- 29 November 2013
With proper policies, business “will solve our energy and climate dilemmas”
Tom Steyer is the founder and co-managing partner of Farallon Capital Management, L.L.C., one of the country’s most successful investment firms. He recently teamed up with George Schultz, former Secretary of the Treasury and Secretary of State, to defeat California’s Proposition 23, which would have rolled back new state environmental laws.
He spoke at Climate Week NYC 2013 on how the right policy framework would enable businesses to meet the climate challenge.
“I am from the West Coast. And we have a rule on the West Coast that everything is supposed to be fun and productive. So I wanted to thank Mark and Amy. This is my first time ever at Climate Week. It seems like it’s going to be fun and very productive so thank you for setting it up.
"I am obsessed with energy and climate. They’re two areas that are tied together, driven by values and money. By what seems right, and what is profitable. And right now the two don’t always line up. What seems best isn’t necessarily profitable. And what’s profitable seems, sometimes, very far from the best.
"Now that is not how capitalism is supposed to work. And the reason for that failure is an exciting one. It’s elegant. It’s extremely interesting. It’s going to keep you on the edge of your seat. It’s called: accounting. We aren’t imputing the correct numbers – or at least we’re not inputting all the correct numbers.
"Now, I was a professional investor for 30 years. I went to Stanford Business School. I believe in the core of my being that business, and particularly American business, which I know the best, will solve our energy and climate dilemmas. But it’s only going to do it once the proper policies are in place.
"And until that happens, some significant part of American business – the part associated with the status quo – is going to fight very hard to keep our imperfect system in place. And they’re going to argue, right up until we change it, that it’s too risky to do anything else.
"But sometimes the riskiest decision you can take is to do nothing. And that is true here.
"We know we need to build a low-carbon, stable, sustainable energy economy. Not everyone in this room – and certainly not everyone outside this room – is convinced that the key to that is a comprehensive economic framework.
"But that is where my exciting solution of accounting - what we call ‘full cost accounting’ – comes in.
"Think about business decision-making as like a computer program. You put the information into the program, and the answers come out. You put garbage into the program and you get garbage out. If the inputs are wrong, the answers are wrong.
"We’ve seen this movie before. Think about the communications business. In 1983, we broke up the monopoly in the United States in the communications business. In 1996, we deregulated it. In 1983 – looking around this room there’s certainly some people besides me who were around as adults in 1983 – we had the rotary phone. Now we have the Twitter IPO. In 30 years, how many steps is that that business took? No one could have gone intellectually from the rotary phone to the Twitter IPO. This was a series – it was 30 years of hard work by people who were trying to make money. Let’s face it. Accounting really works. In retrospect, we call it good incentives.
"Now, Nick Stern has called climate ‘the greatest market failure in the history of the world.’ The market is not taking into account all of the relevant pollution costs. This is also not something that is new to us. We have done this before. We have solved acid rain. We have solved the hole in the ozone layer. When we get the framework right, business solves it faster, cheaper, better than anyone predicted and especially better than they predicted. They’re actually amazing. We can solve this too.
"The hard part of this – this is no longer about the science. I would argue, and I have just been arguing, this is no longer really about how hard it is to figure out good policies. This is about the politics.
"The good news is, in terms of the politics – and for the last 9 months I’ve been obsessively thinking about this and we’ve run a couple of props (i.e. ballot propositions) in the golden state of California - we know how to win in the political battles now in energy and climate. We absolutely do.
"There is a bad news about this too that unfortunately, we have to go and do it. And that is not trivial. It’s a huge organizational task. It will in fact be a difficult and strenuous exercise. But if we do go ahead and perform that exercise, the accounting will add up.
"And, believe it or not, if the accounting adds up, we will meet the greatest challenge facing our generation. Thank you very much.”
Watch the speech recorded live at Climate Week NYC: