In
an article published in Harvard Business Review, science historian Naomi Oreskes and green
business advocate Auden Schendler argue that we can’t count on large,
for-profit corporations to undertake meaningful climate action on their own.
One take-away from Oreskes and
Schendler’s piece is hard to dispute: in order to combat climate change, a
binding and meaningful international climate accord is essential. But is the
authors’ pessimistic assessment of major corporations vis-a-vis the climate
also warranted? That depends.
The
profit motive versus the climate?
By
providing an incentive for business leaders to respond to the forces of supply
and demand in the marketplace, the profit motive plays an integral role in all
capitalist market economies.
In
theory, robust demand for a given product or service causes its price to rise,
which motivates businesses to supply more. Firms that respond nimbly to
consumer demand are rewarded with increased profits. In the world of natural
resources and commodities, scarcity drives prices higher, which encourages
investment in research and development, and drives the search for alternative fuels
and material inputs. In a competitive marketplace, consumers theoretically gain
access to innovative, high-quality goods and services at the lowest feasible
cost.
The
idea that the pursuit of self-interest is conducive to the collective welfare
of society has a long history, with famous exponents including Adam Smith, Ayn
Rand, and Milton Friedman. Large corporations of the
present day generally adhere to a similar principle; in fact, courts in the
U.S. and other countries have ruled that publicly traded businesses have a fiduciary responsibility to pursue profit on
behalf of their shareholders. This framework saddles the state with enforcing
laws and regulations, deterring and prosecuting crimes, dealing with
externalities, and generally safeguarding the public interest.
Whither
externalities?
Externalities
are costs or benefits that are not embodied in the market price of a good or
service. Industrial belching of greenhouse gases into the atmosphere
contributes to the negative externalities of pollution and climate change.
Health care, by contrast, yields positive externalities by promoting a a more
salubrious society. As long as they remain external to market prices,
externalities can seriously undermine the ability of our economic system to
advance human welfare.
Governments
can partly redress climate externalities by taxing or regulating polluters, and
providing incentives for non-polluters. But since there is only one atmosphere,
and climate change is occurring at a global scale, policies of this kind must
be internationally harmonized in order to be most effective.
Moreover,
governments are never disinterested actors; they are subject to lobbying by
various parties and interest groups (including major corporations with
significant investment in the status quo). The appropriate price of carbon
emissions, for example, is a contentious issue. No government is omniscient,
and uncertainty invites differing perspectives, interpretations, and
geopolitical tensions.
For
instance, U.S. representatives might argue that meaningful progress can’t occur
on the climate file without hefty emissions reduction commitments from China.
China’s representatives might retort that relatively inexpensive Chinese
manufactures benefit western corporations and consumers—so the developed world
shares partial responsibility for greenhouse gas emissions in China. Both
arguments contain a kernel of truth, and there is no simple way to ascertain
which kernel deserves more weight.
The
“free” market
Even the
most elementary functions of government influence private market interactions.
There is no such thing as a “free” market.
By
levying taxes, the state encourages its citizens to change their behaviour in
order to avoid those taxes. By commissioning the construction of roads and highways,
it facilitates private automobile transport, and in turn, props up the
automotive industry. With its police force and judiciary, it enforces private
property and enables accumulation. Through public education, it contributes to
the productivity of private enterprises. Unemployment insurance programs enable
risk-taking and entrepreneurship by mitigating the costs of failure. Every
successful capitalist economy has included significant government intervention,
and public policy is thoroughly enmeshed in market dynamics and outcomes.
In
a sense then, “Can corporations help solve climate change?” is the wrong
question. Instead we should ask “Can the world’s governments structure market
incentives so as to internalize externalities, and make fossil fuel combustion
less profitable?” As long as cutting greenhouse gas emissions is more expensive
than continuing to emit them, profit-seeking corporations will be unreliable
partners (at best) in the campaign for a stable climate.
