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Corporate Strategy and Climate Change: Heterogeneity and Change in the Global Automobile Industry

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Corporate Strategy and Climate Change: Heterogeneity and Change in the Global Automobile Industry

Abstract

Transportation accounts for nearly one-third of US greenhouse gas emissions, so any mitigation strategy requires the constructive engagement of the automobile industry. The task of strategic planning for low-emission technologies by automobile companies is particularly demanding, however, in the face of environmental issues such as climate change, due to their long-term, market transforming potential, and the high level of uncertainty concerning environmental science, technological and market developments, and policy responses. It is not surprising, in this context, that there is considerable variation in responses across companies in the same industry. We examine differences between response strategies between auto companies in the US and Europe. While economic and market structures partly explain the greater tolerance in Europe for carbon emission limitations, we argue that perceptions of corporate strategic interests are premised upon attitudes toward climate science, the prospects for low emission technologies, anticipations concerning consumer responses, and expected policy responses. These expectations and understandings are shaped and constituted through a company's own institutional structure and history, as well as interactions with the external institutional environment, including industry associations, universities, the media, and national and international governance structures. In this paper we also discuss a number of economic, political, organizational, and technological factors that have caused a dramatic shift in climate strategies in recent years. Table of Contents
Belfer Center for Science &
International Affairs
Global Environmental Assessment Project
Environment and Natural Resources Program
October 1999
Corporate Strategy and Climate Change:
Heterogeneity and Change in the Global
Automobile Industry
David L. Levy
And
Sandra Rothenberg
E-99-13
CITATION, CONTEXT, AND REPRODUCTION PAGE
This paper may be cited as: Levy, David L. and Sandra Rothenberg. 1999. “Corporate Strategy
and Climate Change: Heterogeneity and Change in the Global Automobile Industry.” ENRP
Discussion Paper E-99-13, Kennedy School of Government, Harvard University. No further
citation is allowed without permission of the author(s). Comments are welcome and may be
directed to the authors at the Belfer Center for Science and International Affairs, John F. Kennedy
School of Government, Harvard University, 79 John F. Kennedy Street, Cambridge, MA 02138,
telephone (617) 493-2207, fax (617) 495-8963, email David.Levy@umb.edu or slrbbu@rit.edu.
The Global Environmental Assessment (GEA) project is a collaborative team study of global
environmental assessment as a link between science and policy. The Team is based at Harvard
University. The project has two principal objectives. The first is to develop a more realistic and
synoptic model of the actual relationships among science, assessment, and management in social
responses to global change, and to use that model to understand, critique, and improve current
practice of assessment as a bridge between science and policy making. The second is to elucidate
a strategy of adaptive assessment and policy for global environmental problems, along with the
methods and institutions to implement such a strategy in the real world.
The Global Environmental Assessment (GEA) Project is supported by a core grant from the
National Science Foundation (Award No. SBR-9521910) for the “Global Environmental
Assessment Team.” Supplemental support to the GEA Team is provided by the National Oceanic
and Atmospheric Administration, the Department of Energy, the National Aeronautics and Space
Administration, the National Science Foundation, and the National Institute for Global
Environmental Change. Additional support has been provided by the Department of Energy
(Award No. DE-FG02-95ER62122) for the project, “Assessment Strategies for Global
Environmental Change,” the National Institute for Global Environmental Change (Awards No.
901214-HAR, LWT 62-123-06518) for the project “Towards Useful Integrated Assessments,”
the Center for Integrated Study of the Human Dimensions of Global Integrated Assessment
Center at Carnegie Mellon University (NSF Award No. SBR-9521914) for the project “The Use
of Global Environmental Assessments," the Belfer Center for Science and International Affairs at
Harvard University's Kennedy School of Government, the International Human Dimensions
Programme on Global Environmental Change, Harvard’s Weatherhead Center for International
Affairs, Harvard’s Environmental Information Center, the International Institute for Applied
Systems Analysis, the German Academic Exchange Service, the Heinrich Boll Foundation in
Germany, the Massachusetts Institute of Technology’s Center for Environmental Initiatives, the
Heinz Family Foundation, the Heinz Center for Science, Economics and the Environment, and
the National Center for Environmental Decisionmaking Research. The views expressed in this
paper are those of the author and do not imply endorsement by any of the supporting institutions.
Publication abstracts of the GEA Project can be found on the GEA Web Page at
http://environment.harvard.edu/gea. Further information on the Global Environmental
Assessment project can be obtained from the Project Associate Director, Nancy Dickson, Belfer
Center for Science and International Affairs, Kennedy School of Government, Harvard
University, 79 JFK Street, Cambridge, MA 02138, telephone (617) 496-9469, telefax (617) 495-
8963, Email nancy_dickson@harvard.edu.
1999 by David L. Levy and Sandra Rothenberg. All rights reserved.
FOREWORD
This paper was written as part of the Global Environmental Assessment Project, a collaborative,
interdisciplinary effort to explore how assessment activities can better link scientific
understanding with effective action on issues arising in the context of global environmental
change. The Project seeks to understand the special problems, challenges and opportunities that
arise in efforts to develop common scientific assessments that are relevant and credible across
multiple national circumstances and political cultures. It takes a long-term perspective focused
on the interactions of science, assessment and management over periods of a decade or more,
rather than concentrating on specific studies or negotiating sessions. Global environmental
change is viewed broadly to include not only climate and other atmospheric issues, but also
transboundary movements of organisms and chemical toxins. (To learn more about the GEA
Project visit the web page at http://environment.harvard.edu/gea/.)
The Project seeks to achieve progress towards three goals: deepening the critical understanding of
the relationships among research, assessment and management in the global environmental arena;
enhancing the communication among scholars and practitioners of global environmental
assessments; and illuminating the contemporary choices facing the designers of global
environmental assessments. It pursues these goals through a three-pronged strategy of
competitively awarded fellowships that bring advanced doctoral and post-doctoral students to
Harvard; an interdisciplinary training and research program involving faculty and fellows; and
annual meetings bringing together scholars and practitioners of assessment.
The core of the Project is its Research Fellows. Fellows spend the year working with one another
and project faculty as a Research Group exploring histories, processes and effects of global
environmental assessment. These papers look across a range of particular assessments to examine
variation and changes in what has been assessed, explore assessment as a part of a broader pattern
of communication, and focus on the dynamics of assessment. The contributions these papers
provide has been fundamental to the development of the GEA venture. I look forward to seeing
revised versions published in appropriate journals.
William C. Clark
Harvey Brooks Professor of International Science, Policy and Human Development
Director, Global Environmental Assessment Project
John F. Kennedy School of Government
Harvard University
ABSTRACT
Transportation accounts for nearly one-third of US greenhouse gas emissions, so any mitigation
strategy requires the constructive engagement of the automobile industry. The task of strategic
planning for low-emission technologies by automobile companies is particularly demanding,
however, in the face of environmental issues such as climate change, due to their long-term,
market transforming potential, and the high level of uncertainty concerning environmental
science, technological and market developments, and policy responses. It is not surprising, in this
context, that there is considerable variation in responses across companies in the same industry.
We examine differences between response strategies between auto companies in the US and Europe.
While economic and market structures partly explain the greater tolerance in Europe for carbon
emission limitations, we argue that perceptions of corporate strategic interests are premised upon
attitudes toward climate science, the prospects for low emission technologies, anticipations
concerning consumer responses, and expected policy responses. These expectations and
understandings are shaped and constituted through a company’s own institutional structure and
history, as well as interactions with the external institutional environment, including industry
associations, universities, the media, and national and international governance structures. In this
paper we also discuss a number of economic, political, organizational, and technological factors that
have caused a dramatic shift in climate strategies in recent years.
Table of Contents
Introduction.....................................................................................................................1
Corporate Strategy and Climate Change: the US Response..............................................5
Response by European Automobile Industry...................................................................7
Explaining US-European Strategic Responses.................................................................7
The Emergence of Climate as a Strategic Concern.......................................................7
The Political Environment in the US and Europe.........................................................9
Perspectives on Climate Science................................................................................11
Perceptions of Market Viability for Low Emission Technologies ..............................13
Institutional Dynamics and Strategic Change.................................................................16
Conclusions...................................................................................................................21
Bibliography .................................................................................................................25
List of Abbreviations
AAMA American Automobile Manufacturers’ Association
ACEA European Automobile Industry Association
BCSE Business Council for Sustainable Energy
CAFE Corporate Average Fleet Efficiency
CARB California Air Review Board
CO2 Carbon Dioxide
EU European Union
FCCC Framework Convention on Climate Change
GCC Global Climate Coalition
GCM Global Circulation Model
GHG Greenhouse Gases
GM General Motors
IPCC Intergovernmental Panel on Climate Change
NAM National Association of Manufacturers
NOAA National Oceanographic and Atmospheric Administration
PCAST President’s Council of Advisers for Science and Technology
SAR Second Assessment Report
VDA Automobile Industry Association of Germany
WRI World Resources Institute
1
Introduction
The possibility that human emissions of greenhouse gases are changing the world’s climate
constitutes a global environmental issue with massive, market transforming potential. Controls on
emissions of carbon dioxide (CO2), released from the combustion of fossil fuels and the main
contributor to global warming, would threaten oil and coal companies, as well as industries
dependent on these fuels, particularly transportation and electric utilities. In addition, higher
energy prices would raise input costs for a range of energy intense industries, including
aluminum, chemicals, cement, paper, cement, and steel. The impact would extend to the
commercial and retail sectors, which use large amounts of energy for heating and cooling.
According to Mansley (1995), the financial markets have not yet incorporated the prospect of
regulatory controls in asset prices.
A number of factors exacerbate industry’s perception that greenhouse gas controls pose a threat to
their interests. The 1987 Montreal Protocol on Substances that Deplete the Ozone Layer
demonstrated how quickly environmental issues might move from scientific concern to drastic,
internationally coordinated controls. International controls pose a particular threat to fossil fuel
and automobile companies, most of whom are multinationals, because they would affect
operations and markets simultaneously in multiple countries, obviating the traditional
multinational advantage of diversification and mobility.
Climate change presents a much greater strategic challenge to industry than did the ozone
depletion issue, with which it is often compared (Levy, 1997). A number of analyses have pointed
out that Dupont, the leading US producer of CFC gases, ended up supporting the Montreal
Protocol because it held an advantageous position with HFCs and HCFCs, chemical substitutes
that do not deplete the ozone layer (Benedick, 1991; Parson, 1993; Rothenberg & Maxwell,
1995). Our analysis needs to go beyond a firm's current market positioning and capabilities,
however, and ask why some companies are more willing than others to undertake investments in
risky low-emission technologies. We have to examine how a company assesses the prospects for
environmental regulation, the technological and market potential of alternative products, and the
company’s own capacity to succeed with these new products. The position of Dupont concerning
CFCs illustrates this point. Until the mid-1980s, Dupont expressed strong opposition to
international controls on CFC production, but by September 1986 it was in a position to
manufacture the CFC substitutes and was supporting US proposals for a 50% reduction in
production. Why did Dupont make the investments to put itself in this position? Three factors are
probably involved; Dupont had the internal scientific capability to understand that ozone was a
serious problem that would generate a strong policy response (Parson, 1993); it had the technical
capacity to innovate alternatives, which would draw from its existing strategic assets in chemical
engineering and production process technologies; and it had the market power and distribution
system to ensure a profitable market for the new, high-margin products, at a time when CFCs
were rapidly becoming low-margin commodities (Maxwell & Weiner, 1993).
