Global Warming’s Bottom Line

Sen. Hillary Clinton last week proposed that publicly-owned companies should be required to disclose to shareholders the financial impacts of global warming.

Financial reality, however, is already overtaking the financial fantasy of climate alarmists.

The idea behind Sen. Clinton’s proposal — and other similar efforts by other Democrats on the Senate Banking Committee, New York Attorney General Andrew Cuomo and the environmental advocacy group Ceres, to name a few — is that the alleged environmental consequences of global warming, ranging from drought and wildfires to lawsuits against energy companies and automobile manufacturers, pose significant financial risks that ought to be disclosed to shareholders.

Putting aside that weather-related events can’t be tied to man-made emissions of carbon dioxide (CO2), and that it's the Democrat-supporting environmental advocacy groups that are banging the drum for global warming-related litigation, Sen. Clinton’s proposal completely ignores the real climate-related threats to business: the alarmism itself and attendant government regulation.

To illustrate this point, my colleague Tom Borelli and I examined some ongoing climate alarmism-related financial risks faced by the 20-plus corporate members of the U.S. Climate Action Partnership (USCAP), a coalition of corporations and environmental advocacy groups lobbying for global warming regulation.

Congress and the state of California, for example, are considering legislation to ban by 2012 the incandescent light bulb, thereby forcing consumers to buy compact fluorescent light bulbs (CFLs). Because USCAP member General Electric manufactures CFLs in China, it now faces labor problems with its U.S. employees who make incandescent bulbs.

Ironically, GE is working on a more efficient incandescent bulb that is slated to be available by 2010 — just in time to be banned.

Speaking of CFLs, let’s not forget the mass tort lawsuit potential against manufacturers and sellers of potentially billions of mercury-containing CFL light bulbs that require special clean-up and disposal procedures.

GE also has a business interest in coal -– a major source of CO2 emissions. The company makes turbines for traditional coal-fired power plants and is developing so-called “Integrated Gasification Combined Cycle” (IGCC) technology — a system for capturing CO2 from coal-fired electricity plants.

Although GE needs greenhouse gas regulations to drive growth for IGCC, its entire coal business is threatened by alarmism and regulation that would ban or greatly reduce the use of coal-fired power plants. Recent environmental group pressure caused the cancellation of eight coal-fired power plants that TXU Corp. planned to build. The cancellation caused, in turn, TXU to cancel its orders with GE for steam turbine generators.

USCAP member PepsiCo’s bottled water business is also being jeopardized by promotion of global warming alarmism. The mayor of San Francisco recently banned the purchase of bottled water by the city government because plastic bottles sold to U.S. consumers “require about 47 million gallons of oil, the equivalent of one billion pounds of CO2 that is released into the atmosphere.”

San Francisco is not an isolated case. The mayor of Salt Lake City is urging the U.S. Conference of Mayors to promote tap water as a way to limit greenhouse gas emissions.

Moreover, if bottled water is bad for the climate, it may be tough for PepsiCo to argue that other drinks in plastic bottles aren’t similarly harmful to the climate.

A recent Congressional Budget Office study that found coal production would drop by 40 percent under global warming regulation. You might think that would cause heavy-equipment manufacturer Caterpillar — whose biggest customers include coal mining companies — to think twice before joining USCAP, but you’d be wrong. At least one coal company is now boycotting Caterpillar products because of its participation in USCAP.

Energy-intensive companies like USCAP members Alcoa, Alcan, Dow Chemical and DuPont already disclose in government filings that high-energy prices a near-certain outcome of global warming regulation are a significant business risk. While these companies may plan to offset higher energy prices and even profit by selling any carbon credits given to them for free by Congress as part of a cap-and-trade scheme, there is no guarantee that these companies will attain the favorable legislation they seek.

As the politics of windfall, pork-barrel global warming profits for special business interests become untenable, it is quite possible that Congress may decide to auction the carbon credits instead of giving them away. Companies that counted on free carbon credits may find that auctioned ones are a financial loser.

The corporate failure to disclose the risk of global warming regulation goes beyond USCAP members.

Wal-Mart actively promotes the notion that action needs to be taken against global warming, despite the likelihood of high energy prices. The company’s disappointing earnings in August 2007, after all, were attributed to an “increase in the cost of living and gas prices” and the fact that “many customers are running out of money towards the end of the month.”

High-energy prices will significantly increase the cost of Wal-Mart’s operations since it’s the largest private user of electricity in the U.S. Each of its 2,074 supercenters uses an average of 1.5 million kilowatts annually — enough as a group to power some small countries. Wal-Mart’s fleet of trucks is the second largest and travel a billion miles a year.

The irony in all this, of course, is that many businesses are actually pushing Congress to make global warming-related financial risks come true. Do these companies know something that we don’t? Or is this just reckless political correctness? Only time will tell. But in the meantime, shouldn’t shareholder be told about the risks related to global warming alarmism?