Economics of climate change mitigation

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Total extreme weather cost and number of events costing more than $1 billion in the United States from 1980 to 2011.

 

This article is about the economics of climate change mitigation. Mitigation of climate change involves actions that are designed to limit the amount of long-term climate change. Mitigation may be achieved through the reduction of greenhouse gas (GHG) emissions or through the enhancement of sinks that absorb GHGs, for example forests.

Definitions

In this article, the phrase “climate change” is used to describe a change in the climate, measured in terms of its statistical properties, e.g., the global mean surface temperature. In this context, “climate” is taken to mean the average weather. Climate can change over period of time ranging from months to thousands or millions of years. The classical time period is 30 years, as defined by the World Meteorological Organization. The climate change referred to may be due to natural causes, e.g., changes in the sun's output, or due human activities, e.g., changing the composition of the atmosphere. Any human-induced changes in climate will occur against the “background” of natural climatic variations.

Public good issues

The atmosphere is an international public good and GHG emissions are an international externality (Goldemberg et al., 1996:,21, 28, 43). Each individual's or country's welfare, U^j, is a function of its own consumption, C^j, and the quality of the atmosphere, A, such that U^j(C^j,A). A change in the quality of the atmosphere, A, does not affect the welfare of all individuals and countries equally. In other words, some individuals and countries may benefit from climate change, but others may lose out.

Heterogeneity

GHG emissions are unevenly distributed around the world, as are the potential impacts of climate change (Toth et al., 2001:607). Nations with higher than average emissions that face potentially small negative/positive climate change impacts have little incentive to reduce their emissions. Nations with relatively low levels of emissions that face potentially large negative climate change impacts have a large incentive to reduce emissions. Nations that avoid mitigation can benefit from free-riding on the actions of others, and may even enjoy gains in trade and/or investment (Halsnæs et al., 2007:127). The unequal distribution of benefits from mitigation, and the potential advantages of free-riding, make it difficult to secure an international agreement to reduce emissions.

Intergenerational transfers

Mitigation of climate change can be considered a transfer of wealth from the present generation to future generations (Toth et al.., 2001:607). The amount of mitigation determines the composition of resources (e.g., environmental or material) that future generations receive. Across generations, the costs and benefits of mitigation are not equally shared: future generations potentially benefit from mitigation, while the present generation bear the costs of mitigation but do not directly benefit (ignoring possible co-benefits, such as reduced air pollution). If the current generation also benefitted from mitigation, it might lead them to be more willing to bear the costs of mitigation.

Irreversible impacts and policy

Emissions of carbon dioxide (CO₂) might be irreversible on the time scale of millennia (Halsnæs et al., 2007). There are risks of irreversible climate changes, and the possibility of sudden changes in climate. On the other hand, these effects are also true of mitigation efforts. Investments made in long-lived, large-scale low-emission technologies are essentially irreversible. If the scientific basis for these investments turns out to be wrong, they would become "stranded" assets. Additionally, the costs of reducing emissions may change over time in a non-linear fashion. 

From an economic perspective, as the scale of private sector investment in low-carbon technologies increases, so do the risks. Uncertainty over future climate policy decisions makes investors reluctant to undertake large-scale investment without upfront government support. The later section on finance discusses how risk affects investment in developing and emerging economies.

Sustainable development

Solow (1992) (referred to by Arrow, 1996b, pp. 140–141) defined sustainable development as allowing for reductions in exhaustible resources so long as these reductions are adequately offset by increases in other resources. This definition implicitly assumes that resources can be substituted, a view which is supported by economic history. Another view is that reductions in some exhaustible resources can only be partially made up for by substitutes. If true, this might mean then some assets need to be preserved at all costs. 

In many developing countries, Solow's definition might not be viewed as being acceptable, since it could place a constraint on their ambitions for development. A remedy for this would be for developed countries to pay all the costs of mitigation, including costs in developing countries. This solution is suggested by both Rawlsian and utilitarian constructs of the social welfare function. These functions are used to assess the welfare impacts on all individuals of climate change and related policies (Markandya et al., 2001, p. 460). The Rawlsian approach concentrates on the welfare of the worst-off in society, whereas the utilitarian approach is a sum of utilities (Arrow et al., 1996b, p. 138). 

It might be argued that since such redistributions of resources are not observed now, why would either Rawlsian or utilitarian constructs be appropriate for climate change (Arrow et al., 1996b, p. 140)? A possible response to this would point to the fact that in the absence of government intervention, market rates of redistribution will not equal social rates.

Emissions and economic growth

Economic growth is a key driver of CO₂ emissions (Sathaye et al., 2007:707). As the economy expands, demand for energy and energy-intensive goods increases, pushing up CO₂ emissions. On the other hand, economic growth may drive technological change and increase energy efficiency. Economic growth may be associated specialization in certain economic sectors. If specialization is in energy-intensive sectors, then there might be a strong link between economic growth and emissions growth. If specialization is in less energy-intensive sectors, e.g., the services sector, then there might be a weak link between economic growth and emissions growth. Unlike technological change or energy efficiency improvements, specialization in high or low energy intensity sectors does not affect global emissions. Rather, it changes the distribution of global emissions. 

Much of the literature focuses on the "environmental Kuznets curve" (EKC) hypothesis, which posits that at early stages of development, pollution per capita and GDP per capita move in the same direction. Beyond a certain income level, emissions per capita will decrease as GDP per capita increase, thus generating an inverted-U shaped relationship between GDP per capita and pollution. Sathaye et al.. (2007) concluded that the econometrics literature did not support either an optimistic interpretation of the EKC hypothesis - i.e., that the problem of emissions growth will solve itself - or a pessimistic interpretation - i.e., that economic growth is irrevocably linked to emissions growth. Instead, it was suggested that there was some degree of flexibility between economic growth and emissions growth.

Policies that impact emissions

Price signals and subsidies

In developed countries, energy costs are low and heavily subsidized, whereas in developing countries, the poor pay high costs for low-quality services. Bashmakov et al.. (2001:410) commented on the difficulty of measuring energy subsidies, but found some evidence that coal production subsidies had declined in several developing and OECD countries.

Structural market reforms

Market-orientated reforms, as undertaken by several countries in the 1990s, can have important effects on energy use, energy efficiency, and therefore GHG emissions. In a literature assessment, Bashmakov et al.. (2001:409) gave the example of China, which has made structural reforms with the aim of increasing GDP. They found that since 1978, energy use in China had increased by an average of 4% per year, but at the same time, energy use had been reduced per unit of GDP.

Liberalization of energy markets

Liberalization and restructuring of energy markets has occurred in several countries and regions, including Africa, the EU, Latin America, and the US. These policies have mainly been designed to increase competition in the market, but they can have a significant impact on emissions. Bashmakov et al.. (2001:410) concluded that structural reform of the energy sector could not guarantee a shift towards less carbon-intensive power generation. Reform could, however, allow the market to be more responsive to price signals placed on emissions.

