Businesses, Markets and Innovation Can Beat Climate Change

Businesses, markets and innovation can reduce emissions of gases that warm the planet. And they can do this while generating profits, creating jobs and growing the economy. In fact, they already are.

Voices that warn acting on climate change will harm business, kill jobs and hurt the economy are, ironically, underestimating the power of private enterprise to focus vast human, material and financial resources on solving challenging problems. Numerous businesses, across a wide range of industries, are finding and exploiting ways to make profits that are literally helping to save the planet. To be sure, the public sector in the U.S. and abroad have critical roles to play too if emission reductions are to go deep enough to limit warming to well below 2 degrees C, as called for in the Paris Agreement. More on that in due course. But first let's focus on the private sector.

Businesses, propelled mostly by market forces, and to a lesser extent by regulation, are innovating to reduce costs, raise productivity and bring new technologies and products to market in ways that have cut U.S. energy use and carbon emissions per dollar GDP (1). They have even reduced the absolute amount of carbon emissions in recent years. While corporate social responsibility values, desires to promote positive brand images and regulatory pressures play roles, the primary motivation is the expectation that these actions benefit the financial bottom line.

One area this is happening is the U.S. electric power sector, which has shifted dramatically over the past decade to become less carbon intensive. Natural gas prices began falling in 2009 as hydraulic fracturing technologies enabled development of vast amounts of gas from shale formations, making it a lower cost fuel than coal for producing electric power (2). It's also less carbon-polluting per unit of energy than coal. Average levelized costs have fallen dramatically for two zero-emission renewable sources of electric power, from 22¢/kWh in 2006 to less than 5¢/kWh in 2015 for solar, and from 5¢/kWh in 2006 to 2.3¢/kWh in 2014 for wind (3). Responding to these cost changes, electric power generation with natural gas and non-hydro renewables rose rapidly as coal fell. Natural gas will surpass coal this year with a 33 percent share in electric power generation, while renewables will provide 14 percent and nuclear, another zero-carbon source, provides 19 percent. New capacity is favoring renewables and natural gas. In 2015, wind and solar accounted for 41 and 26 percent of new electric generation capacity respectively, while natural gas accounted for 30 percent (4). Renewables now stand at 19 percent of US electric generation capacity.

Numerous other changes are afoot that are reigning in carbon. Hybrids, plug-in hybrids and electric vehicles are improving performance, falling in price and increasing in sales. LED lighting is maturing and has captured over 30 percent of the market. A variety of products and production processes are being re-engineered to save costs by being less material and energy intensive. New buildings are increasingly being designed and constructed to meet high energy performance standards such as LEED, Passive House and Living Building Challenge. Companies like Walmart are working to make their supply chains more efficient and less carbon intensive. More businesses are choosing to locate in high-density urban areas where they can benefit from efficient transportation networks and proximity to customers and employees - enabling them to save time, energy, money and carbon.

Analysts at Goldman Sachs (5) and Bloomberg New Energy Finance (6) project that trends in renewable energy and natural gas will continue to put downward pressure on carbon emissions, even with changes in federal policies and regulations that seem likely in the new Trump administration. Goldman Sachs expects continued expansion of a "low carbon economy" driven by solar PV, onshore wind, LED lighting and electric vehicles.

A variety of innovations are in the works that may help to further decarbonize the U.S. economy. Renee Cho provides a few examples (7). TerraPower is developing a nuclear "traveling wave reactor" that uses depleted uranium to produce power, thereby helping solve nuclear waste disposal problems and potentially lessening nuclear proliferation threats. General Fusion is working to make fusion technology commercially viable for producing power from abundant deuterium and tritium. Aquion Energy is working on saltwater batteries to provide safe and sustainable energy storage, while LightSail Energy is developing a technology that stores energy using compressed air.

A number of initiatives are striving to raise capital for innovative climate solutions or stimulate innovation through competitions. The Breakthrough Energy Coalition is forming a network of private investment to accelerate energy innovation. The Global CO2 Initiative is raising capital to invest in capturing CO2 and using it to make products that include construction materials, fuels, plastics, fertilizers, carbon fibers and nanotubes. Their goal is to capture and use 10 percent of the world's carbon emissions (8). The Carbon XPrize competition is offering $20 million prize money to challenge teams of innovators to develop technologies for converting captured CO2 into products. Carbon Engineering is working to commercialize a technology that captures CO2 from ambient air, allowing it to be located near producers with demand for carbon and at scales that match their demand.

