Dear EarthTalk: Many people oppose dams because they change the flow of rivers and affect the migrating patterns of fish and other species, but aren’t they also a great renewable energy source? -- Ryan Clark, Milton, WA

Hydroelectric dams are among the greenest and most affordable electricity sources in the world—and by far the most widely used renewable energy sources—but they also take a heavy environmental toll in the form of compromised landscapes, ecosystems and fisheries. Hydroelectric dams have been an important component of America’s energy mix since the powerful flow of rivers was first harnessed for industrial use in the 1880s. Today hydroelectric power accounts for seven percent of U.S. electricity generation—and some two-thirds of the country’s renewable power—according to the U.S. Geological Survey.

Globally, about 19 percent of electricity comes from hydroelectric sources. The U.S. Energy Information Administration reports that China is the world’s largest producer of hydroelectricity, followed by Canada, Brazil and the U.S. Some two-thirds of the economically feasible potential for hydro power remains to be developed around the world, with untapped resources most abundant in Latin America, India and China.

Of course, despite the inexpensive and emissions-free power, many environmentalists consider hydroelectric dams to be man-made abominations that prevent salmon and other fish from swimming upstream, divert otherwise natural riparian settings, and fundamentally change the character of surrounding ecosystems. Green groups including American Rivers, Defenders of Wildlife, Earthjustice, the Endangered Species Coalition, Friends of the Earth, National Wildlife Federation and the Sierra Club are pushing the federal government to mandate the removal of four dams along the Snake River in Washington State that help the region have the lowest power-related carbon footprint in the country. The dams have decimated once teeming salmon runs, and upstream forest ecosystems have suffered accordingly.

But the Bonneville Power Administration, the quasi-federal utility that runs the dams and distributes the electricity they produce, says that keeping them going is crucial even as wind plays an increasingly larger role in the region’s electricity mix. Since hydro power can be generated and released when most needed, it is an important resource for backup power when intermittent sources like wind (and solar) aren’t available.

The scheduled removal of two century-old dams on the Elwha River in Washington State’s Olympic National Park beginning in 2011 may well serve as test cases for larger dam removal projects in the Pacific Northwest and beyond. Planners hope wild salmon numbers will rebound as a result, and that other wildlife—such as bald eagles and black bears—will follow suit.

President Obama has committed $32 million to modernize existing hydropower dams, increase efficiency and reduce environmental impacts. “There’s no one solution to the energy crisis, but hydropower is clearly part of the solution and represents a major opportunity to create more clean energy jobs,” U.S. Secretary of Energy Steven Chu told reporters last year. “Investing in our existing hydropower infrastructure will strengthen our economy, reduce pollution and help us toward energy independence.”

Photo: George Green, U.S. Army Corps of Engineers

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When it’s time for salary reviews at Xcel Energy, a Minnesota-based energy company, earnings per share are not the only thing that matters.  In its 2009 corporate proxy statement, Xcel explains how a range of sustainability metrics fit into annual incentive objectives for all executive officers and how it weighs greenhouse gas reductions and safety performance alongside earnings per share.

Company spokeswoman Patti Nystuen told the sustainability group Ceres, “Xcel believes strongly in providing long-term incentive opportunities that deliver awards on the achievement of specific performance goals linked to the success of the company and its long-term strategy in the core utility business.  These include financial and environmental goals."

Xcel is one of a small but growing group of pioneering companies, increasingly aware of the power that policies on executive pay can exert on sustainability behavior.

Seventy-five per cent of Xcel's award incentives have a performance-based vesting schedule based on earnings per share growth.  The remaining quarter of Xcel's awarded incentives are performance-based, relating to aspects of their environmental strategy, such as decreases in emissions.

"In 2007, payouts of annual incentive awards for the NEOs (named executive officers) and all executive officers, including those reporting to the chief executive, were determined entirely by attainment of corporate goals, which included targeted earnings per share, an environmental metric related to carbon dioxide emissions, and safety," Nystuen said.

Across the Atlantic

In Europe, the Netherlands seems to be ahead of other nations in tying remuneration to sustainability objectives.

Dutch banking and insurance giant ING said recently that social, ethical and environmental objectives are to form a component part of its top management executive pay structure.

“ING has formulated corporate responsibility ambitions and priorities, combined with a long-term plan and concrete targets,” the company says in its 2009 corporate responsibility report. “These targets are also part of the performance objectives of our Executive and Management Boards.” The company said there will also be a program for senior managers to work on real-life cases at NGOs in developing countries.

