Case Study

General Motors and Kyoto (1998)

Saturday, November 24, 2007

Abstract

During the 1950s, a small band of meteorologists, physicists and chemists began conducting observations and building models linking an increase in CO2 and other gasses in the atmosphere to the general warming of the earth’s climate, a phenomenon dubbed “the greenhouse effect”. Since CO2 was a byproduct of the burning of fossil fuels, these models implied that human activity was a contributor to this increase in global temperature.  During the 1980s, the models drew more scientific adherents as additional observations lent further support to the theory. In 1988, the greenhouse effect hit the front pages, as NASA scientist James Hansen told a Congressional committee that he was “99 percent certain” that global warming due to the greenhouse effect was underway and could have potentially devastating consequences for the ecology of the planet.

Since automobiles were a substantial contributor of CO2 to the atmosphere, scientists at General Motors, the world’s largest automaker, had started looking at the greenhouse effect in the mid-1980s. The wide-ranging discussions within GM had led to an ambitious program to improve the efficiency of internal combustion engines (ICE) and to seek an alternative powertrain that did not use fossil fuels. For GM, the search for a new powertrain required a substantial change in mindset, since the ICE had been a mainstay of the automotive industry for over 80 years. Nonetheless over the next decade, GM spent billions of dollars experimenting and building prototypes with an array of technologies; including diesel, battery, hybrid gas and electric systems, and hydrogen fuel cells. While GM researchers had made progress by 1998, the technical hurdles were steep; and GM believed it was nowhere near placing an automobile with a new type of powertrain on the market.

Besides the technical hurdles it was facing, GM’s efforts to introduce more fuel efficient vehicles had run into resistance from consumers, oil companies and the government.  While consumers generally indicated that they liked the idea of an environmentally friendly automobile, they did not want to give up the performance they had come to expect from ICE-powered vehicles. Indeed, the trend in the US during the 1990s had been to ever larger and less fuel efficient sport utility vehicles and light trucks. Oil companies had proven resistant to the reformulation of gasoline and had not invested in alternatives to fossil fuels. Government officials refused to increase taxes on gasoline (which would make efficient cars more attractive) or allow more efficient diesel engines on the U.S. market.

Meanwhile, international efforts to prevent global warming had accelerated. A series of UN-sponsored conferences, bringing together the nations of the world, had culminated in a 1997 meeting in Kyoto, Japan. At the Kyoto meeting, an agreement was reached that the developed nations of the world would bring their greenhouse gas emissions back to 1990 levels within 15 years. The United States had signed the agreement, but most observers believed that the agreement would not be ratified by the Senate. In 1988, a vocal, well-financed lobbying organization called the Global Climate Coalition (GCC) had been formed by dozens of large corporations to debunk the mounting scientific evidence concerning global warming and to warn of the catastrophic economic consequences from capping greenhouse gases. The GCC’s lobbying efforts had paid off and the Kyoto accords had little political support in the United States.

GM did not support the Kyoto Accords because the climate agreement exempted developing nations such as China and India. However, GM did agree that global warming was “an area of concern,” and the company was pushing ahead with its development efforts. While GM had been a founding member of the GCC, GM executives and board had become aware that the debate had become increasingly polarized with the GCC denying the existence of global warming while environmental groups were calling for drastic cuts in the consumption of fossil fuel. With its significant investment in new technologies, in 1998, GM believed the debate should be shifted to discussing feasible alternatives, but how could the company position its environmental efforts in an increasingly polarized atmosphere?