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Cracking the Carbon Code
The Key to Sustainable Profits in the New Economy
By Terry Tamminen
Palgrave Macmillan Copyright © 2011 Terry Tamminen
All rights reserved.
The Bodybuilder, the Brit, and the Oilman: A Brief History of the Carbon Code
Never was so much owed by so many to so few.
Winston Churchill, August 20, 1940
It was a warm and muggy Southern California day in July 2006, but no hint of perspiration dared to appear on the bronzed face of Governor Arnold Schwarzenegger. He was speaking with Lord John Browne, then chairman of oil giant BP (known then as British Petroleum), and me at a port facility in Long Beach. We were waiting for the arrival of British Prime Minister Tony Blair.
The topic of this summit was putting a price on greenhouse gas pollution—"carbon"—and its genesis was straightforward. A year earlier, The Governator had addressed a crowd in the San Francisco City Hall on the United Nations' World Environment Day, declaring "the science is in; the debate is over; the time for action is now," and set California's goals for reducing carbon—down to 1990 levels by 2020 and 80 percent below that by 2050. He signed an Executive Order that day establishing a path to achieve those goals, but any truly meaningful regulation of carbon would depend on putting all of this into law, because industries such as oil, cement, agriculture, and the catch-all California Chamber of Commerce quickly lined up to criticize the governor's action as a job-killer and business-buster.
Despite the misgivings of some, by early 2006 state agencies and a multitude of stakeholders had developed a credible plan that would achieve the carbon reductions and pay for much of it with energy efficiency measures, renewable energy generation like solar and wind power, and the production of alternative fuels like hydrogen, biodiesel, and batteries—all things that would make California more competitive and create new industries in the Golden State. To convert the plan into law, the governor worked with legislators to introduce Assembly Bill 32 (or simply "AB32"), The Global Warming Solutions Act of 2006.
Locked in a tough re-election campaign and with his own Republican Party firmly opposing AB32, Schwarzenegger began campaigning to get the bill passed. In June, Schwarzenegger and I had flown to Sedona, Arizona to attend the Western Governors' Association annual meeting. We had successfully convinced the other governors at the meeting—conservative Republicans and liberal Democrats alike—to sign an agreement to tackle climate change on a regional basis. We needed this kind of broad support to make the case back home for AB32, but the meeting highlighted another challenge: addressing global issues on a less than global scale.
As we prepared for the formal session where the regional deal would be adopted by the nineteen governors, we compared notes on carbon policy with two other progressive governors—Janet Napolitano of Arizona and Christine Gregoire of Washington. Janet was smart and articulate, qualities that would later bring her to the attention of President Obama and put her at the head of the federal Homeland Security Agency. Christine was a bold risk-taker. She had just won her first term in office, after a recount, by a mere 200 votes (taking Seattle with a 150,000 vote majority, but losing the rest of the state by an equally large margin), highlighting the sharp partisan divisions in her own state. Tackling climate change would be popular in the big city, but feared and opposed everywhere else.
Of all the opposition arguments, the one that seemed to be the hardest for all three governors to overcome was the idea that if only a few states imposed limits or costs on carbon, it would drive businesses to other parts of the country and ultimately wouldn't do much to tame greenhouse gas emissions. We concluded that someone would have to recruit more governors to adopt similar policies, a de facto national climate action plan.
Like Schwarzenegger, I had come to Sacramento to take a turn at public service, not to become a career civil servant. I had served as secretary of the California Environmental Protection Agency and later as Schwarzenegger's cabinet secretary, managing policy for all of state government, but had planned to stay no more than one term. In the absence of federal policy, the three governors knew they needed a "climate ambassador" to help other states figure out how to develop their own climate action plans and to get them working together on regional policies around sharing renewable energy production and creating a market for carbon emission reductions. It seemed like a natural fit for a policy wonk, who came from a nonprofit think tank, to go back to that world and to begin to connect the dots with other states. I was deputized on the spot, but needed a carbon-plated calling card to showcase as a template for other governors. AB32 would have to become law in California for any of this to succeed elsewhere.
"How Much Did You Pay Him to Say That?"
The 2006 Western governors' meeting culminated with a unanimous agreement to collaborate on climate change policy. Even with that endorsement and a growing number of progressive California business interests voicing support, Schwarzenegger still needed one more push to get AB32 across the election-year political finish line, so we organized a CEO forum and persuaded BP to host it at their port facility in Long Beach, California on July 31, 2006. CEOs of global businesses that had prospered under European carbon regulation were asked to share their experience with CEOs of U.S. companies that could influence state lawmakers to support a carbon reduction law. We secured one more key component of this campaign—the keynote speaker at the event would be British Prime Minister Tony Blair.
