Tax avoidance, and corporate responsibility

uncle-sam-pay-your-taxes1Would you consider Apple, Coca-Cola, General Electric, Google, Microsoft, Nike and PepsiCo good corporate citizens? Certainly they position themselves that way, and they deserve credit for their leadership around human rights (Apple, Nike), climate change (GE), water (Coca-Cola), renewable energy (Google, Microsoft) and sustainable agriculture (PepsiCo).

But when it comes to paying corporate income taxes, they have some explaining to do.

That, at least, is the conclusion that I came to after reading an excellent report on tax avoidance titled Offshore Shell Games, and published last month by Citizens for Tax Justice and US PIRG.

Corporate taxation is all over the news these days as US firms move their headquarters overseas for tax reasons, in a process known as inversion. But aggressive maneuvering to avoid taxes is nothing new, as I wrote today in a story for Guardian Sustainable Business.

Here’s how the story begins:

America’s a great country. That’s why people from all over the world — including, lately and tragically, thousands of poor children from Central America — clamor to get in. So why are some of America’s wealthiest companies trying to get out?

It’s simple, really — they don’t want to pay US taxes.

You’ve probably heard about Walgreen’s, your neighborhood pharmacy that is contemplating moving its headquarters to Switzerland to reduce its tax bill. Medtronic, the big medical device company based in Minneapolis, Minnesota, has plans to move to Ireland, for tax-avoidance purposes. Then there’s Mylan, a maker of generic drugs based near Pittsburgh, Pennsylavia, which intends to incorporate in the Netherlands, where the tax rate is lower. Mylan’s CEO, as it happens, is Heather Bresch — the daughter of US Senator Joe Manchin, a West Virginia Democrat — and she says she has no choice but to go.

Other companies aren’t going so far as to relocate their headquarters, a process known as inversion that often requires them to acquire a company based elsewhere. Instead, to avoid US taxes, they are parking their earnings offshore, often in tax havens like Bermuda and the Cayman Islands that levy no corporate income taxes. That tactic, which like the inversions is legal, is being employed by companies that position themselves as good corporate citizens — among them Apple, Coca-Cola, General Electric, Google, Microsoft, Nike and PepsiCo.

Exploiting loopholes in the tax laws may or may not be legal–the IRS is hopelessly outgunned by big corporate tax departments–but it’s unethical.

The report from Citizens for Tax Justice and US PIRG, which makes for surprisingly compelling reading, details a number of questionable tax avoidance strategies that allow companies to shift earnings, purely for tax purposes, from high-tax jurisdictions like the US to tax havens. Here are my favorite fun facts from the report:

The report found that subsidiaries of US companies reported earning $94bn in Bermuda, which has a gross domestic product of just $6bn. That doesn’t compute. US firms reported earning another $51bn in the Cayman Islands, where GDP is about $3bn.

This is outrageous, and please don’t tell me that the way to fix the problem is to reduce the admittedly high US corporate income tax rate. The US cannot compete with places where the tax rate is zero.

All of these companies, of course, benefit enormously from government services–public education, police, the rule of law, highways, etc. Those companies that don’t pay their fair share shift the burden to others–small businesses that can’t afford high-priced accountants, companies that don’t have overseas operations and therefore can’t take advantage of the opportunity engage in tax-avoiding shenanigans and, of course, the rest of us.

You can read the rest of my story here.

Fortune Brainstorm Green, and the limits of corporate sustainability

Harrison Ford at Fortune Brainstorm Green

Harrison Ford at Fortune Brainstorm Green

The 2013 edition of Fortune’s Brainstorm Green conference was, by most accounts, a hit. We had a record number of attendees, including more than 50 CEOs of companies and nonprofits, big and small; plenty of entertaining and informative conversation; and a healthy dose of fun, with celebs like Harrison Ford, will.i.am and (my favorite) ultra marathon runner Scott Jurek. As co-chair of the event since the first Brainstorm Green in 2008, I love to reconnect with colleagues and sources, meet new folks and learn from and, occasionally, by inspired by our top-notch speakers. The theme of the conference has been a constant: How can business profitably help solve the world’s most important environmental problems?