Investments in R&D for low-GHG products and processes appear, by contrast, highly risky,
because of the uncertainty regarding climate science, regulatory responses, and the potential
market for low emission technologies. The technologies associated with low-emission automotive
products and processes will require radically new capabilities, such as expertise in electric drive
trains, high-capacity batteries, and fuel cells, that threaten to undermine the competencies and
strategic assets of existing companies, and open the industry to new entrants. Although the long-
term nature of these issues affords companies a window of time to adapt strategies and invest in
2
new technologies, it is unclear to what extent car companies can “reinvent themselves” as
providers of transportation, just as it will be difficult for BP and Shell to succeed in renewable
energy technologies such as wind and solar. Moreover, the unpredictable path of technological
evolution makes the task of choosing among competing technologies a treacherous business.
Finally, although energy and automotive industries are concentrated, no single company
possesses the market power to establish new standards and ensure success for new products.
In the climate issue, some companies saw not just an economic threat but a broader ideological
challenge to the industrialized way of life and the role of private automobiles. As a former VP of
Government Relations of a US auto company put it, “there are people who have cast the
automobile as a villain. It is a puritanical view, that we are having too much fun, that we have too
much mobility and freedom, that suburban sprawl is bad. They think we should all live in
beehives. So when scientists say that CO2 is a greenhouse gas, they jump on board.” There was
an explicit fear among automobile industry managers that the climate issue touched emotional
chords that could be exploited by activist environmental groups, and might lead US regulatory
agencies to tighten Corporate Average Fuel Economy (CAFE) standards, which were deeply
resented as an intrusion on corporate autonomy regarding product plans.
The climate issue poses a number of strategic dilemmas. Companies can attempt to postpone
regulation by debating the science of climate change and the economic cost of GHG controls, or
they can attempt to invest in new low-emission technologies. This “debate or innovate” decision
is not a strict dichotomy, as companies may engage in a hedging strategy, or attempt to postpone
regulation until they are better prepared. A related question is whether a firm should attempt to
invest early and gain first mover advantages, or wait until the technological turmoil and
regulatory uncertainty has subsided. R&D resources can be directed toward incremental
improvements to existing technologies or radically different ones. Companies also need to decide
whether to commit substantial resources to a single technology, or adopt a portfolio strategy,
alone or with partners.
There is considerable variation in the strategic responses exhibited by automobile companies
based in different geographic regions. US-based companies responded relatively early to the
issue, aggressively challenged the scientific need for emission controls, and have tended to invest
in more radical, long-term technological approaches to emission reductions. European companies,
by contrast, have been less engaged in public debates about climate science, have accommodated
regulatory demands for significant emission reductions, and have invested in more incremental,
short term improvements to conventional internal combustion engine technology. The different
economic and market environments in each region offer only a partial explanation for these
divergent strategic responses. There are also differences within regions; Ford, for example, has
been more outspoken than GM against mandatory emission controls.
US automobile companies have dramatically shifted their climate strategies in the years since the
Kyoto Protocol in December 1997 toward a more proactive stance. Companies are moving toward
accepting the scientific case for precautionary action, are softening their political opposition to
emission control measures, and are beginning to invest substantial sums in a range of low emission
technologies. Ford and Daimler-Chrysler have each invested several hundred million dollars in a
fuel cell joint venture with the Canadian company Ballard, while GM has formed an alliance with
Toyota to invest in a range of technologies. The scale and risk of these investments is one factor
driving the current wave of mergers and alliances, reshaping the economic structure of these
industries. Given the high level of uncertainty concerning policy measures, technological
developments, and competitor reactions, these investments could not yet be justified on the basis
of expected rates of return using conventional capital budgeting techniques. With ratification of
3
Kyoto an unlikely prospect in the US in the near term, and little fear of strict CAFE style controls
on carbon emissions, there is no single obvious explanation for this shift in industry strategy.
There have been no technological breakthroughs, nor have consumers showed any sign of
wavering in their demand for ever larger vehicles.
This paper employs a case study approach to explore the climate strategies of the two remaining
major American automobile manufacturers, GM and Ford, and two European companies,
Daimler-Chrysler and Volkswagen. We attempt to explain the different response strategies of
European and American companies, as well as the changes over time in the strategies of
American companies. Data were collected from a series of interviews in the U.S. and Europe with
senior corporate managers, industry associations, government agencies, and environmental
NGOs. Interviews were conducted with a cross-section of firm employees, including
environmental staff, strategy, product development, marketing, and R&D. Some interviews,
particularly with ex-employees that focused on more historical data, were performed over the
phone, using a pre-developed semi-structured telephone interview format. Additional material
was gathered through an extensive review of secondary source material. Case study methodology
is most appropriate to this area of research because of the complex relations among the actors and
variables. Case studies can provide the breadth and depth of information to allow descriptive,
causative, and inductive analysis to be performed (Eisenhardt, 1989; Miles & Huberman, 1984;
Yin, 1989).
The paper develops a theoretical framework that draws from and synthesizes three theoretical
streams that relate to our understanding of strategy making under conditions of technological and
regulatory uncertainty. Insights from institutional theory (DiMaggio, 1988; Scott & Meyer,
1994)are applied to make the case that strategy is embedded in institutional environments,
meaning that strategic decisions are premised upon perceptions of economic interest which are
constructed in an institutional context. The case study illustrates how perceptions of interests are
affected by attitudes toward climate science, the prospects for low emission technologies,
anticipations concerning consumer responses, and expected policy responses. These expectations
and understandings are shaped through a company’s own institutional structure and history, as
well as interactions with the external institutional environment, including industry associations,
universities, the media, and national and international governance structures. With this
institutional lens, we can see that companies do not simply join industry organizations such as the
Global Climate Coalition (GCC) to pursue their objective economic interests; rather, membership
in such organizations helps to construct corporate perceptions of climate science and economic
interests. Although institutional arguments are traditionally adduced to account for conformity
and stability, here we argue that institutional processes can also lead to heterogeneity and change
(Hoffman, 1999; Oliver, 1991).
The second theoretical stream locates corporate strategic decision making in the context of
complex social-technological systems . Such systems are themselves institutions, which become
stabilized as regimes that exhibit significant inertia. Technological development within such
systems is viewed as an evolutionary process characterized by punctuated equilibrium, embedded
within social, political, organizational, and cultural contexts (Abernathy & Clark, 1985; Anderson
& Tushman, 1990; Nelson, 1995). Automotive technologies, for example, have evolved and
stabilized in the US under historically specific conditions of infrastructure investments in roads
and suburban housing, consumer behaviors and attitudes, government taxation and subsidies, and
automobile industry structures (Truffer et al., 1999). Insights from complexity theory suggest that
while the overall social-technological regime might be quite resilient to small disturbances, it also
has the potential for rapid and dramatic change, just as the horse-based transportation system of
the 19th century gave way to trains and cars (Holm, 1995; Levy, 1999 forthcoming; Stacey, 1995).
4
This theoretical perspective also highlights the indeterminacy of technological change; just as
there was no economic or technological inevitability to the triumph of the gasoline internal
combustion engines over rival electric, diesel, or steam technologies at the beginning of the 20th
century, so it is unclear which low-emission technologies will be at the heart of the dominant
social-technological regime of the next century (Arthur, 1989).
The interaction of corporate political and product strategies constitutes the third theoretical stream
to which this study contributes. Baron (1997) has described the integration of market and non-
market strategies in the context of traditional strategic analysis, but here we consider corporate
political activity as part of the institutional response to challenges to the broader social-
technological system. We draw from the neo-Gramscian literature to argue that dominant and
stable social-technological regimes rest on three pillars, which, when aligned, can reproduce
themselves and mutually reinforce each other (Cox, 1987; Gill, 1993). One pillar is the economic
and material base of profitable production and sales; the second is the network of organizations
operating within the system, including companies, government agencies, industry associations,
and elements of civil society. The third pillar is the discursive structure of meaning and
symbolism, both cognitive and normative, that guides behavior and lends legitimacy to
organizations and practices within the system. The study demonstrates that corporate political
strategy is integrated in the sense that it addresses all three pillars, in an effort to protect not just
specific products or markets but a wider social-technological regime. In a broader sense, it is
argued that a company’s relation to such a regime confers systematic advantages and is thus itself
political; in this sense, all strategy is political.
A number of significant managerial implications derive from the application of this theoretical
framework to the case study. To the extent that the institutional environment constitutes an “iron
cage” (DiMaggio & Powell, 1983) that constrains and channels management’s perceptions,
consideration of strategic alternatives will also be limited. It is suggested here that the reaction of
US-based automobile companies to the climate issue has been premised on a number of
assumptions that need to be questioned. For example, US companies have until quite recently
viewed the prospects for regulation of CO2 emissions and consumer acceptance of low-emission
vehicles primarily through an American lens of low fuel prices and an aversion to strong
government intervention. Moreover, skeptical perspectives toward climate science have become
institutionalized within these companies, potentially causing them to underestimate the likely
regulatory response. Finally, companies tend to take the current social-technological regime for
granted and do not fully account for the possibility of rapid, dramatic change.
The research also bears some important policy implications. Transportation accounts for nearly
one-third of US greenhouse gas emissions, so any mitigation strategy requires the constructive
engagement of the automobile industry. The major automobile manufacturers control vast
technological, financial, and organizational resources, which, if applied appropriately, could have
significant impacts on emissions of greenhouse gases. These companies are, to extend Lipskey’s
(1980) phrase, the "street level bureaucrats" to whom will fall the task of formulating and
implementing mitigation strategies. Understanding the institutional embeddedness of strategy and
its relation to the broader social-technological system would facilitate the development of policy
that goes beyond energy taxes and R&D subsidies and is more concerned with changing
corporate perspectives on climate science, mitigation technologies, and regulatory responses.
5
Corporate Strategy and Climate Change: the US Response
US-based fossil fuel-related industries responded relatively early to the climate issue, providing
time and organizational resources to develop an effective political strategy against mandatory
emission controls. On the organizational level, the three major US automobile companies, as well
as the American Automobile Manufacturers Association (AAMA) worked largely through the
Global Climate Coalition (GCC), which was formed in 1989, initially under the auspices of the
National Association of Manufacturers (NAM), but reorganized as an independent entity in 1992.
The GCC represented about 40 companies and industry associations, primarily major users of
fossil fuels such as the oil, automobile, and electric utility sectors, but also including other energy
intense sectors such as cement, aluminum, iron and steel, chemicals, and paper. A senior GCC
staff member, discussing motivations for the creation of the GCC, expressed the view that
industry had “been caught napping” by the ozone issue, and that there was also considerable
dissatisfaction with the Clean Air Act process. As he expressed it, “Boy, if we didn't like the
Montreal Protocol, we knew we really wouldn’t like climate change! This is the mother of all
issues!”1 Although the GCC was constituted as a U.S.-based organization and was focused on
domestic lobbying, a number of US subsidiaries of European multinationals also joined, and the
GCC quickly rose to be the most prominent voice of industry, both in the US and in the
international negotiations.
