More Thoughts on Climate Costs

Last week we had a post about corporate disclosure of climate change issues, and the challenge of making useful disclosures under our currently crazy-quilt system of frameworks, standards, and scant regulatory direction. Too much noise about planning for better disclosure, not enough signal on how to do it.

One Radical Compliance reader emailed to say that some colleagues in the sustainability world had been grappling with environmental impact assessments “and found them lacking.” She passed along some observations from that group, which are worth considering. Take a look:

The sole focus is carbon emissions used in production — a very small piece of the environmental impact. Some things that need to be on any assessment list:

• • Impact of the entire product life cycle (materials sourcing, production, packaging, distribution, point of sale, use, reuse (if any), disposal, recycling (if any), harm of residual waste;
  • Cost-benefit analysis of how the total impact relates to the benefit of the product to people and society;
  • How needed is the product or service (for example, is it a luxury item or frivolous, versus required for survival);
  • How beneficial the product or service is to society in absolute terms, and whether it moves us forward;
  • Does the technology, product, or service help in finding solutions to problems?
  • Does the technology, product, or service support societal progress or human needs?
  • Does the technology, product, or service support sustainable communities?

Some other thoughts that we can’t figure out how they fit in: 

• • We overvalue business success by measuring the pushing of products and services (total sales), rather than by measuring the benefit to people or society;
  • We overvalue bold risks and disruptive technology, and undervalue potential harm in metrics for business reporting.

Thought-provoking stuff, so let’s think about it.

Defining Costs and Benefits

Those first two bullet points make sense and are at least feasible, even if the work to gather all that data would be daunting. For example, as we noted last week, Microsoft is trying to cover the carbon emissions generated by its whole supply chain, rather than just its own operations. 

That’s not easy; it requires lots of attention to supply chains, and therefore lots of attention to contracts with your suppliers so they’ll provide the information you want about carbon emissions. I’m also unconvinced that corporations will use that information to restructure their supply chains toward sustainable production, which would be the ideal outcome. They might instead just tally up their total carbon emissions and buy some carbon offsets or plant some trees. Still, you can figure out this data with enough effort.

The other bullet points, on the other hand — those are much more subjective judgments, and therefore more controversial. Do we really need Luis Vuitton bags that cost $2,500? Is society really better off with Facebook, which can bring together groups to talk about everything from cancer survival to fun hobbies, but also undermines democracy and polarizes previously harmonious communities? 

I don’t know. Nor is it the duty of the chief compliance officer to say. Ideally society would reach a political consensus about such questions, but of course that won’t happen in the real world. There’s also a reasonable argument that it shouldn’t happen, and we instead let the free market decide. 

My one concern is that we need to identify the total cost of producing a good or service, including harm to climate, and then assign that cost somewhere. Right now, we don’t do enough of that. We don’t measure total cost of carbon emissions, and instead just let it dissipate into the atmosphere. Then society picks up the tab later, in the form of a more damaged environment we either tolerate or, finally, clean up. 

One other item that caught my eye recently was this dumb statement from Treasury Secretary Steven Mnuchin while was attending Davos:

Mnuchin: “If you want to put a tax on people, go ahead and put a carbon tax. That is a tax on hard working people. I personally think the costs are going to be a lot lower 10 years from now because of technology” https://t.co/nGMBRJhKbM

— Saleha Mohsin (@SalehaMohsin) January 24, 2020

 

Mnuchin misses the point entirely. If technology does make the production of energy more affordable in 10 years — and yes, it easily could — then people will just use more energy and life a more comfortable life.

But if we don’t account for the full cost of producing that energy — which means pricing in the harm of carbon emissions — then we’ll be producing more carbon as we consume more energy. So better technology alone will cause even more harm to climate. Maybe he should return that economics degree he got from Yale in 1985, since his thinking here is pretty weak.

Mnuchin made that statement while debating the merits of a carbon tax with Christine LaGarde, head of the European Central Bank. To be clear, we don’t need to go the route of a broad-based carbon tax, either. But we do need to accept that carbon emissions harm the climate, and therefore are a cost, which must be quantified and assigned to some party to pay that cost somehow. 

If you have suggestions on how to do that, let us know. Clearly it’s something a lot of people are trying to figure out.