The above examples give evidence of how businesses are profiting while reducing carbon and other emissions of climate changing gases. All very encouraging. And yet, they add up to far less than what is needed if we are to limit warming to levels that can be managed without suffering highly damaging impacts from climate change. To avoid that unwanted future, US carbon emissions need to fall 80 percent by 2050.

Can that be done? What would it take? The good news is that it is technically feasible and it can be achieved while meeting growing demand for energy services at a manageable cost, perhaps 1 percent of GDP per year. Under some assumptions, fuel cost savings exceed other costs, producing a net gain and not a cost to the economy. These are the findings of a new study by the Risky Business Project (9), as well as an earlier study of the Deep Decarbonization Pathways Project (10). Other studies using different methodologies have reached similar conclusions. Not included in the calculus are the benefits of limiting climate change damages and reducing adverse health impacts from conventional air pollutants, which make deep decarbonization a clear winner.

There are multiple pathways by which a low carbon future can be reached that vary in details about the market penetration of solar, wind, nuclear, carbon capture and other technologies. But three features are common to all. First, shift energy end-use from fossil fuels to electricity wherever possible, including transportation and heating. Second, generate electricity using energy sources with zero or near-zero carbon emissions. Third, use energy much more efficiently in buildings, transportation and industry. All of this can be done with currently available technologies; no major technological breakthroughs are necessary.

The bad news is that these changes cannot be delivered at the required scale and speed by the market acting alone. Businesses that cut carbon are not rewarded directly for the benefits of avoided climate change and air pollution. They capture only a part of the value their actions create - their reduced resource costs. Consequently, the market does not give them sufficient incentive to move as aggressively as our common welfare calls for. Meanwhile, other businesses that use the atmosphere as an unpaid resource in which to dump their waste gases are essentially being subsidized, gaining an unearned competitive advantage.

Thoughtful, carefully considered pubic policies can provide the incentives and business environment that would balance the scales and enable businesses to make investments that would transition us to a low carbon economy while providing good jobs and meeting our energy needs. These include putting a price on carbon; making substantial public investments in research & development and energy infrastructure; and creating incentives to promote similar investments by the private sector. Also needed are investments in community development programs targeted to regions where fossil energy sector jobs would be lost. In addition, participation in the Paris Agreement will be crucial for assuring that the playing field is as near level as possible with respect to carbon for businesses in the U.S and elsewhere.

We are at a critical juncture. The scientific evidence is clear to those who care to read it objectively. Bipartisan support needs to be forged now for deep reductions in carbon emissions; delay or partial measures will prove costly and economically destabilizing. Policies that harness the power of the market to incentivize private business and innovation offer the best potential for finding common ground.

1. U.S. Energy Information Administration, U.S. energy-related carbon dioxide emissions, 2014.
2. U.S. Energy Information Administration, Natural gas expected to surpass coal in mix of fuel used for U.S. power generation in 2016, March 16, 2016.
3. CleanEdge, Clean Energy Procurement.
4. U.S. Energy Information Administration, Wind adds the most electric generation capacity in 2015, followed by natural gas and solar, March 23, 2016.

5. Goldman Sachs Group, Inc. The Low Carbon Economy, Technology in the Driver's Seat, Nov 28, 2016.
6. Ethan Zindler, Trump and Clean Energy, Bloomberg New Energy Finance, November 18, 2016.
7. Renee Cho, What five tech companies are doing about climate change. State of the Planet, Earth Institute, Columbia University, March 4, 2016.
8. The Global CO2 Initiative.
9. Risky Business Project, From Risk to Return: Investing in a Clean Energy Economy, 2016.
10. Williams, J.H., B. Haley, F. Kahrl, J. Moore, A.D. Jones, M.S. Torn, H. McJeon (2014). Pathways to deep decarbonization in the United States. The U.S. report of the Deep Decarbonization Pathways Project of the Sustainable Development Solutions Network and the Institute for Sustainable Development and International Relations.