AHC Group

Succeeding in a carbon-constrained world

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The author details the inevitability of a stronger U.S. climate change policy, the increasing business leadership on climate issues, the factors that influence corporate climate strategies, and the effective business strategies that address climate change.

Although it may yet be several years before the United States enacts greenhouse gas (GHG) regulation, a profound transformation is beginning in the approach that both business and government in the U.S. take to climate change.

From 2002 to 2005, fairly few companies joined the ranks of either the early leaders that support a frank national debate about stronger climate policy, or those that are integrating climate change into decisions about their U.S. business operations. The tepid pace of action during these years stemmed partly from real uncertainty about the timing, shape, and stringency of climate regulations and their financial impacts on firms. It also resulted from a simple fact of business life: most corporations tend to react to major societal challenges only when a critical mass of their peers do so as well, rather than take the risk of early independent action. When market-leading peers start to move, however, the rank and file often shifts direction quickly.

Events in 2005 demonstrated that a shift is clearly getting underway in the business community. That movement in business — combined with growing state and international action and rising concerns about energy security — is shifting the debate Washington.

The shaping of regulation and related climate technology incentive programs over the next couple of years will affect the distribution of enormous economic benefits and benefits over decades to come. Thus, the debate within companies should shift from 'should we act?' to 'how best to act?' Companies that engage constructively now stand to gain some of the most influential seats at the policymaking table. They will also develop a competitive advantage in managing climate-related costs and risks, exploiting new business opportunities created by constraints on greenhouse gases, and creating good will among key stakeholders.

This article will describe the drivers that have transformed and will continue to shape the climate debate. The first section will describe domestic developments at the state, regional and federal levels, as well as movement in the international and business communities. The second section will survey the risks and opportunities associated with climate change, their implications for corporate strategy, and some specific strategic moves by several leading corporations.


Growing State and Regional Action

Nearly every major federal environmental law has followed state-level precedent. Actions taken by California and other states not only accelerated the passage of national air, water, and waste laws, but also established key architectural elements that strongly influenced the shape of federal regulations and programs. Many experienced policymakers and business people believe this historical pattern is likely to repeat itself as GHG regulations develop. (For more information on states' climate policies, see the Pew Center's website.)

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