At least three other Dutch firms – chemical company Akzo Nobel, life sciences group DSM, and mail operator TNT – have tied executive compensation to environmental improvement and other objectives, including employee and customer satisfaction.

And in one case, the linkage of pay to sustainability has been introduced to justify potentially controversial management decisions.   The oil giant Royal Dutch Shell, in a disclosure regarding its development of Canadian oil sands resources, makes the point that the company is “actively managing environmental and social impacts,” specifically noting that  “performance on sustainable development is a key feature of management targets and remuneration.”

On the Boardroom Agenda?

These initiatives come in the wake of two reports from organizations, based on opposite sides of the Atlantic, which have argued that the integration of sustainability into executive pay structures is one of the best ways for businesses to marry the twin objectives of sustainability and profit.

The first, published last month by Ceres, the Boston-based coalition of institutional investors and environmental organizations, reveals that an increased focus on corporate governance following the financial crisis of the last few years has now forced environmental sustainability onto boardroom agendas.

"Corporate scandals and the current economic crisis have heightened demands for new approaches to governance, particularly in relation to executive compensation and risk management,” say the authors of the report The 21st Century Corporation: The Ceres Roadmap to Sustainability.

“As sustainability has risen up the corporate, investor and public policy agendas, it has become more fully integrated into these governance expectations," they add.

The report calls on boards to undertake a root-and-branch reorganization of remuneration structures and base executive pay partly on a CEO's ability to integrate sustainable practices into day-to-day operations.  It also highlights the fact that many regulators and shareholders are putting pressure on boards to do a better job of aligning executive pay and performance standards tied to more than short-term profits.  In this top-down corporate governance structure, it calls on companies to name directors who have expertise in environmental sustainability issues.

Critical Challenges

Meanwhile, in its third Remuneration Theme Report, the European Sustainable Investment Forum (Eurosif) has revealed that most European companies fail to link executive pay to environmental, social, and governance (ESG) performance.

The report highlights some critical challenges and opportunities for companies in relation to remuneration, incentives and long-term sustainability.  Research highlights and recommendations for shareholders and regulators include:

• 29% of FTSE Eurofirst300 listed companies have some commitment to linking remuneration to ESG performance – although concerns exist around the extent to which performance targets are set as ‘soft targets,’ thereby guaranteeing a minimum level of bonus.
• Financial institutions account for 23% of the FTSE Eurofirst300 index but only 16% of financial institutions have an ESG-linked remuneration system.
• Shareholders should engage with companies by voting against unacceptable remuneration packages and calling for and taking part in shareholder dialogue in determining remuneration policy.
• Regulators should promote active dialogue between companies and shareholders by legislating for a binding “say on pay” vote and setting appropriate guidelines to promote good remuneration practices and disclosure.
• In the aftermath of the global financial crisis, remuneration policies and specifically the level of bonuses of senior executives of companies and traders continue to hit the headlines.  Investors and regulators have expressed concern that remuneration structures may have contributed to excessive risk-taking and are asking for a stronger focus to be placed on long-term reward schemes and sustainable growth.

Much Work Still to Do

Although steadily increasing, examples of such strategies remain fairly thin on the ground and it is clear that much work remains to be done in strengthening their influence.  For example, a 2009 research paper written by academics at IESE Business School and Arizona State University found that in general firms with an explicit environmental pay policy and an environmental committee do not reward environmental strategies more than those without such structures, suggesting that these mechanisms often play a merely symbolic role.

A major challenge: linking today's compensation package to policies and practices whose impact may not be felt for many years to come.

One means of improving the situation, as outlined in a recent report by a group of advocacy organizations that included the U.K.'s PLATFORM and Friends of the Earth, could be to link executive pay to companies’ long-term financial, environmental and social performance, for example through company bonds and equity held in escrow accounts for directors and released after 10-20 years.

Debates over corporate governance and accountability in the wake of the recent global financial crisis have already highlighted the crucial importance of top executive pay policy as a means of influencing business behavior.  The reports and initiatives outlined above extend this reasoning, by revealing that management remuneration packages are now also recognized as an increasingly important weapon in the armory of campaigners seeking to achieve sustainability objectives.

