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How Can the Private Sector Fill in Emissions Reduction Gaps Left by Withdraw from Federal Policy?

July 29, 2017
On June 1st, President Trump announced that the US would be withdrawing from the Paris Climate Agreement, a non-binding international commitment to reduce domestic emissions 26-28% by 2025 from a 2005 baseline.[1]

The President also signed an executive order to have the Environmental Protection Agency (EPA) begin to dismantle the Clean Power Plan, a policy pledging to reduce emissions from electric power generation 32% from a 2005 baseline by 2030.[2] Additionally, the current administration ordered the EPA to review the Corporate Average Fuel Economy Standards set in place by the previous administration that obligated auto manufacturers to produce fleets averaging 54.5 miles per gallon by 2025.[3] These three pieces of legislation and agreements have been the cornerstones of the Obama administration’s climate policy that pledged to reduce the US’s domestic emissions promising tangible improvements in the country’s emissions levels. These federal policies had done so largely by placing regulations on private industries responsible for major components of the country’s emissions (e.g. fossil fuel and auto-manufacturing industries). Without large federal policy what role will the private sector play, and will the US private sector be able to make deep carbon reductions without it?

Incentives to reduce private sector emissions:

One way the private sector can potentially significantly impact climate progress is by curbing its own emissions. The industrial and commercial sectors combined make up nearly 45 percent of the country’s total GHG emissions from fossil fuel combustion (excluding agricultural and land use emissions), meaning they have incredible potential to transform the country’s emissions inventory and will be vital in achieving any deep carbonization.[4]  Former federal legislation placed regulations on existing industries and provided incentives for certain sectors to reduce their footprints. Without these regulations, does the private sector still have incentive to improve their own GHG inventories? First, measures to reduce emissions often have simultaneous cost-saving benefits – for example, energy efficiency upgrades often yield companies significant energy savings decreasing operating costs. Additionally, as many consumers and customers are troubled by the current and anticipated consequences of climate change, socially responsible consumerism in the form of climate commitment helps to increase brands’ public perception often helping retain or grow consumer bases. 

Image: United States GHG Emissions by Sector. Source: United States Environmental Protection Agency.

Image: United States GHG Emissions by Sector. Source: United States Environmental Protection Agency.

Companies who choose to begin addressing their emissions now have the opportunity to ‘get ahead’ of competitors in several ways. Two of which are those mentioned above. Beginning to make investments into emissions reducing measures now will diffuse upfront capital costs of doing so for companies decreasing their future capital expenses and reaching cost-savings of certain measures sooner than those who delay. As consumer concern with emissions impact may conceivably increase, companies who address their impact now could additionally gain an edge in the perception of the consumer that may become more and more influential. Additionally, in the conceivable case that in the future, emissions regulations on a local, federal, or even an international level arise or increase, beginning to cut emissions now may decrease potential burden from these and may have a minimal effect on their bottom line compared to competitors who have postponed climate action. 

Finally, as many companies operating in the US operate globally, similar or more extreme pressures from other countries, regulatory or consumer-based, encourage compliance and attention in the streamlining of operations to maintain or grow business success and viability abroad.

Progress so far:

Many large companies and industry groups have already taken significant steps to reduce their emissions or have pledged sizeable emissions cuts in the future. Of the Fortune 500 companies, 48% and growing have set climate or clean energy targets, and projects from 190 of them prevented enough emissions to take 45 coal-fired power plants offline in 2016.[5] Walmart has declared its intention to reduce its supply chain emissions by one gigaton by 2030.[6] This pledge, equivalent to taking 211 million cars off the road for one year, exhibits the immense impact the private sector can make on its own. The tech industry has additionally made significant progress and pledges with Facebook pledging to run its operations on at least fifty percent clean energy by next year, Google running all of its operations on renewable energy by the end of this year, and Apple reduce its emissions by approximately 585,000 metric tons since the previous year.[7] If these dramatic reductions are duplicated by other industries, the private sector could lead the way on emissions reductions in the US.

Transportation Sector: 

While withdrawal from federal policy decreases incentives and obligations on the private sector to reduce their emissions, other state and local policies in many cases may make these withdrawals less impactful. One example of this is emissions standards regulations in the auto industry. In another rollback of federal policy, the Trump administration has announced its intention to undo the Environmental Protection Agency’s fuel economy standards. This standard requires that automakers manufacture cars averaging a fuel efficiency of 54.5 miles per gallon by 2025.[8] However, the state of California, which is granted an exemption waiver under the Clean Air Act, has the ability to write its own standards and choose to uphold the higher standards. Furthermore, twelve other states have chosen to follow California’s fuel efficiency standards cumulatively accounting for one third of the auto market in the US. As no major US auto manufacturer would be able to limit their sales from 13 states, it is expected that increases in fuel economies will continue to increase. The implications of these efficiency increases is expected to lead to a decrease of six billion metric tons of carbon over the lifetime of the cars to be replaced.[9] This standard will increase the manufacturing of hybrid-electric and battery-electric technology. In turn, increased innovation in battery technology from the auto industry may have overarching impacts on large-scale battery storage capabilities which could lead to increased practicality and affordability in energy storage. These capabilities would diminish several of the shortcomings of wind and solar energy and could carry over into the electricity sector greatly reducing emissions there as well by increasing renewable development even further.

