Summit to Save the Earth the Big Green Payoff

By MICHAEL D. LEMONICK

AT THE FRANKFURT AUTO SHOW LAST fall, BMW unveiled its vision of the future of driving. Called the E1, it is a four-seat car with a top speed of 120 km/h (75 m.p.h.) and a range of up to 250 km (155 miles). Not so swift, you say? But this car is a clean machine: it gives off no pollution that could foul the air in any way. The E1 runs on an electric motor powered by high-energy sodium-sulfur batteries. Although it takes electricity to charge the batteries, the power plants can be far from smoggy cities.

BMW is not alone. Just about all the world's major automakers, from Citroen to Chrysler, are revving up to produce electric cars. They realize that in the 21st century, consumers will increasingly favor -- and governments will mandate -- technology that preserves and protects the environment. The fortunes of companies and nations will rise and fall on how well they heed the call to save the planet.

The global market for environmentally friendly products is worth an estimated $200 billion a year, and has just begun to take off. Every potential innovation, whether a new kind of windmill or biodegradable plastic made from plants, is attracting attention from companies in a host of industrial nations. The U.S.'s Du Pont is in a race with Germany's Hoechst and Britain's ICI, among others, to develop replacement chemicals for ozone-destroying chlorofluorocarbons (cfcs). Germany's Siemens is vying with such firms as Amoco in the U.S. and Sanyo in Japan to produce cheap, efficient solar electric cells.

Who wins the races to perfect and sell green technologies will depend to a great extent on who has the edge in engineering and marketing skills. But equally important may be the encouragement companies get from their countries' political leaders. Governments can exert enormous influence over how aggressively businesses take the environment into account, using sticks and carrots -- sticks in the form of tough standards for products and manufacturing processes, carrots consisting of tax breaks and other incentives that reward innovation.

The U.S. government has, for the most part, done a poor job of spurring business to come up with breakthroughs. In the past, federal agencies issued environmental compliance goals, like standards for the amount of pollutants coming out of smokestacks, and then mandated the acceptable methods for achieving the targets. There was no incentive to do better than the standards or to develop innovative tools for meeting the goals -- tools that U.S. companies might market around the world.

The Clean Air Act of 1990 tries to change the old way of doing things; it allows companies to meet pollution goals by whatever means they can. With regard to emissions of noxious sulfur dioxide, the new law sets up a clever system in which companies and utilities will be issued permits to produce certain amounts of the gas. If a company finds ways to produce less SO2 than it is allowed to, it can make money by selling unused pollution permits to other firms. "This is the frontier of environmental policy," says Robert Stavins, an economist at Harvard's Kennedy School of Government. "It allows a firm to go out and choose the best technology it can. And it also provides an incentive to cut pollution below government requirements."

Meanwhile, the U.S. is stepping up support for research into energy conservation and renewable power sources. Funding in these areas has risen from $324 million in 1989 to $540 million this year. But the President and Congress have not shown much interest in politically tough measures such as sharply higher gasoline taxes or more stringent auto-fuel-economy standards, both of which would force Detroit to design more efficient cars.

In Japan furious competition among companies is the main force behind innovation, but government policies, in the form of strict antipollution laws and encouragement of technological research, are a big help. One of the government's latest initiatives is the New Earth 21 project, which is aimed at meeting the threat of global warming. As envisioned by the Ministry of International Trade and Industry, it will promote two activities: the development of technologies designed to reduce production of carbon dioxide and other greenhouse gases, and the sharing of those methods with developing countries. miti is financing an ambitious effort to generate clean-burning hydrogen, which would not contribute to global warming, by using genetically engineered bacteria. There are also tax breaks and low-interest loans available for environmentally sound industrial projects, and local governments can get tax relief when they purchase electric- rather than gasoline-powered vehicles.

European nations are also moving to coax, and if necessary force, their industries to see the potential profits in environmental responsibility. In France the best example of a marketable, earth-saving technology is the TGV, a 300-km/h (186-m.p.h.) train that has won passengers away from polluting planes on the Paris-Lyons run and other routes. The train, whose operations are subsidized by the government, is now being considered for several routes in the U.S. -- a profitable triumph for French industry. In addition, the government is laying plans for a waste tax that will finance advanced waste- treatment plants, which could lead to an entire export industry.

In Britain, where the total market for environmental products has been estimated at $50 billion a year by 1995, the government has set up a $20 million fund to support innovations in recycling, environmental monitoring and reduction of waste and pollution from manufacturing processes. It is giving farmers grants of up to 50% of the cost of building new slurry and silage storage facilities to cope with fertilizer-heavy farm waste.

Britain's National Rivers Authority has been especially active. Its interest persuaded the electronics industry to come up with a briefcase-size monitor that can be used on a riverbank to measure the amount of dissolved oxygen and ammonia in the water, along with its acidity and turbidity. The authority also spurred the development of a remote-sensing water monitor, as well as an experimental technique that injects iron into stream beds to neutralize polluting phosphates. All three inventions are considered good export prospects.

Perhaps the greenest of nations is Germany, where commercial banks will grant low-interest loans for pro-environment projects and hotels urge guests to forgo daily towel changes to save water and energy. Environment Minister Klaus Topfer has ordered the phaseout of cfcs by next year -- two years earlier than most other countries -- and called for a 25% to 30% reduction in carbon dioxide emissions by 2010. The government is investing heavily, having spent $90 million since 1974 on development of recyclable, high-efficiency batteries for electric cars and planning annual outlays of $182 million on solar-wind- and wave-energy research. Last year a government-support ed, high- speed train called ice started whizzing between Hamburg and Munich.

There is action as well at the level of the European Community as a whole. Last January, E.C. environment commissioner Carlo Ripa di Meana got initial approval for a tax to be levied on fuels that give off carbon dioxide. He figures this will eventually push the price of natural gas up about 30% and coal 60%, increases that will spur businesses and consumers to conserve energy. The E.C. has been helping finance development of clean technologies, such as 100%-recyclable cars and low-polluting power generators, since 1987.

Many companies recognized long ago, without any nudge from governments, that respect for the environment can boost profits. In the U.S., 3M has drastically reduced pollution and waste at its manufacturing plants and, despite the conventional wisdom that says environmentalism is a luxury, has steadily increased its profits. Once industrialists think about it at all seriously, they almost inevitably see the financial advantages of investments in environmental technology, says Hugh Faulkner, executive director of the Business Council for Sustainable Development. The council was set up to advise the Earth Summit about industry's views on environmental issues. After a year's work, executives from such firms as Chevron, Mitsubishi, Royal Dutch/ Shell and Volkswagen agreed on a set of business principles, including the need for sustainable management of resources, the charging of environmental costs against corporate profits, and the rule that polluters, not the public, must pay for cleanup.

Yet even with greater industrial environmental consciousness, says Faulkner, "there could clearly be no prospect for sustainable development in either the developed or the developing world without government incentives." The nations that wield those carrots and sticks most skillfully will be the leaders of the new green revolution, and their industries will eventually be the ones to profit from it.

With reporting by Helen Gibson/London, Rhea Schoenthal/Bonn and Dick Thompson/Washington