Mike Toffel: We all know that oil and gas and coal have been lobbying against pricing carbon. It's interesting to see that very few ski resorts, very few agriculture companies, very few real estate companies. Insurance companies are lobbying in favor of climate change. It's in their interest. The difference is the timescale.

David Abel: I'm David Abel and this is Climate Rising, a podcast from Harvard Business School. Today we'll be looking at the influence that business has or could have on the politics of climate change. Is the industry taking real action that brings to bear its full power and influence? Are companies mainly providing lip service to the existential threats posed by a world in which temperatures are likely to rise by at least two degrees Celsius in the coming decades and could surge by twice that without significant action? What are examples of companies that are truly using their wealth to shape the debate and persuade politicians to act? We'll look at how climate change affects businesses differently, and how some proposed regulations, a carbon tax specifically, could help or harm different businesses.

Auden Schendler: If it hurts, it's effective. A lot of the things that businesses do consultants call win-wins. Hey, it's good for the environment. It improves the bottom line. Changing light bulbs, reducing your carbon footprint. That's all corporate operational greening that no one would attack you for, no one would criticize you for. As an example, when Nike ran the Kaepernick ad, there was real risk there. Sure, they did market analysis and said, "It looks like this makes sense," but the first day their stock dropped whatx was it? 3%, 6%? I don't remember. That is the barometer.

David Abel: That's Auden Schendler, Senior Vice President of Sustainability at Aspen Skiing Company, one of the country's largest ski resorts. His company has been outspoken about the need to address climate change and it has taken action.

Auden Schendler: The other way to test is to just think about whether you're having influence on the problem. Are these actions that a corporation is touting, do they reach a global scale in a way that would affect this global problem?

David Abel: To understand the debate around a carbon tax, we'll now talk to Bill Eacho, a co-founder of the Partnership for Responsible Growth and a former American ambassador to Austria during the Obama administration. His group, the Partnership for Responsible Growth, has been among the most vocal in pressing politicians and CEOs to put a price on carbon. The Washington-based group, among others, has argued that the cheapest, most efficient way to reduce emissions is to require those who produce them to pay their costs. The group has been rallying businesses to sign onto the cause, but why should major businesses and others support such a significant step? When the politics seem so abstract, so impossible, how could this actually come to pass? We're also joined by Mike Toffel, a regular contributor to Climate Rising and a professor of Environmental Management at Harvard Business School. You've studied how companies act on environmental issues and what motivates them. Why would it be in the interest of companies to support any tax at all, especially one that could have a direct impact on their bottom line?

Mike Toffel: Well, there's lots of companies who would benefit from carbon taxing, right? Any companies that are currently disadvantaged by carbon being free. The easiest example to think of is probably renewable energy companies, solar, wind, etc. They're competing against technologies that are either subsidized by having their pollutants be free, or subsidized by having the military, for example, protect shipping lanes to bring oil from the Middle East to the U.S. There's a whole host of industries that would directly benefit by having carbon pricing. There's a whole other set of companies, and you might think about these like high tech or pharmaceuticals, for whom the short-term pain of having carbon pricing is somewhat immaterial to their bottom line. Yet in the long run is beneficial to the stability of the capitalist system, to the cities of our country, to the stability of the world really if you think about climate migration, that preserve markets. There's both a short-run incentive for some industries, and a long-run incentive for others. You think about the ski industry, which I think of as the Canary in the coal mine for warming, right? Ski industry profitability at many resorts is dependent upon the edge, like how many weeks of skiing they can have. As warming occurs, it's not going to occur all at once. It's not that all of a sudden they won't have snow, it's that they'll have snow for a week less here, and then a week less there. That drives their profitability potentially to bankruptcy. You also would expect to see companies in certain industries whose very existence depends on a stable climate wanting to weigh in on these. We haven't seen that much. We haven't seen that much of these companies. The folks who are lobbying against policy can see very well a concentrated risk or stock price impact that those policies will have on them. For many others, it's diffuse benefits, it's long-term benefits. That creates the problem that we're in right now.

David Abel: At the same time, most companies rely on gasoline to distribute their goods and move people around. Those prices would probably rise significantly under any scenario of a carbon tax. That would probably impact the vast majority of companies’ bottom lines, no?

