BP’s Exit from USCAP: An Alarm Signal?

February 23, 2010

Four months is a long time in climate politics. Back in October 2009, the momentum toward a global carbon regime seemed ineluctable. President Obama held a super-majority in the US Senate, China appeared amenable to a deal, high-profile companies were defecting from the US Chamber of Commerce over its opposition to climate action, and a group of multinational companies including Coca Cola, GE, Microsoft, Cisco, DuPont, Johnson Controls and Nike came out in support of a binding emissions cap at Copenhagen. Now, as the grip of winter loosens, it seems that a new political climate is fragmenting the business coalition driving action on climate change.

Last week, the Financial Times reported that two large oil companies, BP and ConocoPhillips, along with Caterpillar, manufacturer of heavy industrial machinery, pulled out of the US Climate Action Partnership (USCAP). USCAP, which still has 23 members paying $100,000 a year for the privilege of membership, is the leading business organization promoting cap-and-trade legislation in the US, and many of its members have also been active on the international scene, advocating for a coordinated global approach to emissions reduction. BP’s action is particularly significant because it has long been an industry trendsetter – it was the first oil major to acknowledge climate change and to leave the Global Climate Coalition, and it was a founding member of USCAP in 2007.

Even as BP and Shell were retreating from renewables during 2009 and moving Back to Petroleum, the oil industry still appeared to be part of the grand Carbon Compromise, pursuing a strategy of “hydrocarbon neutrality.” The industry realized that it was not mortally threatened by a flexible carbon regime with low carbon prices; indeed, it could even prosper as demand for liquid fuels for transportation grows, especially in India, China, and Brazil. The industry is also repositioning itself with major investments in relatively low-carbon natural gas. A weak carbon regime would not threaten core business operations in the short-to-medium term, leaving adequate time and resources for longer-term strategic shifts as the climate issue plays out. The Carbon Compromise would also help industry avoid paying the political or public relations price of fighting emission controls, such as the embarrassment caused by CEI’s 2006 risible advertisement Carbon Dioxide: They Call it Pollution, We Call it Life.

Back in August 2009, the oil industry was fighting a rearguard effort against cap-and-trade legislation in the US. The industry front-group Energy Citizens contracted with a professional events management company to plan about 20 rallies, with a focus on energy producing southern states such as Texas and Louisiana. Member companies encouraged their employees to join in. Energy Citizens’ website proclaims that it is “a nationwide alliance of organizations and individuals formed to bring together people across America to remind Congress that energy is the backbone of our nation’s economy and our way of life.” In fact, Energy Citizens was set up and financed primarily by the American Petroleum Institute (API), the US oil industry association, with support from the National Association of Manufacturers and other groups. This project complements a massive increase in lobbying efforts by the fossil fuel industry in the last six months.     

At the time, the oil industry campaign seemed like an anachronistic, even quaint echo of the carbon wars of the 1990s. In hindsight, it appears to be a prescient strategy that would help prepare the ground for the coming climate backlash. This backlash has been spurred by a confluence of seemingly unrelated events. Climategate broke just before the Copenhagen negotiations became hopelessly mired. An unusually cold winter in Europe and the eastern US, together with record snow in Washington DC has fired up the rhetoric of climate deniers, and their voices have been amplified and channeled to mass audiences through the tabloid press and talk radio. It was not cold everywhere, of course – for the planet, the decade 2000-2009 was the hottest on record. But it was cold where it mattered, for the media and climate policy. Public opinion polls in the US and the UK show a dramatic jump in the last year in the percentage of people who don’t think that climate change is a priority issue.

The loss of Ted Kennedy’s Massachusetts senate seat to Scott “the truck guy” Brown deprived the Democrats of their supermajority and made them even more dependent on Republican votes. As the Obama administration has tried to redirect its attention toward unemployment and the economy, healthcare reform has stalled and climate has fallen even further down the priority list. Business senses the vulnerability of the Democrats and is shifting campaign money to Republicans, who could recapture the Senate in the mid-term elections. In Europe as well as the US, concern about budget deficits is constraining ambitious clean energy agendas.

