Max Gladwell

Day one of the Fortune Green Brainstorm Conference gets right to the point with energy policy, climate change legislation, and an interview with Bill Ford.

The Fortune Green Brainstorm conference could very well be “the premier green business event of 2009.” This hyper-focused leadership conference includes panelists from FedEx, HP, Ford, Dell, IBM, GE, Wal-Mart and many others in the Fortune 100. The title of “Chief Sustainability Officer” appears throughout the program, and the marquis speakers include Van Jones and President Bill Clinton.

By and large, this elite group isn’t here because they’re passionate environmentalists. They’re here because it’s mandatory. They’re here because green encompasses the fundamental business principles of risk management and competitive advantage. It’s a business necessity, and the largest companies have the most at stake when it comes to these uncharted waters. It reflects the clear and growing market for green. Which means that this audience is not here in response to protests or threats but rather demand–demand from their many stakeholders. And that’s precisely how the market should function.

Appropriately enough, the conference kicked off on the topic of climate change and energy policy. The panel ranged from James Rogers of Duke Energy to Fred Krupp of the Environmental Defense Fund. The focus was the cost and price of CO2. The discussion centered on the Waxman-Markey bill, which seeks to reduce greenhouse gases by 20% over the next decade primarily through a cap-and-trade scheme. The devil will be in the details, and the panel debated a few of those. The consensus was that legislation would pass by the first quarter of 2010 (before the end of MG01), and that Obama deserved an ‘A’ for his work thus far. That’s the good news. The bad news is that we’ll settle for an inefficient solution in cap-and-trade, and we can hardly afford to adopt anything but the most efficient means for reducing CO2 emissions and taking ownership for greenhouse gas (GHG) pollution.

Most economists agree that a carbon tax would be a much more efficient mechanism. By putting a fixed price on CO2 emissions, regardless of the source, it would seamlessly factor the cost of GHG pollution into everything we buy and consume. And the only excuse for not pursuing a carbon tax is that it’s politically untenable. No one wants to be seen as “raising taxes,” yet that’s exactly what cap-and-trade amounts to. So it basically comes down to semantics.

This same issue is playing out in the automotive world with government-mandated efficiency standards aka CAFE. A recent article in Business Week pointed out that the new policies currently being pursued in Congress offer paradoxical loopholes.

The regulations are so complicated as to defy quick or simple remedies. The new (and not necessarily improved) version of the rules classifies vehicles by size and assigns them a specific mileage target. So now, starting in 2011, a big SUV such as the Chevrolet Tahoe will have to hit a relatively tame 21 mpg, while Toyota’s Avalon sedan will have to hit 25 mpg.

Sounds reasonable, doesn’t it? But say a big SUV misses its target by one mile per gallon. A carmaker could just make the vehicle a bit larger, allowing it to hit an easier fuel economy target. So General Motors may benefit with its new and efficient Chevrolet Cruze compact, due out in a year, because it’s bigger than the car it replaces.

The whole time we’re reading this article, it’s painfully clear that a carbon tax (on gasoline) is the easy solution, and in the final paragraph, the author acknowledges the elephant in the room.

There is a simpler, more effective solution. European countries have reduced oil use by taxing gasoline heavily. Consumers there tend to buy small cars because fuel costs as much as $8 per gallon. Some members of Congress have talked about raising gas taxes in the U.S. But lawmakers need to get reelected, and new taxes are unpopular. So Washington will probably stick with its imperfect fuel economy rules for a long time.

The greatest moment during Bill Ford’s interview at Fortune Green was when he made the business case for raising gas taxes (a carbon tax). His point was that gyrating fuel prices made it impossible to forecast the types of products consumers would want. We’re often critical of automakers for building gas guzzlers. They’re standard response is, “That’s what people want.” But people only want them because gas costs $2/gallon and they can afford to drive them. As we saw last summer, this can quickly and radically change.

Bottom line, he said, it’s preferable to have a fairly predictable, stable planning horizon rather than even cheap gas for the short-term. In other words, if gas is going to be six bucks a gallon in five years, so be it — at least he can plan for it.

The government is clearly not cut out for this stuff. Whether it’s cap-and-trade or CAFE, these overly complicated and even counter-productive schemes are devised for no other reason than as ways to get around a straightforward tax on CO2 (even though these schemes amount to a tax on CO2). If that’s the case, then we have a simple solution.

If the Bush administration can sell this country on an illegal war based on fabricated intelligence, then certainly these masters of Orwellian doublespeak can come up with something better than a carbon tax. More recently, the Obama administration ended the so-called War on Terror by re-casting it as Overseas Contingency Operations. So we’re confident there’s a better way to approach this.

For the “drill, baby, drill” types we might call it the Patriot Tax, and for the treehuggers we could go with an Eco Tax. Either way, it should be levied as far upstream from the consumer as possible. Again, not because it makes a difference but because it won’t appear like a tax on consumers. When it comes to selling wars and passing good policy, it’s often important to remember that perception is, in fact, reality.

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