Years before the massive 2010 oil spill in the Gulf of Mexico tarnished its reputation, BP was the perfect host for a business event focused on the environment—an oil company that conducted business on both sides of the Atlantic and declared its famous initials stood for "Beyond Petroleum." Lord John Browne could testify to the benefits of a lower-carbon future and show off a new oil tanker that ran on cleaner fuels and operated at greater efficiencies and therefore lower cost. A sparkling white tent had been set up to hold the forum on the docks adjacent to the tanker, green plastic grass covering the oil-stained pavement inside.
Blair's motorcade came speeding into the compound in a cloud of dust and tires grinding on gravel. Schwarzenegger strode purposefully out into the blazing afternoon sun and extended a hand to Blair as he emerged from the car. As the two leaders strolled toward the tent, chatting intently about how to convince the assembled business leaders that a low-carbon economy was in the best interests of their shareholders, the governor gestured for me to join them.
"Terry, I want you to hear this," he said, prompting Blair to repeat what he had been saying.
"As host of the G8 last year, you may recall I took on climate change as one of our key topics," Blair said as if conducting a graduate seminar on public policy. "We invited the five biggest developing countries [China, India, Brazil, South Africa, and Mexico] to join us on this topic, because without their cooperation, we will never solve the climate crisis. They made it very clear that their countries would not reduce carbon emissions unless the United States does so. I was just telling the governor that in the absence of U.S. federal policy, that makes what California is doing so important to the rest of the world. But I also mentioned that it wouldn't be enough to get these developing countries to move if only California takes these actions. We need California to convince other states to do the same, sort of a de facto national climate plan."
"So how much did you pay him to say that?" Schwarzenegger asked me with a big grin. We explained to the puzzled Blair that just a few weeks ago in Arizona, we had decided to take our show on the road and help other states adopt California-style climate and renewable energy policies.
"Oh, that's brilliant," Blair said with a mixture of relief and glee. "You must do so. You must succeed."
Once inside the tent, Blair and Schwarzenegger got the progressive CEOs to tell their stories and talk about what had helped them reduce carbon and save money in the process. Google founder Sergy Brin, dressed in a T-shirt and cargo pants with a solar-powered backpack recharging his cellphone, sat next to Sir Richard Branson of Virgin Group, both advocating new ways of doing business in sharp contrast to the old. They were flanked by CEOs Chad Holliday of DuPont, Mike Morris of American Electric Power, Kevin Davis of Man Financial, Jeff Swartz of Timberland, and James Murdoch of British Sky Broadcasting, among others. Together, the companies represented at the table that day earned half a trillion dollars a year and employed more than 300,000 workers.
Perhaps the most persuasive speaker was Jacques Dubois, CEO of insurance giant Swiss Re America, who warned of massive liability for insurance companies if governments failed to address climate change impacts. Around the large square table, one by one, they debated and moved the conversation from "if" to "how" and "how soon."
With support from business, the California global warming law passed, was quickly signed by the governor, and the world's seventh largest economy officially joined the global fight to slash the world's addiction to carbon. Four months later, after campaigning across the state in a green bus adorned with scenes of Yosemite and blue skies, Arnold Schwarzenegger was re-elected governor of California by twenty points over his challenger. Polls confirmed that his environmental accomplishments, particularly his leadership on climate change solutions, were the major factor in his victory.
The DNA of the Carbon Code
Globally, there are many building blocks of the Carbon Code, but within the United States, California's AB32 is the fundamental DNA upon which every other carbon regulation is built. As such, it is also the key to understanding where to look first for trends in regulation, incentives, and examples of how to unlock hidden carbon value—or liability—in almost any company.
California's actions stand on the shoulders of European policies, which were born of the United Nations' "Earth Summit" in 1992 (see Appendix B for more detail), when 189 countries—including the United States—signed the United Nations Framework Convention on Climate Change (UNFCCC), a global, though voluntary, commitment to slash carbon emissions. In Kyoto, Japan in 1997, the signatories made the deal more specific and enforceable. In the so-called "Kyoto Protocol," the United States and 38 other industrialized nations agreed to cut carbon about five percent below 1990 levels by 2012. Under the theory that developed countries had created the climate change problem (and become wealthy doing so), the developing nations had no specific obligations initially, but agreed to make some additional voluntary efforts to stem the growth of carbon too.
As a result of these initial efforts, primarily by Europe and California, to address both the challenges and the opportunities of dealing with climate change, other U.S. governors began to understand the power of the Carbon Code to change both political and economic fundamentals. With the AB32 template in my pocket, I started my ambassadorial duties and was stunned by how many states wanted to get on the bandwagon. I racked up frequent flyer miles from Annapolis to Carson City, from Madison to Olympia, from Albany to Des Moines (Appendix D describes actions taken by states to cut carbon, largely based on California's example). In early 2007 the concept spread beyond U.S. borders when Schwarzenegger received a call from Gordon Campbell, premier of the Canadian province of British Columbia.