A key discursive component of the GCC’s political strategy has been to challenge the science of
climate change, pointing to a spectrum of opinion rather than consensus among scientists, and
highlighting the uncertainties. Several scholars have noted that industry can attempt to protect
itself from regulation with the authority and credibility of science, by invoking the high standards
of proof required to accept a new scientific theory. Shackley (1999a) describes "scientism” as
“the belief that what effective policy formulation and implementation most needs is robust
knowledge (with physics as the gold standard)." Edwards and Lahsen point to the strategic
deployment of this belief (p.12) "Economically powerful groups targeted by possible regulations,
such as the fossil fuel industry, are well aware that closure of debate can be delayed by
challenging key scientific results, or, sometimes even more effectively, by raising the level of
certainty required of scientific knowledge". Industry’s preference for "sound science" is discussed
by Jasanoff (1987) as part of the political negotiation of boundaries between science and policy.
The GCC makes this explicit in its mission statement: "A bedrock principle for addressing global
climate change issues is that science -- not emotional or political reactions -- must serve as the
foundation for global climate policy decisions." While there is clearly a strategic component in
industry’s challenge to climate science, the case study also suggests that these perspectives were
institutionalized and integrated into the value and meaning systems of the companies.
The GCC's efforts to challenge the science of climate change took a number of forms. It actively
promoted the views of climate skeptics such as Patrick Michaels, Fred Singer, and Richard
Lindzen in its literature, press releases, and congressional testimony, and would direct press
inquiries to these people. It sponsored a number of reports, such as Accu-Weather (1994) and
Davis (1996), and would also use reports from other sympathetic organizations, notably the
Marshall Institute. The GCC regarded favorably the voluntary approach of the US Climate Action
Plan [House, 1993 #51], and in December 1994 asserted that "the state of the science does not
justify adopting any additional commitments or actions at this time. Key aspects of the science,
1 Interview by author with official of the Global Climate Coalition, February 1999.
6
particularly climate and regional weather effects, remain highly uncertain " (Global Climate
Coalition, 1994) p.30. A GCC Backgrounder (undated) presents a detailed critique of general
circulation models (GCMs), pointing to their well-known limitations in modeling complex
phenomena such as cloud cover, regional processes, and ocean circulation (Shackley, 1999b).
This skeptical approach to GCMs stands in ironic contrast to the credibility the GCC has
bestowed on general equilibrium economic models such as that used by the WEFA Group(1996),
which predict a high cost for GHG mitigation, even though these models are even more complex
and rest on less secure theoretical foundations than GCMs.
The appeal to “sound science” and rejection of emotional criteria for environmental decision-
making reflects an effort to shape the climate debate through gendered discourse. Advocates of
precautionary action are labeled as emotional, irrational, even hysterical, overly anxious about the
risks associated with industrial "progress", and implicitly unfit to participate in the masculine
realm of public decision-making. A number of other discursive themes recur throughout the
industry literature. One is that the greenhouse effect is natural and life sustaining. A second theme
is that human emissions of greenhouse gases are relatively small compared to the total carbon
cycle and to the radiative forcing due to water vapor. A final theme is that higher CO2
concentrations might increase “ plant productivity”, which is perhaps an argument geared toward
the agricultural and forestry industries. This notion was made a centerpiece of a film titled The
Greening of Planet Earth by the Western Fuels Association, a utility association and former
member of the GCC, and was also repeated in a series of 1993 advertisements titled “Repeal
Rio”.
In an effort to challenge the organizational legitimacy of the Intergovernmental Panel on Climate
Change (IPCC), the group of more than 1000 international scientists charged with assessing the
current state of knowledge concerning climate change, the GCC mounted a public attack on the
IPCC’s review process for the Second Assessment Report (SAR). At a symposium in Rayburn
House, Washington DC, in May 1996, Don Pearlman of the Climate Council and William
O'Keefe of the GCC and the American Petroleum Institute accused IPCC lead authors Ben Santer
and Tom Wigley of secretly altering the IPCC report to reduce the expression of uncertainties,
particularly in chapter 8. This chapter was the source of the oft-quoted IPCC statement that “the
balance of evidence suggests that there is a discernible human influence on global climate”
(Intergovernmental Panel on Climate Change, 1995). The GCC placed advertisements in the
Washington Times and Energy Daily, stating that "unless the management of the IPCC promptly
undertakes to republish the printed versions...the IPCC's credibility will have been lost."
(Gelbspan, 1997) p.78. Fred Seitz of the Marshall Institute followed with an op-ed piece in the
Wall Street Journal on June 12, which became the forum for a spirited exchange (Edwards &
Schneider, 1997).
The strategy of challenging climate science was quite successful in securing the support of a key
group of Republican Congresspeople in the 1994-96 House, including Dana Rohrabacher from
California, Chair of the House Science Subcommittee on Energy and Environment, Tom DeLay
of Texas, the House Majority Whip and a member of the Appropriations Committee, John
Doolittle of California, and Robert Walker of Pennsylvania, Chair of the Science Committee and
a member of the Budget Committee. Perhaps most notable were the series of hearings before the
House Subcommittee on Energy and the Environment in Fall 1995, pointedly titled "Scientific
Integrity and the Public Trust" (Gelbspan, 1997) pp.64-78. (Brown, 1996). Rohrabacher
presented skeptic Patrick Michaels as a heroic dissenter in the image of Galileo, bravely
confronting the scientific priesthood, and openly derided the testimony of climatologists such as
Jerry Mahlman, director of NOAA's Geophysical Fluid Dynamics Lab. These hearings illustrate
7
what Hajer (1995) terms a "discourse coalition" among the fossil fuel industry, the climate
skeptics, and key Republican congresspeople.
As a result of US industry’s political efforts, federal funding for climate research has been
constrained, and the US State Department, the agency primarily responsible for the international
negotiations, opposed mandatory international GHG emission controls until 1996. Even after the
US accepted the idea of an international protocol in principle at the Geneva negotiations in July
1996, the US advocated no more than a freeze on emissions at 1990 levels, while the European
Union was pushing for 15% reduction below those levels. The US agreed to a 7% reduction in
emissions at the Kyoto Protocol of December 1997, though the administration has made it clear
that it will implement this commitment through flexible, market based measures, and does not
plan to impose substantial new gasoline taxes or increase CAFE standards, which currently stand
at 28 mpg.
Response by European Automobile Industry
Far from having political allies, European firms found themselves in a context in which
politicians were looking to the auto industry for substantial, early emission reductions. Unlike the
US, where the auto and oil industries had forged an alliance within the GCC, in Europe the auto
industry stood alone. Germany had unilaterally committed to significant GHG reductions during
the Framework Convention on Climate Change (FCCC) negotiations in Berlin in 1994 and had
pushed the German auto industry association, the VDA, into a “voluntary” agreement to reduce
CO2 emissions from new cars by 25%. Concerned that these constraints might affect the
competitiveness of its national automobile companies, Germany then pushed the EU to adopt
similar measures. While the US had entered the Kyoto negotiations advocating a freeze on GHG
emissions at 1990 levels, the EU was calling for a 15% cut, and was sensitive to charges that it
talked a tough position but lacked any will to implement. The European Commission introduced a
proposal to reduce average CO2 emissions from new cars from 186 grams/km to 120 g/km by
2005 (equivalent to about 45 mpg). The European Parliament called for even stricter limits, with
a figure of 90 g/km being mentioned. European automobile companies avoided direct challenges
to the scientific need for GHG controls, with various managers calling any such effort “futile”
and “inappropriate”. After three years of negotiations, in 1998 the European Automobile Industry
Association (ACEA) accepted a voluntary agreement to reduce emissions to 140 g/km by 2008,
while maintaining the 120g/km target for 2012. European companies have responded to these
pressures by introducing very small, light-weight cars such as Daimler-Chrysler’s SMART car,
and investing substantial amounts in a range of technologies from diesel to fuel cells.
Explaining US-European Strategic Responses
The Emergence of Climate as a Strategic Concern
The notion that human emission of greenhouse gases might warm the earth’s climate dates back
to the work of Baron Jean Baptiste Fourier in 1827, and Svante Arrhenius first published
estimates of the amount of warming caused by greenhouse gas related radiative forcing in 1896.
The development of the scientific, institutional, and political dimensions of the climate issue have
been detailed in a number of studies (Agrawala, 1998; Alfsen & Skodvin, 1998; Bodansky, 1994;
Edwards & Lahsen, 1999; Kruck, Borchers, & Weingart, 1999). Scientific resources devoted to
the issue grew rapidly during the 1960s and 1970s, and policymakers began to turn significant
attention to it during the early 1970s. Corporate attention to the climate issue picked up speed
only in the late eighties, and US companies responded much earlier than did European ones,
8
suggesting the importance of national institutional contexts. Research divisions at Ford and GM
had been aware of the issue since the late 1970s, but managers and scientists at both companies
recalled James Hansen’s testimony before the US House Energy Committee in June 1988 as the
catalyst that catapulted climate change onto corporate radar screens. Hansen, from NASA,
testified during an unusually hot spell in the eastern U. S. that he was "99 percent certain" that
recent warmer temperatures were attributable to greenhouse gas induced climate change, a claim
which generated considerable media attention (Edwards & Lahsen, 1999). As a result of this
testimony and the high level of attention to the issue in the popular press, Ford’s climate
specialist described his shock at how quickly “climate went from zero to sixty”. Ford began
sending a representative to IPCC meetings, and took a lead role in reviewing chapters of the
IPCC’s Second Assessment Report on behalf of the GCC and the AAMA.
It is notable that the US automobile companies paid much more attention to the national mass
media political events in Washington DC than to the development of scientific concern around
greenhouse gases or to early interest in the policy community. The President’s Science Advisory
Committee had discussed greenhouse gases and climate as far back as 1965, and in the early
1970s, two major scientific studies, according to Edwards, put climate firmly on the US policy
agenda. The White House proposed a US climate program in 1974, leading to the National
Climate Program Act of 1978, which authorized $50 million annually in research funding. The
US Department of Energy initiated a CO2 research and assessment program in 1977, and in 1979
the White House Office of Science and Technology Policy requested a study on climate from the
National Research Council. The ensuing Charney report predicted global warming in the range
1.5 C to 4.5 C, a forecast which has remained remarkably stable over two decades. In 1983, the
US EPA published a rather alarming report on climate based on Hansen's modeling work. One
reason cited by managers for the attention to climate in 1988 was the rapidity with which the
ozone depletion issue had moved from scientific concern to the Montreal Protocol in 1987,
mandating a 50 percent reduction in CFC production. Indeed, attention to CFCs in the mid 1980s
might have diverted industry attention away from greenhouse gases. To the extent that corporate
managers take their cues from the US media, with its rather parochial national focus, they would
be less likely to hear about major international conferences on climate. Although Detroit is closer
to Toronto than to Washington D.C., almost none of the managers interviewed recalled the June
1988 Toronto Conference on the Changing Atmosphere, which culminated in a call for a 20% cut
in greenhouse gas emissions by 2005 from 1987 levels. Even less known was the earlier series of
workshops in Villach, Austria, held from 1980 to 1985.
Without Hansen’s Congressional testimony during a hot summer as a stimulus, European industry
did not pay serious attention to the issue until the summer of 1992. Interviewees from Ford,
Daimler-Chrysler, VW, and Opel all mentioned the UNCED conference in Rio de Janeiro as the
crucial event that spurred corporate attention, although the ozone issue had sensitized managers to
global environmental concerns. By this time, the Framework Convention on Climate Change
(FCCC) had been signed and the Second Assessment Report (SAR) of the IPCC was already
underway. Consequently, there was almost no European industry involvement in the SAR. There
also appears to have been pressure from other industries that had already been alerted. One
Volkswagen anager recalled a board member of a large Swiss chemical company saying “we are
doing our job on CO2; why don’t you do yours?”
