When It Comes to Climate Regulation, Energy Companies Take a More Nuanced View

Common wisdom holds that oil and gas companies, electric utilities, and other industries known for their large carbon emissions generally oppose clean energy policies.

Now, a study of corporate advocacy spanning 30 years reveals that many companies are more flexible than previously thought. When confronted with political, policy, and market conditions that necessitate change, well-known companies like Duke Energy, Exelon, and Dominion Resources have in fact supported climate-friendly regulation when it suited their interests.

“We have seen the US business community shift from a monolithic opposition to climate policy 30 years ago to much more diverse strategies.”

The research shows what policy pros in Washington, DC, often learn through experience: high-polluting companies are sometimes willing to support clean-energy policies, but the shift can take years—sometimes decades—and it is often dependent on political winds, market shifts, technological changes, and other forces that are difficult to predict and often beyond control.

“The conventional notion is that business either supports or opposes [climate friendly policies],” says Jonas Meckling, a climate fellow at Harvard Business School’s Institute for Business in Global Society (BiGS). “We have seen the US business community shift from a monolithic opposition to climate policy 30 years ago to much more diverse strategies.”

Thirty years of inching towards support

In a study recently published in Policy Sciences, Meckling and coauthor Irja Vormedal of Norway’s Nansen Institute explain how many companies shifted from opposing to selectively supporting new regulation over the course of multiple rounds of policymaking.

The study identifies three phases in that evolution, beginning with outright opposition in the 1990s until today—a time when the researchers say that some companies are supporting climate friendly policies on the grounds that they benefit their performance and reputation. They are:

  • Phase 1: The 1990s—Outright opposition
  • Phase 2: 2005-2012—Engagement
  • Phase 3: 2013-Present—Outright support

The study describes a dynamic landscape with frequent changes in politics, policy, and markets. Factors such as changing technology, competitive advantage, and public sentiment all play a role, as does policymaker influence.

In the face of those forces, companies often adapt their positions to shape policy rather than forfeit their voice in the process. “The reputational cost of not playing along becomes greater,” Meckling says.

How companies evolve

The study cites many examples of companies acting nimbly on climate policy, switching from opposition to selective—sometimes, even genuine—support to protect their interests.

For example, the study described BP, PNM Resources, and the now merged ConocoPhillips and Duke Energy as “large emitters of [greenhouse gases] with assets linked to coal or oil production” in the 2000s, when members of Congress were writing multiple pieces of legislation to establish a federal carbon market.

Yet all four companies, and many others, eventually joined the US Climate Action Partnership, a pro-reform lobby that authored model cap-and-trade legislation. While that support may seem out of alignment with company operations, it served as a hedge against more dramatic forms of government intervention.

“A considerable share of electric utilities and oil and gas firms shifted from opposition to strategic support for a favorably designed cap-and-trade scheme in the wake of growing political pressures and the threat of costlier regulation,” the study says.

The late Jim Rogers, former CEO of Duke Energy, explained the approach well at the time. “When you see a parade form on an issue in Washington, you have two choices: You can throw your body in front of it and let them walk over you, or you can jump in front of the parade and pretend it’s yours.”

Policy and markets

By contrast, other utilities such as Exelon and Pacific Gas & Electric expressed what the study called “sincere support” for cap-and-trade reforms. Because they were less dependent on fossil fuels, a new system would provide them with a competitive advantage over their more carbon-heavy rivals.

“Owning little or no coal generation, but substantial shares of nuclear, hydropower and/or natural gas generation, they could … benefit economically from the proposed scheme,” the study says.

This is not the only case in which companies have supported climate-friendly policies to advance their interests. In 2014, the Obama administration introduced the Clean Power Plan, with a goal to reduce power-sector emissions as of 2005 by almost one-third by 2030. Legal challenges tied up the plan beyond Obama’s second term, and the incoming Trump administration sought to replace it with the more lenient Affordable Clean Energy plan in 2017.

Supporters of clean-energy initiatives may have been surprised to see utilities such as Calpine Corp., Dominion Resources, NextEra Energy, Southern California Edison openly oppose the rollback, sometimes in court.

This was another case in which companies with a better carbon profile sought to support regulation and gain an advantage. “These utilities had a competitive edge over other, more carbon-intensive utilities due to their relatively clean generation portfolios, including little or no coal,” the study says.

The study suggests that position in the market can impact a position on policy. Meckling says the opposite can also be true. As he put it, “Policy changes markets.”

Converging interests

Experts in environmental policy say companies are likely to continue shifting positions to advance their interests as governments at all levels continue to play an active role.

“The alliances between government and business on the future of climate policy will only become stronger in the coming years,” says Gizelle Wray, director of regulatory affairs at Savion, a utility-scale solar and energy storage developer in the US and a portfolio company of global energy giant Shell.

The issue goes beyond public opinion and the politics around climate change and a clean environment, Wray says, because companies are not the only ones seeking benefits. Governments are engaged in a technology race to ensure their economies are at the forefront of new innovations that provide solutions to heavy carbon-emitting industries, Wray says. They are increasingly interested in ensuring the new energy economy is implemented safely, reliably, and affordably.

Vormedal says companies leading the clean-energy transition may have an advantage in dealing with governments, whether they’re eager to partner or to regulate. As she put it, “Frontrunners in the ongoing race for clean technology leadership may take advantage of the potential for new alliances with government.”

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Image: iStockphoto/cagkansayin

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