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Sustainability as an Altruistic Value Is So Passe:  How the Private Sector Positively Responds to Regulatory Mandate

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Matthew Wheeler
April 1, 2024

As a consumer, it feels good to make responsible choices—even when there is probable pain involved.  Yet what is so seldom discussed in circles of public administration is that, even under times of new regulation, the private sector inherently responds by capitalizing upon financial incentive. There is great opportunity in looking past making altruistic decisions and focusing upon the fiscal prospects of sustainability. Efforts by the public sector, including state governments and the Biden Administration, offer more recent indications of successful public policy applications. The response of the worldwide automotive industry to environmental regulations are also notably strong metrics of successful and desirable policy implementation. As we consider further efforts to mitigate climate change and develop organizationally sustainable paradigms, we need to examine profitability and see how encouraging desirable behavior can evoke more than warm fuzzies

The California Global Warming Act of 2006, more commonly known as Assembly Bill 32 (AB 32), as lauded by (Republican) Governor Arnold Schwarzenegger created a new standard where climate mitigation efforts were benchmarked and progression was rewarded—realizing that abating environmental degradation was a shared value across geopolitical boundaries, yet implementation was not a shared action. Climate change is perceived, by most, to be a collective need that cannot be contained within sovereign borders—yet Schwarzenegger and California lawmakers saw the passage of AB 32 as exemplary leadership. Now in its third update following additionally enacted cap and trade and low carbon fuel standard programs, AB 32 is exceeding regulatory benchmarks. According to the Environmental Defense Fund, California’s leadership role in climate change has amounted to a decline in carbon pollution parallel to a growing state economy.  

As the legislation turned a decade old in 2016, the Union of Concerned Scientists quantified the California state economy in contrast to the implementation of AB 32. Their findings showed that between 2006 and 2016 California’s gross domestic economy grew 12.4 percent, while the state population grew 7.4 percent, statewide employment rose 7.8 percent, while at the same time petroleum consumption decreased 14.3 percent and electricity consumption decreased 1.5 percent. As a quantifier, one could safely conclude that adoption of the California Global Warming Act of 2006 yielded positive economic impact on the state. 

The United States Department of Energy stated in 2020, “Our reliance on petroleum makes us vulnerable to price spikes and supply disruptions. Electric Vehicles (EVs) help reduce this threat because almost all U.S. electricity is produced from domestic sources, including coal, nuclear, natural gas and renewable sources.”  It follows that the federal government, in addition to many state governments, highly incentivizes the acquisition of EVs in the form of tax credits. But why? Because we can see through policy implementation levers that the private sector responds to regulatory mandates and financial incentives.

PricewaterhouseCoopers International (PwC) analyzed the Biden Administration’s 2021 Infrastructure Investment and Jobs Act inclusion of $7.5B to further develop public infrastructure and a nationwide charging network, specifically along domestic highways. PwC concluded that this action reflected the Biden Administration’s stated value of furthering the role of EVs accounting for a desired half of all car and truck sales by 2030. Furthering this federal initiative, the $370 billion Inflation Reduction Act included federal tax incentives for EVs manufactured, or assembled, within the United States.    

Many quantifiable statistics have been offered above, but how can we measure financial capitalization within the private sector? Again, by the numbers. Mercedes-Benz (Germany) has publicly stated that it intends to go all-electric in its passenger vehicle production no later than 2030, while decreasing its carbon footprint per passenger car by more than half in the same time period. Nissan Motor Company (Japan) seeks to be carbon neutral “across the lifespan of its entire product line by 2050.” General Motors (GM) estimates that total company revenue will grow at a compounded rate of 12 percent by 2025, with more than $50B attributable to EV revenue. Further, GM expects to grow capacity for EVs built from 400,000 (2022-24) to 1M units annually starting in 2025. But again, arguably, this is private sector response to regulation. 

Of all the figures and data offered, it comes down to collective societal values and the shift to sustainability as a valued public norm. The private sector responds accordingly to consumer values and preferences. According to Ernst & Young insights, of American consumers planning to purchase a new vehicle in the next two-years, 48 percent intend to purchase an EV. This is an increase of 19 percent from the 2022 level. Further, according to the same insight findings, 81 percent of current EV owners plan to repurchase another EV. Given that the September 2023 U.S. average per gallon of gasoline was $3.95, down from the memorable peak of June 2022 at $5.03 per gallon, coupled with tax incentives, consumers are seeing strong financial benefit in moving away from combustible engines to fully-electrified vehicles. Aside from the intrinsic sentiment of doing “one’s part” to mitigate climate change and reduce our carbon footprint, all signs point towards communal acceptance of sustainability weighing more than a feel-good measure. 

The private sector has positively responded to climate change regulation aligned with consumer preference and behavior, and as the numbers show, this actionable effort has been financially beneficial.  Parallel to these actions, consumer demand has been driven towards the “right decision” of making environmentally mindful choices as incentivized by the public sector. As much as we can appreciate altruistic intent, we can safely conclude that public policies aimed at incentivizing private sector action that will enable consumer confidence and favorable decision-making, are strong levers towards furthering our shared societal sustainability goals. For even if it does indeed feel good to make the “right decision” in lessening our personal carbon footprint, that sentiment feels passe. So very 2006. Financial incentives, as enacted in the immediately preceding years, make it all the sweeter. As public administrators, we should be looking at these actions and outcomes as successful indicators of policy implementation at all levels of governance. For there is nothing wrong with monetizing desired and measured public policies, particularly when they meet benchmarks of public good. 

Author:  Dr. Matthew Wheeler serves as the Chief Executive Officer of the Wheeler Company, a California based organization management and public affairs firm. He is a recent graduate of the Yale School of Management’s program on Corporate Sustainability Management and is a certified association executive (CAE).  Additionally, Dr. Wheeler serves as a member of the faculty at the University of Southern California’s (USC) Price School of Public Policy, instructing classes in intersectoral leadership, nonprofit management, and advocacy. Dr. Wheeler earned his master’s and doctoral degrees in Policy, Planning, and Development from USC.

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