Climate and other environmental policies

National

• Regulatory standards: These set technology or performance standards, and can be effective in addressing the market failure of informational barriers (Bashmakov et al., 2001:412). If the costs of regulation are less than the benefits of addressing the market failure, standards can result in net benefits.
• Emission taxes and charges: an emissions tax requires domestic emitters to pay a fixed fee or tax for every tonne of CO₂-eq GHG emissions released into the atmosphere (Bashmakov et al., 2001:413). If every emitter were to face the same level of tax, the lowest cost way of achieving emission reductions in the economy would be undertaken first. In the real world, however, markets are not perfect, meaning that an emissions tax may deviate from this ideal. Distributional and equity considerations usually result in differential tax rates for different sources.
• Tradable permits: Emissions can be limited with a permit system (Bashmakov et al., 2001:415). A number of permits are distributed equal to the emission limit, with each liable entity required to hold the number of permits equal to its actual emissions. A tradable permit system can be cost-effective so long as transaction costs are not excessive, and there are no significant imperfections in the permit market and markets relating to emitting activities.
• Voluntary agreements: These are agreements between government and industry (Bashmakov et al., 2001:417). Agreements may relate to general issues, such as research and development, but in other cases, quantitative targets may be agreed upon. An advantage of voluntary agreements are their low transaction costs. There is, however, the risk that participants in the agreement will free ride, either by not complying with the agreement or by benefitting from the agreement while bearing no cost.
• Informational instruments: According to Bashmakov et al.. (2001:419), poor information is recognized as a barrier to improved energy efficiency or reduced emissions. Examples of policies in this area include increasing public awareness of climate change, e.g., through advertising, and the funding of climate change research.
• Environmental subsidies: A subsidy for GHG emissions reductions pays entities a specific amount per tonne of CO₂-eq for every tonne of GHG reduced or sequestered (Bashmakov et al., 2001:421). Although subsidies are generally less efficient than taxes, distributional and competitiveness issues sometimes result in energy/emission taxes being coupled with subsidies or tax exceptions.
• Research and development policies: Government funding of research and development (R&D) on energy has historically favored nuclear and coal technologies. Bashmakov et al.. (2001:421) found that although research into renewable energy and energy-efficient technologies had increased, it was still a relatively small proportion of R&D budgets in the OECD.
• Green power: The policy ensures that part of the electricity supply comes from designated renewable sources (Bashmakov et al., 2001:422). The cost of compliance is borne by all consumers.
• Demand-side management: This aims to reduce energy demand, e.g., through energy audits, labelling, and regulation (Bashmakov et al., 2001:422).

According to Bashmakov et al.. (2001:422), the most effective and economically efficient approach of achieving lower emissions in the energy sector is to apply a combination of market-based instruments (taxes, permits), standards, and information policies.

International

Kyoto Protocol

The Kyoto Protocol is an international treaty designed to reduce emissions of GHGs. The Kyoto treaty was agreed in 1997, and is a protocol to the United Nations Framework Convention on Climate Change (UNFCCC), which had previously been agreed in 1992. The Kyoto Protocol sets legally-blinding emissions limitations for developed countries ("Annex I Parties") out to 2008-2012. The US has not ratified the Kyoto Protocol, and its target is therefore non-binding. Canada has ratified the treaty, but withdrew in 2011.

The Kyoto treaty is a "cap-and-trade" system of emissions trading, which includes emissions reductions in developing countries ("non-Annex I Parties") through the Clean Development Mechanism (CDM). The economics of the Kyoto Protocol is discussed in Views on the Kyoto Protocol and Flexible mechanisms#Views on the flexibility mechanisms. Cost estimates for the treaty are summarized at Kyoto Protocol#Cost estimates. Economic analysis of the CDM is available at Clean Development Mechanism. 

To summarize, the caps agreed to in Kyoto's first commitment period (2008-2012) have turned out to be too weak. There are a large surplus of emissions allowances in the former-Soviet economies ("Economies-in-Transition" - EITs), while several other OECD countries have a deficit, and are not on course to meet their Kyoto targets (see Kyoto Protocol#Annex I Parties with targets). Because of the large surplus of allowances, full trading of Kyoto allowances would likely depress the price of the permits near to zero. Some of the surplus allowances have been bought from the EITs, but overall little trading has taken place. Countries have mainly concentrated on meeting their targets domestically, and through the use of the CDM.

Some countries have implemented domestic energy/carbon taxes (see carbon tax for details) and emissions trading schemes (ETSs). The individual articles on the various ETSs contain commentaries on these schemes. 

A number of analysts have focussed on the need to establish a global price on carbon in order to reduce emissions cost-effectively. The Kyoto treaty does not set a global price for carbon. As stated earlier, the US is not part of the Kyoto treaty, and is a major contributor to global annual emissions of carbon dioxide. Additionally, the treaty does not place caps on emissions in developing countries. The lack of caps for developing countries was based on equity (fairness) considerations. Developing countries, however, have undertaken a range of policies to reduce their emissions domestically. The later Cancún agreement, agreed under the UNFCCC, is based on voluntary pledges rather than binding commitments.

The UNFCCC has agreed that future global warming should be limited to below 2 °C relative to the pre-industrial temperature. Analyses by the United Nations Environment Program and International Energy Agency suggest that current policies (as of 2011) are not strong enough to meet this target.

Other policies

• Regulatory instruments: This could involve the setting of regulatory standards for various products and processes for countries to adopt. The other option is to set national emission limits. The second option leads to inefficiency because the marginal costs of abatement differs between countries (Bashmakov et al.., 2001:430).

Initiatives such as the EU "cap and trade" system have also been implemented. 

• Carbon taxes: This would offer a potentially cost-effective means of reducing CO₂ emissions. Compared with emissions trading, international or harmonized (where each country keeps the revenue it collects) taxes provide greater certainty about the likely costs of emission reductions. This is also true of a hybrid policy (see the article carbon tax) (Bashmakov et al.., 2001:430).

Efficiency of international agreements

For the purposes of analysis, it is possible to separate efficiency from equity (Goldemberg et al., 1996, p. 30). It has been suggested that because of the low energy efficiency in many developing countries, efforts should first be made in those countries to reduce emissions. Goldemberg et al. (1996, p. 34) suggested a number of policies to improve efficiency, including:

• Property rights reform. For example, deforestation could be reduced through reform of property rights.
• Administrative reforms. For example, in many countries, electricity is priced at the cost of production. Economists, however, recommend that electricity, like any other good, should be priced at the competitive price.
• Regulating non-greenhouse externalities. There are externalities other than the emission of GHGs, for example, road congestion leading to air pollution. Addressing these externalities, e.g., through congestion pricing and energy taxes, could help to lower both air pollution and GHG emissions.

General equilibrium theory

One of the aspects of efficiency for an international agreement on reducing emissions is participation. In order to be efficient, mechanisms to reduce emissions still require all emitters to face the same costs of emission (Goldemberg et al., 1996, p. 30). Partial participation significantly reduces the effectiveness of policies to reduce emissions. This is because of how the global economy is connected through trade. 

General equilibrium theory points to a number of difficulties with partial participation (p. 31). Examples are of "leakage" (carbon leakage) of emissions from countries with regulations on GHG emissions to countries with less regulation. For example, stringent regulation in developed countries could result in polluting industries such as aluminium production moving production to developing countries. Leakage is a type of "spillover" effect of mitigation policies. 

Estimates of spillover effects are uncertain (Barker et al., 2007). If mitigation policies are only implemented in Kyoto Annex I countries, some researchers have concluded that spillover effects might render these policies ineffective, or possibly even cause global emissions to increase (Barker et al., 2007). Others have suggested that spillover might be beneficial and result in reduced emission intensities in developing countries. 

Comprehensiveness

Efficiency also requires that the costs of emission reductions be minimized (Goldemberg et al., 1996, p. 31). This implies that all GHGs (CO₂, methane, etc.) are considered as part of a policy to reduce emissions, and also that carbon sinks are included. Perhaps most controversially, the requirement for efficiency implies that all parts of the Kaya identity are included as part of a mitigation policy. The components of the Kaya identity are:

• CO₂ emissions per unit of energy, (carbon intensity)
• energy per unit of output, (energy efficiency)
• economic output per capita,
• and human population.

Efficiency requires that the marginal costs of mitigation for each of these components is equal. In other words, from the perspective of improving the overall efficiency of a long-term mitigation strategy, population control has as much "validity" as efforts made to improve energy efficiency.

Equity in international agreements

Unlike efficiency, there is no consensus view of how to assess the fairness of a particular climate policy (Bashmakov et al.. 2001:438-439. This does not prevent the study of how a particular policy impacts welfare. Edmonds et al. (1995) estimated that a policy of stabilizing national emissions without trading would, by 2020, shift more than 80% of the aggregate policy costs to non-OECD regions (Bashmakov et al.., 2001:439). A common global carbon tax would result in an uneven burden of abatement costs across the world and would change with time. With a global tradable quota system, welfare impacts would vary according to quota allocation.