Premier Campbell and his policy team were eager to hear about our newly-minted carbon law, but also wanted to understand the Carbon Code behind AB32 and the programs that would achieve its goals. We had set up a program to deliver 20 percent of California's electricity from renewable energy by 2010 and one-third by 2020. We set aggressive building and appliance efficiency standards and created incentives for people to rapidly adopt them in practice. We set tailpipe emissions standards for cars and established a market for carbon so future reductions could be met by trading for the lowest-cost "credits." In all, more than 200 programs in our climate action plan—the "wiring instructions" of the Carbon Code—were set to achieve California's world-leading carbon-reduction targets.
Campbell had been a very "green" mayor of Vancouver before becoming premier of British Columbia. He ordered his team to take the best of California's Carbon Code and combine it with land use and transportation policies that he had perfected in Vancouver, creating a climate action plan unique to his province. A month after our meetings, Campbell announced his plans to cut carbon in his annual "speech from the throne," the Canadian version of a State of the State speech.
"The science is clear," Campbell had declared in his speech, channeling the one Schwarzenegger had delivered on World Environment Day some 18 months earlier. "It leaves no room for procrastination. Global warming is real."
"The B.C. government is trying to out-green California with a sweeping strategy unveiled Tuesday to fight global warming by cutting back on greenhouse gas emissions from everything from cars and industry to the daily energy consumption of ordinary people," reported the Vancouver Sun after the speech. "Following the script of California Governor Arnold Schwarzenegger, who rode the green wave to a landslide election in 2006, Premier Gordon Campbell is promising to head a climate action team that will demand two proposed coal-fired plants pump 100 percent of their emissions into the ground. It will adopt California's automobile emission standards starting in 2009 and encourage citizens to conserve through personal energy audits."
The premier pledged to cut BC's carbon at least 33 percent by 2020, in part by working with California, Oregon, Alaska and Washington "to develop a sensible, efficient system for registering, trading and purchasing carbon offsets and carbon credits."
Campbell and Schwarzenegger knew that Europe was considering the creation of a marketplace for emissions reductions to meet its Kyoto Protocol commitments, trading so-called "carbon credits," and that these kinds of market-based mechanisms were essential elements of the Carbon Code that could help businesses to reduce their carbon footprints at the lowest possible cost. At that 2006 Western Governors' Association meeting in Arizona, we had discussed using a similar tool among our states because of its appeal to businesses—one way to ensure acceptance of carbon-reducing policies and targets.
Adding a Canadian province would make the market and the benefits bigger, but there was still one big catch. We needed to get enough U.S. states into such a scheme to make it workable—and enough states to convince the U.S. federal government to adopt it as a national and international solution to the climate change challenge.
With British Columbia now the "California of Canada," we turned our attention to a conspicuous blank patch on the carbon-cutting map of North America. The southern states, their politicians now among the most vocal skeptics of climate change science and policy, were completely absent from the growing carbon policy coalition. Could the United States ever accomplish any meaningful national program with such a large and influential part of its geography moving in the opposite direction? Could a new president and congress be elected in 2008 that took climate change seriously without southern state support?
As it turned out, the keys to both were in the hands of a charismatic former quarterback from the Wake Forest Demon Deacons, who had just won the most important game of his political career and was now needed to lead a team into the environmental "Super Bowl"—although he didn't know it just yet.
From White Spaces to the White House
Although the two politicians may never compete at weightlifting, Florida Governor Charlie Crist could certainly give California's movie star governor a run for his money in any warm-smile-and-firm-handshake competition. A football quarterback in college, he converted his leading man good looks, sharp intellect, and earnest conversational style into a winning streak of state political posts that culminated in the governor's mansion. As attorney general, he challenged traditional thinking, often taking positions at odds with his own political party and base of support. Hoping that he might break with southerners who opposed carbon-reducing policies, I asked Schwarzenegger for an introduction.
Meeting in his office in Tallahassee within a month of his 2007 inauguration, I sat with the Florida governor and his policy advisors and laid out a series of maps of the U.S. states—those colored in green had climate action plans; those colored in blue had renewable energy mandates; states in yellow had adopted California's greenhouse gas limits on cars; states in red were copying California's AB32 and considering binding greenhouse gas reductions—just as if they were separate countries under the United Nation's Kyoto Protocol.
On map after map, one thing became clear. The entire southeastern part of the United States was white. Florida, as the economic powerhouse of the region, could be a major leader on climate and clean energy policy in the fastest-growing part of the country. In doing so, Crist could fill in the last major blanks—literally and figuratively—on the U.S. map and, therefore, on the path to getting a new global climate agreement.
Excerpted from Cracking the Carbon Code by Terry Tamminen. Copyright © 2011 Terry Tamminen. Excerpted by permission of Palgrave Macmillan.
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