Can Business Learn to Love the Environment? The Case for a U.S. Corporate Carbon Fund
Sophie E. Smyth
Temple University - James E. Beasley School of Law
Rutgers Law Review, Vol. 58, No. 2, p. 451, Winter 2006
The United States' withdrawal from the Kyoto Protocol process in 2001 delayed but did not sound the death knell for controls on the greenhouse gas emissions of U.S. industry. Even whilst withdrawing the United States from that process, President Bush promised that the United States would provide its own plan to reduce global warming. Efforts to address global warming have been ongoing in the United States, on many different levels, ever since. Whilst the Administration has limited its efforts to urging U.S. industry to adopt voluntary measures to reduce their greenhouse gas emissions, I there is a rapidly growing consensus that the introduction of mandatory controls on greenhouse gas emissions is both necessary and inevitable. Whether these controls come from international treaty or U.S. government regulation, compliance for U.S. corporations will be costly. Conversely, large new markets await corporations that produce technologies that reduce emissions.
This article addresses the question of how and why U.S. corporations should prepare themselves for the added expense, or expanded market opportunities, as the case may be, that mandatory controls on greenhouse gas emissions will bring. U.S industry has already begun answering this question. Many corporations which emit greenhouse gases are building systems to track and monitor their emissions and undertaking steps to achieve reductions. Others, who produce environmental technology, have begun mobilizing resources to take advantage of the opportunities presented outside the United States since the Kyoto Protocol began to take shape. These measures are important first steps. I argue, however, that they contain a major omission because they lack a directed attempt on the part ofU.S. corporations to avail of the highly cost-effective means of achieving greenhouse gas emission reductions offered by investing in the developing world.
I start from two premises. First, that mandatory controls on emissions will include the possibility ofmeeting the requirements of such controls by investing in energy efficient projects in developing countries which result in the reduction of emissions in those countries. (This is sanctioned under the Kyoto Protocol). My second starting premise is that achieving credit for such investments will be a far less expensive means of meeting the obligations of mandatory controls than achieving such reductions by investments within the United States (as numerous economic analyses show). I argue that, in addition to the preparatory steps they are already taking, U.S. corporations should create a new joint enterprise, a U.S. corporate carbon fund, which would fund environmentally friendly projects, or components of projects and, therefore, the reduction ofgreenhouse gas emissions in the developing world.
The enterprise I propose would be a trust fund capitalized by participating corporations and administered by the World Bank as trustee. It would be modeled on the Prototype 2 Carbon Fund that was formed by the World Bank in 1999. The purpose of the fund would be to provide financing for projects in less developed countries to be used to cover the costs ofmaking those projects more environmentally friendly than they would otherwise be (for example, the fund could finance the additional cost of fitting a scrubber to a coal-fired plant). In return, the fund would receive credits for the reduction in carbon emissions brought about by the fund's financing (in the example above, by the use ofthe scrubber). The trustee would distribute those credits pro rata amongst the participants in the fund, in accordance with their respective contributions. The participants, in tum, would use those credits towards defrayment of the obligation to reduce greenhouse gas emissions that will be imposed upon them upon the introduction of mandatory controls.
Such a fund would integrate environmental and business principles to address everyone's interest in clean air. The approach serves three specific business objectives. First, it would position U.S. corporations to prepare for mandatory greenhouse gas emission controls; everyone will have to reduce their emissions but the advantage will go to those corporations who achieve their reductions in the most cost-effective manner. Secondly, it would provide U.S. corporations with exposure to, and knowledge of, developing countries' needs for environmentally friendly technology. Thirdly, it would enable U.S. corporations to achieve the goal ofcorporate social responsibility by performing a positive role in addressing the problem ofglobal warming. Moreover, by acting together through a fund, U.S. corporations would share the risks ofproject failure and collectively avail of the experience, ties and leverage with the developing world that acting through an international financial institution, such as the World Bank, can provide.
More broadly, the fund approach would render significant benefits to the developing world and serve as a useful precedent for other public-private sector interventions in international development aid. Such a precedent would be especially useful in light of increasing pressure on all developed country governments, including the United States, to expand their aid to developing countries and growing recognition on the part of such governments that the private sector will need to play a role in responding to such pressures.
The formation of such a fund will entail a novel integration of disparate legal principles that will prove challenging. Because our scientific understanding of global warn1ing is changing, environmental law has had to remain dynamic. While not stagnant, corporate finance, trusts and securities law cover activities that are more settled and, hence, rather more resistant to change. Finally, the involvement of the private sector in a jointly managed collaborative effort with the World Bank to target the provision of international development aid, would raise unresolved issues concerning the boundaries of their respective domains. As the article illustrates, forging an alliance between these disparate areas of the law will involve pioneering the development of the law in all three of these areas. I contend that these areas of the law need to evolve and expand to integrate the new forms of rights and interests that mandatory controls on greenhouse gas emissions will entail, in order to address the pressing policy concerns that underpin this new regime.
Number of Pages in PDF File: 60
JEL Classification: K22, K32, K33Accepted Paper Series
Date posted: May 14, 2010 ; Last revised: August 7, 2012
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