First published in the Huffington Post, September 9, 2013
President Obama’s emphatic stances on climate change during his inaugural address were indeed welcome words. Most analysts are focusing on the administration’s ability to use new regulatory powers, largely through the EPA. But there are two other options that are currently underused and under-imagined.
First, patent pooling has been used since the 19th century to spur innovation in industry to support either a wartime emergency or a financial debacle. I believe that climate change qualifies on both counts. And the Securities and Exchange Commission has new rules that require public corporations to disclose their climate change risk. These rules are new (2010) and currently vague, but have the potential to begin the incorporation of external costs as well as long-term impacts into corporate P&Ls and balance sheets.
Farmers, most businesses, victims of recent extreme weather events (drought, heat wave, fire, flood), and the taxpaying citizens forced to cover the costs of these weather events all understand viscerally that something’s gotta change. And quickly. President Obama appears to concur.
It is time to change intellectual property rules so that competitors can cooperate and also retain financial protection. When President Franklin Roosevelt took America into WWII, he set tremendously audacious goals for industry and also called for national sacrifice to support the military effort. Many Americans and car companies especially bristled at this. However in hindsight, it is clear that this wartime effort not only enabled the Allied defeat of fascism but laid the foundation for America’s post-war technological and industrial dominance. If current government policy (all governments, not just American) prioritized renewable energy as the U.S. government prioritized military manufacturing in 1941, the world would quickly see a revolution in renewable energy technologies. And it’s exactly this revolution in storage and dissemination we need in order to more easily transition out of fossil fuel dependence. (We could do it without today’s technology, but it would be harder than it needs to be.)
Many iconic American corporations have invested billions of dollars and hired many of the world’s best scientists to work on renewable energy breakthroughs. But these scientists, from IBM, General Electric, Cisco and many others are sworn to secrecy in order to protect their companies’ investments. Why shouldn’t they? That’s the current business framework. Patent-pooling, an agreement between two or more companies to cross license patents, has been around since the 19th century, and has spawned numerous technological breakthroughs since then. For example, ten companies share the patent rights for the DVD — Hitachi, JVC, Matsushita, Mitsubishi, Philips, Pioneer, Sony, Thomson, Time Warner, and Toshiba.
And without much fanfare, there is a revolution brewing in the world of accounting. Puma, the sportswear company, released the first-ever Environmental P&L in 2011 and showed that if it actually paid the true costs of its environmental impact it would have reduced its profit by 75 percent. (Currently, this money is paid by taxpayers and unwitting victims of this pollution.) PricewaterhouseCoopers with environmental data experts TruCost led this effort and many other corporations are beginning to incorporate Lifecycle Analysis into their annual reports in anticipation of the SEC’s next move. All of the large financial service firms are ramping up their climate change divisions and the Global Reporting Initiative and many other financial groups are designing a new accounting paradigm that includes environmental and social costs into plain vanilla financial reporting.
The SEC and the IRS can catalyze this work to give it both bite as well as incentives. Accelerated depreciation or a price on carbon could be levers that move an investment decision from dirty manufacturing and fossil fuels to clean technology or renewable energy. New SEC rules would protect senior management at many corporations from Wall Street’s short-term purview and instead reward smart long-term technological change.
These are just two options. If President Obama is serious about averting the worst effects of climate change, it is time to think big. Nothing except for nature can transform the world as swiftly as can business — for better or for worse.