Business

Adapting to Climate Change: A Business Approach

BusinessAdaptationCover

Adapting to Climate Change: A Business Approach

Prepared for the Pew Center on Global Climate Change
April 2008

By:
Frances G. Sussman and J. Randall Freed
ICF International

This report outlines a sensible business approach to analyzing and adapting to the physical risks of climate change. It focuses on a critical first step in assessing these climate impacts: understanding the potential risks to business and the importance of taking action to mitigate those risks. Not all businesses need to take action now; this paper develops a qualitative screening process to assess whether a business is likely to be vulnerable to the physical risks associated with climate change, and whether a more detailed risk assessment is warranted.

Press Release

Download entire report (pdf)

Introduction

 

In 2007, the Intergovernmental Panel on Climate Change (IPCC) affirmed that warming of the climate system is unequivocal, with effects such as increasing land and ocean temperatures, rising global average sea level, and reduced snow and ice already being observed. These changes—which are linked directly to human activities producing greenhouse gases—are already causing changes in ecosystems, water supply and availability, and patterns of extreme events, with (in many but not all cases) consequent damages to human health, buildings, livelihoods, and infrastructure. The question is no longer, “Is there human-caused climate change?” but “What can be done to react and adapt to it?” Adaptation does not preclude steps to reduce greenhouse gas emissions, but recognizes that we are unavoidably committed to some amount of climate change, and that changes are already occurring.

The business community has for some time been aware of the risks and opportunities associated with greenhouse gas mitigation and current and future climate change policies. Many businesses have taken steps to reduce greenhouse gas emissions voluntarily. Many are taking into account some of the impacts of climate change—potential state and federal regulations, shareholder perceptions, and changes in consumer and supplier markets, for example—on the cost of doing business now and in the future. Fewer businesses, however, are incorporating the risks and opportunities associated with the physical effects of climate change in their business planning. As trends in climate become clearer and the uncertainty surrounding future changes is reduced, more businesses will want to consider whether to adapt to projected changes by taking action now. This, in turn, involves reacting to and managing risks as well as taking advantage of opportunities.

Climate change represents a new and somewhat daunting topic for many businesses. The challenge is compounded by the diverse and uncertain projections of changes in temperature, precipitation patterns, extreme events, and other effects. This paper outlines a sensible business approach to analyzing and adapting to the physical risks of climate change. It focuses on a critical first step in assessing these climate impacts: understanding the potential risks to business and the importance of taking action to mitigate those risks. Not all businesses need to take action now; this paper develops a qualitative screening process to assess whether a business is likely to be vulnerable to the physical risks associated with climate change, and whether a more detailed risk assessment is warranted.

Section I of this paper offers context on the broader risks and opportunities presented by climate change. Sections II and III summarize the case for business action to adapt to the physical effects of climate change, and the pathways by which climate can affect business. Section IV describes a screening process that businesses can use to assess whether they are likely to be vulnerable to the physical risks associated with climate change. If the screening indicates that climate change may pose a significant risk, a business can decide whether to undertake a more detailed financial risk assessment, and then, if indicated, take action. Section V presents case studies of three companies that have begun to look at climate risks. These case studies highlight the very different circumstances that motivated each company, and how the companies may be moving towards different conclusions about the appropriate response to the changing climate. Section VI concludes with a summary of key points.

About the Authors

Frances Sussman is a senior economist with ICF International and has been analyzing issues associated with the economics of climate change for nearly two decades.  For several years following the adoption of the UNFCCC in 1992, Dr. Sussman led ICF’s climate change economics group, which conducted pioneering research on design options and practical considerations for greenhouse gas (GHG) emissions trading and credit programs, and developed the seminal GHG mitigation cost curves for the United States. Recently, her research has focused on the appropriate use and interpretation of economics and economic models in policy analysis. As part of this, she has been investigating approaches to setting priorities for adaptation and evaluating the business opportunities and risks associated with the physical effects of climate change. She is also the one of the lead authors of a Synthesis and Assessment Report of the Climate Change Science Program (CCSP), Analyses of the Effects of Global Change on Human Health and Welfare and Human Systems.  In addition to her affiliation with ICF, she is an adjunct instructor at Southern Connecticut State University. Prior to joining ICF, she worked as an economist in the Office of Toxic Substances at the Environmental Protection Agency and at the Congressional Budget Office. She received her doctorate in Economics from the University of Maryland. 
 