Unavoidably, the challenge of an event like Brainstorm Green (as well as a conundrum for anyone who writes about corporate sustainability) turns on the question of how much to cheer or jeer the efforts of companies that are trying to “go green.” My job, as I see it, is to do both–to applaud the leaders, to prod the laggards, and to do my best to tell one from the other. That’s difficult balance to do in a conference setting where the mood is one of bonhomie, where the speakers are our “guests,” and where the presumption is that everyone is doing the best they can. The trouble is, that’s usually not good enough.

Mark Tercek at Brainstorm Green

Mark Tercek at Brainstorm Green

As Mark Tercek, the CEO of The Nature Conservancy, who I interviewed at Brainstorm Green, put it in his excellent new book, Nature’s Fortune:

Nearly every precious bit of nature–teeming coral reefs, sweeping grasslands, lush forests, the rich diversity of life istelf–is in decline. Everything humanity should reduce–suburban sprawl, deforestation, overfishing, carbon emissions–has increased.

Sad but true.

So if corporate America is changing for the better when it comes to the environment–and no doubt, many companies are–the pace of change is too slow and the ambitions of business leaders are too modest. Incremental change is not getting us where we need to go. [click to continue...]

Is CoolPlanet Biofuels too good to be true?

Imagine a company that says it can produce virtually limitless amounts of cheap gasoline, create arable land for food production and solve the climate crisis–all at once.

That’s the promise of CoolPlanet BioFuels.

Mike Cheiky

Mike Cheiky, the company’s founder and CEO, spoke about CoolPlanet’s “negative emissions technology” at Brainstorm Green, FORTUNE’s conference about business and the environment. Yes, negative emissions.

Does that mean, I asked him, that the more you drive a car powered by CoolPlanet’s biofuels, the more CO2 will be pulled out of the air? Yes, he replied.

“The world doesn’t have too much carbon,” Cheiky explained. The problem’s is that the carbon’s in the wrong place. There’s too much in the atmosphere, causing global warming,  and not enough in the soil. Essentially, Cool Planet has a plan to use plants to remove it from the air and then restore it to the land.

Before you decide that this is too good to be true, you should know that Cheiky, a veteran entrepreneur, has persuaded Google, General Electric, BP, ConocoPhillips, NRG Energy, Exelon and venture capital firms Shea Ventures and North Bridge Venture Partners to invest millions of dollars–he won’t say how many millions–in CoolPlanet Biofuels.

“We have been poked and prodded so many ways by so many people,” Cheiky told me. “GE sent 17 people to do their due diligence at a time when we had only 15 employees.”

These investors wrote him checks, he added, because of his track record. “I’ve done six start-ups in my career,” he went on, “and I’ve never had a down round. They’ve all been very successful.” [click to continue...]

Why Google invests in clean energy

Last year, Google invested more than $915 million in clean energy projects–solar, wind and transmission.

That’s a lot of money, even for Google, which had $38 billion in revenues in 2011. The investments don’t appear to be core to the company’s mission of organizing information, and they have attracted criticism, as well as some careless reporting, implying that the Internet giant is exiting the alternative energy business.

Does Google have an energy policy? Does it need one?

To find out,  I recently went to see Rick Needham, Google’s director of green business operations, at the company’s fabled headquarters (well, fabled for a 13-year-old company, anyway) in Mountain View, CA.

I came away not merely persuaded that Google’s energy investments make sense, but thinking that other companies that consume lots of electricity and have a pile of cash on their balance sheets  — Apple, Microsoft and GE come to mind — should consider deploying some of their cash in the clean energy sector.

Clean-energy investing isn’t philanthropy for Google. It’s business. In fact, it’s a classic double-bottom line investment, one that is intended to deliver environmental as well as financial benefits.

[click to continue...]

