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Tamminen: One Step Ahead of the Carbon Cops

The Carbon Challenge - A CNBC Special Report - See Complete Coverage
The Carbon Challenge - A CNBC Special Report - See Complete Coverage

What was it that Joe Friday in the old radio and TV show “Dragnet” used to say? “Just the facts, ma’am, just the facts.” Facing just the facts last week, the Securities and Exchange Commission, SEC ruled that publicly held companies must disclose their exposure to potential losses from climate change, including carbon emissions that are the subject of growing regulation in the US (and already highly regulated in Europe).

Reaction has been both partisan and predictable, but make no mistake—the carbon cops are coming and the SEC is simply pointing out how to stay one step ahead of them.

Just days before the SEC decision, the Pacific island nation of Micronesia took legal action against the Czech utility CEZ Group over its plans to extend the life of a large coal-burning generator.

The plant is one of the largest in Europe and the single biggest source of carbon emissions in the Czech Republic. Micronesia fears that more greenhouse gases in the atmosphere will accelerate sea level rise, ocean acidification (which harms marine fisheries) and create more intense storms—impacts that would disproportionately hammer exposed islands.

Similarly, the Inupiat Eskimo village of Kivalina, Alaska is suing Exxon Mobil, Shell Oil, and others for up to $400 million in damages to its coastal real estate, not unlike the suit brought by Mississippi coastal residents in the wake of Hurricane Katrina.

New York City and eight states, including Connecticut and California, have filed suit to force the federal government to rapidly mandate carbon reductions before the impacts are completely unaffordable and irreversible.

Looking at this growing trend, the Insurance company Swiss Re issued a report last year comparing these kinds of lawsuits to those that ultimately bankrupted asbestos makers, predicting that “climate change-related liability will develop more quickly than asbestos-related claims.”

Regardless of one’s opinion about using the courts in this manner, those industries that have fought the hardest against carbon regulation in the U.S. and internationally (and you know who you are) would do better to examine the net cost to the bottom line of energy efficiency upgrades, renewable energy installations and other carbon-cutting measures (many of which pay for themselves in a few years) compared to open-ended asbestos-like court judgments or settlements. Nor should Corporate America dismiss the SEC’s reasoning with the notion that asbestos was a one-off. Can anyone say tobacco?

Of course the action by the SEC won’t forestall all litigation in these cases, but companies that comply and use this as an opportunity to understand their carbon liabilities—and fix them ASAP —will be in much better shape to defend themselves in court, especially the all-important court of public opinion.

Companies that hear the wake-up call will become more honest with shareholders and much more valuable—Cutting carbon is cutting waste, which adds real net value to the bottom line of any company.

By stepping in as reasonable carbon cops, three of the five SEC commissioners who voted for these disclosures did the business world a huge favor. At the very least, C-suites that take this issue seriously now will not someday hear yet another famous phrase from one more iconic cop show of the past—“Book ‘em, Dano.”

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Terry Tamminen, former Secretary of the California Environmental Protection Agency, is a partner at Pegasus Sustainable Century Merchant Bank and the Cullman Senior Fellow at the New America Foundation. (Cracking The Carbon Code is a registered trademark of Terry Tamminen).

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