Is the United States going down the General Motors Road when it comes to competitive advantage? A report from COP15.
About the Author: During more than two decades as a consultant and entrepreneur in business and sustainability, Rupert Davis has worked at the investor, owner, board and chief executive levels. Today, as global head of MontaRosa’s Sustainability Practice, Rupert combines his finance background with a unique understanding of long-term environmental business engagement issues, including climate change action, triple bottom line entrepreneurship and clean tech development. Read more from this authorI just got back from COP15, the Copenhagen climate talks. Despite all the rhetoric and the mighty PR push at the end to try and give the appearance of success it is quite clear that the talks failed.
The essential issue, one that is being disguised by the PR efforts of various governments who wish to point the finger for the failure elsewhere, is that the U.S. will not come close to matching Europe’s offer of 30% reductions by 2020 based on a 1990 baseline.
In short, having just lived through the painful experience of an auto industry bailout, the U.S. is showing that it has learned little and is opting for a GM-style strategy with regard to climate change. The U.S. government continues to listen to the short-term, carbon ‘dirty’ business group (which does not represent all of business by any means, which I will come to) and is essentially setting itself up to be a General Motors compared to the more Toyota-like strategies of Europe and China.
GM went bankrupt because is stayed with legacy offerings, short-term profitability and didn’t position to or anticipate future demand for higher efficiency, compact cars. Toyota hit the ball out of the park with its development of the Prius, based on a long-term strategic assessment of future markets. National and regional climate change strategists are at the same crossroads where the auto companies found themselves five years ago and the stakes are much higher.
The challenges of real politik
The Obama administration is already having difficulty securing 60 votes in the Senate for a 4% reduction by 2020 (it’s described as a 17% or so reduction but that is based on 2005 baseline, which is a clever way of covering the fact that it is a paltry offer compared to Europe.)
Quite clearly developing nations won’t commit to limiting emissions, which equates to limiting energy use and, in turn, equates to limiting economic growth while they still have millions to billions of people to lift out of poverty. This is particularly true as it is the industrialized nations who have caused the problem in the first place over the last 200 years.
In terms of moral equity the issue is clear. But unfortunately the issue is also clear in terms of real politik.
The U.S. is highly unlike to willingly cede economic and competitive advantage to China. That is clearly the U.S. concern: if U.S. industry has to spend more on energy because it is required to be clean or low carbon, and China doesn’t, then that hands direct economic advantage to China. This is the basis of the intractable negotiating positions.
China has conceded something in that it says it does not expect the U.S. to provide financing to transfer clean tech to China to permit carbon-decoupled economic growth in the developing nation. However quite understandably China is not willing to consign the majority of its citizens to poverty/limited growth by agreeing emissions cuts comparable to the developed nations, which have of course already achieved their wealth through economic growth and carbon pollution over the last centuries.
China presents a conundrum because parts of the vast country resemble an industrialized nation while other regions lag far, far behind. Western negotiators look at the developed areas and expect China to play like the economic superpower that it has become. The Chinese, on the other hand (and admittedly with a healthy dose of self-interest), point to the poor, rural parts of the country and plead the case that they are not nearly as developed as the U.S. or Europe.
Three possible solutions
There are actually three possible solutions. One is to take countries out of the negotiations and create some kind of sector-wide agreements between industries (all cement factories agree to reduce or limit emissions to “X”). This cuts out the unfair national competitive advantage issue and places power in the hands of business who as we know tend to actually get thing s done.
A variation of this is to go upstream to the sources of the emissions – that is the oil and coal companies and price the carbon at the initial production point, having that then be filtered down through all value chains and passed on to the consumer. That of course is fiercely resisted by the fossil fuel companies and would require their mutual agreement and commitment, something that is not likely to happen. And there are issues about who collects that money – essentially a global carbon tax at the point of production – and how it gets distributed. Both of these solutions, like an international nation-based solution are subject to cheating.
The third solution is the most compelling in my opinion and perhaps one likely to change U.S. politician and voter minds, which is the crucial challenge: going green is the only way we can prevent ceding competitive advantage to China.
Right now China is gaining competitive advantage over the U.S. because it has already decided to develop green as extensively as is possible. China is the lead manufacturer of both solar PV and wind turbines in the world. China is developing multiple large eco-cities with the most innovative and contemporary technologies deployed. The internal Chinese market for energy efficiency and non-polluting, renewable energy is large and growing fast. China is buying up strategic global eco-resources such as lithium (the key element for long range renewable energy storing batteries).
In other words with or without a national or international agreement China is already wholeheartedly embracing the low carbon economy that is the inevitable destination of the future.