Mike Toffel: Yes, at least in the short run. It's not always the case. If you think about electric grid, renewable energy is cheaper in some places now than fossil fuel based electricity. Grids are themselves greening and companies are themselves greening to try and get out of contracts for long-term fossil fuel powered electricity in favor of renewables, because in some places it's actually cheaper.

Bill Eacho: I spent 20 years in the food distribution business and had a fleet of tractor trailers. Certainly we used fossil fuel energy to move our tractor trailers around, and yet so did our competition. It really wouldn't have any impact on me. Whether the price of gas was high or the price of gas was low, sure it impacts my bottom line in a given year, but I just pass it on in the price of goods. My competition would have to pass it on as well. If at the end of the day I'm a little bit more efficient than my competition, then it's going to hurt them more than it hurts me, so I'm okay. I just focus on the efficiency.

David Abel: Bill Eacho, as a former ambassador who has worked with other countries on climate initiatives, what precedent elsewhere in the world is there for national carbon tax?

Bill Eacho: Well, there are several countries that have started pricing carbon, probably over 40 countries now that have priced carbon in some sector or in some way. Probably the best example would be British Columbia in Canada, which enacted a price starting at $15 a ton and moved it gradually over a few years up to $30 a ton. During that time period they saw their emissions drop significantly. They grew their economy at the fastest rate of any province in Canada. It clearly didn't hurt their economic growth. We see other examples, the Brits have put in very modest pricing. The Swedes have a modest pricing on some sectors of their economy, high on some sectors, but very specific sectors. What we've seen around the world predominantly has been a very modest approach. Price being too low to really move behavior significantly, but more of a dipping your toe in the water and testing it out. The difficulty is being the one country that goes first with a more significant price. If you're not willing to impose it on your trading partners, which is really what you have to do, then no one else is going to match you. Therefore, it's tough to move it around the world, but that's going to happen eventually.

David Abel: What are some of the pitfalls or some of the advantages that we've seen in economies like ours?

Bill Eacho: I don't think it necessarily means economies like ours per se, but in any economy, if you enact a price on carbon and you don't either rebate the proceeds, at least most of the proceeds to the population, then you'll have protests. It becomes very regressive, and you have the yellow vests in France protesting against it. Alternatively, if you don't impose at your border and you don't feel you have the strength trading wise to impose at your border, then you can't protect domestic industry. If you do impose it at your border, you can protect domestic industry and you can make it spread around the globe. Your trading partners then say, "Gee, I can either have my exporters pay you this carbon price at your border, or I could collect it myself and then they're exempt at your border. I think I'll do that and collect the revenue myself. Why let them pay it to you?"

David Abel: Mike Toffel, it seems to me like support for a carbon tax is a good litmus test for being able to distinguish companies that are serious about addressing climate change and those that might just want to look serious about it. What do you think?

Mike Toffel: Yes, I think that's a really good point. A huge environmental issue for this generation is climate change. As much as we also need to be doing lots of other sustainability initiatives like fostering recycling and composting and a whole litany of issues, climate change is the issue that neither has proximity in space or time that really usually creates the incentives for change. I mean, the reason that London cleaned up their pea soup fog, which is actually pollution at the time, or the reason that the U.S passed the Clean Air Act, was because cities were choking in smog and this was killing people, killing babies. People could put together the source of those problems, the immediacy of the trigger to the respondent. With climate change, it's much harder, because it's a global issue. Carbon emissions emitted in China affect the atmosphere just as much as carbon emissions emitted in Detroit. There's a temporal issue, which is, we're looking at time horizons where sea level rise will get worse. It will inundate some cities. We're looking at time horizons where hurricanes will get more intense and more frequent. It's difficult to pin any of those events on something that's happening today. Scientists understand the long-term trajectories, but this distance and time and space make this a much harder problem for people to wrap their heads around. It makes it seem okay to just bury your head in the sand. To your point about what's a litmus test? Companies a generation ago greening their own operations? That was taking sustainability seriously. Then they moved on to also think about cascading these issues to their supply chains. Then that was best practice. What today, in my opinion, best practice looks like, is companies proactively not only saying that their own operations are carbon neutral, as many companies are now increasingly doing, but also understanding that this a system wide problem. If they're not contributing to a system wide solution through policy, their actions are really just a drop in the bucket.