Andrew Williams (TheGreenExpert@btinternet.com) is a U.K.-based freelance writer.

by Peter Asmus

The radically altered political dynamics in Washington, D.C. due to the loss of a Democratic Senate seat in Massachusetts mean that so-called “cap-and-trade” climate legislation probably has little chance of passing this year.  The only hope for passing a bill in 2010 that would cut carbon emissions could involve what most pundits have long thought of as the least politically viable approach: a tax on carbon.

But if that’s going to happen, an alliance of strange bedfellows will have to coalesce in short order, bringing together extremes on the left and right.  Joining in a legislative push would be environmental advocates and some large oil companies – most notably ExxonMobil, long a chief climate change skeptic, but more recently a carbon tax advocate following shifts in upper management.

“Climate change is an issue we take seriously and (we) believe responsible steps should be taken to address the risk,” says Ken Cohen, the oil company’s vice president of public affairs.  “We believe a revenue-neutral carbon tax is a more efficient policy option to reduce emissions…and is more able to be applied on a global basis than a cap-and-trade system.”

ExxonMobil’s opposition to a cap-and-trade policy is based, Cohen says, on a belief that “we should not be creating a complex derivatives market for a new commodity called an ’emission allowance’ as the recent financial crisis demonstrates. There is no need to create an opportunity for traders to extract profits from a trading system.”

Getting 60 Votes

Cohen’s critique of proposed cap-and-trade legislation – long the favorite of Washington insiders – sounds almost identical to that of the system’s environmental critics, like Friends of the Earth, Greenpeace and the Sierra Club.

Under a cap-and-trade framework, a cap would be set on carbon emissions.  Then, large carbon emitters would be able to trade for “clean air” credits created by companies which either perform activities that allegedly reduce net carbon (like planting trees or controlling emissions) or deploy new energy technologies that displace carbon, like replacing coal with wind.

A carbon tax involves a tax on all fossil fuels, such as coal, oil and gas.

“In my view, there is zero chance that any [cap-and-trade] climate legislation will pass this year,” predicts David Bookbinder, chief climate counsel for the Sierra Club. “The only thing that really makes sense is a carbon tax – but that’s the big ‘T’ word. A carbon tax has no price volatility, there is no abusive manipulation or a market; it is a very rational policy approach.”

In January, 80 U.S. corporate leaders -- including CEOs from companies such as eBay, Virgin America and Pacific Gas & Electric -- signed a joint letter urging President Obama and Congress to pass comprehensive climate and energy legislation this year. The prime message in the letter is that unless the U.S. sets clear carbon reduction targets, it will fall behind in the current global race to develop new carbon-free renewable technologies.

But most of those companies hold little sway among conservatives in Congress.  ExxonMobil and other energy companies not invested in coal do carry weight.  If they place a high priority on passing climate legislation in the form of a carbon tax, they could bring with them the prized 60^th Senate vote environmentalists need to avoid a filibuster against climate legislation.

Changing of the Guard

Under its prior CEO, Lee Raymond, ExxonMobil earned a reputation as an eco-renegade.  A smart and hard-nosed chemical engineer, Raymond was tone deaf to the social and environmental investors and advocates who framed the sustainability movement a decade ago.  He proudly positioned the company as the world’s most powerful climate change denier.

Now, three years after the transition to current CEO Rex Tillerson, the company is gently edging out of its self-imposed period of sustainability exile.  Tillerson can’t be regarded as an unbridled green advocate, in the model of BP’s former chairman Sir John Browne, but an increasing number of one-time critics think that, when it comes to actual performance on the human rights and the environment, Tillerson and his company could be the real deal.

“ExxonMobil seems to have recently had a dose of reality pills, and is taking climate change seriously,” says Bennett Freeman, Senior Vice President, Sustainability Research and Policy, for Calvert Investments, a leading socially responsible investment company. “For example, they recently invested $600 to $700 million on developing biofuels from algae.”

Freeman suggests that ExxonMobil’s support of a carbon tax is not driven by any desire to woo environmental advocates. “ExxonMobil does not do the warm and fuzzy thing well,” he says.  On the other hand, the company could be a powerful force in the carbon tax debate.  Culturally, says Freeman, “they are very straightforward. If they tell you ‘no,’ they mean ‘no.’  They have a “command and control” culture that helps drive commitments through the company.”

Seasoned eco-warriors like Randy Hayes, founder of the Rainforest Action Network and former head of the International Forum on Globalization, are happy to see oil companies such as ExxonMobil supporting a carbon tax.

