By Greg Ip 

Every year the World Economic Forum asks 1,000 business, policy and thought leaders to rank about 30 risks facing the world by both impact and likelihood. In this year's report, released Wednesday, climate-related risks top the list.

The WEF, which hosts its annual meeting in Davos, Switzerland, next week, has been running this exercise for 14 years. While some risks come and go with the headlines, climate has been rising steadily through the ranks and has led the list for the last three years.

If the first step to solving a problem is admitting you have a problem, this should mean climate change is well on its way to being solved. The reason it isn't is that the world is much readier to admit climate change is a problem than to do anything about it. This is especially true of businesses in the U.S., many of whom claim concern about climate change then fight solutions that hit their bottom line.

Digging a little deeper into the WEF's findings sheds light on this dichotomy. Asked additionally to rank only short-term risks, respondents ranked climate only 11th, well behind economic conflict between big countries, protectionism, and cyberattacks. In other words, the closer businesses and others focus on the here and now, the less pressing climate change becomes.

Perhaps this dichotomy shouldn't surprise. Any individual business can adapt to the consequences of a warming climate, from more intense hurricanes and wildfires to rising sea levels and warming oceans. Insurers can charge higher premiums, a real-estate developer can avoid the coasts. But none can solve it. Many are investing in clean-energy technology, but customers won't pay for that technology unless it's cheaper than the fossil-fuel alternative. That almost always requires a policy intervention such as a carbon tax, a cap on emissions with tradable permits, or mandates such as requiring a fixed percentage of electricity to come from renewables.

Small wonder, then, that among WEF respondents' top climate-related concern is "failure of climate change adaptation and mitigation," in other words, an absence of policies.

It's not that policy makers are doing nothing. On the contrary, the World Bank counted 47 carbon-tax or emissions-trading programs around the world last year covering roughly 15% of annual greenhouse-gas emissions. When China kicks off its emissions-trading system next year, that should rise to 20%.

The problem is that these schemes don't go far enough. The vast majority charge a small fraction of the $40 to $80 per ton of carbon dioxide the World Bank says will keep emissions on track with levels agreed to in the Paris accord. The reason is to avoid a backlash from taxpayers and businesses. "You're trying to get industries to buy into the tax initially and hope that once the regulations persist for some time, the strength of the regulation can be ratcheted up," says Solomon Hsiang, an economist specializing in climate at the University of California, Berkeley.

And there's the rub: businesses that are supportive of climate action become notably less so when faced with a tax, regulation or cap-and-trade plan that really bites. The U.S. Chamber of Commerce calls climate change a serious issue, yet worked to defeat Democrats' proposed cap-and-trade plan in 2010. After it collapsed, President Barack Obama's Environmental Protection Agency enacted a Clean Power Plan to cut power-plant emissions. The chamber and a dozen other business groups, along with Republican attorneys-general, promptly sued to overturn it. The Supreme Court stayed the plan in 2016 and last year President Trump's EPA moved to kill it. Asked where the Chamber now stands, an official said: "We would evaluate a specific carbon tax or cap-and-trade proposal in consultation with our members."

Since then, many businesses have concluded some sort of tax or cap-and-trade system will be necessary; some quit the chamber over the issue. They see it as a way to avoid heavier-handed regulation. Even the oil industry is coming around: BP PLC, ConocoPhillips, Exxon Mobil Corp. and Royal Dutch Shell PLC have thrown their support behind a carbon tax proposed by the Climate Leadership Council, a bipartisan advocacy group, that would be revenue neutral -- i.e. the revenue it raises would be returned to households. Yet when a revenue-neutral carbon tax was put before Washington state in a 2016 ballot initiative, the oil industry declined to support it. The initiative was defeated. Last November, a second ballot initiative asked the state to approve a carbon tax that wasn't revenue neutral. BP spent heavily to defeat it, because it exempted some carbon emitters and didn't pre-empt future regulations. That initiative also failed.

If business opposes all but the most-flawless, market-friendly climate remedies, it is likely to end up with one of two outcomes. Legislators will ignore their advice and turn to mandates, regulations and public investments such as in the "Green New Deal" some newly-elected Democrats are touting. Or there will be no remedy at all.

Write to Greg Ip at greg.ip@wsj.com

(END) Dow Jones Newswires

January 16, 2019 08:14 ET (13:14 GMT)