An Atlantic wind project: big, bold and risky

Building a low-carbon economy requires bold ideas and long-term thinking on a scale that matters.

Ideas like The Atlantic Wind Connection.

The Atlantic Wind Connection,  you may recall, is a company that has embarked on a multi-billion dollar, decade-long project to build an undersea transmission cable stretching about 350 miles from northern New Jersey to southern Virginia. (See my 2010 blogpost, Google’s Atlantic coast wind deal.)

It will bring down the cost of offshore wind projects, create a more reliable electricity grid along the east coast and create thousands of jobs. The Atlantic Ocean is well-suited for offshore winds because its relatively shallow waters extend for miles out to sea, so turbines can take advantage of stronger winds and they are barely visible from land.

“It’s a scalable platform that literally creates a superhighway for offshore wind,” said Michael Terrell, who leads energy policy at Google, a major investor in Atlantic Wind. [click to continue...]

Google: Energy innovation will pay off but..

The folks at Google, not surprisingly, have enormous faith in the power of technology. So a group of them set out to see what technology breakthroughs in clean energy will mean to the economy, the environment and the typical American household.

They found good and bad news.

The good: Energy innovation could pay off big, benefiting GDP, jobs, energy security and reducing carbon emissions. It’ll even save homeowners money, over time.

Specifically, as Bill Weihl and Charles Baron write on the Google blog, here are the benefits of energy breakthroughs, when compared with a business as usual scenario. In their parentheses is even better news; those numbers reflect what clean energy technology can do when combined with stronger U.S. policy to promote clean energy and discourage the burning of fossil fuels:

  • Grow GDP by over $155 billion/year ($244 billion in our Clean Policy scenario)
  • Create over 1.1 million new full-time jobs/year (1.9 million with Clean Policy)
  • Reduce household energy costs by over $942/year ($995 with Clean Policy)
  • Reduce U.S. oil consumption by over 1.1 billion barrels/year
  • Reduce U.S. total carbon emissions by 13% in 2030 (21% with Clean Policy)

The not-so-good news is the last bullet: Reducing U.S. carbon emission by 13% by 2030, or even 21% under the more favorable clean policy scenario, won’t do much to reduce the threat of catastrophic climate change. The report also found that by  2050, innovation in the modeled technologies alone reduced CO2 emissions by 55% and by 63% when combined with policy. Those are under best-case assumptions.

But, while there’s lots of disagreement about all this, many reputable scientists, using respected climate models, say the world needs to reduce CO2 emissions by 70 to  80% by 2050, and that the U.S. share should be close to 80%. Here’s the argument, as articulated by the Union of Concerned Scientists. [click to continue...]

Google’s Atlantic coast wind deal

The U.S. offshore wind industry got a boost last week when Interior Secretary Ken Salazar signed the lease for Cape Wind. Today brings word of a big new project that also could help jump-start the industry–a 350-mile offshore transmission line, running about 10 to 15 miles off the Atlantic coast from New Jersey to Virginia.

The Atlantic Wind Connection, as it’s being called, will grab attention because it has backing from Google. Google previously invested in North Dakota wind farms and backed a startup called Makani Power that is developing airborne wind turbines.

Trans-Elect Development Co., an independent developer of transmission lines, will announce the project today. Besides Google, its investors include Good Energies, a global investment firm that focuses on renewable energy and energy efficiency, and Marubeni, a publicly-traded Japanese conglomerate. Google and Good Energies will each take a 37.5 percent equity stake, according to this report by Matt Wald in The New York Times.

The first stage of the project alone will cost $1.3 to $1.4 billion to build, says Bob Mitchell, the CEO of Trans-Elect, who briefed me yesterday on the idea. That doesn’t include another $300 million or more in financing, legal and regulatory costs. Overall costs could top $5 billion. Construction could begin by 2013, and the entire 350-mile line would not be completed until 2020 at the earliest.