There is a large and growing contingent of U.S. businesses that see where the future is going to be and is positioning to be ahead of the curve. I met with some of these leaders to Washington D.C. a couple of months ago. We went there to lobby senators to pass more, not less, stringent regulation on carbon. These industry leaders saw that it was in their best interests to have tough legislation because that rewarded them for their early mover efforts and nailed their laggard competitors. Many of these forward-thinking companies have operations in Europe or Japan where there are already stringent carbon rules, so they have already had to increase efficiency. It is much more effective for them to have one global set of protocols for their product manufacturing than to try and develop different standards for different regions. Companies pushing for a cap on carbon include Alcoa, BP, Caterpillar, Conoco, John Deere, Dow, Duke, DuPont, Exelon, Ford, GE, Johnson & Johnson, PepsiCo, PG&E, RioTinto, Siemens, and Xerox, as well as consumer brands like Nike, Coca-Cola, Starbucks and technology companies like HP, Dell, Cisco and Intel.
All of these leading companies – plus all the nascent start-ups that are set to grow into these clean tech, efficiency markets (last year saw more venture capital invested in clean tech than fossil fuel for the first time in history), plus all the consumer brands who realize their reputations depend upon and their customer and employees are demanding sustainability responsibility – are pushing for a carbon price and a clear long term framework so they can go ahead and make the sorts of investments that are necessary.
As Joel Makower says (see his Dec 11th blog entry ‘Copenhagen Gets Down to Business’ http://makower.typepad.com) – some of this is driven by plain old ethics, some by the business value (energy efficiency has a very high internal rate of return), some because they see it coming via regulation so want to get on with it. But the point is some very big name companies realize that clean tech and efficiency, which are supported by a strong carbon price, (whether through a cap or a tax), are good for American competitiveness.
So in fact America is already ceding competitive advantage to China by not setting carbon constraints. As any good innovator knows (Apollo 13 anyone?!) constraints actually drive innovation and breakthrough practice. So for America to stay in the game, for America to create the next Prius rather than go down the GM bankruptcy route, it needs to be a leader in this low carbon future, not a laggard.
Steering a Path Forward
When you turn the arguments around in this way it becomes obvious, despite the legacy lobbying and powerful relationships mobilized by old carbon industry in states with vulnerable senators, that it is actually against U.S. interests to block carbon caps. It is actually in U.S. interests to go clean and green first. All a price on carbon does is push America and consumers toward efficient, low carbon, clean products and services. It is a restructuring of the economy focused on successful adaptation for the future, not a destruction of the economy as die-hard climate change deniers would have it.
In fact the die-hards, who are heavily invested in the status quo much as were GM’s executives, designers, and union members, are in the long term ensuring the destruction of the U.S. economy by keeping America stuck in legacy markets which are dying out. Someone needs to make this case loud and clear.
Unfortunately that case has not been made well enough by progressive business leaders, by sensible long-term strategically oriented Republicans, by Obama and the Democrats, or by the NGOs. So the U.S. remains wedded to a position which stops any chance of a fair climate change deal in Copenhagen as well as setting the U.S. up to lose strategic advantage in this massive ($10 trillion on the Goldman Sachs estimate) emerging new market of low carbon.
Still, whether there is a deal or not, efficiency and sustainability will remain for many sectors, the way forward to increased profit, growth and brand advantage. For these companies, the smartest ones, top talent remains crucial. Luckily for them these companies are also the ones most likely to attract that talent.
MontaRosa continues to enjoy building out the best sustainability teams possible for these great corporate leaders.
What are your thoughts as you’ve watched the negotiations unfold in Copenhagen?
One Response 
Leave a Reply 
The MontaRosa Sustainability Practice serves Fortune 500 companies in identifying and recruiting chief sustainability, operational efficiency, environment, innovation, and sustainability strategy officers reporting to the CEO or to the executive team.
I worked for an economic consulting firm during the energy crisis of the late 1970s and, in a steel industry forecast, predicted declining U.S. share of the car market as foreign (and mostly Japanese) car makers moved toward high mileage vehicles. A few years later, in the early 1980s, I worked for the Office of Policy and Resource Management at the US EPA where global warming was discussed as an emerging problem. Neither the U.S. auto industry nor the Reagan Administration opted to pay much to attention to either issue. Now 25 years later, as the resulting economic and climate problems have mounted to catastrophic levels, we are still waiting for action. And our competitive advantage continues to slip away and life as we know it is further threatened.
These are examples of how our increasingly fractious government and near-sighted industry executives (driven by imperfect markets with severe externalities) are fiddling away our future. Unless we get on the right side of history with respect to economic development and energy use, and in a hurry, we will end up as yet another failed empire. We simply can’t remained deadlocked on these issues. Yes, to act means our way of living will be altered. We will pay more for our goods and services, and we may not have all the luxuries and conveniences that we have come to enjoy. But we can take our medicine now and move forward or we can take our medicine later and maybe not survive to see better days.