Edward Cameron, Director, Partnership Development and Research, BSR

Last week, the U.S. Environmental Protection Agency (EPA) announced new standards to limit carbon pollution from future coal-fired power plants. This will require new plants to be 40 percent cleaner than the coal plants in operation today. The proposed rules would cap greenhouse gas emissions at 1,100 pounds of carbon dioxide emissions per megawatt-hour for new coal-fired power plants and 1,000 pounds of carbon dioxide per megawatt-hour for larger-scale, new gas-fired power plants. This contrasts sharply with existing coal-fired power plants, which currently burn up to 2,100 pounds of carbon dioxide per megawatt-hour.

These measures are a prelude to further action expected in June 2014, when the EPA is due to propose new limits to carbon pollution from existing power plants, the largest current source of greenhouse gas emissions in the United States. Some environmentalists view these initiatives as signals that “the days of unlimited carbon pollution are over" and that the marketplace is pricing out coal.

Close on the heels of the EPA announcement was a new mandate for German Chancellor Angela Merkel and the Christian Democrats' federal election, delivered by voters on Monday. In 2011, Germany decided to phase out its nuclear power, pursue ambitious renewable energy and enhanced energy-efficiency targets, and increase greenhouse gas reductions—all within the decade. The policy, known as the "Energiewende," calls for:

  • The complete phase-out of nuclear power by 2022
  • An accelerated phase-in of renewable energy to cover at least 35 percent of the country’s electricity needs by 2020 and 80 percent by 2050,
  • Energy-efficiency improvements, including a reduction in primary energy demand by 20 percent by 2020 and 50 percent by 2050 (on 2008 levels)

These measures would be central to meeting the target of reducing greenhouse gases by 40 percent by 2020 and 80 percent by 2050 (compared to 1990 levels). Merkel’s re-election is likely to be seen as a mandate to continue this policy.

In the space of three days, the first- and fourth-largest economies in the world have reaffirmed their commitments to a low-carbon future through regulatory action and the ballot box. The energy experiment in both countries will be watched closely by policymakers, business leaders, investors, and innovators around the globe, and there is much still to be ironed out in both policies. Success will build the evidence base that a profitable low-carbon economy is possible. Failure would severely undermine confidence in, and the market for, clean energy. Mistakes have been made already (the subsidies for biofuels that caused a spike in global food prices in 2008 come to mind) and more will be made in the future. But the policy direction in both countries is now clear: They have created an environment that will support low-carbon development. Now, the question for business is whether it will embrace the opportunities of this new environment or hold on to the status quo.

The American politician and diplomat Robert Strauss was reported to have said, “When you see a parade form on an issue in Washington, you have two choices: You can throw your body in front of it and let them walk all over you, or you can jump in front of the parade and pretend it’s yours.” In Germany, Siemens has stated that it “stands behind the energy transition” but believes that revisions and improvements are necessary, notably around the price and reliability of alternative energy sources. The company currently generates 40 percent of its revenue from energy-saving and green technologies. Siemens' action demonstrates that companies can accept the general direction of a government's low-carbon policy, contribute to shared climate targets, and progressively engage in conversation on that policy. Will other businesses step to the front of the parade and claim it for themselves?