Randall Freed leads ICF International’s Climate and Energy Policy group, with staff in the US, Canada, UK, Brazil, Russia, and India.  The group develops GHG inventories/ carbon footprints, programs and strategies for mitigating GHG emissions, risk assessments of climate change impacts, and risk management plans to promote sustainability and adapt to climate change.  Mr. Freed’s expertise includes analyzing climate change impacts and adaptation related to water resources, ecosystems, land use, and infrastructure; GHG emissions and sinks associated with waste management and non-energy uses of fossil fuels; and policies and programs to mitigate emissions.  He has over 30 years’ experience and is an internationally recognized expert in exposure and risk assessment, environmental program development and policy analysis, and water quality issues.  Mr. Freed has an MS in Water Resource Management and a BS in Zoology, both from the University of Maryland.

Related Reading:

Adaptation Planning: What U.S. States and Localities are Doing

Corporate Strategies That Address Climate Change

Frances G. Sussman
J. Randall Freed
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Press Release: Pew Center Report Outlines Adaptation Strategies for Business Community

Press Release
April 16, 2008
Contact: Tom Steinfeldt, (703) 516-4146

PEW CENTER REPORT OUTLINES ADAPTATION STRATEGIES FOR BUSINESS COMMUNITY
Climate Change Poses Significant Risks; Need for Private Sector Action


WASHINGTON, DC -- The Pew Center on Global Climate Change today released a new report that outlines a business approach to adapting to the physical effects of climate change. Adapting to Climate Change: A Business Approach examines a range of risks businesses face from the physical impacts of climate change and presents a framework for assessing vulnerability to these risks across a company’s operations, value chain, and broader commercial environment.

Authored by ICF International senior economist, Frances G. Sussman, and senior vice president, Randall Freed, the study focuses on a critical first step in assessing climate impacts: understanding the potential risks to business from the physical effects of climate change and the importance of taking action to reduce those risks. It examines case studies of three companies in the Pew Center’s Business Environmental Leadership Council (BELC) that have taken initial steps to address these risks.

“We know climate change is occurring and the real world ramifications of that change are already being felt,” said Eileen Claussen, President of the Pew Center on Global Climate Change. “In addition to policies that reduce greenhouse gas emissions, we also need strategies to adapt to those climate change impacts that are unavoidable. The private sector faces a range of risks and it is important that they begin now to assess their options and strategies for adapting.”

The study adds to the Pew Center’s expanding body of work on adaptation, an issue that has grown in importance as governments and businesses around the world recognize that a certain amount of climate change is unavoidable and that impacts are already being observed.

The report finds that susceptibility to the physical effects of climate change varies considerably across sectors of the economy. For example, higher demand for air conditioning during prolonged heat waves could stress and possibly overwhelm the electricity grid. Longer and more intense rains could restrict access to construction sites and slow productivity in the buildings sector. And the agriculture industry is at risk of extreme drought that could render previously arable land unusable. While some sectors are more at risk than others, all businesses face the possibility of property damage, business interruption, and changes or delays in services provided by electric and water utilities and transport infrastructure.

Despite these known threats, relatively few companies have developed climate change adaptation strategies. A few have begun taking steps to evaluate and act on the physical risks of climate change, and their experiences offer important insights to other companies. The report’s case studies highlight actions three BELC companies have taken on adaptation:

  • Entergy, the New Orleans-based utility, which suffered $2 billion in losses from Hurricanes Katrina and Rita, has begun relocating important business operations to areas less vulnerable to severe weather events.
  • Mining giant Rio Tinto is using high-resolution climate modeling to conduct detailed site assessments and gauge risks to high-priority assets.
  • Travelers, a major insurance company, is exploring new pricing strategies to encourage adaptive actions from its commercial and personal customers.


This and other Pew Center reports are available at www.c2es.org.

