustainable energy, so that we can imagine far into the future and life is still good. That’s what ‘sustainable’ means.”[46]  Tesla provides a great example of a private company which, through its product, will have a positive impact on the planet. Tesla is one of many companies who are using the free market to sell products that produce great returns for the company while also having a positive impact on the environment.

While the power of the free market is tremendous, some contend that its power is limited in some respects without the help of the U.S. government.  For example, business leaders speaking at the Yale Climate Conference agreed that the U.S. government needs to end tax incentives for carbon-based fuels, as well as consider placing a price on carbon.[47]  While such steps would make private sector engagement more enticing, it in no ways seems necessary.  The tides have already turned towards renewable energy, both in terms of the economics, but also the public sentiments worldwide. And since the private sector accounts for around half of the world’s electricity consumption,[48] getting companies to switch to renewables will be key in combatting climate. The power of corporate initiatives, lower costs of renewable energy, and newly created products that have a positive impact on the environment will have a major impact, regardless of U.S. policy.

Despite the desire for U.S. action to combat climate change, the private sector and other major actors have played, and will continue to play, a major role in combatting climate change through the transition to renewable energy. Between corporate initiatives, private/university partnerships, the decline in global fossil fuel demand, and the decreasing cost of solar and wind energy, the private sector will continue to be a force for good in combatting climate change.

[1] Joby Warrick and Chris Mooney, 196 Ccountries Approve Historic Climate Agreement, Wash. Post, Dec. 12, 2015, https://www.washingtonpost.com/news/energy-environment/wp/2015/12/12/proposed-historic-climate-pact-nears-final-vote/?utm_term=.a61b4b6eed48; Michael Shear, Trump Will Withdraw U.S. From Paris Climate Agreement, N.Y. Times, June 1, 2017, https://www.nytimes.com/2017/06/01/climate/trump-paris-climate-agreement.html.

[2] Associated Press, Trump Administration to Terminate Obama’s Climate Plan, NBC News, Oct. 9, 2017, https://www.nbcnews.com/politics/politics-news/epa-chief-says-administration-will-abandon-clean-power-plan-n808986.

[3] Id.

[4] See Gregory Korta, Here are 10 Obama Environmental Policies Trump Wants to Scrap, USA Today, March 28, 2017, https://www.usatoday.com/story/news/politics/2017/03/28/the-obama-environmental-regulations-trump-wants-scrap/99729650/.

[5] Alejandro Lazo, California Aims for 40% Reduction in Greenhouse Gases by 2030, Wall St. J., Jan. 20, 2017, http://www.wsj.com/articles/california-aims-for-40-reduction-in-greenhouse-gases-by-2030-1484966197; See Adam Nagourney, California, at Forefront of Climate Fight, Won’t Back Down to Trump, N.Y. Times, Dec. 26, 2016, https://www.nytimes.com/2016/12/26/us/california-climate-change-jerry-brown-donald-trump.html.

[6] Justin Gillis, New York Plans to Make Fighting Climate Change Good Business, N.Y. Times, May 6, 2016, https://www.nytimes.com/2016/05/10/science/new-york-plans-to-make-fighting-climate-change-good-business.html.

[7] See Rebecca Bromley-Trujillo, Despite Trump, Many Cities and States are Fighting Climate Change. Including Pittsburgh, Wash. Post, June 6, 2017.

[8] Arthur Neslen, Wind power generates 140% of Denmark’s electricity demand, The Guardian, July 10, 2015, https://www.theguardian.com/environment/2015/jul/10/denmark-wind-windfarm-power-exceed-electricity-demand.

[9] Jason Margolis, Sweden’s capital is on its way to becoming fossil fuel free by 2040, PRI, Feb. 18, 2016, https://www.pri.org/stories/2016-02-18/swedens-capital-its-way-becoming-fossil-fuel-free-2040.