Political pressure and filling gaps left by policy retreats:

Private businesses are using their media power to influence climate discussions and maintain momentum of action and progress in emissions reductions. After President Trump’s announcement to withdraw from the Paris Accord, dozens of major companies and CEOs made public statements expressing regret for the decision and ensuring their commitment to emissions reductions emphasizing the importance of this movement.[10] Moreover, a coalition of local and state governments, universities, and over 100 businesses have come together and begun conferring on how they can collectively play a part in the Paris Climate Accord.[11]

Image: In response to the Paris Agreement withdrawal, several companies released full-page newspaper advertisements urging the administration to reconsider the decision. Source: Center for Climate and Energy Solutions.

Image: In response to the Paris Agreement withdrawal, several companies released full-page newspaper advertisements urging the administration to reconsider the decision. Source: Center for Climate and Energy Solutions.

The federal government, businesses, industry leaders, state governments, local governments, grassroots campaigns, and citizens all symbiotically impact climate change. Independently, no one party can sufficiently address this issue. Each group has the ability to demand change from others and is likewise held accountable for theirs. Just as private citizens and grassroots campaigns have held businesses and government bodies accountable for years, we are currently seeing the private sector start to do the same to government bodies and to one another. While the private sector has and will continue help the US to meet significant emissions reductions, a lack of governmental reassurance and accountability may not embolden other countries to set ambitious reductions targets for themselves. As necessary emissions reductions to mitigate the damages of climate change are time-sensitive and demand global cooperation, whether or not unregulated private sector action will be enough to reach ambitious climate goals is unclear. However, the large inventory and capital the private sector has may be enough to achieve great emissions reductions in the near future to get the ball rolling for longer term climate goals.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

 

References

  [1] U.S.A. First NDC Submission, PDF, United Nations Framework Convention on Climate Change.

  [2] “The Clean Power Plan: A Climate Game Changer,” Union of Concerned Scientists, March 28, 2017, , accessed July 05, 2017, http://www.ucsusa.org/our-work/global-warming/reduce-emissions/what-is-the-clean-power-plan#.WVz52mLyvy0.

  [3] Hiroko Tabuchi and Henry Fountain, “Bucking Trump, These Cities, States and Companies Commit to Paris Accord,” The New York Times, June 01, 2017, , accessed July 03, 2017, https://www.nytimes.com/2017/06/01/climate/american-cities-climate-standards.html.

  [4] United States Environmental Protection Agency, Inventory of U.S. Greenhouse Gas Emissions and Sinks 1990-2015, PDF, United States Environmental Protection Agency, April 15, 2017.

  [5] “Power Forward 3.0: How the largest US companies are capturing business value while addressing climate change,” WWF, April 25, 2017, accessed July 03, 2017, https://www.worldwildlife.org/publications/power-forward-3-0-how-the-largest-us-companies-are-capturing-business-value-while-addressing-climate-change.

  [6] Issie Lapowsky, “Even Without Paris, Business Will Leave Trump Behind on Climate Change,” Wired, June 01, 2017, , accessed July 03, 2017, https://www.wired.com/2017/06/even-without-paris-business-will-leave-trump-behind-climate-change/.

  [7] Ibid.

  [8] Hiroko Tabuchi and Henry Fountain, “Bucking Trump, These Cities, States and Companies Commit to Paris Accord,” The New York Times, June 01, 2017, , accessed July 03, 2017, https://www.nytimes.com/2017/06/01/climate/american-cities-climate-standards.html.

  [9] “Regulations for Greenhouse Gas Emissions from Passenger Cars and Trucks,” EPA, November 17, 2016, , accessed July 05, 2017, https://www.epa.gov/regulations-emissions-vehicles-and-engines/regulations-greenhouse-gas-emissions-passenger-cars-and.

  [10] Abigail Abrams and Lucinda Shen, “Business Leaders React to President Trump’s Withdrawal from Paris Agreement,” Fortune, June 02, 2017, , accessed July 03, 2017, http://fortune.com/2017/06/01/paris-climate-agreement-business-leaders-react/.

  [11] Hiroko Tabuchi and Henry Fountain, “Bucking Trump, These Cities, States and Companies Commit to Paris Accord,” The New York Times, June 01, 2017, , accessed July 03, 2017, https://www.nytimes.com/2017/06/01/climate/american-cities-climate-standards.html.

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