##


The Pew Center was established in May 1998 by The Pew Charitable Trusts, one of the United States’ largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is an independent, nonprofit, and non-partisan organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

The BELC was established by the Pew Center in 1998. It is comprised of mainly Fortune 500 companies representing a diverse group of industries including energy, automobiles, manufacturing, chemicals, pharmaceuticals, metals, mining, paper and forest products, consumer goods and appliances, telecommunications, and high technology. Individually and collectively, these companies are demonstrating that it is possible to take action to address climate change while maintaining competitive excellence, growth, and profitability. The BELC is the largest U.S.-based association of corporations focused on addressing the challenges of climate change, with 42 companies representing over 3.8 million employees and a combined market value of $2.8 trillion.

About Markets & Business

C2ES’s Markets & Business Strategy (MBS) Program conducts research and analysis at the nexus of climate change and business. Market-based environmental policies are not unique to climate change, and their success in other contexts is why they have been embraced by both sides of the political spectrum. By employing the power of the market, market-based climate policies are designed to minimize compliance costs of reducing GHGs. The MBS program also seeks to help companies, policymakers and investors understand how to successfully manage carbon risks and capture new business opportunities as changes in public policy and customer preferences transform global markets.


About Markets

The MBS Program works with the business community to develop policy solutions to achieve important climate goals that provide flexibility and incentives for innovation. Market-based environmental policies are those in which a price associated with pollution emerges, and each regulated business is able to choose independently how much pollution abatement is appropriate, and how to best achieve that based on its individual circumstances. Some companies can reduce pollution more cheaply than others (because of the age of their equipment or the technology they are using), so allowing them to reduce their pollution more, and compensate for others doing less, means that the environmental objective will be achieved as cheaply as possible. 

Importantly, these policies allow a great deal of flexibility by encouraging firms to achieve environmental outcomes through pollution reduction in the least costly way they can find, and allows new or unexpected solutions to emerge. Because there is a constant financial incentive, companies will continually work to reduce emissions and do not just remain at a status quo level of emissions output. By creating a dynamic market for pollution reduction, market-based policies achieve environmental objectives at the lowest possible cost in the near term and lead to even greater environmental outcomes through innovation in the long-term.


About Business

In addition to our work on markets, the MBS program educates policymakers on how to shape policies that unleash private sector low-carbon innovation and investment. To this end, C2ES collaborates extensively with the business community, primarily through our 34-member Business Environmental Leadership Council (BELC). An invitation-only group, the BELC is now the largest U.S.-based association of corporations focused on advancing business and policy solutions to climate change. The program’s report “Getting Ahead of the Curve: Corporate Strategies That Address Climate Change” is illustrative of its approach to the climate issue. The report lays out a step-by-step process for companies to reshape their core business strategies in order to succeed in a future marketplace where greenhouse gases are regulated, carbon-efficiency is rewarded, and low-carbon products are in demand.

Business

 

To inform its research and advance action on climate change, the Center for Climate and Energy Solutions collaborates extensively with the business community. The primary vehicles for business engagement is the Center’s Business Environmental Leadership Council (BELC). Read More

 

A Look at Emissions Targets

United States:

State & Regional
Proposed Federal Legislation
Bush Administration

International

Business

United States - State & Regional

Entity

Target

Notes and Source

Arizona: State-wide2000 levels by 2020
50% below 2000 by 2040
Executive Order 2006-13
California: State-wide

2000 levels by 2010
1990 levels by 2020
80% below 1990 by 2050

Executive Order S-3-05
California: Major industries state-wide1990 levels by 2020AB 32
Connecticut: State-wide1990 levels by 2010
10% below 1990 by 2020
75-85% below 2001 levels in the long term
Connecticut Climate Change Action Plan
Florida: State-wide

2000 levels by 2017
1990 levels by 2025
80% below 1990 levels by 2050

EO 07-127
Florida: Electric Utilities

2000 levels by 2017
1990 levels by 2025
80% below 1990 levels by 2050

EO 07-127
Hawaii: State-wide1990 levels by 2020Act 234
Illinois: State-wide1990 levels by 2020
60% below 1990 levels by 2050
Press Release
Maine: State-wide1990 levels by 2010
10% below 1990 by 2020
75-80% below 2003 long-term
LD 845 (HP 622)
Massachusetts: State-wide1990 levels by 2010
10% below 1990 by 2020
75-85% below 1990 long-term
Massachusetts Climate Protection Plan of 2004
Massachusetts: Electric Utilities10% below 1997-1999CO2 target only.
310 CMR 7.29
Minnesota: State-wide

