Opposition to environmental legislation was, and is, clearly misguided. Exposure to lead at an early age is now known to cause neurological problems, even at extremely low doses. Since 1984, airborne lead concentrations have fallen 98 percent because of environmental activism. We have seen declines in airborne sulfur dioxide of 35 percent and carbon monoxide of 32 percent even as our GDP has more than doubled. Yet let us never forget that efforts to clean the air were vehemently opposed when first introduced. Remember the hue and cry of those who foresaw economic calamity when the lead phase-out was legislated. Industry gravely predicted that tens of thousands of gas stations would go out of business. Let us always remember the hysterical cries of economic doom as we tightened pollutions standards with the Clean Air Act in 1970. Every major automobile manufacturer came to Washington with tales of impending bankruptcy should the proposed act become law. None of the predictions of economic failure came to pass.Companies suffer economic damage if they fail to respond to the needs of their customers. Slowly, there is a realization that some customer needs are more abstract; customers want their own needs met, but increasingly also want outcomes that benefit broader communities or even distant communities to whom they may have no more than an aspirational connection. It is no longer enough simply to fish tuna; people want it to be dolphin-safe. It is no longer enough only to sell consumer electronics for their features; they must also be free of hazardous substances and minimize the waste stream. It is no longer enough to merely wear clothes however made; they must not come from sweatshops.
History has proven, clearly and unambiguously, that environmentalists are on the right side of this debate. We would otherwise be breathing black poisonous air and drinking mercury-laden water laced with raw sewage. Yet, amazingly, we still debate when we should instead be focusing on solutions. We continue to fight the false notion that protecting nature comes at the cost of economic growth.
The economy didn't crater when we passed laws protecting our air or our water. The auto industry didn't collapse with CAFE standards. If anything, companies suffer if they fail to respond to the needs of their customers, whether personal and more abstract. Correctly understanding and predicting the buying motivations of customers is a key trait of businesses that succeed in the marketplace. Companies that wait until laws and regulations force them to adapt their products trail those that anticipate these changes. As in business generally, the race goes to the swift: making a product better matched to your customers needs more quickly than your competitors leads to more customers and more sales.
The importance of climate change is growing amongst customers, at least in more developed countries. Customers and even ordinary consumers demand environmentally-responsible business practices from the companies that sell them goods and services. Businesses that take that need seriously and communicate their meaningful response effectively realize a competitive advantage. The imposition of regulations designed to advance broader societal goals is not what damages businesses; if the laws are well-designed, what damage that results comes instead from the failure by some businesses to anticipate and respond to shifting customer needs before regulations require it.
Regulating greenhouse gas (GHG), passing a carbon tax or creating a cap-and-trade system would have a negative economic effect only on a business that fails to anticipate and respond to customer needs and preferences.
Addressing GHG emissions is not exactly the same as some of the examples above. Unlike lead or other heavy metals, GHG don't poison people directly. GHG spread globally; heavy metal toxicity has primarily local effects that stem from its concentration. Admittedly, some businesses would have trouble responding: a coal-fired electric utility can only do so much; they do burn coal after all.
So what would make good policy? For starters, not buying into the divisive notion that protecting the environment and protecting the economy are mutually exclusive aims. For each business that would suffer under an environmentally-focused law (e.g. a coal-fired electric utility) there are many-fold more that can grow and prosper by keeping an eye toward the market drivers and using forward-thinking planning. Lawmakers must provide a transition period for companies less forward-looking to make an orderly adaptation, and laws should provide cushioning for those few that are structurally unable to adapt.
There almost certainly will be some kind of carbon tax or cap-and-trade system established in the future. Companies that have not yet prepared should get going. Those that cannot respond need to formulate proposals that provide a reasonable transition that minimizes damage both to the environment and to the economy (particularly their own.) As with previous environmentally-driven laws, the biggest economic harm comes from fighting the inevitable. King Canute could not command the tide to stop; denying the need to address climate change would be equally feckless.
This is an edited repost from my ealrier blog of 11/5/08.
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