David Abel: Bill Eacho, there's been some effort on the right to support a carbon tax. Former Republican Secretaries of State, James Baker and George Shultz, for example, have a plan that centers on providing dividends from the revenues of their carbon tax. Under their plan a family of four would receive about $2,000 a year in so-called carbon dividends. The plan would also grant fossil fuel companies legal waivers from any liability for their contribution to climate change. What do you make of their plan? Is it viable? Is it the right approach?

Bill Eacho: Well, it has been successful in attracting corporate support. I think you have to give them credit for crafting a plan. There's a group called the Climate Leadership Council that has put this plan out there starting at about $40 a ton. It's attractive, particularly to the oil and gas industry, because they get protection from these proposed or potential lawsuits. They also suggest, instead of regulations on greenhouse gas emissions, we'll just tax them. In the industry there's no question across the board among all the oil majors they'd far rather have a carbon tax, know what the price is, be willing to incorporate that and pay the price, or make the investment necessary to eliminate paying the price. That's business, right? That makes sense to them, as opposed to a regulation which could cost 10 times as much and it can be very difficult to manage around. There is merit to that. There is certainly support for that on the right. As to whether that could get through Congress, that's another question.

Mike Toffel: I think the real question is if you approve that waiver, who's going to pay? We don't know yet whether in fact a liability claim can be successfully made in the courts. They want to take that off the table hoping that it just goes away. If it's successful, right? That means potentially hundreds of millions of dollars coming from a particular industry to remedy problems that stem from their products. If you decide to take that off the table, those hundreds of millions of dollars, they're going to have to come from somewhere to build up the infrastructure and to facilitate the adjustment to a warmed climate. That somewhere is going to be taxpayers. If you think about this and question: who should pay? Should an industry pay or should taxpayers pay? I think that's the way to be thinking about it, as opposed to just thinking: should they be liable or not?

David Abel: Well, even if the fossil fuel companies have to spend hundreds of millions of dollars like the tobacco companies, that still is a pittance for what all the retrofitting of buildings and everything that has to be done to bring about some measure of carbon neutrality on a broad fashion, right?

Mike Toffel: For sure. It's not going to pay ... I don't think anyone thinks it's going to pay for it all, but hundreds of millions, hundreds of billions of dollars potentially in the long run, that's not nothing. That's a lot of money that could be provided by an industry if it's successful. Who would pay for it then for that portion? I mean, their consumers or ultimately their shareholders. Some would say that, that's a more economically efficient way to think about things. Just like tobacco or led paint.

David Abel: Mike Toffel, there are other groups such as Series, the Boston nonprofit that have been trying to organize shareholders in corporate boards to address climate change. In your view, what do you think would be the most effective means of pressuring companies to support a carbon tax, or other measures that might really make a difference?

Mike Toffel: Well, I think shareholder pressure has been an effective way to foster more transparency about what companies are doing, both about reporting the risks that climate change is posing to them. Perhaps the opportunities as well that they might perceive. A lot of that transparency has been driven by shareholder resolutions, so that's an important contribution to the problem. I would also like to see shareholder resolutions that require transparency on political lobbying, the political membership that these organizations have through their trade associations. The efforts that they're making for or against carbon policy. I mean, that could also be shareholder mandates that organizations like Ceres and others could be pushing for. People who are free marketers believe in transparency. They believe in full information, so that's a long distance from where we are now given the regulatory regime under which we operate in the U.S that allows unlimited amounts of money to flow through political action funds to have an influence on policy.

David Abel: Bill Eacho, there is some precedent in the United States for a carbon tax. Here in the Northeast, nine states have formed a compact called the Regional Greenhouse Gas Initiative, which is essentially a cap and trade program that sets a rising price for power plant emissions. A similar program exists in California. What are the pros and cons of expanding those programs to a national level? Are there shortcomings to such a plan? Are there things that would be missing?