The project will require federal, state and local regulatory approvals. The PJM Interconnection, which operates the electricity grid in the mid-Atlantic states, and the Federal Energy Regulatory Commission (FERC) will both take a close look–since the costs would ultimately be passed along to electricity consumers.

Assuming all the regulatory hurdles are cleared, the project could have a big impact. A major obstacle to the growth of  wind power (as I wrote recently in this story in Wired) is that the strongest wind resources tend to exist in rural areas like the Dakotas, Iowa and west Texas, which are far from cities, where electricity is needed, or offshore. In both instances, transmission is badly need to link supply and demand.

Mitchell says the construction of  a high-capacity backbone transmission line offshore would lower the costs and speed the development of offshore wind. It’s a bold “if-you-build-it-they-will-come” approach.

“This will remove the biggest barrier that offshore wind faces,” Mitchell told me, “by enabling wind farms to connect to shore in the most efficient way possible. Rather than having every individual wind farm build its own transmission line to shore, and link up at several places up and down the cost—they’re affectionately referred to as spaghetti lines—this will enable them to enter the transmission grid through a superhighway.”

“We want to create a super grid that will be in place and simulate the development of wind farms far faster than if they would each have to solve their own transmission issues,” he said.

Because the wind usually blows somewhere off the coast, if not everywhere at once, Mitchell said the transmission line also would help solve what’s known as the intermittency problem with wind or solar power–that is, the fact that wind and solar plants can’t be counted on to generate electricity round the clock, as coal, nuclear and natural gas plants do.

When complete, the Atlantic Wind Connection project would be able to connect 6,000 MW of offshore wind, enough power to serve approximately 1.9 million households. The developers said the concept from a Washington lawyer named Markian Melnyk, while researching a book on offshore power.  The project will use High Voltage Direct Current which, its backers say,

allows for easier integration and control of multiple wind farms while avoiding the electrical losses associated with more typical High Voltage Alternating Current (HVAC) lines. With this strong backbone in place, larger and more energy efficient wind farms can connect to offshore power hubs further out to sea.  These power hubs will in turn be connected via sub-sea cables to the strongest, highest capacity parts of the land-based transmission system.

Launched in 1999, Trans-Elect previously acquired and sold transmission lines in Michigan and in Alberta, Canada, and it built a new transmission line in California This would be by far the biggest undertaking for Trans-Elect, which is based in Bethesda, Md.  Mitchell previously worked as chief of staff for Alaska Sen. Mike Gravel and in the cabinet of James Blanchard, Michigan’s governor from 1983 to 1991.

Google became involved after Mitchell arranged a meeting with Dan Reicher, a former Clinton administration official and energy investor who is now director of climate change and energy initiatives at Google. “They very quickly came to see the impact on renewable energy that a transmission line like this could have,” Mitchell said. To reduce global greenhouse gas emissions, Google.org, the company’s philanthropic arm,  is working on developing utility-scale renewable energy that is cheaper than coal.

Two final observations…

Just last week, the U.S. energy department released a comprehensive report on offshore wind power that found that

harnessing even a fraction of the Nation’s potential offshore wind resource, estimated to be more than 4,000 gigawatts, could create thousands of jobs and help revitalize America’s manufacturing sector, reduce greenhouse gas emissions, diversify U.S. energy supplies, and provide cost-competitive electricity to key coastal regions.

You can download the the Executive Summary and the full NREL report.

What’s more, if offshore wind ever becomes a big business in the U.S., it will likely be concentrated off the Atlantic Coast, as Matt Wald explains in the Times:

The Atlantic Ocean is relatively shallow even tens of miles from shore, unlike the Pacific, where the sea floor drops away steeply. Construction is also difficult on the Great Lakes because their waters are deep and they freeze, raising the prospect of moving ice sheets that could damage a tower.

Besides, many more people live along the Atlantic Coast than along the Pacific or the Great Lakes. Demand for electricity in the northeast and mid-Atlantic regions is already stressing the transmission lines that carry it.