“Either cap-and-trade or a carbon tax can be made to work to reduce the damage our society does, but the carbon tax is cleaner and my choice,” says Hayes. He goes on to say that “I can't imagine the version [of the carbon tax] that ExxonMobil, the Wall Street Journal, or the Financial Times want is the same one that nature needs. That said, we need the captains of industry to back a plan commensurate with the scale and timing of the problem.”

The Business Virtues of a Tax

There are compelling business reasons for companies like ExxonMobil to support a tax on carbon.

First, if Congress fails to act on climate, the U.S. Environmental Protection Agency will be forced to regulate carbon emissions under the Clean Air Act, creating a library of complex rules that could be expensive and only marginally effective.

Second, if Congress enacts a cap-and-trade approach, ExxonMobil fears the price volatility that could come with a global carbon trading regime, which could wreak havoc on oil development planning and finance.

Third, a carbon tax will reduce demand for coal, the most polluting fossil fuel, and give a marketplace advantage to natural gas and biofuels, the most carbon-lean.  ExxonMobil has increased its investments in natural gas, and recently made major investments in advanced algae biomass energy conversion.

Fourth, ExxonMobil may want to counter competitors like Shell, who are highly invested in energy commodity trading.

Environmental groups have their own reasons for supporting a carbon tax. “The whole concept behind the House and Senate cap-and-trade bills – creating large, international markets for carbon – is flawed. Worse, it gives away incentives to polluters and the targets for reductions are woefully inadequate,” concludes Ben Schreiber, Climate & Energy Tax Analyst for Friends of the Earth.

Friends of the Earth is one of more than 400 organizations now collaborating under the broad umbrella of “Climate Reality Check,” an initiative contemplating alternative legislative approaches to those already being considered by Congress.  “We don't have the 60 votes in the Senate to get where we need to be: a 40% reduction in carbon from 1990 levels,” says Schreiber.  “Even if the offsets included in either House or Senate cap-and-trade bills were real and verifiable, the reductions in carbon from 1990 levels are still less than 10 percent.”

Members of the “Climate Reality Check” coalition – which includes environmental justice, low-income and faith-based organizations - signed a letter last year opposing the House cap-and-trade legislation sponsored by Reps. Henry Waxman and Edward Markey.  The group had been exploring a "Plan B" even before the Copenhagen summit, but has yet to publicly come endorse a carbon tax or any other approach.

Elaine Kamarck, of the Kennedy School at Harvard University, and co-chair of the U.S. Climate Task Force, thinks the political viability of a carbon tax has actually increased over time.

“If a consensus emerges that cap-and-trade is just not going anywhere – and that seems to be just sinking in – then they will go back to the drawing board and examine other options,” she said. “You have to realize that cap-and-trade was initially being pushed before the economy fell apart. Markets were God and Wall Street was still filled with heroes. In that kind of political environment, cap-and-trade had some ‘oomph’ behind it. Now, Goldman Sachs and the rest of Wall Street are in the same category of bad guys as big polluters.”

Is ExxonMobil Serious?

Of course, any alliance with environmentalists depends on whether ExxonMobil is truly committed to a carbon tax.   Some critics claim the company’s public about face on climate change under CEO Tillerson is not heart-felt.

Robert A.G. Monks, a long-time ExxonMobil shareholder and critic, gives Tillerson credit for acknowledging “that there is such a thing as global warming” but harshly criticizes the ”inability of top management of this colossal company to understand, to take into account, to respond responsibly to the expressed concerns of entitled constituents.”

And there are lingering doubts regarding ExxonMobil’s role in the climate change debate. A recent story in the U.K.’s The Independent claims ExxonMobil was the funding source behind the rash of stories feeding skepticism about climate change in the lead up to the Copenhagen summit last December. While there is no doubt that ExxonMobil has delivered large financial contributions to think tanks such as the Atlas Economic Research Foundation (in the U.S.) and the International Policy Network (in the U.K.) as late as 2008, there is a lack of current available evidence the firm is the largest funder of such activities in 2009.

Whether ExxonMobil is playing two sides of the climate change issue at once is intriguing, to say the least. It could very well be that the company is a bit schizophrenic, which would not be surprising, given the history and size of the firm.

If a carbon tax is to ride to the rescue for both radical environmentalists, the faith community, human rights activists and, yes, oil companies, then something had better happen soon, since the attention span of Congress is limited, and another election cycle is nearing.

Peter Asmus (www.peterasmus.com) is the author of four books on energy and has been covering energy policy for over 20 years.