Regional aspects

In a literature assessment, Sathaye et al.. (2001:387-389) described regional barriers to mitigation:

• Developing countries:
  • In many developing countries, importing mitigation technologies might lead to an increase in their external debt and balance-of-payments deficit.
  • Technology transfer to these countries can be hindered by the possibility of non-enforcement of intellectual property rights. This leaves little incentive for private firms to participate. On the other hand, enforcement of property rights can lead to developing countries facing high costs associated with patents and licensing fees.
  • A lack of available capital and finance is common in developing countries.. Together with the absence of regulatory standards, this barrier supports the proliferation of inefficient equipment.
• Economies in transition: In the New Independent States, Sathaye et al. (2007) concluded that a lack of liquidity and a weak environmental policy framework were barriers to investment in mitigation.

Finance

Article 4.2 of the United Nations Framework Convention on Climate Change commits industrialized countries to "[take] the lead" in reducing emissions. The Kyoto Protocol to the UNFCCC has provided only limited financial support to developing countries to assist them in climate change mitigation and adaptation. Additionally, private sector investment in mitigation and adaptation could be discouraged in the short and medium term because of the 2008 global financial crisis.

The International Energy Agency estimates that US$197 billion is required by states in the developing world above and beyond the underlying investments needed by various sectors regardless of climate considerations, this is twice the amount promised by the developed world at the UN Framework Convention on Climate Change (UNFCCC) Cancún Agreements. Thus, a new method is being developed to help ensure that funding is available for climate change mitigation. This involves financial leveraging, whereby public financing is used to encourage private investment.

The private sector is often unwilling to finance low carbon technologies in developing and emerging economies as the market incentives are often lacking. There are many perceived risks involved, in particular:

1. General political risk associated politically instability, uncertain property rights and an unfamiliar legal framework.
2. Currency risks are involved is financing is sought internationally and not provided in the nationally currency.
3. Regulatory and policy risk - if the public incentives provided by a state may not be actually provided, or if provided, then not for the full length of the investment.
4. Execution risk – reflecting concern that the local project developer/firm may lack the capacity and/or experience to execute the project efficiently.
5. Technology risk as new technologies involved in low carbon technology may not work as well as expected.
6. Unfamiliarity risks occur when investors have never undertaken such projects before.

Funds from the developed world can help mitigate these risks and thus leverage much larger private funds, the current aim to create $3 of private investment for every $1 of public funds. Public funds can be used to minimise the risks in the following way.

• Loan guarantees provided by international public financial institutions can be useful to reduce the risk to private lenders.
• Policy insurance can insurance the investor against changes or disruption to government policies designed to encourage low carbon technology, such as a feed-in tariff.
• Foreign exchange liquidity facilities can help reduce the risks associated with borrowing money in a different currency by creating a line of credit that can be drawn on when the project needs money as a result of local currency devaluation but then repaid when the project has a financial surplus.
• Pledge fund can help projects are too small for equity investors to consider or unable to access sufficient equity. In this model, public finance sponsors provide a small amount of equity to anchor and encourage much larger pledges from private investors, such as sovereign wealth funds, large private equity firms and pension funds. Private equity investors will tend to be risk-adverse and focused primarily on long-term profitability, thus all projects would need to meet the fiduciary requirements of the investors.
• Subordinated equity fund - an alternative use of public finance is through the provision of subordinated equity, meaning that the repayment on the equity is of lower priority than the repayment of other equity investors. The subordinated equity would aim to leverage other equity investors by ensuring that the latter have first claim on the distribution of profit, thereby increasing their risk-adjusted returns. The fund would have claim on profits only after rewards to other equity investors were distributed.

Assessing costs and benefits

GDP

The costs of mitigation and adaptation policies can be measured as a change in GDP. A problem with this method of assessing costs is that GDP is an imperfect measure of welfare (Markandya et al.., 2001:478):

• Not all welfare is included in GDP, e.g., housework and leisure activities.
• There are externalities in the economy which mean that some prices might not be truly reflective of their social costs.

Corrections can be made to GDP estimates to allow for these problems, but they are difficult to calculate. In response to this problem, some have suggested using other methods to assess policy. For example, the United Nations Commission for Sustainable Development has developed a system for "Green" GDP accounting and a list of sustainable development indicators.

Baselines

The emissions baseline is, by definition, the emissions that would occur in the absence of policy intervention. Definition of the baseline scenario is critical in the assessment of mitigation costs (Markandya et al.., 2001:469-470). This because the baseline determines the potential for emissions reductions, and the costs of implementing emission reduction policies. 

There are several concepts used in the literature over baselines, including the "efficient" and "business-as-usual" (BAU) baseline cases. In the efficient baseline, it is assumed that all resources are being employed efficiently. In the BAU case, it is assumed that future development trends follow those of the past, and no changes in policies will take place. The BAU baseline is often associated with high GHG emissions, and may reflect the continuation of current energy-subsidy policies, or other market failures. 

Some high emission BAU baselines imply relatively low net mitigation costs per unit of emissions. If the BAU scenario projects a large growth in emissions, total mitigation costs can be relatively high. Conversely, in an efficient baseline, mitigation costs per unit of emissions can be relatively high, but total mitigation costs low.

Ancillary impacts

These are the secondary or side effects of mitigation policies, and including them in studies can result in higher or lower mitigation cost estimates (Markandya et al.., 2001:455). Reduced mortality and morbidity costs are potentially a major ancillary benefit of mitigation. This benefit is associated with reduced use of fossil fuels, thereby resulting in less air pollution (Barker et al.., 2001:564). There may also be ancillary costs. In developing countries, for example, if policy changes resulted in a relative increase in electricity prices, this could result in more pollution (Markandya et al.., 2001:462).

Flexibility

Flexibility is the ability to reduce emissions at the lowest cost. The greater the flexibility that governments allow in their regulatory framework to reduce emissions, the lower the potential costs are for achieving emissions reductions (Markandya et al.., 2001:455).

• "Where" flexibility allows costs to be reduced by allowing emissions to be cut at locations where it is most efficient to do so. For example, the Flexibility Mechanisms of the Kyoto Protocol allow "where" flexibility (Toth et al., 2001:660).
• "When" flexibility potentially lowers costs by allowing reductions to be made at a time when it is most efficient to do so.

Including carbon sinks in a policy framework is another source of flexibility. Tree planting and forestry management actions can increase the capacity of sinks. Soils and other types of vegetation are also potential sinks. There is, however, uncertainty over how net emissions are affected by activities in this area (Markandya et al.., 2001:476).

No regrets options

These are, by definition, emission reduction options that have net negative costs (Markandya et al.., 2001:474-475). The presumption of no regret options affects emission reduction cost estimates (p. 455). 

By convention, estimates of emission reduction costs do not include the benefits of avoided climate change damages. It can be argued that the existence of no regret options implies that there are market and non-market failures, e.g., lack of information, and that these failures can be corrected without incurring costs larger than the benefits gained. In most cases, studies of the no regret concept have not included all the external and implementation costs of a given policy. 

Different studies make different assumptions about how far the economy is from the production frontier (defined as the maximum outputs attainable with the optimal use of available inputs – natural resources, labour, etc. (IPCC, 2007c:819)). "Bottom-up" studies (which consider specific technological and engineering details of the economy) often assume that in the baseline case, the economy is operating below the production frontier. Where the costs of implementing policies are less than the benefits, a no regret option (negative cost) is identified. "Top-down" approaches, based on macroeconomics, assume that the economy is efficient in the baseline case, with the result that mitigation policies always have a positive cost.

Technology

Assumptions about technological development and efficiency in the baseline and mitigation scenarios have a major impact on mitigation costs, in particular in bottom-up studies (Markandya et al.., 2001:473). The magnitude of potential technological efficiency improvements depends on assumptions about future technological innovation and market penetration rates for these technologies.