15% below 2005 levels by 2015
30% below 2005 levels by 2025
80% below 2005 levels by 2050

Next Generation Energy Act
New Hampshire: State-wide1990 levels by 2010
10% below 1990 by 2020
75-85% below 2001 long-term
The Climate Change Challenge
New Hampshire: Electric Utilities1990 levels by 2006CO2 target only.
HB 284
New Jersey: State-wide1990 levels by 2020
80% below 2006 levels by 2050
Press release and executive order
New Mexico: State-wide2000 levels by 2012
10% below 2000 by 2020
75% below 2000 by 2050
Executive Order 05-033
New York: State-wide5% below 1990 by 2010
10% below 1990 by 2020
State Energy Plan of 2002
Oregon: State-wideStabilize by 2010
10% below 1990 by 2020
75% below 1990 by 2050
Oregon Strategy for Greenhouse Gas Reductions
Rhode Island: State-wide1990 levels by 2010
10% below 1990 by 2020
Rhode Island Greenhouse Gas Action Plan
Vermont: State-wide1990 levels by 2010
10% below 1990 by 2020
75-85% below 2001 long-term
 
Washington: State-wide1990 levels by 2020
25% below 1990 levels by 2035
50% below 1990 levels by 2050
Executive Order 07-02

Western Climate Initiative

15% below 2005 levels by 2020Western Climate Initiative Statement of Regional Goal
Regional Greenhouse Gas Initiative: CO2 emissions from power plants

Cap emissions at current levels in 2009
Reduce emissions 10% by 2019.

our summary
New England Governors and Eastern Canadian Premiers:
Regional economy-wide
1990 levels by 2010
10% below 1990 by 2020
75-85% below 2001 long-term
Climate Change Action Plan of 2001

United States - Proposed Federal Legislation

Entity

Target

Notes & Source

Lieberman-Warner Climate Security Act
S.3036

4% below 2005 level by 2012
19% below 2005 level by 2020
71% below 2005 level by 2050 
As introduced 5/2008

Low Carbon Economy Act (Bingaman-Specter)

S.1766

2012 level in 2012
2006 level in 2020
1990 level in 2030
President may set long-term target greater than or equal to 60% below 2006 level by 2050 contingent upon international effort

As introduced 7/2007
Climate Stewardship and Innovation Act (McCain-Lieberman)

S.280
2004 level in 2012
1990 level in 2020
20% below 1990 level in 2030
60% below 1990 level in 2050
As introduced 1/2007
Global Warming Pollution Reduction Act (Sanders-Boxer)

S.309
2010 level in 2010
2%/year reduction from 2010-2020
1990 level in 2020
27% below 1990 level in 2030
53% below 1990 level in 2040
80% below 1990 level in 2050
As introduced 1/2007
Climate Stewardship Act (Olver-Gilchrest)

H.R.620
2006 level in 2012
1990 level in 2020
22% below 1990 level in 2030
70% below 1990 level in 2050
As introduced 1/2007
Global Warming Reduction Act (Kerry-Snowe)

S.485
2010 level in 2010
1990 level in 2020
2.5%/year reduction from 2020-2029
3.5%/year reduction from 2030-2050
62% below 1990 level in 2050
As introduced 2/2007
Safe Climate Act of 2007 (Waxman)

H.R.1590
2009 level in 2010
2%/year reduction from 2011-2020
1990 levels in 2020
5%/year reduction from 2020-2029
5%/year reduction from 2030-2050
80% below 1990 levels in 2050
As introduced 3/2007
Electric Utility Cap and Trade Act (Feinstein-Carper)

S.317
2006 level in 2011
2001 level in 2015
1%/year reduction from 2016-2019
1.5%/year reduction starting in 2020 (may be adjusted by Administrator)

Electricity sector; all GHGs

As introduced 1/2007

Clean Air Climate Change Act of 2007 (Alexander-Lieberman)

S.1168
2300 MMT CO2 (approx. 2006 level) from 2011-2014
2100 MMT CO2 (approx. 1997 level) from 2015-2019
1800 MMT CO2 (approx.1990 level) from 2020-2024
1500 MMT CO2 (approx.17% below 1990 level) from 2025 forward
Electricity sector; 4 pollutants