Why I love Google

Let me count the reasons why I love Google: its speedy search engine, the oodles of free storage on Gmail, Google Maps that get me where I need to go, YouTube for video sharing and time-wasting and Google Analytics, to obsess over my blog readership.

chinainventions10-hpBut seriously folks—Google’s decision this week to withdraw from China, rather than accept censorship, is a breathtaking example of corporate values at work, and a landmark moment in the history of corporate responsibility. It’s the biggest and boldest statement any American company has ever made about doing business in China.

As Rebecca MacKinnon, an Open Society fellow and expert on both China and Internet freedom put it:

They are sending a very public message – which people in China are hearing – that the Chinese government’s approach to Internet regulation is unacceptable and poisonous. They are living up to their “don’t be evil” motto – much mocked of late – and living up to their commitments to free speech and privacy as a member of the Global Network Initiative.

Because Google is one of the world’s best-known and most-admired brands, its action will also create pressure on Microsoft, GE, Wal-Mart and others to deal in a more ethical way with a country whose economic potential is so great that businesses typically turn away when China imprisons political activists, restricts religious freedom and strictly controls what its 1.3 billion people can read and see. [click to continue...]

COP15: CEOs in Hamlet’s Castle

Helsingoer_Kronborg_CastleAs humans, we’re wired to focus on the now. I want a new gadget now. I want a slab of pie now. I’m busy now, so I don’t have time for politics. The consequences—consumer debt, a sagging waistline, a Congress beholden to special interests–all arrive later.

You can think about global warming as a now-and-later problem. Governments need to take unpopular actions now to deal with a problem that will do most of its damage later. Businesses need to look beyond the next quarter to the next quarter century.

This evening in Elsinore, Denmark, top executives from such companies as Coca-Cola, Duke Energy, Goldman Sachs and Google took the long view in a fitting venue: Kronborg Castle, a 15th century castle best known as the setting for Shakespeare’s Hamlet. Sitting in a magnificent castle that’s been preserved for six centuries makes you wonder what impact the goings-on on Copenhagen this week will have on the world in 60 or even 600 years.

In that context, it seems prudent to invest now to insure against a climate catastrophe, no matter how distant–even if the short-term result is  a slight drag on short-term economic growth

As Tracy Wolstencroft, global head of environmental markets for Goldman Sachs, put it: “The economy is a wholly owed subsidiary of the environment, not the other way around.” That is, if we ruin the environment, there’s no economy left. [click to continue...]

Smart Grid: On its way…slowly

Today, President Obama travels to Arcadia, Florida, home to one of the nation’s biggest solar power plants, to announced 100 grants providing a total of $3.4 billion in recovery-act funding for the smart grid. The federal money will unleash $4.1 billion of private investment that, according to the government, that will bring smart meters to about 18 million American homes, or 13% of homes. It’s a big deal.

Nelson_River_Bipoles_1_and_2_Terminus_at_RosserWhat would a smart grid mean to you? In theory, you could save money by running appliances like dishwashers or dryers at night when electricity is cheaper. You’d know how much it costs you to watch that big-screen TV. (Care to take a guess? Read on.) If you installed solar panels on the roof, you could sell electricity back to the grid. Or recharge that electric car you may buy in 2010 or 2011.

The laudable goal is to empower consumers to buy electricity the way we buy groceries or gasoline or airplane tickets –where we know what we are getting and what it costs when we make purchasing decisions. Right now, we consume electricity without knowing how much we are using, understanding where it’s going or knowing the price until an unintelligible utility bill arrives in the mailbox once a month.

The trouble is, layering intelligence and transparency into the electricity grid requires action by two of the slowest-moving entities in all of America–the federal government and the regulated utilities. So you can be certain this won’t be an overnight transformation.

In fact–irony of ironies–the news that Uncle Sam was going to be subsidizing smart-grid rollouts has inadvertently slowed down the process, albeit temporarily. About 570 applications were filed seeking a total of $14 billion in grants. While waiting to see who got the grants and who didn’t, some utilities put their plans on hold. [click to continue...]