Discount rates

Assessing climate change impacts and mitigation policies involves a comparison of economic flows that occur in different points in time. The discount rate is used by economists to compare economic effects occurring at different times. Discounting converts future economic impacts into their present-day value. The discount rate is generally positive because resources invested today can, on average, be transformed into more resources later. If climate change mitigation is viewed as an investment, then the return on investment can be used to decide how much should be spent on mitigation.

Integrated assessment models (IAM) are used for to estimate the social cost of carbon. The discount rate is one of the factors used in these models. The IAM frequently used is the Dynamic Integrated Climate-Economy (DICE) model developed by William Nordhaus. The DICE model uses discount rates, uncertainty, and risks to make benefit and cost estimations of climate policies and adapt to the current economic behavior.

The choice of discount rate has a large effect on the result of any climate change cost analysis (Halsnæs et al.., 2007:136). Using too high a discount rate will result in too little investment in mitigation, but using too low a rate will result in too much investment in mitigation. In other words, a high discount rate implies that the present-value of a dollar is worth more than the future-value of a dollar.

Discounting can either be prescriptive or descriptive. The descriptive approach is based on what discount rates are observed in the behaviour of people making every day decisions (the private discount rate) (IPCC, 2007c:813). In the prescriptive approach, a discount rate is chosen based on what is thought to be in the best interests of future generations (the social discount rate). 

The descriptive approach can be interpreted as an effort to maximize the economic resources available to future generations, allowing them to decide how to use those resources (Arrow et al., 1996b:133-134). The prescriptive approach can be interpreted as an effort to do as much as is economically justified to reduce the risk of climate change.

The DICE model incorporates a descriptive approach, in which discounting reflects actual economic conditions. In a recent DICE model, DICE-2013R Model, the social cost of carbon is estimated based on the following alternative scenarios: (1) a baseline scenario, when climate change policies have not changed since 2010, (2) an optimal scenario, when climate change policies are optimal (fully implemented and followed), (3) when the optimal scenario does not exceed 2oC limit after 1900 data, (4) when the 2oC limit is an average and not the optimum, (5) when a near-zero (low) discount rate of 0.1% is used (as assumed in the Stern Review), (6) when a near-zero discount rate is also used but with calibrated interest rates, and (7) when a high discount rate of 3.5% is used.

According to Markandya et al.. (2001:466), discount rates used in assessing mitigation programmes need to at least partly reflect the opportunity costs of capital. In developed countries, Markandya et al.. (2001:466) thought that a discount rate of around 4%-6% was probably justified, while in developing countries, a rate of 10%-12% was cited. The discount rates used in assessing private projects were found to be higher – with potential rates of between 10% and 25%.

When deciding how to discount future climate change impacts, value judgements are necessary (Arrow et al.., 1996b:130). IPCC (2001a:9) found that there was no consensus on the use of long-term discount rates in this area. The prescriptive approach to discounting leads to long-term discount rates of 2-3% in real terms, while the descriptive approach leads to rates of at least 4% after tax - sometimes much higher (Halsnæs et al.., 2007:136).

Even today, it is difficult to agree on an appropriate discount rate. The approach of discounting to be either prescriptive or descriptive stemmed from the views of Nordhaus and Stern. Nordhaus takes on a descriptive approach which “assumes that investments to slow climate change must compete with investments in other areas.” While Stern takes on a prescriptive approach in which “leads to the conclusion that any positive pure rate of time preference is unethical.” 

In Nordhaus’ view, his descriptive approach translates that the impact of climate change is slow, thus investments in climate change should be on the same level of competition with other investments. He defines the discount rate to be the rate of return on capital investments. The DICE model uses the estimated market return on capital as the discount rate, around an average of 4%. He argues that a higher discount rate will make future damages look small, thus have less effort to reduce emissions today. A lower discount rate will make future damages look larger, thus put more effort to reduce emissions today.

In Stern’s view, the pure rate of time preference is defined as the discount rate in a scenario where present and future generations have equal resources and opportunities. A zero pure rate of time preference in this case would indicate that all generations are treated equally. The future generation do not have a “voice” on today’s current policies, so the present generation are morally responsible to treat the future generation in the same manner. He suggests for a lower discount rate in which the present generation should invest in the future to reduce the risks of climate change.

Assumptions are made to support estimating high and low discount rates. These estimates depend on future emissions, climate sensitivity relative to increase in greenhouse gas concentrations, and the seriousness of impacts over time. Long-term climate policies will significantly impact future generations and this is called intergenerational discounting. Factors that make intergenerational discounting complicated include the great uncertainty of economic growth, future generations are affected by today’s policies, and private discounting will be affected due to a longer “investment horizon.”

Decision analysis

This is a quantitative type of analysis that is used to assess different potential decisions. Examples are cost-benefit and cost-effectiveness analysis (Toth et al.., 2001:609). In cost-benefit analysis, both costs and benefits are assessed economically. In cost-effectiveness analysis, the benefit-side of the analysis, e.g., a specified ceiling for the atmospheric concentration of GHGs, is not based on economic assessment. 

One of the benefits of decision analysis is that the analysis is reproducible. Weaknesses, however, have been citied (Arrow et al.., 1996a:57):

• The decision maker:
  • In decision analysis, it is assumed that a single decision maker, with well-order preferences, is present throughout the analysis. In a cost-benefit analysis, the preferences of the decision maker are determined by applying the concepts of "willingness to pay" (WTP) and "willingness to accept" (WTA). These concepts are applied in an attempt to determine the aggregate value that society places on different resources (Markandya et al.., 2001:459).
  • In reality, there is no single decision maker. Different decision makers have different sets of values and preferences, and for this reason, decision analysis cannot yield a universally preferred solution.
• Utility valuation: Many of the outcomes of climate policy decisions are difficult to value.

Arrow et al.. (1996a) concluded that while decision analysis had value, it could not identify a globally optimal policy for mitigation. In determining nationally optimal mitigation policies, the problems of decision analysis were viewed as being less important.

Cost-benefit analysis

In an economically efficient mitigation response, the marginal (or incremental) costs of mitigation would be balanced against the marginal benefits of emission reduction. "Marginal" means that the costs and benefits of preventing (abating) the emission of the last unit of CO₂-eq are being compared. Units are measured in tonnes of CO₂-eq. The marginal benefits are the avoided damages from an additional tonne of carbon (emitted as carbon dioxide) being abated in a given emissions pathway (the social cost of carbon). 

A problem with this approach is that the marginal costs and benefits of mitigation are uncertain, particularly with regards to the benefits of mitigation (Munasinghe et al., 1996, p. 159). In the absence of risk aversion, and certainty over the costs and benefits, the optimum level of mitigation would be the point where marginal costs equal marginal benefits. IPCC (2007b:18) concluded that integrated analyses of the costs and benefits of mitigation did not unambiguously suggest an emissions pathway where benefits exceed costs

.

Damage function

In cost-benefit analysis, the optimal timing of mitigation depends more on the shape of the aggregate damage function than the overall damages of climate change (Fisher et al.., 2007:235). If a damage function is used that shows smooth and regular damages, e.g., a cubic function, the results suggest that emission abatement should be postponed. This is because the benefits of early abatement are outweighed by the benefits of investing in other areas that accelerate economic growth. This result can change if the damage function is changed to include the possibility of catastrophic climate change impacts.

The mitigation portfolio

In deciding what role emissions abatement should play in a mitigation portfolio, different arguments have been made in favour of modest and stringent near-term abatement (Toth et al.., 2001:658):

• Modest abatement:
  • Modest deployment of improving technologies prevents lock-in to existing, low-productivity technology.
  • Beginning with modest emission abatement avoids the premature retirement of existing capital stocks.
  • Gradual emission reduction reduces induced sectoral unemployment.
  • Reduces the costs of emissions abatement.
  • There is little evidence of damages from relatively rapid climate change in the past.
• Stringent abatement:
  • Endogenous (market-induced) change could accelerate development of low-cost technologies.
  • Reduces the risk of being forced to make future rapid emission reductions that would require premature capital retirement.
  • Welfare losses might be associated with faster rates of emission reduction. If, in the future, a low GHG stabilization target is found to be necessary, early abatement reduces the need for a rapid reduction in emissions.
  • Reduces future climate change damages.
  • Cutting emissions more quickly reduces the possibility of higher damages caused by faster rates of future climate change.