As introduced 4/2007
Clean Air Planning Act of 2007 (Carper)

S. 1177
2006 CO2 level in 2012-2014
2001 CO2 level in 2015
1%/year reduction CO2 level from 2016-2019
1.5%/year reduction CO2 levels starting in 2020
1.5%/year reduction CO2 levels starting in 2020 (may be adjusted by Administrator to 3% in 2030 & beyond)
25% below 1990 CO2 level in 2050
Electricity sector; 4 pollutants

As introduced 4/2007
Clean Power Act of 2007 (Sanders)

S. 1201

Goal is to facilitate the worldwide stabilization of atmospheric concentrations of global warming pollutants at 450ppm CO2e by 2050*

2300 MMT CO2 (approx. 2006 level) by 2011
2100 MMT CO2 (approx. 1997 level) by 2015*
1803 MMT CO2 (approx. 1990 level) by 2020*
1500 MMT CO2 (approx. 17% below 1990 level) by 2025*

* If Congress has not passed, and the President has not signed, legislation to address 85% of GHG emissions economy-wide by 2012, further 3%/year reduction in CO2 limits until global GHG emissions reach 450ppm.

Electricity sector; 4 pollutants

As introduced 4/2007

United States - Bush Administration

Entity

Target

Notes & Source

Voluntary "greenhouse gas intensity" target for the U.S.18% below 2002 intensity levels by 2012Announced 2/14/2002
Our Analysis

International

Entity

Target

Notes & Source

Australia

8% above 1990 by 2008-2012

Kyoto Target

Canada

6% below 1990 by 2008-2012

Kyoto Target

European Community

8% below 1990 by 2008-2012

Kyoto Target

Japan

6% below 1990 by 2008-2012

Kyoto Target

New Zealand

1990 levels by 2008-2012

Kyoto Target

United Kingdom

20% below 1990 by 2020
60% below 1990 by 2050

CO2 target only.
Energy White Paper of 2003

European Community
Kyoto Bubble Targets
[i]

Target for 2008-2012

European Community Council Decision of April 2002

Austria

13% below 1990

 

Belgium

7.5% below 1990

 

Denmark

21% below 1990

 

Finland

1990 levels

 

France

1990 levels

 

Germany

21% below 1990

 

Greece

25% above 1990

 

Ireland

13% above 1990

 

Italy

6.5% below 1990

 

Luxembourg

28% below 1990

 

Netherlands

6% below 1990

 

Portugal

27% above 1990

 

Spain

15% above 1990

 

Sweden

4% above 1990

 

United Kingdom

12.5% below 1990

 

[i] The EU-15 nations have joined a "bubble" which allows the joint fulfillment of emissions commitments and preserves the collective emissions reduction goal of 8% below 1990 levels by 2008/2012

Business

Our Business Environmental Leadership Council (BELC) is a group of leading companies worldwide that are responding to the challenges posed by climate change. This section provides a sampling of GHG reduction targets set by these companies. Through their efforts, they are demonstrating that GHG emissions can be reduced significantly and cost-effectively.

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Press Release: The Travelers Companies, Inc. Joins Pew Center’s Business Environmental Leadership Council

Press Release
October 30, 2007

Pew Center Contact: Katie Mandes (703) 516-4146
Travelers Contact: Jennifer Wislocki (860) 277-7458

THE TRAVELERS COMPANIES, INC. JOINS PEW CENTER'S
BUSINESS ENVIRONMENTAL LEADERSHIP COUNCIL

Insurance Industry Leader Commits to Advancing Climate Change Solutions

WASHINGTON, D.C. - The Pew Center on Global Climate Change announced today that The Travelers Companies, Inc. has joined the Pew Center's Business Environmental Leadership Council (BELC) and its efforts to address global climate change.

As one of the largest property casualty insurance companies in the world, Travelers is sensitive to the changing climate and the risks and opportunities it poses to both the company and the economy as a whole. The potential for more frequent and severe weather events arising from climate change affects a wide range of the company’s business activities, including catastrophe modeling, coastal underwriting, claim services, risk control, and other operations. Travelers has become a leading voice calling for proactive collaborative private and public sector strategies to adapt to the physical impacts of climate change and increased resilience to future weather-related catastrophes.