Bill Eacho: The benefit to a cap and trade program like we see in the Northeast or in California or in Europe is that it does put a price on carbon. The downside is that it puts too low a price typically on carbon. If you think about it, there's a reason for that. When you establish it, all of these companies come in and complain, "This is going to impact me. I need free credits. I need free emissions. I need to phase in period, etc., etc., etc." What that all drives is too many emissions out on the exchange, and therefore the price is too low. The price in the exchange in the Northeast is a little over $5. In California, they've mandated a minimum, but it's a little over $15. In Europe, it's now around 25, or at least 25 euros, I guess. Maybe getting closer to $30, but for a long time it's been very low in Europe as well until they've just started ratcheting up the floor price in their exchange. That's the fundamental flaw. If you combine it with a strong floor price, yes, you can get a significant enough price and you can move markets. The other flaw in the cap and trade approach is the price fluctuates. Therefore, it's difficult for businesses to make a long-term investment knowing what the price is going to be so many years out. Often, you need to make an investment thinking 20, 30, 40 years into the future. With the advantage to a fixed price or tax and if you know it's going to go up X dollars a year, you can make that investment. You know how much money you're going to save 10 years from now, 15 years from now, 20 years from now by making that investment. It makes it a little easier to do and to apply into the business world with a tax, as opposed to the cap and trade. It's a little easier to impose at your border, because you know exactly what the price is. Again, it's not fluctuating every month or every week or every year.

David Abel: Mike Toffel, you've studied the efficacy of CEO activism. You're findings suggest that while chief executives can sway the public on some issues, they haven't been effective with climate change. What have you learned from your research about why that is?

Mike Toffel: We've done some field experiments to see whether CEOs who speak out on social and political issues that are not obviously related to their bottom line, which we've been calling CEO activism, whether that has an impact on how people perceive the political issue. On the issues that we began looking at, which were the religious freedom act in Indiana, bathroom bills, other issues like that, that are state level policies where there are conservative policies being imposed. When CEOs spoke out on these issues and cast them as discrimination issues, rather than religious freedom issues, that substantially eroded political support from the public for those policies. They were able to recast the issue successfully in trying to sway the public. When we did something similar on climate change, we asked folks, "Is there enough, is there too much, is there not enough government action on climate policy?" We proceeded that question by a variety of conditions where we said CEOs are speaking out on this issue as one of the biggest threats to security, or as the fundamental economic issue of our time, or a critical issue for their grandchildren. No matter which casting we gave, it didn't sway people's perspective on whether the government's doing too little, too much, or the right amount on climate change. From that we conclude that CEOs are going to be effective at recasting in some dimensions and some issues, but not in others. My take away from that study is that while CEOs are being effective in changing the dialogue around issues that can be interpreted as discrimination, that avenue is not a particularly promising one to sway the public on climate change.

David Abel: Bill Eacho, any national effort to reduce emissions, even that of the world's largest emitter, the United States by historical terms, can only do so much to affect the global increase of emissions. How could we create a carbon tax that would either incent or coerce other countries like China and India to follow suit?

Bill Eacho: Well, there's no question, but that we cannot solve this problem with a price on carbon that's only in the United States. It needs to be global. It needs to be a global, uniform, significant price on carbon emissions. Now how do you do that? The beauty of a carbon tax or carbon fee, however you want to call it, I prefer to call it a fee, because particularly if you are rebating most of the proceeds by cutting some other tax, it's really not a new tax. Let's say you impose that fee. The WTO allows you to impose that fee on energy intensive imports at your border. It's pretty easy to calculate, because you know what the number is. You know what their inputs are, their cost inputs are in that product. They could argue and fight you on it, etc., but you basically know what it is. You can impose it at your border under the WTO. It's not something they can appeal in the WTO, because it's specifically called for. Let's say we impose that on Chinese imports. Now the Chinese would say, "Well then I'm going to match you. If I've matched you domestically, then you can't charge me at your border." I'll give you an example, a real world example. A gentleman from one of our largest aluminum manufacturers, I won't name the company, but you could probably guess, mentioned to me, "If you could pass that, get that passed, we could impose that at the border. We would no longer have to be closing our aluminum smelters in the United States, because we can't compete with Chinese aluminum." Why? Because Chinese aluminum is coal fired. Once you impose that fee on their aluminum, all of a sudden our aluminum is more competitive, because ours is in the Pacific Northwest, fired with hydro power. Now we're reopening aluminum smelters in the U.S and the Chinese won't be able to compete with us. That's a great story, and you can only do it, because if you impose that fee for an environmental purpose domestically, you're allowed to impose it on imports. Consequently, you can then credit it on exports, if you're exporting to a country that doesn't match. What would happen would be countries around the world would very quickly join that club. China has told us, if you could get that through in the United States, we would match you. The EU has said we would raise our floor price in our exchange and effectively match you. Even now in the EU, they're talking about the possibility of imposing a carbon price or a tax where they're seeing the weaknesses of their exchange system. I don't know if they can get that through or not, but they're in discussions on it. It would quickly grow. Now India might be a tough sell. Russia might be a tough sell, but peer pressure and diplomatic pressure, combined with the pure economics that the United States may be a large emitter, but we're also a large trading partner for every one of those countries. Everybody wants to export to the United States, so of course they're going to be looking long and hard at maybe I should consider matching you and taking that revenue for myself.