Energy sector subsidies

Large energy subsidies are present in many countries (Barker et al., 2001:567-568). Currently governments subsidize fossil fuels by $557 billion per year. Economic theory indicates that the optimal policy would be to remove coal mining and burning subsidies and replace them with optimal taxes. Global studies indicate that even without introducing taxes, subsidy and trade barrier removal at a sectoral level would improve efficiency and reduce environmental damage (Barker et al., 2001:568). Removal of these subsidies would substantially reduce GHG emissions and stimulate economic growth. 

The actual effects of removing fossil fuel subsidies would depend heavily on the type of subsidy removed and the availability and economics of other energy sources. There is also the issue of carbon leakage, where removal of a subsidy to an energy-intensive industry could lead to a shift in production to another country with less regulation, and thus to a net increase in global emissions.

Policy suggestions

Jacobson and Delucchi (2009) have advanced a plan to power 100% of the world's energy with wind, hydroelectric, and solar power by the year 2030, recommending transfer of energy subsidies from fossil fuel to renewable, and a price on carbon reflecting its cost for flood, cyclone, hurricane, drought, and related extreme weather expenses.

Cost estimates

Global costs

According to a literature assessment by Barker et al.. (2007:622), mitigation cost estimates depend critically on the baseline (in this case, a reference scenario that the alternative scenario is compared with), the way costs are modelled, and assumptions about future government policy. Fisher et al.. (2007) estimated macroeconomic costs in 2030 for multi-gas mitigation (reducing emissions of carbon dioxide and other GHGs, such as methane) as between a 3% decrease in global GDP to a small increase, relative to baseline. This was for an emissions pathway consistent with atmospheric stabilization of GHGs between 445 and 710 ppm CO₂-eq. In 2050, the estimated costs for stabilization between 710 and 445 ppm CO₂-eq ranged between a 1% gain to a 5.5% decrease in global GDP, relative to baseline. These cost estimates were supported by a moderate amount of evidence and much agreement in the literature (IPCC, 2007b:11,18).

Macroeconomic cost estimates made by Fisher et al.. (2007:204) were mostly based on models that assumed transparent markets, no transaction costs, and perfect implementation of cost-effective policy measures across all regions throughout the 21st century. According to Fisher et al.. (2007), relaxation of some or all these assumptions would lead to an appreciable increase in cost estimates. On the other hand, IPCC (2007b:8) noted that cost estimates could be reduced by allowing for accelerated technological learning, or the possible use of carbon tax/emission permit revenues to reform national tax systems.

In most of the assessed studies, costs rose for increasingly stringent stabilization targets. In scenarios that had high baseline emissions, mitigation costs were generally higher for comparable stabilization targets. In scenarios with low emissions baselines, mitigation costs were generally lower for comparable stabilization targets.

Distributional effects

Regional costs

Gupta et al.. (2007:776-777) assessed studies where estimates are given for regional mitigation costs. The conclusions of these studies are as follows:

• Regional abatement costs are largely dependent on the assumed stabilization level and baseline scenario. The allocation of emission allowances/permits is also an important factor, but for most countries, is less important than the stabilization level (Gupta et al., 2007, pp. 776–777).
• Other costs arise from changes in international trade. Fossil fuel-exporting regions are likely to be affected by losses in coal and oil exports compared to baseline, while some regions might experience increased bio-energy (energy derived from biomass) exports (Gupta et al., 2007, pp. 776–777).
• Allocation schemes based on current emissions (i.e., where the most allowances/permits are given to the largest current polluters, and the fewest allowances are given to smallest current polluters) lead to welfare losses for developing countries, while allocation schemes based on a per capita convergence of emissions (i.e., where per capita emissions are equalized) lead to welfare gains for developing countries.

Sectoral costs

In a literature assessment, Barker et al. (2001:563-564), predicted that the renewables sector could potentially benefit from mitigation. The coal (and possibly the oil) industry was predicted to potentially lose substantial proportions of output relative to a baseline scenario (Barker et al., 2001, pp. 563–564).

Greenwashing

From Wikipedia, the free encyclopedia

 

A hotel describing a customer's opt-out of having sheets and towels washed as "joining the effort to save the environment"

 

Greenwashing (a compound word modelled on "whitewash"), also called "green sheen", is a form of spin in which green PR or green marketing is deceptively used to promote the perception that an organization's products, aims or policies are environmentally friendly. Evidence that an organization is greenwashing often comes from pointing out the spending differences: when significantly more money or time has been spent advertising being "green" (that is, operating with consideration for the environment), than is actually spent on environmentally sound practices. Greenwashing efforts can range from changing the name or label of a product to evoke the natural environment on a product that contains harmful chemicals to multimillion-dollar advertising campaigns portraying highly polluting energy companies as eco-friendly. Publicized accusations of greenwashing have contributed to the term's increasing use.

While greenwashing is not new, its use has increased over recent years to meet consumer demand for environmentally friendly goods and services. The problem is compounded by lax enforcement by regulatory agencies such as the Federal Trade Commission in the United States, the Competition Bureau in Canada, and the Committee of Advertising Practice and the Broadcast Committee of Advertising Practice in the United Kingdom. Critics of the practice suggest that the rise of greenwashing, paired with ineffective regulation, contributes to consumer skepticism of all green claims, and diminishes the power of the consumer in driving companies toward greener solutions for manufacturing processes and business operations. Many corporate structures use greenwashing as a way to repair public perception of their brand. The structuring of corporate disclosure is often set up so as to maximize perceptions of legitimacy. However, a growing body of social and environmental accounting research finds that, in the absence of external monitoring a verification, greenwashing strategies amount to corporate posturing and deception.

Usage

The term greenwashing was coined by New York environmentalist Jay Westervelt in a 1986 essay regarding the hotel industry's practice of placing placards in each room promoting reuse of towels ostensibly to "save the environment." Westervelt noted that, in most cases, little or no effort toward reducing energy waste was being made by these institutions—as evidenced by the lack of cost reduction this practice effected. Westervelt opined that the actual objective of this "green campaign" on the part of many hoteliers was, in fact, increased profit. Westervelt thus labeled this and other outwardly environmentally conscientious acts with a greater, underlying purpose of profit increase as greenwashing.

In addition, the political term "linguistic detoxification" describes when, through legislation or other government action, the definitions of toxicity for certain substances are changed, or the name of the substance is changed, so that fewer things fall under a particular classification as toxic. The origin of this phrase has been attributed to environmental activist and author Barry Commoner.

Similarly, introduction of a Carbon Emission Trading Scheme may feel good, but may be counterproductive if the cost of carbon is priced too low, or if large emitters are given "free credits." For example, Bank of America subsidiary MBNA offers an Eco-Logique MasterCard for Canadian consumers that rewards customers with carbon offsets as they continue using the card. Customers may feel that they are nullifying their carbon footprint by purchasing polluting goods with the card. However, only 0.5 percent of purchase price goes into purchasing carbon offsets, while the rest of the interchange fee still goes to the bank.

Such campaigns and marketing communications, designed to publicize and highlight organizational CSR policies to various stakeholders, affect corporate reputation and brand image, but the proliferation of unsubstantiated ethical claims and greenwashing by some companies has resulted in increasing consumer cynicism and mistrust.

History

In the mid 1960s, the environmental movement gained momentum. This popularity prompted many companies to create a new green image through advertising. Jerry Mander, a former Madison Avenue advertising executive, called this new form of advertising "ecopornography."

The first Earth Day was held on April 22, 1970. This encouraged many industries to advertise themselves as being friendly to the environment. Public utilities spent 300 million dollars advertising themselves as clean green companies. This was eight times more than the money they spent on pollution reduction research.