Travelers recently formed a multi-disciplinary team to investigate ways to integrate its core business strategies with initiatives to address the impacts of climate change, including strategies that respond to customer needs arising from the effects of climate change. The company is also in the process of calculating its own carbon footprint and has taken several steps to reduce greenhouse gas emissions, including reducing energy consumption through workplace design and operation, as well as utilizing more energy efficient heating and cooling methods.

“Travelers is committed to supporting initiatives and actions for our company and customers that mitigate the negative impacts of climate change and encourage environmentally responsible behavior,” said Jay Fishman, Chairman and Chief Executive Officer of Travelers. “We are proud to join the Pew Center’s efforts to develop a thoughtful approach to adapt to the inevitable physical effects of climate change.”

“Perhaps no other industry is more exposed to the financial risks of climate change than the insurance industry,” said Eileen Claussen, President of the Pew Center on Global Climate Change. “But the unique risks faced by the industry also present it with an opportunity to take a leadership role in responding to the climate challenge. I am delighted to have Travelers and their considerable expertise join us as we work to advance practical solutions to climate change in this country and globally.”

Headquartered in St. Paul, Minn., Travelers provides a range of commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals. It is the second-largest writer of commercial U.S. property casualty insurance, and second-largest writer of U.S. personal insurance through independent agents. Travelers has total assets of approximately $114 billion, total revenue of $25 billion, and employs approximately 33,000 people. The company’s stock (ticker symbol: TRV) is traded primarily on the New York Stock Exchange. For more information on Travelers visit its web site at http://www.travelers.com/.

The BELC was established by the Pew Center in 1998, and the Center is a leader in helping these and other major corporations integrate climate change into their business strategies. The BELC is comprised of mainly Fortune 500 companies representing a diverse group of industries including energy, automobiles, manufacturing, chemicals, pharmaceuticals, metals, mining, paper and forest products, consumer goods and appliances, telecommunications, and high technology. Individually and collectively, these companies are demonstrating that it is possible to take action to address climate change while maintaining competitive excellence, growth, and profitability. The BELC is the largest U.S.-based association of corporations focused on addressing the challenges of climate change, with 45 companies representing over 3.8 million employees and a combined market value of over $2.8 trillion.

The other members of the BELC are: ABB; Air Products; Alcan; Alcoa Inc.; American Electric Power; Bank of America; Baxter International Inc.; The Boeing Company; BP; California Portland Cement; CH2M HILL; Citi; Cummins Inc.; Deutsche Telekom; DTE Energy; Duke Energy; DuPont; Entergy; Exelon; GE; Georgia-Pacific; Hewlett-Packard Company; Holcim (US) Inc.; IBM; Intel; Interface Inc.; John Hancock Financial Services; Lockheed Martin; Marsh, Inc.; Novartis; Ontario Power Generation; PG&E Corporation; PNM Resources; Rio Tinto; Rohm and Haas; Royal Dutch/Shell; SC Johnson; Sunoco; Toyota; TransAlta; United Technologies; Weyerhaeuser; Whirlpool Corporation; and Wisconsin Energy Corporation.

For more information about global climate change and the activities of the Pew Center and the BELC, visit www.c2es.org.

A Cap's in Hand

Full article (PDF)

by Truman Semans, Director for Markets and Business Strategy--Appeared in the World Energy Book which is available from http://www.petroleum-economist.com/
0

White House Major Economies Meeting

REMARKS DELIVERED BY EILEEN CLAUSSEN, PRESIDENT, Pew Center on Global Climate Change 

whITE HOUSE Major Economies Meeting
WASHINGTON, d.C. 
 

September 27, 2007  

  • There are a number of reasons why it is critical that our strategies to address energy and climate change take full account of the land use sector.  
    • First, from an environmental perspective, agriculture, deforestation and other land use activities account for nearly a third of greenhouse gas emissions globally.  For some countries, they are by far the largest source of emissions.  Indeed, some countries [Indonesia, Malaysia] rank among the world’s largest emitters only by virtue of their emissions from deforestation.  For those countries, and globally, a comprehensive approach to climate change must reduce emissions from this sector.
       