Although the automobile industry generally appears to have been taken by surprise by the
swiftness with which greenhouse gas concerns moved up the public agenda, interviewees took
pains to point out that the climate issue did not initially appear to require any major strategic
change of direction. In Europe, high fuel taxes and concerns about resource depletion had kept
fuel consumption on the agenda for twenty years. US industry was already subject to CAFE
9
standards under the Clean Air Act and its amendments, and the California Air Review Board
(CARB) was mandating zero emission vehicles in the longer-term. As a result, explained GM’s
former VP for Research, Robert Frosch, the reaction to climate change from product developers
was:
we’re already running as fast as we can in that direction. Essentially if someone had said,
lets do R&D that will help us with the CO2 problem, the reaction was ‘well, we’re
already doing that. I’m already trying to figure out how to lightweight the vehicles and
make the engine more efficient, and look at all the new fuels and so on. So how would it
affect me?
Helen Petrauskas, VP of Ford concurred: “ There was already huge pressure for reduction of
smog precursors. So climate did not require a step function change in strategy; it was more of an
organic evolution."
Over a period of time, companies came to appreciate that while improvements in fuel efficiency
addressed global CO2 concerns and local air quality issues, many technological approaches
involved trade-offs. Electric vehicles, for example, might be zero-emission where the car is
driven, but can be worse than conventional vehicles in terms of GHG emissions depending on the
fuel mix and efficiency of electricity generation. Similarly, the introduction of catalytic
converters during the early 1980s, which dramatically reduced SOx, NOx, and hydrocarbon
emissions, caused a noticeable decrease in fuel efficiency. Given these tradeoffs, and a regulatory
environment where controls on non-GHG emissions were still being ratcheted upwards, it was not
easy for companies to shift their technology strategies toward carbon reduction.
The Political Environment in the US and Europe
According to Edwards (1999) the SAR Chapter 8 controversy represented the particularly
legalistic character of climate politics in the US, and the concerns were largely ignored in Europe.
The US Congressional hearings on climate exemplify the adversarial, legalistic courtroom style
through which the scientific basis for regulation is developed and contested. This contrasts
sharply with the approach found in Europe, and particularly in Germany, which is often
characterized as more integrated and consensual (Jasanoff, 1991; Kruck et al., 1999). The
institutional governance structures in the US cause companies engaged in contested policy arenas
to make their case in a vociferous, public manner. As GM's Frosch put it, “The Hill works by
compromise, so you need to go to the extreme. The more strident one side gets, the more the
other side must. It ends up completely polarized.” A former VP of Government Relations made
the case that the automobile industry ended up with CAFE in the first place because of a
misplaced strategy of conciliation: “The Neville Chamberlain approach doesn't work. We offered
voluntary fuel economy goals, but the government turned around and made it mandatory. If we
offer to do X, they will demand two X.” Helen Petrauskas, a VP of Ford, compared the situation
with Europe: “In the US, it doesn't help to have Al Gore getting up and saying that people are
dying in Chicago because of climate change. We are forced to be strident to counter that
misinformation. In Europe, with some balance between the Commission and the Parliament, it's
possible to have meaningful discourse.”
While US industry was able to forge alliances with sympathetic elements in Congress and faced a
public antagonistic toward fuel taxes, European firms lacked political allies and faced consumers
more concerned with environmental issues. Moreover, US companies tended to be wary of
international regulatory initiatives over which they had little control (Levy & Egan, 1998), while
European car companies were not entirely unhappy with harmonized emissions regulations at the
regional level. A Ford Europe manager explained that:
10
There was a concern that national legislative initiatives in '94-95 would unravel EU
harmonization efforts and would fragment the market. Both the Commission and industry
did not want to have a patchwork of regulations and standards. At the end of the eighties,
the emissions situation was a strategic nightmare. We wanted harmonization, because
otherwise we face the nightmare of managing product mix by country.
As a result of the political and cultural environment in Europe, challenging the scientific basis for
regulation was seen as futile. An official with the German environmental ministry said:
it's not like the United States. Here the companies make some comments in presentations
or interviews, but nothing serious because they know public opinion would be against
them. If they would argue in the way they do in the States, it would create an image
disaster. And they wouldn't argue the science to me or I would kill them.
Perhaps reflecting a more general cynicism about business influence in Europe, a representative
with the VDA, the German auto industry association, commented that “if the auto industry were
to support a specific study, the people would think that scientists were bought by the industry and
they would not believe them.” Regarding negotiations with the EU over automobile emissions of
CO2, a manager in a European subsidiary of a US-based company commented that:
my boss in Detroit said we should argue about the science and the economics. It was an
education process to get them on board. We had to explain that it's not constructive to
challenge the science in Europe, and if we want to influence the debate we cannot move
back. Here, the IPCC reports are accepted without question by policymakers. We would be
thrown out of the room if we challenged them.
A Ford Europe executive with experience in the US pointed to differences in the political process
that led to this outcome:
You have to understand the process by which the 120 g/km target entered the currency of
the debate. In the US there is a long period for public input and delay, and economic
interests can be balanced against environmental concerns. Here, there is little balance or
accountability. The 120 target was proposed by the EU Environmental Council, which
consists of only the environmental ministers of member states. We said that they needed to
talk to the economics, finance and labor ministers, but the environmental ministers have
power to initiate legislation on their own. The Environmental Council simply said this is
the target and other ministers were cut out of the loop. The Environmental Council then
tasked the Commission to develop a strategy to achieve the 120 target. The Directorates
General for Energy and Industry had little influence.
These negotiations also highlighted the difference between the technocratic policy process in the
US and the lack of technical capacity of the EU institutions. Policy battles in the US were waged
on the basis of detailed technical studies: indeed, the Clinton Administration’s climate policy had
become mired in conflicts within an inter-agency task force examining the economic costs of
various GHG policies, and a final report was never published (US Interagency Analytical Team,
1997). In Europe, the Commission’s demand for a 120g/km standard was not based on any
analysis of technical feasibility, environmental need, or economic costs. ACEA commissioned a
report from the consultants A.D. Little, which provided technical justification for the industry’s
position that the target was not technically or economically feasible in the timeframe. Although
one might expect that the Commission’s lack of technical capacity would give industry the upper
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hand in negotiations, auto executives involved asserted that the Commission was not very
interested in a policy grounded in technical analysis. One executive summed up the
Commission’s reaction to the AD Little analysis as, “a very nice report, but what are you going to
do about the 120 target?”
Perspectives on Climate Science
Most descriptions of industry’s challenge to climate science present them as cynical
manipulations of the public discourse. While there clearly has been a strategic component to
corporate political activities in this arena that reflect pre-existing conceptions of economic
interest, it is argued here that skeptical perspectives on climate science became institutionalized in
the automobile companies, particularly those based on the US, and these perspectives helped to
constitute perceptions of strategic interest. All three major US automobile companies, through
their industry associations and independently, questioned mainstream climate change research
and advocated a “wait and see” attitude. Ford’s Trotman and Chrysler’s Eaton were especially
vociferous in the early '90s, through speeches and editorials, in castigating concerns about climate
change and emphasizing the high cost of precipitate action in the face of uncertainty. The
interviews revealed that these views were not just those of top management, but had permeated
throughout various departments and management levels. One manager at Ford commented, “We
have followed the science as a company and we would like to see more science and less hot air!
What we’d like to see is good science driving good policy.”
Managers in European car companies also demonstrated some skepticism toward climate science.
A Daimler manager stated that he was still a skeptic, even though the company publicly accepted
that CO2 is a problem. In his words, “I doubt that there is significant danger. There are two types
of truth: one is natural science. The other is public opinion of science. In either case, you have to
react to what the public thinks the truth is and not necessarily what the science says.” Generally,
however, less skepticism concerning climate science was evident among the European
companies. One reason for this might be the sources of information used by European companies,
which were notably different than for US ones. US companies tended to rely on American
scientists, and included quite a few skeptics. The German car manufacturers primarily relied on
German scientists, especially from the Wuppertal Institute, but had also invited in people from
Greenpeace, from the German environmental ministry, and Amory Lovins from the Rocky
Mountain Institute, an ardent supporter of technological solutions to environmental problems.
European companies generally lacked internal scientists who were directly engaged with
atmospheric science, and provided little input into the IPCC process. Nevertheless, both VW and
Daimler maintained close contacts with local university scientists, and regularly conducted
workshops on various related subjects.
Corporate scientists adhere to the norms objectivity, rationality, and free investigation while
being embedded in the business culture of bottom-line accountability and hierarchical
subordination. This bridging of two cultures necessitates a subtle process of negotiation of
identity for these scientists, who are not quite at home in either setting. The corporate scientists
interviewed were particularly emphatic about their objectivity and independence, relating stories
to demonstrate their refusal to be curtailed by narrow corporate interests. Ruth Reck, who had
been a scientist with GM, was on an EPA advisory committee, and in her words “GM desperately
wanted to remove me from it. They thought I was not toeing the GM line. But I was an
independent scientist and I have refused ever to be bought in my whole life. I was never on
anything representing General Motors.” Although not threatened with her job because of her
independence, Reck “just knew there was dissatisfaction. There just had to be.” With their
loyalty to the corporation in some doubt, corporate scientists needed to negotiate the border
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between these two cultures with some careful diplomacy. Reck recalled that “you had to speak
strictly in terms of facts. Lots of people got into trouble for saying controversial things. I lived by
the rule that anything you say might appear on the front page of the New York Times. Anything I
said could always be backed by a reference.”
Corporate scientists felt even less trusted in the public realm. Ford’s Shiller recounted an incident
during an IPCC plenary session that was negotiating text of the Second Assessment Report, in
which he suggested a particular change, which was supported by one of the lead authors and then
endorsed by a plenary vote. According to Shiller, the IPCC chair, Bert Bolin later took that lead
author aside and warned him not to support other industry interventions. Daimler’s Fischer
recounted a similar story concerning his participation in the German Enquette Commission, a
national assessment process on climate change. Fischer was invited to speak and thought that he
would be respected due to his research, but his opinion was very much not welcome at the
hearings and he felt very negative about how he had been handled by the members of the
commission.
Despite their adherence to the scientific norms of objectivity and independence, we found that
with the exception of GM’s Reck, the internal scientists in the US tended toward the skeptical end
of the spectrum of legitimate opinion among respected climate scientists (Morgan & Keith,
1995). They all interpreted scientific uncertainties in a conservative manner, viewing them as a
rationale for further research rather than seeing the potential for climate shocks from positive
feedback or threshold affects. They pointed to the long time frame of atmospheric accumulation
of GHGs as a comfortable margin of time for reducing uncertainty rather than an urgent reason
for early precautionary action.
These conservative viewpoints appear to be constituted in a subtle process of negotiation between
two conflicting institutional discourses, the scientist as independent researcher, and the employee
as loyal servant of corporate interests. As GM’s Frosch expressed, “There is social pressure. They
are around people who don’t pay attention to the climate issue and don’t want to hear it…. People
on the operational side are more conservative.” He also suggested that there might be some
element of self-selection in terms of who is willing to be a corporate scientist. GM’s former chief
economist Marina Whitman discussed the pressure to adopt a bottom-line perspective. “There is a
need for credibility with the line guys. We were the cost center, they were the profit center.”