In 1985, the Chevron Corporation launched one of the most famous greenwashing ad campaigns in history. Chevron's "People Do" advertisements were aimed at a "hostile audience" of "societally conscious" people. Two years after the launch of the campaign, surveys found people in California trusted Chevron more than other oil companies to protect the environment. In the late 1980s The American Chemistry Council started a program called Responsible Care, which shone light on the environmental performances and precautions of the group's members. The loose guidelines of responsible care caused industries to adopt self-regulation over government regulation.

In 1991, a study published in the Journal of Public Policy and Marketing (American Marketing Association) found that 58% of environmental ads had at least one deceptive claim. Another study found that 77% of people said the environmental reputation of company affected whether they would buy their products. One fourth of all household products marketed around Earth Day advertised themselves as being green and environmentally friendly. In 1998 the Federal Trade Commission created the "Green Guidelines," which defined terms used in environmental marketing. The following year the FTC found that the Nuclear Energy Institute claims of being environmentally clean were not true. The FTC did nothing about the ads because they were out of their jurisdiction. This caused the FTC to realize they needed new clear enforceable standards. In 1999, according to environmental activist organizations, the word "greenwashing" was added to the Oxford English Dictionary.

In 2002, during the World Summit on Sustainable Development in Johannesburg, the Greenwashing Academy hosted the Greenwash Academy Awards. The ceremony awarded companies like BP, ExxonMobil, and even the US Government for their elaborate greenwashing ads and support for greenwashing.

More recently, social scientists have been investigating claims of and the impact of greenwashing. In 2005, Ramus and Monteil conducted secondary data analysis of two databases to uncover corporate commitment to implementation of environmental policies as opposed to greenwashing. They found while companies in the oil and gas are more likely to implement environmental policies than service industry companies, they are less likely to commit to fossil fuel reduction.

In 2010 a study was done showing that 4.5% of products tested were found to be truly green as opposed to 2% in 2009. In 2009 2,739 products claimed to be green while in 2010 the number rose to 4,744. The same study in 2010 found that 95% percent of the consumer products claiming to be green were not green at all.

Regulation

Australia

The Australian Trade Practices Act has been modified to include punishment of companies that provide misleading environmental claims. Any organization found guilty of such could face up $6 million in fines. In addition, the guilty party must pay for all expenses incurred while setting the record straight about their product or company's actual environmental impact.

Canada

Canada's Competition Bureau along with the Canadian Standards Association are discouraging companies from making "vague claims" towards their products' environmental impact. Any claims must be backed up by "readily available data."

Norway

Norway's consumer ombudsman has targeted automakers who claim that their cars are "green," "clean" or "environmentally friendly" with some of the world's strictest advertising guidelines. Consumer Ombudsman official Bente Øverli said: "Cars cannot do anything good for the environment except less damage than others." Manufacturers risk fines if they fail to drop the words. Øverli said she did not know of other countries going so far in cracking down on cars and the environment.

U.S.

The Federal Trade Commission (FTC) provides voluntary guidelines for environmental marketing claims. These guidelines give the FTC the right to prosecute false and misleading advertisement claims. The green guidelines were not created to be used as an enforceable guideline but instead were intended to be followed voluntarily. Listed below are the green guidelines set by the FTC.

• Qualifications and disclosures: The Commission traditionally has held that in order to be effective, any qualifications or disclosures such as those described in these guides should be sufficiently clear, prominent and understandable to prevent deception. Clarity of language, relative type size and proximity to the claim being qualified, and an absence of contrary claims that could undercut effectiveness, will maximize the likelihood that the qualifications and disclosures are appropriately clear and prominent.
• Distinction between benefits of product, package and service: An environmental marketing claim should be presented in a way that makes clear whether the environmental attribute or benefit being asserted refers to the product, the product's packaging, a service or to a portion or component of the product, package or service. In general, if the environmental attribute or benefit applies to all but minor, incidental components of a product or package, the claim need not be qualified to identify that fact. There may be exceptions to this general principle. For example, if an unqualified "recyclable" claim is made and the presence of the incidental component significantly limits the ability to recycle the product, then the claim would be deceptive.
• Overstatement of environmental attribute: An environmental marketing claim should not be presented in a manner that overstates the environmental attribute or benefit, expressly or by implication. Marketers should avoid implications of significant environmental benefits if the benefit is in fact negligible.
• Comparative claims: Environmental marketing claims that include a comparative statement should be presented in a manner that makes the basis for the comparison sufficiently clear to avoid consumer deception. In addition, the advertiser should be able to substantiate the comparison.

The FTC has said in 2010 that it will update its guidelines for environmental marketing claims in an attempt to reduce greenwashing. The revision to the FTC's Green Guides covers a wide range of public input, including hundreds of consumer and industry comments on previously proposed revisions. The updates and revision to the existing Guides include a new section of carbon offsets, "green" certifications and seals renewable energy and renewable materials claims. According to FTC Chairman Jon Leibowitz, "The introduction of environmentally friendly products into the marketplace is a win for consumers who want to purchase greener products and producers who wants to sell them." Leibowitz also says the win-win can only claim if marketers' claims are straightforward and proven.

In 2013, the FTC began enforcing the revisions put forth in the Green Guides. The FTC cracked down on six different companies, in which five of the cases were concerned with the false or misleading advertising surrounding the biodegradability of plastics. The FTC charged ECM Biofilms, American Plastic Manufacturing, CHAMP, Clear Choice Housewares, and Carnie Cap, for misrepresenting the biodegradability of their plastics treated with additives.

The FTC charged a sixth company, AJM Packaging Corporation, for violating a commission consent order put in place that prohibits companies from using advertising claims based on the product or packaging being "degradable, biodegradable, or photodegradable" without reliable scientific information. The FTC now requires companies to disclose and provide the information that qualifies their environmental claims to ensure transparency.

Examples

The Airbus A380 described as "A better environment inside and out."