    • Second, from an economic perspective, some of the lowest-cost opportunities for emission reduction are to be found in this sector.  A number of analyses, including the Stern Review and work done by McKinsey and Company, show significant mitigation potential in the forestry sector for well under $20 per ton of CO2.  The Stern Review concluded that in some regions emissions from deforestation could be reduced for less than $5 a ton.   
       
    • Third, from a development perspective, addressing emissions from this sector can deliver some very significant co-benefits.  Protecting forests protects biodiversity and soils and creates new opportunities to reduce poverty.  Healthy ecosystems support healthy economies.  Putting a value of the climate benefits provided by forests is one of the keys to sustainable development.  
  • So for all of these reasons, this is a sector we can not afford to ignore.     
     
  •  That said, there are number of caveats and complications. 
    •  First, land use is an area where it’s been notoriously difficult to measure emissions and monitor trends.  We’ve made significant headway, with new methodologies technologies, in particular remote sensing by satellite.  But greater progress is needed.  We need enough precision so that we are confident that a ton is a ton.  
       
    • Second, there is no resource more fundamental than land, and we must be mindful of the many competing demands on it.  This is especially true in the case of biofuels, which potentially are a very important part of the answer to climate change and energy security.  But the move toward biofuels will be beneficial only if we ensure that these truly are low-carbon fuels, calculated on a life-cycle basis.  Our land use and biofuels policies need to be closely coordinated to make sure that we are not simply substituting one form of emissions for another. So, what can be done internationally to fit land use into our climate change strategies? 
       
  • I would first emphasize how encouraging it is that this question is being put on the table by those countries that have the most to contribute.  A coalition led by Papau New Guinea and Costa Rica, and separately Brazil, are calling for new measures under the Framework Convention on Climate Change to reduce tropical deforestation.  At the moment, this appears to be among the most promising avenues for deeper developing country engagement in the global climate effort.
     
  • Let me offer a few observations on how forestry and land use can be addressed in a post-2012 climate framework.  
    • First, there appears to be a growing consensus among the experts and policymakers that we should approach this not project by project, but sector-wide.  In other words, a country’s progress is best ascertained by measuring emissions and changes in those emissions across its entire forestry or land use sector.   
       
    • Second, the overriding message from the tropical forest countries is that incentives are needed if they are to undertake stronger efforts.  There are differences among them on just what form these incentives should take.  Realistically, I think we are far more likely to see significant flows under a market-based approach than through an international fund supported by donor countries.  Either way, it is perfectly reasonable for these countries to ask for incentives.  By the same token, though, I think it’s reasonable for those countries providing the incentives to ask in exchange that the countries receiving them be prepared to deliver action on the basis of commitments, not just voluntary pledges. 
       
    • And this leads to my third, and final, point: I do not believe we will be able to mobilize the efforts needed globally in this sector or in any other without a comprehensive set of binding international commitments.  An aspirational long-term goal is not enough.  To sustain ambitious efforts nationally, and to generate the strong incentives tropical forest countries are asking for, countries must have confidence that their counterparts are contributing their fair share to the global effort.  That’s best done through fair, credible, and verifiable commitments.  We should be open to different types of commitments – for some countries, a commitment to reduce deforestation might be the best approach.  But we are fooling ourselves if we think that we can do what’s needed without binding international commitments.  I look forward to our discussion.  Thank you. 

7th IETA Forum on the State of the Greenhouse Gas Market

REMARKS BY EILEEN CLAUSSEN, PRESIDENT, PEW CENTER ON GLOBAL CLIMATE CHANGE 

7th IETA FORUM ON THE STATE OF THE GREENHOUSE GAS MARKET
WASHINGTON, DC 

September 27, 2007  

Thank you very much.  I am honored to be a part of IETA’s very impressive program.  I was looking over the schedule for your three days here in Washington, and it’s really quite remarkable.  The program here, and the success of this event, is just one more tribute to Andrei’s leadership of this great organization—he has steered IETA to a leadership role on the climate issue, and I wish him all the best in his new position.   