The resurgence of climate denial and the woes of the Obama administration are not unrelated. Like the global climate, the political, social and economic system is a dynamic system with complex feedback loops. The confluence of a few minor developments can cascade into a major shift in direction. The climate deniers and right-wing “tea-party” activists in the US are successfully tapping into populist anger rooted in economic insecurity and a perception that policy elites are out of touch. A recent study from Northeastern University pointed out that unemployment amongst lower income households is now higher that at the depth of the Great Depression of the 1930s. The ideological machine of the tabloid press, talk radio, and Fox News has successfully woven climate change into a populist cultural politics that fuses anti-government, anti-tax sentiment with a reassertion of masculinity. The Superbowl ads for Dodge and Audi perfectly capture this spirit, explicitly connecting environmental concerns with submissiveness to nagging women and the overreaching intrusiveness of the “green police” nanny-state.

It is against this backdrop of shifting cultural politics that Scott Brown’s unlikely victory in Massachusetts and developments in the oil industry can be understood. Back in August 2009, I suggested that there were three possible ways to understand the oil industry’s pullback from renewables and increasing hostility to cap-and-trade:

1. A “Back to Petroleum” product strategy needs a new political strategy. Political and product strategies need to be coherent and integrated. Corporate strategy resembles a multi-dimensional chess game, in which players seek advantage by repositioning themselves in product and political space. When oil companies were investing more heavily in clean energy, they also needed to invest in political strategies that would support markets for these technologies and products. Now that these companies are refocusing on their core products and competencies, they are returning to the corresponding political strategies they used in the mid-1990s to preserve the value of their fossil fuel assets and capabilities. The reputational value of proactive corporate action on climate is declining along with public support for aggressive climate policies.

2. A sectoral struggle over implementation: From this perspective, the Carbon Compromise is still on, but the current battle is about the allocation of costs and benefits across sectors. In many ways, Waxman-Markey and the proposed energy legislation are generally pro-business: a flexible market-based approach with plenty of offsets to help keep carbon prices low, 85% of carbon allowances are given away rather than auctioned to industry in the early phase, and there are plenty of subsidies to sweeten the medicine. The US oil industry, however, sees itself carrying an unfair burden. According to ConocoPhillips, the oil industry would receive just 2% of free allowances, while the electric power sector would receive 35%. The New York Times cited Gerry Waldron, the former staff director of the House select climate panel, arguing that groups like USCAP representing industries with different interests have a hard time finding common ground on the details of legislation. “They’re very effective at the framework level, at the 50,000-foot level,” Waldron added. “But when you get down to the messy business of making laws and the sausage making, it’s going to be hard to keep those people together.”

3. The Carbon Compromise was only a second best option: The preferred course for energy intense industries during the 1990s was voluntary measures. Mounting regulatory and public pressure, the strengthening of climate science, and the need to operate in carbon-constrained markets in Europe have led US business to acquiesce unenthusiastically to mandatory emission controls. A growing number of firms are waking up to opportunities in clean energy, efficiency, and carbon trading, but these are still niche markets. The shifting political winds and public sentiments have opened a window of opportunity to weaken or delay regulations for several years.

BP’s public statement regarding its exit from USCAP supports the second interpretation, that the oil industry is seeking a better deal rather than to kill carbon regulation outright:  ”We will continue to work for passage of federal legislation that . . . is environmentally effective, reduces emissions across the US economy in a measured and affordable way and which treats all energy consumers and producers in a fair and equitable manner. We don’t believe legislation currently pending in the Congress achieves these objectives.”

But the reality is that all three factors are playing something of a role, and business can sense the shifting winds, even if it cannot yet know the endgame. Just as the US Chamber of Commerce and its climate stance survived the exit of several high profile companies last year, so USCAP could survive the exit of three companies. Indeed, several new companies, including Honeywell, have joined USCAP in recent months. Yet surely BP’s action signals deeper tectonic shifts taking place in the cultural, economic and political spheres, with deeply unsettling implications for climate action and for the planet.

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