• "Clean Burning Natural Gas" - When compared to the dirtiest fossil fuel coal, natural gas is only 50% as dirty. Fracking issues exist when producing the gas, and if as little as 3 percent of the gas produced escapes, effects upon the climate are close to equivalent as when burning coal. Despite this, it is often presented as a 'cleaner' fossil fuel in environmental discourse and is often used to balance the intermittent nature of solar and wind energy.
• Environmentalists have argued that the Bush Administration's Clear Skies Initiative actually weakens air pollution laws.
• Many food products have packaging that evokes an environmentally friendly imagery even though there has been no attempt made at lowering the environmental impact of its production.
• In 2009, European McDonald's changed the color of their logos from yellow and red to yellow and green; a spokesman for the company explained that the change was "to clarify [their] responsibility for the preservation of natural resources."
• Existing published consumption figures tend to underestimate the consumption seen in practice by 20 to 30%. The reason is partly that the official fuel consumption tests are not sufficiently representative of real world usage. Auto makers optimise their fuel consumption strategies in order to reduce the apparent cost of ownership of the cars, and to improve their green image.
• Some environmental conservation groups have criticized the Annenberg Foundation for their attempt to construct domestic pet adoption and care facilities in the Ballona Wetlands Ecological Reserve by repackaging them as part of an "urban ecology center"  - a name chosen because it "accommodated the animal adoption process" according to a former spokesperson for the Foundation. The Los Angeles Times called the proposed domestic pet adoption facilities a "bad fit" for the ecological reserve.
• An article in Wired magazine alleges that slogans are used to suggest environmentally benign business activity: the Comcast Ecobill has the slogan "PaperLESSisMORE", but Comcast uses large amounts of paper for direct marketing. The Poland Spring ecoshape bottle is touted as "A little natural does a lot of good," although 80% of beverage containers go to landfills. The Airbus A380 airliner is described as "A better environment inside and out" even though air travel has a high negative environment cost.
• The Advertising Standards Authority in the UK upheld several complaints against major car manufacturers including Suzuki, SEAT, Toyota and Lexus who made erroneous claims about their vehicles.
• Kimberly Clark's claim of "Pure and Natural" diapers in green packaging. The product uses organic cotton on the outside but keeps the same petrochemical gel on the inside. Pampers also claims that "Dry Max" diapers reduce landfill waste by reducing the amount of paper fluff in the diaper, which really is a way for Pampers to save money.
• A 2010 advertising campaign by Chevron was described by the Rainforest Action Network, Amazon Watch and The Yes Men as greenwash. A spoof campaign was launched to pre-empt Chevron's greenwashing.
• "Clean Coal," an initiative adopted by several platforms for the 2008 U.S presidential elections is an example of political greenwashing. The policy cited carbon capture as a means of reducing carbon emissions by capturing and injecting carbon dioxide produced by coal power plants into layers of porous rock below the ground. According to Fred Pearce's Greenwash column in The Guardian, "clean coal" is the "ultimate climate change oxymoron"—"pure and utter greenwash" he says.
• The conversion of the term "Tar Sands" to "Oil Sands," (Alberta, Canada) in corporate and political language reflects an ongoing debate between the project's adherents and opponents. This semantic shift can be seen as a case of greenwashing in an attempt at countering growing public concern as to the environmental and health impacts of the industry. While advocates claim that the shift is scientifically derived to better reflect the usage of the sands as a precursor to oil, environmental groups are claiming that this is simply a means of cloaking the issue behind friendlier terminology.
• Over the past years Walmart has proclaimed to "go green" with a sustainability campaign. However, according to the Institute For Local Reliance (ILRS), “Walmart’s sustainability campaign has done more to improve the company’s image than the environment.” Walmart still only generates 2 percent of U.S. electricity from wind and solar resources. According to the ILRS, Walmart routinely donates money to political candidates who vote against the environment. The retail giant responded to these accusations by stating "that it is serious about its commitment to reduce 20 million tons of greenhouse gas emissions by 2015".
• Environmental accounting can easily be used to pretend that environmental impacts of a company are reduced while actual impacts increase. This has been shown, for example, in a case of corporate carbon accounting: the company celebrated reduced relative emissions while absolute emissions increased. The same company achieved reducing current emissions by "correcting" past emissions as higher (effecting a calculation that presents current emissions as relatively lower).
• In 2018, in response to increased calls for banning plastic straws, Starbucks introduced a new straw-less lid that actually contained more plastic by weight than the old straw and lid combination. 

Opposition

Organizations and individuals are making attempts to reduce the impact of greenwashing by exposing it to the public. The Greenwashing Index, created by the University of Oregon in partnership with EnviroMedia Social Marketing, allows examples of greenwashing to be uploaded and rated by the public. The British Code of Advertising, Sales Promotion and Direct Marketing has a specific section (section 49) targeting environmental claims.

According to some organizations opposing greenwashing, there has been a significant increase in its use by companies over the last decade. TerraChoice Environmental Marketing, an advertising consultancy company, issued a report denoting a 79% increase in the usage of corporate greenwashing between 2007 and 2009. Additionally, it has begun to manifest itself in new varied ways. Within the non-residential building products market in the United States, some companies are beginning to claim that their environmentally minded policy changes will allow them to earn points through the U.S. Green Building Council's Leadership in Energy and Environmental Design rating program. This point system has been held up as an example of the "gateway effect" that the drive to market products as environmentally friendly is having on company policies. Some have claimed that the greenwashing trend may be enough to eventually effect a genuine reduction in environmentally damaging practices. 

According to the Home and Family Edition, 95% consumer products claiming to be green were discovered to commit at least one of the "Sins of Greenwashing". The Seven Sins of Greenwashing are as follows:

1. Sin of the Hidden Trade-off, committed by suggesting a product is "green" based on an unreasonably narrow set of attributes without attention to other important environmental issues.
2. Sin of No Proof, committed by an environmental claim that cannot be substantiated by easily accessible supporting information or by a reliable third-party certification.
3. Sin of Vagueness, committed by every claim that is so poorly defined or broad that its real meaning is likely to be misunderstood by the consumer.
4. Sin of Worshiping False Labels is committed when a claim, communicated either through words or images, gives the impression of a third-party endorsement where no such endorsement exists.
5. Sin of Irrelevance, committed by making an environmental claim that may be truthful but which is unimportant or unhelpful for consumers seeking environmentally preferable products.
6. Sin of Lesser of Two Evils, committed by claims that may be true within the product category, but that risk distracting consumers from the greater environmental impact of the category as a whole.
7. Sin of Fibbing, the least frequent Sin, is committed by making environmental claims that are simply false.

In 2008, Ed Gillespie identified "ten signs of greenwashing", which are similar to the Seven Sins listed above, but with three additional indicators.

1. Suggestive pictures - Images that imply a baseless green impact, such as flowers issuing from the exhaust pipe of a vehicle.
2. Just not credible - A claim that touts the environmentally friendly attributes of a dangerous product, such as cigarettes.
3. Gobbledygook - The use of jargon or information that the average person can not readily understand or be able to verify.

Companies may pursue environmental certification to avoid greenwashing through independent verification of their green claims. For example, the Carbon Trust Standard launched in 2007 with the stated aim "to end 'greenwash' and highlight firms that are genuine about their commitment to the environment".

Lobbying

From Wikipedia, the free encyclopedia

Gift offered by tobacco industry lobbyists to Dutch politician Kartika Liotard in September 2013

Lobbying, persuasion, or interest representation is the act of attempting to influence the actions, policies, or decisions of officials in their daily life, most often legislators or members of regulatory agencies. Lobbying is done by many types of people, associations and organized groups, including individuals in the private sector, corporations, fellow legislators or government officials, or advocacy groups (interest groups). Lobbyists may be among a legislator's constituencies, meaning a voter or bloc of voters within their electoral district; they may engage in lobbying as a business. Professional lobbyists are people whose business is trying to influence legislation, regulation, or other government decisions, actions, or policies on behalf of a group or individual who hires them. Individuals and nonprofit organizations can also lobby as an act of volunteering or as a small part of their normal job. Governments often define and regulate organized group lobbying that has become influential. 

The ethics and morals involved with lobbying are complicated. Lobbying can, at times, be spoken of with contempt, when the implication is that people with inordinate socioeconomic power are corrupting the law in order to serve their own interests. When people who have a duty to act on behalf of others, such as elected officials with a duty to serve their constituents' interests or more broadly the public good, can benefit by shaping the law to serve the interests of some private parties, a conflict of interest exists. Many critiques of lobbying point to the potential for conflicts of interest to lead to agent misdirection or the intentional failure of an agent with a duty to serve an employer, client, or constituent to perform those duties. The failure of government officials to serve the public interest as a consequence of lobbying by special interests who provide benefits to the official is an example of agent misdirection.

Etymology

In a report carried by the BBC, an OED lexicographer has shown that "lobbying" finds its roots in the gathering of Members of Parliament and peers in the hallways ("lobbies") of the UK Houses of Parliament before and after parliamentary debates where members of the public can meet their representatives.

One story held that the term originated at the Willard Hotel in Washington, DC, where it was supposedly used by President Ulysses S. Grant to describe the political advocates who frequented the hotel's lobby to access Grant—who was often there in the evenings to enjoy a cigar and brandy—and would then try to buy the president drinks in an attempt to influence his political decisions. Although the term may have gained more widespread currency in Washington, D.C. by virtue of this practice during the Grant Administration, the OED cites numerous documented uses of the word well before Grant's presidency, including use in Pennsylvania as early as 1808.

The term "lobbying" also appeared in print as early as 1820:

Other letters from Washington affirm, that members of the Senate, when the compromise question was to be taken in the House, were not only "lobbying about the Representatives' Chamber" but also active in endeavoring to intimidate certain weak representatives by insulting threats to dissolve the Union.

— April 1, 1820

Dictionary definitions:

• 'Lobbying' (also 'lobby') is a form of advocacy with the intention of influencing decisions made by the government by individuals or more usually by lobby groups; it includes all attempts to influence legislators and officials, whether by other legislators, constituents, or organized groups.
• A 'lobbyist' is a person who tries to influence legislation on behalf of a special interest or a member of a lobby.