Managers in different functional areas generally adopted perspectives consistent with their
departmental interests, demonstrating how institutionalization operates at multiple levels. People
responsible for advanced automotive technologies tended to see climate change as an opportunity.
According to GM's Frosch, “The spirit of the research labs is, we will show top management we
can do it – we can change things.” While the R&D people had a vested interest in developing
solutions to problems, and tended to view these solutions as technologically feasible, others in the
organization were likely to take a more conservative approach. Managers responsible for product
divisions and strategy were particularly concerned about the high cost of low emission
technologies with little value to consumers. These tensions had bedeviled the development of
GM’s electric vehicle during the early 1990s (Shnayerson, 1996).
Managers in government relations and regulatory affairs departments traditionally have seen their
jobs as opposing governmental regulation and mandates. They were frequently concerned that the
company might encourage more stringent regulation by demonstrating technological capabilities
for reducing emissions, even if these technologies might be costly and unappealing to consumers.
According to GM’s Reck, “Jimmy Johnston was a skeptic. He had to assume this position
because he was the chief lobbyist. I understand where he was coming from.” A Daimler manager
13
made a similar comment about the company’s PR manager: “Of course, he denies that climate
change will happen, because he is in Public Relations. Look at us, we make big cars. So it’s
difficult for him to believe that.”
The implication of this discussion is that corporate perspectives on science are not purely
strategic, but are in part constituted in light of conceptions of economic interest. More skeptical
perspectives toward climate science became institutionalized within the American companies,
which perceived climate change as more of an economic threat; in turn, the companies relied on
these skeptical perspectives in anticipating a weak regulatory response and in formulating their
R&D strategies. These institutionalized conceptions are not easy to change, and risk becoming an
“iron cage”(DiMaggio & Powell, 1983) that constrains consideration of a full range of strategic
options.
Perceptions of Market Viability for Low Emission Technologies
European car companies, facing high fuel prices and narrow, congested roads, have traditionally
tended to specialize in smaller, fuel efficient vehicles in comparison with US producers. Porter
(1990) has argued that the competitive advantage of companies is molded by home country
conditions, so European companies might consider themselves to be in a superior strategic
position to deal with demands for lower emissions be more open to regulatory initiatives, and be
quicker to invest in low-emission technologies in order to build on these strengths.
It is not just historical country-specific conditions that have shaped the current competitive
capabilities of automobile companies in some objective sense. Here we draw from Callon (1998)
to argue that corporate expectations concerning markets for low-emission technologies are more
influenced by institutional location than by some objective assessment of current corporate
strengths and market positioning. In any event, corporate capabilities in a hypothetical future
market are not easy to measure; all the major auto companies have made significant efforts
toward fuel efficiency since the first oil price shock in late 1973. If anything, European
companies might find it relatively harder to squeeze additional weight and efficiency out of their
product range.
Although the major auto companies are all multinationals and have been active in each other’s
markets for many years, the management of U.S.-based auto companies displayed a remarkably
national orientation to their cognitive maps. In numerous interviews, corporate managers in
Detroit, many with worldwide responsibilities, spoke about the difficulty of reducing emissions
with gasoline near $1a gallon, consumers who care little for fuel economy and are hungry for
large SUVs, and a Senate unlikely to ratify Kyoto. These views are reinforced through
membership in industry associations such as the GCC, which are dominated by U.S.-based
companies. Ford and GM’s climate teams were both based in Detroit, though regular telephone
conferences were held with European subsidiaries, especially during the ACEA negotiations.
Due to this domestic orientation of US auto companies, managers in their European subsidiaries
felt that their local product needs were not always met by the R&D priorities established in
Detroit. In particular, European managers had to push Detroit for more investment in smaller, fuel
efficient vehicles. Although European subsidiaries conducted a substantial amount of R&D in
their own facilities, the lion’s share, especially for major projects, was still controlled from
Detroit. This situation only began to change for Ford and GM during the mid 1990s, as
management structures became more international. Ford implemented its Ford 2000 project
which pushed toward the rationalization and integration of production and management
worldwide, and GM began to move in a similar direction. Ford Europe, for example, became
14
responsible for the Fiesta-size class of small cars worldwide, as well as for the development of
advanced diesel technology. By 1998, top management in both companies included a number of
people with significant overseas experience. According to one Ford Europe manager,
What has changed is the global focus. In the old days, senior management in the US spent
some of their careers in Europe. Alex Trotman had a European pedigree. But now we have
global managers in top management, people who grew up in other cultures. Ford
understands the importance of Europe now, and this really puts pressure internally on the
U.S. focus.
Another manager noted that the global perspective had taken hold within European operations as
well: “the Ford 2000 project affected the way we thought about these negotiations with the EU
Commission. We had to think about the implications for the US market.”
All the companies considered that consumer acceptance was the single biggest hurdle facing
innovation efforts, though American companies tended to focus more on current consumption
patterns and downplayed the potential for dramatic change. American companies were
particularly critical of regulation such as the CAFE standards which they saw as coming between
the company and consumer requirements. Marina Whitman, GM’s former chief economist,
expressed the widely held view that consumer sovereignty would eventually triumph in the
marketplace: “Consumers find a way around regulation. The shift from cars to trucks is an
example, as consumers can find features on trucks that have been stripped out of cars.”
The impact of low-emission technologies on price was seen as a problem even in Europe. A
Daimler manager commented that “it has always been very important for us to understand if this
is acceptable to the customer. The customer sees specific benefits in low consumption vehicles,
especially in Europe, where fuel efficiency offers more significant savings on fuel costs. But
these days cost is the most critical point to bring advanced technology into the market. Products
which have really low fuel consumption and which are lightweight generate lots of costs. If you
can't fulfill the price expectations, you can't go into the market, because sales would be very low.
We constantly do this analysis in the product planning department, to find out if product concepts
are viable in the marketplace. A Ford Europe manager noted that “customers won't pay a
premium for fuel economy. It’s a mid-level concern for consumers, not in the top three, but not
nine or ten as in the US, where concern for fuel economy is fifteen years away.
Companies related a number of experiences in which consumers reacted negatively to cars that
pushed the environmental envelope, and these experiences appeared to have become a part of
corporate conventional wisdom. At GM, the decision to downsize luxury vehicles was commonly
referred as the “Cadillac disaster”, and GM managers expressed the view that Ford’s greater
profitability in the late 1990s was mainly due to its decision to keep a range of full size cars and
trucks. In Europe, Daimler had investigated the market for a new class of vehicles with special
paint technologies and better recycling capability, and was surprised by the lack of consumer
interest. Daimler, Opel, and VW all had introduced lightweight, fuel efficient vehicles that had
met limited demand.
The barrier to new technology was not just the price. Daimler had found that people were fearful
of the limited range of electric vehicles, even though consumers could change their usage habits
to overcome these vehicle limitations, especially if it served as a second car. Hesse argued that
the problem was “a psychological fear, because people have experiences of devices with batteries
going empty, mobile phones, laptop computers. There is a fear that you cannot take away.” VW
had tried to introduce a hybrid in which the drivers could hear the engine cut in and out. A
15
marketing manager explained that customers didn’t like it “because their heart stops beating when
the engine stops.” Hesse thought that there would need to be a substantial change in
infrastructure, consumer usage patterns, and attitudes for its small, lightweight SMART car to sell
in volume: “If you look at typical European inner city traffic situations, small vehicles allow you
mobility concepts that classical products cannot fulfill. The SMART car is not so much yet
integrated into new mobility concepts, for example, dropping the car at the train station and
picked up on the way back, which would ease traffic in the downtown area.” Through comments
such as these, the European managers demonstrated a greater awareness of the social
embeddedness of technology.
A notable difference between producers was that US-based companies tended to focus on current
consumer preferences and infrastructure as an exogenous constraint which might only be changed
in the long run through fiscal policies, while European companies were more aggressive about
changing consumer preferences and behavior in the medium term, in the context of integrated
transportation systems. A VW executive noted that “we are more active in trying to change
consumers. You cannot force people to buy certain things, but what we are trying to do is just
keep on presenting it to the market, and try to convince people to buy these type of products.”
One Ford Europe manager noted that diesel engines, which offer approximately 25% fuel
efficiency compared with gasoline, were increasingly seen as “hip and green” in Europe, while
US executives were convinced that American consumers would remember the noisy, dirty,
shuddering diesels of the 1970s and shun them even if these problems could be overcome. A
related factor was the expectation concerning how consumer preferences would change as
incomes grow. Daimler’s Hesse expressed optimism, based on market research, that economic
growth would allow more consumers to pay a price premium for low-emission cars, while
American companies tended to think that higher incomes would just lead people to buy bigger
SUVs, vans and trucks.
These different perspectives on consumer preferences explain, in part, the different innovation
strategies of European and US companies. US-based companies were focusing on longer-term
more radical approaches to emission reduction, such as fuel cells and hybrids, but without
sacrificing car size, comfort, or other features. The car of the future would not require any change
in transportation patterns, road infrastructure, or social conceptions of cars; rather, all the burden
of emissions reduction would be placed on advanced automotive technologies. European efforts
were more balanced with investments in short to medium term emission reductions through
substantial weight and size reduction and incremental improvements to existing diesel and
gasoline engines. Consumers were expected to play their part in adapting to the new vehicles.
Companies took different positions on the benefits of being a first mover in emerging low-
emission technologies, consistent with the theoretical ambiguity described earlier. Experiences
with alternative technologies had made the American companies wary about their prospects for
the future. GM, for example, had invested an estimated $500 million in its electric vehicle, of
which less than 1000 had been sold. Although a few GM managers thought that the company had
gained valuable expertise in electric drive chains, company managers generally interpreted the
experience as a commercial mistake. Similarly, GM managers felt that they had rushed too
quickly to downsize their vehicles in response to earlier oil price shocks. Ford had invested an
estimated $500 million in sodium-sulfur batteries, only to abandon the project because of safety
concerns and because nickel metal hydride looked more promising. With this shared experience,
being a first mover was not seen as an attractive proposition. Ford’s top managers were quite
explicit in stating that they would not be the leader on carbon reduction, although they would be
prepared to follow quickly. Chrysler, for its part, had abandoned any significant R&D activity
16
after the government bailout, helping to explain CEO Eaton’s vociferous opposition to GHG
emission controls.
Daimler, by contrast, had taken a strategic decision to be a leader in fuel cell technology. The
justification for this decision, of necessity, employed rhetorical strategies as much as any
objective analytical framework. Hesse discussed “the need to stay in the driver’s seat, to prepare
for a future that is not the status quo”. While he acknowledged that this was a risky technology
that might not come into mainstream use until 2020 or later, the investment was largely seen as a
learning exercise:
If you spend a lot of money at the beginning, it is difficult to earn it back, but it helps to
generate knowledge of what is possible, and this prevents you getting nervous and making
mistakes and not knowing what you're doing. And at the moment we know very well what
we are doing because we know where we are with the technology. Of course we will lose a
lot of money at the beginning, but gaining as much experience as early as possible enables
us to make business decisions which assess all the details and all the aspects.
