Reducing Uncertainty
Risk and uncertainty are the bane of market value, when they can't be managed effectively. With respect to climate change, some companies seem to be coming around to the idea that setting limits on emissions and relying on market mechanisms to implement them is preferable to the risk of a patchwork of state-by-state regulation of greenhouse gas emissions--perhaps similar to our balkanized gasoline specifications--or of a more onerous national program that might follow a future crisis. The publication of a report on greenhouse emissions by Cinergy, a midwestern utility, affirms this view.

Their report may not come as a surprise, since Cinergy was already a member of the Pew Center on Climate Change, an industry group that supports proactive measures to address global warming. But it is sobering, given the assessment that complying with proposed reductions could cost Cinergy up to $2 billion over 10 years, because of its reliance on coal-fired power generation. That suggests that Cinergy's executives believe it is better for their shareholders to define the risk, even if managing it costs real money, rather than leaving it as a gaping uncertainty overshadowing the firm's value.

In this light, the Administration's position on the Kyoto Treaty--reiterated at the Conference of the Parties (COP-10) in Argentina--can only be viewed as counterproductive. It may actually be damaging US business interests, at least in terms of their market value, well in excess of the estimated cost of compliance.