Overview

Governments often define and regulate organized group lobbying as part of laws to prevent political corruption and by establishing transparency about possible influences by public lobby registers. 

Lobby groups may concentrate their efforts on the legislatures, where laws are created, but may also use the judicial branch to advance their causes. The National Association for the Advancement of Colored People, for example, filed suits in state and federal courts in the 1950s to challenge segregation laws. Their efforts resulted in the Supreme Court declaring such laws unconstitutional. 

Lobbyists may use a legal device known as amicus curiae (literally: "friend of the court") briefs to try to influence court cases. Briefs are written documents filed with a court, typically by parties to a lawsuit. Amici curiae briefs are briefs filed by people or groups who are not parties to a suit. These briefs are entered into the court records, and give additional background on the matter being decided upon. Advocacy groups use these briefs both to share their expertise and to promote their positions.

The lobbying industry is affected by the revolving door concept, a movement of personnel between roles as legislators and regulators and roles in the industries affected by legislation and regulation, as the main asset for a lobbyist is contacts with and influence on government officials. This climate is attractive for ex-government officials. It can also mean substantial monetary rewards for lobbying firms, and government projects and contracts worth in the hundreds of millions for those they represent.

The international standards for the regulation of lobbying were introduced at four international organizations and supranational associations: 1) the European Union; 2) the Council of Europe; 3) the Organization for Economic Cooperation and Development; 4) the Commonwealth of Independent States.

History

In pre-modern political systems, royal courts provided incidental opportunities for gaining the ear of monarchs and their councillors.

Impact

Kellogg School of Management found that political donations by corporations do not increase shareholder value.

Lobbying by country

Australia

Over the past twenty years, lobbying in Australia has grown from a small industry of a few hundred employees to a multi-billion dollar per year industry. What was once the preserve of big multinational companies and at a more local level, property developers, for example Urban Taskforce Australia, has morphed into an industry that would employ more than 10,000 people and represent every facet of human endeavour.

Public lobbyist registers

A register of federal lobbyists is kept by the Australian Government and is accessible to the public via its website. Similar registers for State government lobbyists were introduced between 2007 and 2009 around Australia. Since April 2007 in Western Australia, only lobbyists listed on the state's register are allowed to contact a government representative for the purpose of lobbying. Similar rules have applied in Tasmania since 1 September 2009 and in South Australia and Victoria since 1 December 2009.

European Union

Wikimania 2009, results of the discussion about possible contents of European lobbying

The first step to towards specialized regulation of lobbying in the European Union was a Written Question tabled by Alman Metten, in 1989. In 1991, Marc Galle, Chairman of the Committee on the Rules of Procedure, the Verification of Credentials and Immunities, was appointed to submit proposals for a Code of conduct and a register of lobbyists. Today lobbying in the European Union is an integral and important part of decision-making in the EU. From year to year lobbying regulation in the EU is constantly improving and the number of lobbyists are increases. According to Austrian Member of the European Parliament ("MEP") Hans-Peter Martin, the value of lobby invitations and offers each individual MEP receives can reach up to €10,000 per week.

In 2003 there were around 15,000 lobbyists (consultants, lawyers, associations, corporations, NGOs etc.) in Brussels seeking to influence the EU’s legislation. Some 2,600 special interest groups had a permanent office in Brussels. Their distribution was roughly as follows: European trade federations (32%), consultants (20%), companies (13%), NGOs (11%), national associations (10%), regional representations (6%), international organizations (5%) and think tanks (1%), (Lehmann, 2003, pp iii). In addition to this, lobby organizations sometimes hire former EU employees (a phenomenon known as the revolving door) who possess inside knowledge of the EU institutions and policy process  A report by Transparency International EU published in January 2017 analysed the career paths of former EU officials and found that 30% of Members of the European Parliament who left politics went to work for organisations on the EU lobby register after their mandate and approximately one third of Commissioners serving under Barroso took jobs in the private sector after their mandate, including for Uber, ArcelorMittal, Goldman Sachs and Bank of America Merrill Lynch. These potential conflicts of interest could be avoided if a stronger ethics framework would be established at the EU level, including an independent ethics body and longer cooling-off periods for MEPs.

In the wake of the Jack Abramoff Indian lobbying scandal in Washington D.C. and the massive impact this had on the lobbying scene in the United States, the rules for lobbying in the EU—which until now consist of only a non-binding code of conduct-—may also be tightened.

France

There is currently no regulation at all for lobbying activities in France. There is no regulated access to the French institutions and no register specific to France, but there is one for the European Union where French lobbyists can register themselves. For example, the internal rule of the National Assembly (art. 23 and 79) forbids members of Parliament to be linked with a particular interest. Also, there is no rule at all for consultation of interest groups by the Parliament and the Government. Nevertheless, a recent parliamentary initiative (motion for a resolution) has been launched by several MPs so as to establish a register for representatives of interest groups and lobbyists who intend to lobby the MPs.

Italy

A 2016 study finds evidence of significant indirect lobbying of Berlusconi through business proxies. The authors document a significant pro-Mediaset (the mass media company founded and controlled by Berlusconi) bias in the allocation of advertising spending during Berlusconi's political tenure, in particular for companies operating in more regulated sectors.

United States

K Street NW at 19th Street in Washington D.C., part of downtown Washington's maze of high-powered "K Street lobbyist" and law firm office buildings.

Lobbying in the United States describes paid activity in which special interests hire professional advocates to argue for specific legislation in decision-making bodies such as the United States Congress. Lobbying in the United States could be seen to originate from Amendment I of the Constitution of the United States, which states: Congress shall make no law…abridging the right of the people peaceably…to petition the Government for a redress of grievances. Some lobbyists are now using social media to reduce the cost of traditional campaigns, and to more precisely target public officials with political messages.

A number of published studies showed lobbying expenditure is correlated with great financial returns. For example, a 2011 study of the 50 firms that spent the most on lobbying relative to their assets compared their financial performance against that of the S&P 500 in the stock market concluded that spending on lobbying was a "spectacular investment" yielding "blistering" returns comparable to a high-flying hedge fund, even despite the financial downturn of the past few years. A 2011 meta-analysis of previous research findings found a positive correlation between corporate political activity and firm performance. Finally, a 2009 study found that lobbying brought a substantial return on investment, as much as 22,000% in some cases. Major American corporations spent $345 million lobbying for just three pro-immigration bills between 2006 and 2008.

Foreign-funded lobbying efforts include those of Israel, Saudi Arabia, Turkey, Egypt, Pakistan, and China lobbies. In 2010 alone, foreign governments spent approximately $460 million on lobbying members of Congress and government officials.

Other countries

Other countries where lobbying is regulated in parliamentary bills include:

• Canada: Canada maintains a Registry of Lobbyists.
• Israel (1994)
• India: In India, where there is no law regulating the process, lobbying had traditionally been a tool for industry bodies (like FICCI) and other pressure groups to engage with the government ahead of the national budget. One reason being that lobbying activities were repeatedly identified in the context of corruption cases. For example, in 2010 , leaked audio transcripts of Nira Radia. Not only private companies but even Indian government has been paying a fee every year since 2005 to a US firm to lobby;^{[citation needed]} for ex. to the Indo-US civilian nuclear deal. In India, there are no laws that defined the scope of lobbying, who could undertake it, or the extent of disclosure necessary. Companies are not mandated to disclose their activities and lobbyists are neither authorized nor encouraged to reveal the names of clients or public officials they have contacted. The distinction between Lobbying and bribery still remains unclear. In 2012, Walmart revealed it had spent $25 million since 2008 on lobbying to "enhance market access for investment in India." This disclosure came weeks after the Indian government made a controversial decision to permit FDI in the country's multi-brand retail sector.

• Ukraine: In 2009, a special working group of the Ministry of Justice of Ukraine developed a draft law "On Lobbying". However, this bill was not introduced into the Parliament of Ukraine.