Institutional Dynamics and Strategic Change
The fossil fuel industry appears to be in the midst of a remarkable shift in position on the climate
issue. Firms that formerly poured scorn on concerns about greenhouse gases are now more muted,
and an increasing number of companies are accepting the principle of taking precautionary action
in the near term rather than wait for more scientific evidence. Companies are adjusting their
strategies accordingly, investing in a range of low-emission processes and products. The Kyoto
Protocol in 1997 was clearly a watershed, but here we argue that the international treaty did not,
by itself, change corporate perspectives and strategies; after all, the treaty is unclear on many
details, does not spell out regulatory mechanisms, and is unlikely to gain ratification in the US in
its present form. Companies do not have much more information post-Kyoto on which to base
estimates of the future price of carbon permits or markets for low-emission technologies. Instead,
we argue that institutional and political dynamics have been undermining the existing social-
technological regime, leading companies to begin preparing for the possibility of a major
upheaval.
The now famous speech by British Petroleum’s Group Chief Executive, John Browne at Stanford
University on May 19, 1997 represented the first major fissure in the fossil fuel industry’s
position on the science of climate change. He stated that "there is now an effective consensus
among the world's leading scientists and serious and well informed people outside the scientific
community that there is a discernible human influence on the climate, and a link between the
concentration of carbon dioxide and the increase in temperature." While acknowledging that
considerable uncertainties still exist, Browne explicitly invoked the precautionary principle by
saying “The time to consider the policy dimensions of climate change is not when the link between
greenhouse gases and climate change is conclusively proven, but when the possibility cannot be
discounted and is taken seriously by the society of which we are part.”
We do not know the motives for John Browne’s landmark shift in position on climate. European
oil companies were probably subject to political and cultural pressures similar to those described
for the European automobile industry, but we also cannot rule out John Browne’s personal
experiences and beliefs. One explanation might be the emerging scientific consensus since the
Second Assessment Report (SAR) of the IPCC in 1995 and the strategic benefits for companies to
“board the train” once it was seen to be leaving the station. By 1997, the business press in the US
and Europe was conveying the impression of consensus. (Raeburn, 1997; Stipp, 1997; The
17
Economist, 1997). From the perspective of Jon Holdren's, a Harvard scientist engaged with the
issue, advances in basic science were fundamental: "the whole fingerprint argument has become
much stronger since the SAR. You've got the empirical data of record warmth, and the arguments
about satellite measurements and solar effects have been resolved in refereed scientific
publications." On the other hand, there had been no decisive scientific evidence equivalent to the
discovery of the “ozone hole” over Antarctica in 1987 and little coverage of new scientific
understanding in the US mass media. Similarly, there had been no breakthrough in low-emission
technologies during this period. Moreover, the growing body of scholarship in the field of
science, technology, and policy should make us wary of any simple linear connection between
knowledge generated in the institutions of the scientific establishment and societal responses.
Whatever his motives, Browne’s the speech generated substantial publicity and prodded other
companies to reexamine their positions. The US automobile companies also toned down their
criticism of climate science as Kyoto approached. According to the trade journal Automotive
Industries, (Sorge & McElroy, 1997) when the three US auto CEOs and UAW president Steve
Yokich met with President Clinton in the Oval Office in early October 1997, “they never
questioned whether global warming was a scientifically proven concept.” Ford’s Trotman
recalled that “We did not argue the science with the President. We didn't think that was a good
use of his time or ours. It's generally agreed that the CO2 in the air has increased in the last
decades and that there's cause for concern, and that we should be doing something." One possible
reason for this change in stance is that, despite the tendency within both US companies to
institutionalize conservative perspectives on climate change, at the very top levels of management
in both companies there did appear to be a growing concern to “know the truth”. As Ford’s
Petrauskas put it, “The trick from a management standpoint is how to get information through the
layers of the organization and be able to make a judgement. We want to know what’s really going
on, not just what we want to hear.” Top management began to arrange briefings directly with
outside scientists, including some who were known as climate advocates. Managers
acknowledged that if the more pessimistic forecasts were borne out, the Kyoto commitments
would need to be substantially strengthened, with drastic implications for the industry. GM’s
Frosch commented on how top management prefers certainty, even if the news is unwelcome: “If
the scientists were able to say ‘I saw the data and its certain’, the industry would breathe a sign of
relief…. but as it stands, we are uncertain about the science and what the politicians are doing.”
Just a few weeks after Browne’s speech, a split within US industry ranks on the climate issue
became evident. On June 8, 1997, the Business Roundtable sponsored full-page advertisements in
the US press signed by 130 CEOs which argued against mandatory emissions limitations at the
forthcoming Kyoto conference, citing scientific uncertainties and the high cost of action. It was
no accident, however, that the other 80 Business Roundtable members did not endorse the
advertisements. Monsanto had led an unsuccessful effort to draft an alternative text, which
acknowledged that sufficient scientific evidence had accumulated to warrant concern, and that
industry should be constructively engaged in developing precautionary measures. This industry
division was brought to President Clinton's attention at the June 1997 meeting of the President’s
Council of Advisers for Science and Technology (PCAST), at which a report on energy R&D
options was presented. According to Jon Holdren, chair of the PCAST panel responsible for the
report, the President’s awareness of the minority industry faction had significant political
ramifications: “We actually did get the President off the dime at that meeting. He mobilized an
interagency task force, and started a process which eventually converged on a set of policy
recommendations for Kyoto.”
The split in US industry can be traced to pre-existing tensions in US industry over corporate
political strategy. The challenge by the GCC and the Climate Council in May 1996 to the
18
revisions in Chapter 8 of the IPCC SAR marked a turning point. Some industry interviewees
considered this a successful effort to open up the IPCC process, which led to greater efforts to
include industry authors and reviewers for the Third Assessment Report and introduced Review
Editors to the process, whose role was to ensure that authors at least considered comments
submitted by external experts, NGOs, and industry. In broader political terms, however, the
challenge to IPCC's credibility fell short. Levy (1998) argues that the challenge had little impact
on the international negotiations because of the relative autonomy and legitimacy of the IPCC
institutions. Moreover, the US delegation, under pressure to respond, chose to distance itself from
the fossil fuel lobby.
After the Chapter 8 affair, industry became much more circumspect about challenging the
fundamental science of climate. In planning its campaign in the run-up to Kyoto in December
1997, the GCC decided to shift the focus from scientific uncertainties toward the high costs of
mitigation and the lack of developing country commitments. This decision was based, in part,
upon market research that suggested the public was not engaged with the scientific debates and
did not find industry a particularly credible source. Moreover, the oppositional approach risked
industry's credibility and legitimacy in national and international negotiations. Environmental
groups in Europe and the US seized upon the lobbying and public relations efforts of the fossil
fuel industry, emphasizing connections with, and in some cases funding of, the climate skeptics,
and a number of reports were issued that attempted to frame the issue as big business using its
money and power to distort the scientific debate (Corporate Europe Observatory, 1997; Friends of
the Earth International, 1997; Gelbspan, 1997; Hamilton, 1998). Ford’s VP of Economics and
Strategy, Michael Kaericher, acknowledged that "appearing negative hurts. We lost the first
round of battles. We are now trying to be more positive with the science, while still pointing to
the high cost of precipitate action before scientific uncertainties are resolved. Our actions will be
less strident in the future.”
The American Petroleum Institute dissented from the GCC’s 1997 decision to downplay the
science, and began preparing a new strategy to enroll a group of climate skeptics who were not
previously identified with the fossil fuel lobby. In internal documents leaked to the National
Environmental Trust and the New York Times (National Environmental Trust, 1998), the API
claimed that "those who oppose the treaty have done little to build a case against precipitous
action on climate change based on the scientific uncertainty. As a result, the Clinton
administration and environmental groups essentially have had the field to themselves." The action
plan expressed concern that the US media conveyed an impression of emerging scientific
consensus "while industry and its partners ceded the science and fought on the economic issues".
The document argued that this stance was a strategic miscalculation because it put opponents of
the Kyoto protocol in a weak position; a successful campaign to challenge the science "puts the
United States in a stronger moral position and frees its negotiators from the need to make
concessions as a defense against perceived selfish economic concerns." GM’s former VP of
Government Relations emphasized this point: “Once you concede the science, all that is left is to
argue the extent of liability and the timetable for emission reductions. It's a lost cause."
In addition to these inter-industry tensions over appropriate political strategy, cracks were also
appearing in the coalition between the fossil fuel industry and key Republican congresspeople.
The coalition members originally appeared to share a broad distrust of governmental regulation, a
concern that policy be guided by rigorous science, and a suspicion of the ideological roots of
climate advocates. On closer inspection, however, a number of revealing discrepancies
demonstrate the presence of fault lines and contradictions in this coalition. Statements by
congressional committee leaders reveal a deep ideological antagonism toward environmentalism
in general; Dana Rohrabacher termed the ozone depletion issue "another basically Chicken Little,
19
a cry we've heard before when the American people were scared into the immediate removal of
asbestos from their schools." Industry, by contrast, after fighting the good fight, demonstrated a
more pragmatic, accommodationist approach (Levy, 1997). The common commitment to sound
science is also questionable. While one or two of the skeptics, notably Lindzen, are widely
acknowledged to adhere to the practices and norms that confer scientific legitimacy and
credibility, others such as Patrick Michaels and Fred Singer do not publish on climate in the
refereed literature. The politicians, who proclaimed their desire for sound science, expressed
distrust for the institutionalized procedures of the scientific community. Representative John
Doolittle, when questioned about Fred Singer's credentials, responded that he was "not going to
get involved in a mumbo jumbo of peer reviewed documents” (Gelbspan, 1997) p.65. Moreover,
the fossil fuel lobby was on record for requesting more research funding, but the Republicans
controlling congressional committees were intent on cutting government funding for climate
research. At the May 1996 hearing, Rohrabacher called climate change research "money right
down a rathole" (Gelbspan, 1997) p.77. One insight to be gleaned from these hearings is that
discursive coalitions are incomplete, unstable and contingent affairs.
The emergence of industry associations and organizations supportive of some measure of
precautionary action on greenhouse gases provided institutional support and legitimacy for
companies leaning in this direction, as well as a vehicle for shaping emerging policy. The highest
profile effort to coalesce a corporate bloc in the US supportive of emission reductions was led by
Eileen Claussen, a former U.S. Assistant Secretary of State for Environmental Affairs and
negotiator at the climate change negotiations, who formed the Pew Center on Global Climate
Change in April 1998. Thirteen companies joined immediately, including BP, Toyota, Boeing,
Lockheed, Enron, United Technologies, American Electric Power, Whirlpool, Maytag, and 3M.
These companies signed on to a series of newspaper advertisements stating that they "accept the
views of most scientists that enough is known about the science and environmental impacts of
climate change for us to take actions to address its consequences" (Cushman, 1998). Claussen
was forthright in explaining the benefits of membership: "Joining Pew gives companies
credibility, and credibility means political access and influence. Reputation is especially
important for companies in consumer markets". This message was not wasted on Dale E.
Heydlauff, environmental VP of American Electric Power, who announced on joining the Pew
Center that his company had a better chance of avoiding disaster "if we acknowledge there is
legitimacy to the issues and have a hand in writing the policies" (Carey, 1998). The value of
being perceived as the moderate, constructive voice of industry had been apparent at the first
Conference of the Parties in Berlin in 1995, where the final conference document reflected the
principles contained in a draft provided by the ICCP to the U.S. delegation (Newell & Paterson,
1998). Ford’s Kaericher also recognized this potential: “If you move to the front of the class, you
have a more credible voice in helping to shape policy.” The highest priority policy concerns for
the US automobile industry were to avoid a tightening of CAFE standards and to obtain credit for
early action (Financial Times, 1998).
