Our Common Energy Future

The private sector must lead the way in confronting the problem of climate change. Moreover, this effort will be neither efficient nor fruitful unless private corporations and companies seek out non-traditional partners in environmental non-governmental organizations, William K. Reilly, the former administrator of the U.S. Environmental Protection Agency, said during his remarks on "our common energy future" at the C. Warren Goldring Annual Lecture on U.S.-Canada Relations in Toronto on October 22, 2009.

A Non-Traditional Partnership

Reilly framed his comments in a discussion of a landmark deal he negotiated for his firm, Texas Pacific Group, to buy out Texas Utilities (TXU) and its coal-powered electricity plants. This high-profile deal garnered media attention not only because of its size but also because of the consultation and involvement of leading environmental non-governmental organizations (ENGOs) in setting the terms. Indeed, the Natural Resources Defense Council, the World Resources Institute, and the Environmental Defense Fund were among the key players in negotiating standards for air quality and the construction of plants powered by wind rather than coal.

Reilly emphasized the significance of the TXU deal as a case study for the unlikely partnership of private corporations and environmental organizations. Deals like this one, he noted, represent the arrival of an industry turning point where "major financial decisions would be subject to strong environmental commitments and depend on partnership with highly respected non-governmental organizations."

Private Sector Leadership

Given that the American public is not clamoring to address the climate change issue, Reilly asked the private sector to take over leadership on this vital issue. Privately owned companies, the major source of invention and innovation all over the world, are best able to provide the kind of ingenuity and technology that the green movement requires.

Many companies have already responded to this call for leadership. For example, corporations such as Nike, Exelon, and Pacific Gas and Electric recently withdrew from the U.S. Chamber of Commerce after the association disparaged the science of climate change. Reilly also mentioned the U.S. Climate Action Partnership—where major firms such as General Electric, Siemens Corporation, and DuPont work side by side with member environmental organizations such as the World Resources Institute and the Pew Center on Global Climate Change—as another prominent example of private sector leadership on environmental issues.
Reilly maintained that the private sector's increasing commitment to address issues such as climate change is especially important, given today's economic and political priorities. He noted that the American public and some government officials remain wary of public-private environmental policy solutions despite the fact that market-based incentive programs such as the cap-and-trade of sulfur dioxide have proved successful in the past. This distrust over market-based environmental solutions and the private sector in general has, unfortunately, only intensified over the last 18 months, since the onset of the financial crisis.

Nevertheless, private sector participation and leadership will be crucial if we are to make progress against complex environmental catastrophes, particularly climate change. In order to reduce carbon emissions successfully, several sectors in the economy will need to make major changes to their traditional business practices.

The Rules of the Game Have Changed

In order to seize upon business opportunities presented by climate change, Reilly said that the private sector needs to understand the following five principles:

1. Firms cannot ignore the importance of public acceptance. License to operate is no longer simply granted by the government.
2. The source of public acceptance has evolved from scientists and government institutions to the consumer. The support of the scientific community alone is no longer a guarantee of profit. Public anxieties and expectations can quickly remove products from the market.
3. Success depends on a rapid awareness of values and trends; non-traditional partners must stay attuned to these trends.
4. The private sector must resolve to reduce its own carbon footprint—the true measure of every company's commitment to environmentalism.
5. Firms must maintain an openness to and engagement with the public policy process in order to create opportunities and, at the same time, address environmental issues.

In conclusion, Reilly stated optimistically that the best performers in the private sector have already begun to take on a leadership role at the intersection of economic aspirations and environmental goals. Prominent energy companies such as Shell and British Petroleum support carbon cap-and-trade legislation. The automobile industry has embraced and supported improvements in fuel efficiency standards. Reilly also said that the next wave of environmentalism emanating from the private sector will be products designed to reduce both the greenhouse gas emissions and the carbon footprint of consumers.

Alexander Kostura, Program Intern
David Biette, Director, Canada Institute