Business has become a key part of the fabric of global environmental governance, considered here as the network which orders and regulates economic activity and its impacts. We argue that businesses generally are willing to undertake limited measures consistent with a fragmented and weak policy regime. Further, the actions of businesses act to create, shape and preserve that compromised regime. We examine three types of indicators of business responses in North America: ratings by external organizations, commitments regarding emissions, and joint political action. We find business response to be highly ambiguous, with energetic efforts yielding few results.
Given the prospect of a flexible and fungible carbon regime with weak caps, high transaction costs and low, if unpredictable, carbon prices, it is perhaps unsurprising that companies are currently placing more emphasis on management processes, policy influence, and market image than on major investments in risky low-emission technologies. Ahead of any mandatory caps, especially in advance of setting any baselines, investing in emissions trading infrastructure has a greater potential return than investing in reducing emissions. Firms seem to be responding to a vast, bureaucratic, complex GHG system, but one that does not actually require much in the way of emissions reductions. Yet firms also create and sustain this governance regime, both through their political advocacy, and through the legitimacy conferred by perceptions of success. External reports rate firms highly for small positive steps, reinforcing the ‘win-win’ discourse of ecological modernization.
When the United States first agreed to a binding international agreement in Geneva in July 1996, it provided an explicit assurance that industry interests would be integrated into the climate regime. Chief negotiator Tim Wirth promised that the United States would pursue “market-based solutions that are flexible and cost-effective”, and that “meeting this challenge requires that the genius of the private sector be brought to bear on the challenge of developing the technologies that are necessary to ensure our long term environmental and economic prosperity” (Wirth, 1996). The emergent regime is sufficiently weak and flexible that it does indeed accommodate most business concerns about short-term disruption to markets, and many firms appear willing to engage in substantial organizational and technological efforts to work toward a long-term carbon constrained future. In a sense, companies are hedging their bets by investing in long-term alternatives while acting to preserve the value of their technological and market assets in the short to medium term. Simultaneously, however, the locus of regulatory activity is moving to the state level in the United States, and when these policy initiatives threaten to impose more immediate and stringent caps on emissions and to create a model for national regulation, business is reverting to its oppositional stance of the 1990s.
By examining several indicators of business response, we are able to discern the multiple dimensions of strategy that firms pursue. The existence of ambiguity even within indicators, such as profound differences between different rating reports and participation by firms in contradictory political associations, shows that these indicators do not separate the dimensions of strategy completely. Future research might be able to separate the dimensions more carefully, to better discern changes in each dimension as the responses to climate change evolve. Yet the ambiguities overall show how limited and tentative the emerging governance regime is.
Emissions trading represents the heart of a corporate compromise with pressures to address climate change, and it is the area in which we witness the greatest amount of corporate activity. Emissions trading represents the emerging consensus around market-based, low-cost policy instruments. While business and states are engaged in considerable organizational efforts to establish the infrastructure and capabilities for trading systems, the incentives for a major shift in resource allocation toward low-emission energy sources, products and technologies is mitigated by political pressures for highly flexible trading schemes in which carbon prices will remain low.
Overall, we see a series of energetic efforts yielding ambiguous and tentative results. The implication is that we are not on a trajectory towards a genuine solution. Breaking the inertia of past practice is not sufficient. The global GHG regime appears to be institutionalizing within the middle ground, with marginal improvements on past practice but without reaching sustainability. A dramatic environmental ‘shock’, or an unlikely assertion of political leadership might well be required to provide the necessary impetus for change.