[10] 5 Countries Leading the Way Toward 100% Renewable Energy, EcoWatch, Jan. 9, 2015, http://www.ecowatch.com/5-countries-leading-the-way-toward-100-renewable-energy-1881999459.html; Sherisse Pham and Matt Rivers, China is Crushing the U.S. in Renewable Energy, CNN, July 18, 2017.

[11] See, e.g., Daniel Boffey, Kate Connolly and Anushka Asthana, EU to bypass Trump Administration After Paris Climate Agreement Pullout, The Guardian, June 2, 2017, https://www.theguardian.com/environment/2017/jun/02/european-leaders-vow-to-keep-fighting-global-warming-despite-us-withdrawal (The European Union has rejected Donald Trump’s offer to renegotiate the Paris climate agreement and pledged instead to bypass Washington to work with US business leaders and state governors to implement the historic accord’s commitments.EU officials will instead cut out the White House to deal directly with the US states and major corporations, many of whom have already pledged to live by the terms forged in Paris).

[12] Reuters, Nike, Starbucks, and Gap Urge Trump to Stay in the Paris Climate Deal, Fortune, Nov. 17, 2016, http://fortune.com/2016/11/17/donald-trump-paris-climate-agreement-letter/.

[13] Tom Randall, World Energy Hits a Turning Point: Solar That’s Cheaper Than Wind, Bloomberg, Dec. 15, 2016, https://www.bloomberg.com/news/articles/2016-12-15/world-energy-hits-a-turning-point-solar-that-s-cheaper-than-wind.

[14] Renewable Infrastructure Investment Handbook: A Guide for Institutional Investors 6, World Econ. Forum, http://www3.weforum.org/docs/WEF_Renewable_Infrastructure_Investment_Handbook.pdf (last visited Sept. 26, 2017).

[15] Andrew Griffin, Solar and Wind Power Cheaper than Fossil Fuels for the First Time, The Independent, Jan. 4, 2017, http://www.independent.co.uk/environment/solar-and-wind-power-cheaper-than-fossil-fuels-for-the-first-time-a7509251.html.

[16] Jamie Condliffe, Clean Energy Is About to Become Cheaper Than Coal, MIT Tech. Review, June 15, 2017, https://www.technologyreview.com/s/608114/clean-energy-prices-are-about-to-become-cheaper-than-coal/.

[17] Id.

[18] Joe Romm, Forget Coal, Solar Will Soon be Cheaper than Natural Gas Power, Think Progress, June 15, 2017, https://thinkprogress.org/renewables-projected-to-crush-fossil-fuels-f6670e3792df/; Jess Shankleman  and Chris Martin, Solar Could Beat Coal to Become the Cheapest Power on Earth, Bloomberg, Jan. 2, 2017.

[19] See, e.g., Jason Deign, 10 Battery Gigafactories Are Now in the Works. And Elon Musk May Add 4 More, Green Tech Media, June 29, 2017, https://www.greentechmedia.com/articles/read/10-battery-gigafactories-are-now-in-progress-and-musk-may-add-4-more#gs.qK8N3xY.

[20] Condliffe, supra note 16.

[21] Griffin, supra note 15.

[22] Statistical Review of World Energy, BP, http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html (last visited Sept. 26, 2017).

[23] Id.

[24] Condliffe, supra note 16.

[25] John Kerry and Three Corporate Leaders Discuss Tackling Climate Change, Yale Sch. of Mgmt., http://som.yale.edu/event/2017/09/yale-climate-conference-the-role-of-the-private-sector (last visited Sept. 26, 2017).

[26] “RE100 is a collaborative, global initiative uniting more than 100 influential businesses committed to 100% renewable electricity, working to massively increase demand for – and delivery of – renewable energy.” RE100, RE100, http://there100.org/re100 (last visited Sept. 26, 2017).

[27] Companies, RE100, http://there100.org/companies (last visited Sept. 26, 2017).