The reaction facing companies attempting to move ahead of their industries and become more
proactive publicly on the climate issue demonstrates the significant institutional pressures that
stabilize an organizational field and create resistance to change. GM, for example, had been
invited to join the Pew Center at the outset, but was unwilling to break ranks with the GCC,
whose goals were considered by Claussen to be incompatible with Pew. Those companies that did
step out publicly, such as BP, were criticized and even found themselves somewhat isolated
within their industry associations. When AEP joined the Pew Center, the reaction of fellow utility
executives ranged “from shocked and confused to pretty vitriolic” (Carey, 1998). Resistance to
these moves is often expressed internally as well. According to Claussen, “these decisions have
left a lot of blood all over the companies’ meeting rooms”. Corporate members of the PCAST
20
that advocated action on climate also reported facing flak from their organizations. As an
alternative to the Pew Center, GM joined an initiative of the World Resources Institute called
Safe Climate, Sound Business in October 1998, and expressed the position that climate was an
issue of sufficient concern that precautionary action needed to be taken. Reaction from the Detroit
press, competitors, and congressional allies was hostile, and in a rhetorical dance, GM attempted
to clarify that it was still firmly opposed to the Kyoto protocol (Mastio, 1998). This was not the
first time that GM had faced institutional discipline for straying from the industry position. When
Louis Hughes, executive vice-president of GM’s international operations, voiced support for a
gasoline tax increase of at least 50 cents per gallon in October 1997, an editorial in the Oil and
Gas Journal (Editorial, 1997) warned that “companies should not join politicians in steamrolling
opposing views on the issue.”
The institutional environments in which companies are embedded can generate pressures for
strategic change as well as inertia. Membership in an association that is more proactive on
climate, such as the Pew Center, or the Business Council for Sustainable Energy (BCSE), confers
legitimacy on the voices of corporate managers and scientists who concur with the view that
serious action is required to reduce greenhouse gas emissions. Even companies that are not
members are exposed to the shifting discourse, through meetings, conferences and the media.
Michael Marvin, director of the BCSE, organized a series of roundtable discussions in
Washington D.C. in 1998 and 1999 on topics ranging from emissions trading, the Clean
Development Mechanism, to liability issues. These meetings have been well attended by people
from a wide range of companies and industry associations. According to Marvin, "Companies
don't come expecting to change their positions, but they do move by a process of osmosis. At our
meetings they talk about positive, reasonable solutions. It makes a big splash when Enron,
ARCO, and Shell come out ahead on the issue." Clearly, some voices have more power to shift
the discourse than others. Even though climate science has not been a specific topic of discussion
for Pew or the BCSE, participation in these organizations facilitates a process of convergence
around the issue, and they serve to bring together views from disparate industries. According to
Claussen, “Most of these people have not sat with each other before. There is a real mix of
industries, and it is fascinating watching the dynamic develop. The companies give each other
mutual credibility.”
The 1997 PCAST panel on energy R&D can likewise be interpreted as a forum in which
participants are not just educated as individuals on the subject of climate change, but are also
subject to subtle social and institutional pressures. The PCAST panel was particularly potent
because of the anticipation of a need to write a consensus report, and because of the technical
nature of the subject material and the scientific background of most of the participants. Under
these conditions, there was a strong expectation that participants would operate as experts rather
than representatives of their industries. The constitution of the panel is deserving of some scrutiny
in this context. About one-third of the members were brought from the permanent PCAST group,
which does not have representatives from the automobile, coal, or oil industries, but which does
have members from companies more open to greenhouse gas control measures, such as
Monsanto, a participant in WRI’s Safe Climate, Sound Business Initiative. A further fifteen
experts were drawn from external organizations, including the coal, oil, gas, and nuclear sectors,
as well as from environmental NGOs and academia. People from fossil fuel sectors were
therefore in a minority in a panel committed to scientific procedures and norms in a consensual
process. The result was a consensus document that recognized the need for precautionary action
and recommended a substantial increase in funds for energy R&D, particularly for renewables.
Some industry participants mentioned they would probably get flak from their companies and
industry associations for signing on, but they did so nevertheless. Holdren noted that Don Paul,
the participant from Chevron who held a Ph.D. from MIT in geophysics, clearly shifted his
21
thinking during the process, and that the past president of EPRI, a chemical engineer who had
spent much of his career working on coal technologies, became an effective advocate within the
industry faction for the recommendation to put 80 percent of new money into renewals and
efficiency.
Perhaps one of the strongest sources of institutional pressure for change is the competitive
dynamic of innovation. Toyota’s commercial launch of the Prius, a hybrid electric-small gasoline
engine car in the Japanese market in 1998, and it’s announced intention to introduce the vehicle
into the US market in 2000, took the industry somewhat by surprise and caused other companies
to accelerate their plans. Most American executives were dismissive of the prospects for the car
in the US, recalling that GM’s electric vehicle had generated thousands of “pre-orders” which
evaporated once the car was on the market in late 1995. Nevertheless, the auto companies were
nervous that they might misread the market or fall behind a competitor. Ford’s Kaericher
remarked that “of course we are concerned about what competitors are doing. We have to build a
product that satisfied consumers and any insights into consumer demands are a scarce and
valuable commodity. We never want to believe that we have the only insights, maybe we have
missed something. - look at what happened with the mini-van, which was a Ford idea that
Chrysler made happen.”
Daimler’s investment of approximately $400m in the Canadian fuel cell company Ballard had a
similar effect. As Hesse expressed it, “we look very closely at our competitors with respect to the
fuel cell technology. It is a little schizophrenic. This technology is very difficult to develop for a
car and we have a lot of work to do, and it is the same for all the companies. Of course we are not
sure that we will be ready in time or achieve a high market share, as there is a lot of uncertainty.
Nevertheless, once we started pushing the issue, we found a very strong trend with our
competitors to step in and allocate resources and target money to chase us.” This “follow-the-
leader” behavior has been observed before in the international business literature (Knickerbocker,
1973), and it has been suggested that companies are willing to invest to match competitors’
moves even when expected returns are highly uncertain or negative rather than risk ceding
strategic advantage; it might be preferable to make the same mistake together than to let another
company secure a lead. In institutional terms, a competitor move such as this confers some
legitimacy on the technology and creates pressure on others to copy it. Indeed, it may well be part
of Daimler’s intent to enroll competitors in helping to establish a new technology. Hesse
discussed the importance of other companies following its lead in fuel cells:
We did a general assessment of cooperation and competition, and how we can leverage
them. In our cooperation scheme with Ford for fuel cells, the competition issue arises and
some things should stay within each of the companies. We developed fuel cells and want to
introduce them to the market and we need a fuel. This could be a very risky strategy if
nobody follows us, and the market will reject us if nobody provides the infrastructure, and
if we can't set a trend into the technology. There is a strong competition element but there
is also cooperation. We hope that it will not just be a fad, but that other manufacturers will
also want to introduce the technology into the market. This will secure an infrastructure
buildup and make it much more possible.
Conclusions
Climate change constitutes a profound strategic challenge to the automobile industry because of
the scientific, technological, regulatory, and market dimensions of uncertainty associated with the
issue. After a long period of relative stability in the social-technological regime for transportation,
we appear to be entering a period of turmoil and upheaval, with little guidance as to the form and
22
structure that a new, reconfigured regime might take. Under these conditions, companies cannot
apply traditional analytical techniques to choose among strategic alternatives; rather, decisions
are guided by perceptions and expectations of economic, technological, and political conditions,
which are constituted through an organization’s interactions with its institutional environment.
The process of strategy making is thus inherently institutionally embedded; there is no clear
distinction between institutional and economic environments, as markets and conceptions of
economic interests are themselves constructed in social and political contexts. The institutional
environment within which innovation strategies are formulated can be characterized as a social-
technological regime, with the properties of a complex, dynamic system. Such systems can be
temporarily stabilized through the alignment of organizational, material-economic, and discursive
structures; perturbations to the system can sometimes be accommodated with relatively minor
changes, but occasionally lead to more fundamental reconfiguration of the system before a new
regime can be stabilized.
Within such complex social-technological systems, actors behave strategically to constitute
institutional structures in particular ways. These efforts are inherently political, as actors strive to
secure the organizational, economic, and discursive foundations of a stable institutional regime.
Companies and industry associations attempt to shape public opinion about climate science, build
alliances with other companies and politicians, and gain acceptance for technologies they are
developing. Their perception of economic interests can shift in this dynamic process, even as they
pursue them. Organizations such as the Global Climate Coalition the Pew Center on Global
Climate Change not only serve as competing vehicles to further their members interests, but also
change perceptions of strategic interests. Although industry’s efforts to influence the debate over
climate science are one component of a political strategy to influence regulation, the case suggests
that skeptical perspectives on climate science become institutionalized in a process of reconciliation
with perceptions of economic threat. Thus, agents and institutional structures mutually constitute
each other, in a process described by Giddens (1984) as “structuration”. In a similar way,
conceptions of climate science and of economic interests are mutually constitutive.
More fundamentally, the conceptual framework of a social-technological regime developed here
suggests that a sharp distinction between political and product strategies is unwarranted. A broader
concept of strategy would relate a company’s overall position in a number of dimensions, such as
product markets, industry associations, consumer reputation, and government relations, to the
opportunities afforded by a particular social-technological regime. Companies are systematically and
differentially advantaged within such as system, so the relationship among companies is
simultaneously political and economic; some have more power to shape the regime to their own
advantage than others, and gain the rewards for doing so. A product innovation that changes the
contours of the regime in favor of one company can thus be understood to be a political as well as an
economic act.
The case study demonstrates how this theoretical approach can account for heterogeneity in
corporate strategies. Although institutional theory has traditionally been applied to account for
conformity and isomorphism within an organizational field, the case clearly shows that
companies are members of multiple, overlapping fields, and therefore subject to different
pressures. Multinational companies may have global operations but appear to be subject to local,
national institutional influences. Moreover, each organizational field can sustain competing
discourses, norms, and practices to which companies can adhere. Some companies believe that
emission controls pose a severe threat to their economic interests, while others, adopting an “eco-
modernist” discourse concerning climate change, see opportunities in new markets for low-
emission products and for selling emission credits. Finally, each company interprets institutional
23
discourses through the lens of its own organizational culture, structure, and history; those
companies that lost substantial sums on earlier investments in low-emission vehicles perceive
future prospects in a more pessimistic light.
This theoretical framework can account for the different responses of automobile companies in
Europe and the US to the climate issue, as well as for the changes in their positions over time. US
companies were alerted earlier to the issue, had more time to organize around the issue, and
successfully forged a coalition opposing mandatory controls with powerful industrial and political
allies. Investments in low emission technologies seemed extremely risky given the economic
environment of low fuel prices, consumer demand for large vehicles, and the lack of will in US
policy circles to take aggressive GHG emission policies against industry’s will. European
companies, by contrast, were faced with a more promising economic environment for low
emission vehicles, and a political context in which the EU wished to demonstrate its commitment
to significant and early emission reductions.
