Tackling Climate Change in the Absence of Global Leadership

If the Rio + 20 Earth Summit demonstrated little else it was that national, regional, community, and company initiatives are fast filling the vacuum left by the dismal failure of global leadership to effectively address climate change and other ecosystem emergencies.  These ad hoc approaches present opportunities as well as challenges to the institutions and economies that are the first to take action.

Three recent initiatives—one on a regional and two on a national leve—are cases in point. In May, France passed the Grenelle II Act which will require all public and privately held companies with more than 500 employees to report details of the social and environmental impacts of their business operations as part of their annual reports, and to have that report approved by their board of directors and verified by an independent auditor. By requiring that this information be embedded in the annual report rather than published in a separate report it is an initial step in the direction of integrated reporting.  Clearly there will be administrative costs to companies in complying with the mandate, but as a briefing paper on the act published by Institut RSE notes compliant companies will reap the benefits in heightened “competitiveness, operational efficiency, brand image, and risk management.” Although there will be no penalties for failure to report under the act—companies will merely be required to comply or provide gap analysis where they do not–shareholders will have the right to bring actions against companies that fail to disclose material risks.

Meanwhile British Columbia and Australia are putting other laggard developed economies—notably the US—to shame with progress on their carbon tax regimes.  On July 1, British Columbia increased its four-year-old tax on carbon, from $25 to $30 per metric ton of carbon dioxide. The carbon tax revenues are returned to taxpayers via cuts to individual and corporate income taxes.  Over the past five years, the province has cut its greenhouse gas emissions by 4.5% although it is still a long way from its target reduction of 33% by 2020.

Unfortunately, as Yoram Bauman and Shi-Ling Hsu noted in a recent New York Times Op-Ed piece, the province’s latest carbon tax increase will be its last, at least until other neighboring economies institute their own tax, since the province does not want to unduly compromise the competitiveness of its most energy intensive industries.

This month, Australia’s 400 largest polluters will begin paying a fixed tax of A$23 ($24) per carbon ton that they emit, covering more than 60% of the country’s emissions. The rate will increase by 2.5% annually until 2015, when it will move to a floating rate. Much of the increased cost is expected to be carried over to consumers.  Frank Jotzo writes for Project Syndicate that the carbon tax must be much bigger to drive significant reductions in emissions, but it is a good first step.  Australia has shown real leadership by putting in place a much more effective carbon tax than the EU.

As the prospects of a global consensus on addressing climate change dwindle, we need to continue to encourage this kind of bold pathmaking.

Meanwhile, positioning itself for a place in the Climate Change Hall of Shame, the US is leading an effort to end the EU carbon tax on airlines flying in and out of Europe.