[28] Mars Takes Climate Action, Mars, http://www.mars.com/global/sustainable-in-a-generation/healthy-planet/climate-action (last visited Sept. 26, 2017); Natasha Bach, The World’s Largest Chocolate Maker Is Committing $1 Billion to Fight Climate Change, Fortune,  Sept. 6, 2017, http://fortune.com/2017/09/06/mars-pledge-one-billion-fight-climate-change/.

[29] Urs Hölzle, We’re set to reach 100% renewable energy — and it’s just the beginning, Google, https://www.blog.google/topics/environment/100-percent-renewable-energy/ (last visited Sept. 26, 2017).

[30] Max Scher, One Step Closer to 100% Renewable Energy, Salesforce, https://www.salesforce.com/blog/2017/08/salesforce-renewable-energy.html (last visited Sept. 26, 2017).

[31] Patrick Flynn, Salesforce’s Journey to Net-Zero Greenhouse Gas Emissions, Salesforce, https://www.salesforce.com/blog/2017/04/salesforce-net-zero-greenhouse-gas.html (last visited Sept. 26, 2017).

[32] Jackie Wattles, Where Apple Stands in its Quest for 100% Clean Energy, CNN, Apr. 23, 2017, http://money.cnn.com/2017/04/22/technology/apple-clean-energy/index.html.

[33] Id.

[34] Phil Wahba, Walmart Aims to Generate Half Its Energy From Renewable Sources by 2025, Fortune, Nov. 4, 2016, http://fortune.com/2016/11/04/walmart-sustainability-2025/.

[35] Anmar Frangoul, Amazon Looks to go Big on Solar, Clean Energy, CNBC, Mar. 2, 2017, https://www.cnbc.com/2017/03/02/amazon-looks-to-go-big-on-solar-clean-energy.html.

[36] Id.

[37] Power Forward 3.0: How the largest US companies are capturing business value while addressing climate change, World Wildlife Fund, https://www.worldwildlife.org/publications/power-forward-3-0-how-the-largest-us-companies-are-capturing-business-value-while-addressing-climate-change (last visited Sept. 26, 2017).

[38] Id. at 2.

[39] Id.

[40] Id.

[41] Biggest US Corporates Setting Ambitious Climate Targets, RE100, http://there100.org/news/14251326 (last visited Sept. 26, 2017).

[42] Joseph Bebon, Study: Colleges, Universities Could Lead U.S. Toward 100% Renewables, Solar Indus. Magazine, Mar. 8 2017, https://solarindustrymag.com/study-colleges-universities-lead-u-s-toward-100-renewables.

[43] Sustainable & Renewable Energy – Powering the Ithaca Campus with Sun, water, and Waste, Cornell Univ., http://www.sustainablecampus.cornell.edu/initiatives/sustainable-renewable-energy (last visited Sept. 26, 2017); College Campuses May Lead 100% Renewable Energy Transition, Sun Power, April 2, 2017, http://businessfeed.sunpower.com/articles/edu-college-campuses-may-lead-100-renewable-energy-transition.

[44] New Off-Site Solar Project to Provide Nearly Half of Georgetown’s Electricity Needs, Georgetown Univ., Sept. 18, 2017, https://www.georgetown.edu/news/off-site-solar-project-to-provide-nearly-half-of-Georgetown-electricity-needs#.Wb_rNuM7Mh8.twitter.

[45] Robert Ferris, Musk sees Tesla’s future: Trucks, Transit and Solar in a Push to Sustainability, CNBC, July 20, 2016, https://www.cnbc.com/2016/07/20/tesla-motors-ceo-releases-new-master-plan.html.

[46] Id.

[47] Kerry, supra note 25.

[48] Private Sector Commits to Actions on Sustainable Energy For a Just Climate Future For All, UN News Center, November 11, 2016, http://www.un.org/apps/news/story.asp?NewsID=55534#.We-H2bGZNsM.

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