The nature of the sea change in industry perspectives on and responses to climate change that
occurred in the period 1996 to 1998 can be understood in terms of the competitive political
dynamics occurring within a social-technological regime entering a phase of instability. A
number of disruptions, some of them relatively minor, have pushed the system out of a stable
pattern in which organizational, material, and discursive structures could reinforce each other and
reproduce the regime in a coherent form. The regulatory threat of emission controls and high rates
of effective taxation on carbon fuels is only one pressure for change. In the symbolic sphere we
observe the emergence of new eco-modernist discourses of win-win technological solutions,
sustainable development, and cooperative private-public arrangements. On the organizational
front a number of industry associations representing the traditional fossil fuel alliance show signs
of fragmentation, and new alliances are growing that represent companies willing to
accommodate emission controls. On a material level, new technologies are emerging that threaten
traditional core competencies of incumbent firms, and competitors are already introducing new
products such as hybrid electric-gasoline cars. These changes have brought dormant
contradictions and fissures in the regime structure to the surface, setting in motion a period of
turmoil during which the organizational field is likely to undergo a major restructuring.
The study also deepens our understanding of the relationship between corporate political strategy and
more conventional product and innovation strategies. The more obvious interactions involve
companies resisting regulation that would adversely affect current lines of business, and advocating
regulation that would stimulate demand for existing products. The case also reveals more complex
relationships, for example, a company simultaneously opposing emission regulation while investing
in low-emission products. This can be interpreted as a hedging strategy, or as an attempt to prolong
markets for existing products while technologies and markets for future products are still in their
infancy. Some companies dropped their opposition to regulation, despite being poorly positioned to
benefit from any regulation, on the expectation that some regulation was inevitable, and cooperation
would enable some influence over the outcome. The different political strategies pursued by the US
oil industry and the auto companies illustrates that, as for product strategies, there is no a priori way
of determining an optimal course of action; the choice may have more to do with institutionalized
modes of dealing with governmental regulation in each industry.
The study carries a number of implications for managers. The strategies of US companies regarding
the climate issue may have been overly conservative because of the institutionalization of
skeptical perspectives on the science, a relatively narrow focus on domestic market and
regulatory conditions, and a lack of appreciation of the potential for radical change in the social-
technological system. Although early recognition of the climate issue in the US allowed industry
24
to organize effectively, the institutional vehicles created have tended to lock companies into an
oppositional stance. Some organizational changes can open up the strategy-making process to a
wider range of inputs. The globalization of top management can help ensure that a company is
open to multiple perspectives and conditions, and the formation of top-level cross-functional
climate teams can assist in this process, as long as the teams have a cross-national element.
Companies also need mechanisms to ensure that strategic planning uses a range of plausible
scenarios concerning climate science and markets for new technologies. It is important that
options such as direct injection diesels are not ruled out as medium term approaches in the US
because of assumptions about consumer behavior that were based on an older generation of
engines that were noisy, dirty, and lacked performance. Membership in a range of industry
associations will expose a company to a broader diversity of perspectives. Similarly, companies
need to ensure that they have access to a number of up-to-date and reliable sources of scientific
information. IPCC style assessments lack timeliness and do not contain information relevant to
companies trying to assess likely regulatory responses. More appropriate channels might include
contacts with external scientists and university departments, and ensuring that internal scientists
are engaged with this external community.
Given the complexities, time-scale, and uncertainties of the climate issue, appropriate response
strategies should reflect flexible, hybrid, portfolio approaches that reduce risks and costs, and
provide the capacity for rapid introduction of new technologies. Such a strategy would include
modest investments in a range of technologies, without necessarily committing at an early stage
to leadership in any single technology or to investing large sums in production vehicles.
Similarly, companies need to invest in the technical capacity to engage in science and policy
debates in a credible manner, while remaining receptive to new external information. Such
strategies are not cheap or risk-free. Mergers, joint ventures, and alliances can generate
economies of scale and help to share the costs and risks with other companies, as well as to create
acceptance and standards for emerging technologies. Similarly, companies need to work with
regulators to ensure that fuels, infrastructure, fiscal incentives, and regulations are supportive of
emerging technological solutions.
If policy makers wish to steer the immense technological, financial, and organizational resources
of the private sector toward GHG mitigation, then it is important that policy measures are
developed within a framework that takes account of the institutional embeddedness of corporate
strategy and its relation to the broader social-technological regime. A reliance on purely market
mechanisms alone, such as taxes, subsidies, or trading systems, is likely to prove ineffective in
the face of systemic inertia, or would require politically infeasible rates of effective carbon taxes.
One priority ought to be to reduce the level of uncertainty associated with the future price of
carbon, for example, by establishing a mechanism to ensure a floor price for carbon credits in a
given period. Fiscal policies also need to be combined with measures that address other elements
of the social technological regime. For example, integrated transportation planning initiatives that
engage the private sector could assist automobile companies in locating corporate innovation
efforts within this broader framework, and provide greater predictability concerning the trajectory
of technological evolution, emerging standards, and regulatory priorities.
25
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28
BELFER CENTER FOR SCIENCE AND INTERNATIONAL AFFAIRS
BCSIA is a vibrant and productive research community at Harvard’s John F. Kennedy School of
Government. Emphasizing the role of science and technology in the analysis of international
affairs and in the shaping of foreign policy, it is the axis of work on international relations at
Harvard University’s John F. Kennedy School of Government. BCSIA has three fundamental
issues: to anticipate emerging international problems, to identify practical solutions, and to
galvanize policy-makers into action. These goals animate the work of all the Center’s major
programs.
The Center’s Director is Graham Allison, former Dean of the Kennedy School. Stephen Nicoloro
is Director of Finance and Operations.
BCSIA’s International Security Program (ISP) is the home of the Center’s core concern with
security issues. It is directed by Steven E. Miller, who is also Editor-in-Chief of the journal,
International Security.
The Strengthening Democratic Institutions (SDI) project works to catalyze international support
for political and economic transformation in the former Soviet Union. SDI’s Director is Graham
Allison.
The Science, Technology, and Public Policy (STPP) program emphasizes public policy issues in
which understanding of science, technology and systems of innovation is crucial. John Holdren,
the STPP Director, is an expert in plasma physics, fusion energy technology, energy and resource
options, global environmental problems, impacts of population growth, and international security
and arms control.
The Environment and Natural Resources Program (ENRP) is the locus of interdisciplinary
research on environmental policy issues. It is directed by Henry Lee, expert in energy and
environment. Robert Stavins, expert in economics and environmental and resource policy issues,
serves as ENRP’s faculty chair.
The heart of the Center is its resident research staff: scholars and public policy practitioners,
Kennedy School faculty members, and a multi-national and inter-disciplinary group of some two
dozen pre-doctoral and post-doctoral research fellows. Their work is enriched by frequent
seminars, workshops, conferences, speeches by international leaders and experts, and discussions
with their colleagues from other Boston-area universities and research institutions and the
Center’s Harvard faculty affiliates. Alumni include many past and current government policy-
makers. Libby Fellinger is BCSIA’s Fellowship Coordinator.
The Center has an active publication program including the quarterly journal International
Security, book and monograph series, and Discussion Papers. Members of the research staff also
contribute frequently to other leading publications, advise the government, participate in special
commissions, brief journalists, and share research results with both specialists and the public in a
wide variety of ways.
... In particular, different discourses with specific forms of commonly accepted knowledge govern the interaction between individuals and different collective actors. For instance, views of the connectedness of humans with the larger globe as claimed by deep ecologists have little bearing for market related transactions between companies of e.g. the car industry where a strong belief in the merits of modern technology is the underlying consensus (Levy and Rothenberg 1999). Processes of sustainability-related inter-organisational learning will look largely different in these different spheres. ...
... Levy and Newell's main conclusions are that economic and competitive considerations appear to dominate and that there is a trend towards convergence between company strategies on either side of the Atlantic. Another case study of European and American auto industries' responses to climate change supports these observations (Levy and Rothenberg, 1999). 1 In his study of BP's and ExxonMobil's positions on global climate change, Rowlands (2000) places more emphasis on company-specific features. In this case, however, neither specific market conditions related to the fossil-fuel portfolio, share of operation in developing countries not committed to the Kyoto Protocol, nor renewable-energy activities provided sufficiently valid explanations of differences between these companies. ...
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With the publication of his best-selling books "Competitive Strategy (1980) and "Competitive Advantage (1985), Michael E. Porter of the Harvard Business School established himself as the world's leading authority on competitive advantage. Now, at a time when economic performance rather than military might will be the index of national strength, Porter builds on the seminal ideas of his earlier works to explore what makes a nation's firms and industries competitive in global markets and propels a whole nation's economy. In so doing, he presents a brilliant new paradigm which, in addition to its practical applications, may well supplant the 200-year-old concept of "comparative advantage" in economic analysis of international competitiveness. To write this important new work, Porter and his associates conducted in-country research in ten leading nations, closely studying the patterns of industry success as well as the company strategies and national policies that achieved it. The nations are Britain, Denmark, Germany, Italy, Japan, Korea, Singapore, Sweden, Switzerland, and the United States. The three leading industrial powers are included, as well as other nations intentionally varied in size, government policy toward industry, social philosophy, and geography. Porter's research identifies the fundamental determinants of national competitive advantage in an industry, and how they work together as a system. He explains the important phenomenon of "clustering," in which related groups of successful firms and industries emerge in one nation to gain leading positions in the world market. Among the over 100 industries examined are the German chemical and printing industries, Swisstextile equipment and pharmaceuticals, Swedish mining equipment and truck manufacturing, Italian fabric and home appliances, and American computer software and movies. Building on his theory of national advantage in industries and clusters, Porter identifies the stages of competitive development through which entire national economies advance and decline. Porter's finding are rich in implications for both firms and governments. He describes how a company can tap and extend its nation's advantages in international competition. He provides a blueprint for government policy to enhance national competitive advantage and also outlines the agendas in the years ahead for the nations studied. This is a work which will become the standard for all further discussions of global competition and the sources of the new wealth of nations.
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The essays collected here relate the writings of Antonio Gramsci and others to the contemporary reconstruction of historical materialist theories of international relations. The contributors analyse the contradiction between globalising and territorially based social and political forces in the context of past, present, and future world orders, and view the emerging world order as undergoing a structural transformation, a 'triple crisis' involving economic, political and 'sociocultural' change. The prevailing trend of the 1980s and early 1990s toward the marketisation and commodification of social relations leads the contributors to argue that socialism needs to be redefined away from the totalising visions associated with Marxism-Leninism, towards the idea of the self-defence of society and social choice to counter the disintegrating and atomising effects of globalising and unplanned market forces.
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The two perspectives of strategy process most firmly established in the literature-strategic choice and ecology-assume the same about system dynamics: negative feedback processes driving successful systems (individual organizations or populations of organizations) toward predictable equilibrium states of adaptation to the environment. This paper proposes a third perspective, that of complex adaptive systems. The framework is provided by the modern science of: complexity: the study of nonlinear and network feedback systems, incorporating theories of chaos, artificial life, self-organization and emergent order. Here system dynamics are characterized by positive and negative feedback as systems coevolve far from equilibrium, in a self-organizing manner, toward unpredictable long-term outcomes. © 2006 Selection and editorial matter, Robert Macintosh, Donald MacLean, Ralph Stacey and Douglas Griffin.