David Abel: Mike Toffel, as a sign of hope for some political consensus, there is now a climate solutions caucus in Congress. Though one of its Republican founders, Florida Rep, Carlos Curbelo, was voted out of office last year. Do you see any promise from this bipartisan group of lawmakers? What role would business leaders be playing to support their finding a path that would create some national consensus for addressing climate change?

Mike Toffel: I think one really important role that companies can and should be taking is showing up in Washington to counteract the narrative that the sky is falling if we impose a carbon price. Right now, and we've seen some calls by legislators to CEOs saying, "Come talk to us and tell us your story. Failing to do that, who they're hearing from, are the very trade associations who are representing those who are going to be hurt by a carbon price. If the other side is silent, then that's all the data that they're getting. This is where the Ceres BICEP organization is bringing CEOs to Washington to lobby in favor of a carbon policy. You see some other activist groups in other industries like Protect our Winters, Save our Snow in the outdoor ski industry. The skiers in particular, the professional skiers taking a role here. There's a role for consumers. There's a role for activist groups, both representing industries and a whole variety of perspectives here that need to provide this counter narrative.

Bill Eacho: Well, there's no question. I think it's helpful to have a climate solutions caucus. We have not seen a climate solutions caucus actually get behind any responsible legislation yet to price carbon or otherwise. At least the rhetoric is moving in the right direction on the right. The climate solutions caucus is one way to at least step forward and say, "Okay, I acknowledge that climate change is a problem and we need to find a solution." I'm encouraged by the fact that more and more we're starting to see folks on the right say, "Yes, but we need a market solution." The most interesting thing has been the development on the left, this Green New Deal. This has now created an opening for Republicans to move to the center and grab carbon pricing as their solution. We're starting to see Republicans say, "I'm opposed to the Green New Deal," crafting it as this left-wing, socialist, big spending agenda, which to a certain extent it is, at least it sounds like it. It's really hard to say what the Green New Deal really is, because there's so many different versions of it. That creates an opening. They can now grab the center and say, "I'm for market solution." We saw Senator Cornyn from Texas saying, "We need a market solution." We see Mark Meadows of the Freedom Caucus saying, "We need a market solution." This is starting to happen. Matt Gaetz in Florida, who two years ago, Republican Congressman wanted to abolish the EPA is now saying, "Climate change is a big problem and we need to address it, but the Green New Deal is not the way to go." He proposes the Green Real Deal. Now the Green Real Deal is just investing in low carbon energy, etc., etc. At least he now knows he has to get on the right side of that issue.

David Abel: Thank you both for joining us. Bill Eacho is a co-founder of the Partnership for Responsible Growth and a visiting professor in the Sanford School of Public Policy at Duke University. Mike Toffel is a Professor of Environmental Management and faculty chair of the Business and Environment Initiative at Harvard Business School. Thank you.

Mike Toffel: Great, thank you.

David Abel: That's it for Climate Rising this week. I'm David Abel. In our next episode, we'll look at the challenges facing the solar industry.

Abby Hopper: It's the big people that you know about, the Facebook's, the Target's, the Ikea's that are deploying solar on their roofs, but there's another whole level of companies that are interested in doing it that aren't as well versed, aren't as sophisticated in terms of energy purchases and designing business models for them around how they aggregate demand and how they aggregate supply, I think is a really interesting opportunity.

David Abel: Thanks for joining us. I'm your host, David Abel. This is climate rising, a podcast produced by the Business and Environment Initiative at Harvard Business School. You can subscribe on Apple podcasts or wherever you listen, and please leave us a review. We appreciate the feedback.