Not only is the program very substantive and strong, but IETA seems to have a superior sense of timing, too.  This forum is taking place at a truly amazing moment— a blizzard of climate activity and meetings, a flood of proposals for domestic and international action, the melting away of industry resistance. Scientists say to expect more extreme weather as a result of climate change, and it appears it’s already here.   

And even though the China Olympics don’t start until next summer, we already have an Olympics competition going on as countries lay out their climate plans.    

  • Most countries, it appears, plan to compete in the biathlon – growing their economies while limiting emissions growth.
     
  • Then there is the synchronized swimming event, where the countries of the EU will try to align their climate activities without the whole thing turning into a freestyle contest. 
     
  • And the United States, under the current Administration, is favored in the stationary target-shooting event.  This, of course, is an event where you don’t really have to move from where you are now, but you make an awful lot of noise.  And, of course, participation is entirely voluntary.  We’ve actually become quite good at this here in America.   

Seriously, this is a remarkable moment.  Consider all of the other climate change-related events going on.  Of course, we had the Secretary General’s sessions at the United Nations in New York at the start of the week, and right now, also here in Washington, there is President Bush’s meeting of major economies.  In addition to these, there are all kinds of conferences and meetings: the Pew Center did two, the U.N. Foundation is doing one; the Brookings Institution did one.  And there is also the annual meeting in New York on the Clinton Global Initiative, which includes a very substantive track on energy and climate change.   

And, of course, these events follow fast on the heels of the Vienna climate change talks in August, and it is not long before the very important U.N. Climate Change Conference in Bali, where I hope we will see real progress toward an effective, post-2012 framework for international action.   

I mention all of these other events because things are heating up on this issue in more ways than one.  And progress, I believe, will depend on finding a way to bring people together and forge practical and effective climate solutions that can draw broad support.  This is what I call the “sensible center.” 

Now, I am sure all of you are familiar with Google maps.  This is where you go online and you get detailed directions by typing in a starting and an ending address.  Well, today, I’d like to borrow the Google maps approach and see if it can help us find our way to the sensible center, if it can provide some insights on how to get to the place where all of us (or at least most of us) want to go.  

So first we need a starting address—and that’s easy enough.  Let’s look at where things stand right now on this issue.  And that means starting where every conversation about climate change must begin: with the science.  All of us are familiar with the latest findings from the IPCC.  “Warming of the climate system is unequivocal,” they tell us.  They also talk about a 90-percent-or-greater chance that we (humanity) are the cause of this—and a 90-percent-or-greater chance that the world will see more hot extremes, heat waves and heavy precipitation events. 

Just last week, we learned that Arctic sea ice is now at its smallest recorded extent.  There is simply no denying any more that our climate is changing, and that human activities are largely to blame. 

But, despite the science, despite knowing we have a very serious problem on our hands, we continue to burn coal at an alarming rate—China alone is building a new coal-fired power plant every week to 10 days.  The world continues to consume 83 million barrels of oil per day.  Here in the United States, we continue to debate back-and-forth about how to address this issue as a nation—Should we do cap-and-trade?  Carbon tax?  Voluntary approaches only?  And, at the global level, we continue to wander about in this no-man’s land we’ve created between Kyoto’s short-term targets and what comes next.   

All of this is part of our starting address—where we are now as we consider how to get to the place where we ultimately want to go.  However, there are also signs of hope, signs of progress.  Here in the United States, for example, we see an increasing number of states taking independent action to establish targets, experiment with trading, and otherwise reduce their contribution to the climate problem.

  • California, as you all know, has an ambitious set of enforceable emission targets, and the state also is a part of the Western Climate Initiative, together with five other western states and the provinces of British Columbia and Manitoba, all are committed to agreeing on the design of a cap-and-trade program by next August.
     
  • The Regional Greenhouse Gas Initiative, including 10 Northeastern and Mid-Atlantic states, aims to get going in 2009.  Right now, the states are working on adopting the model rule and setting up auctioning and allocation.
     
  • And think of Florida’s ambitious program and the 25 states with renewable portfolio mandates.

At the same time that we see these states taking the initiative, we see members of Congress putting forward very serious proposals (with bipartisan support) aimed at limiting emissions at the national level.  We have had more than 120 hearings on climate change since January, and we have numerous bipartisan bills on the table and emerging.   We are clearly on our way here in the United States—and our journey is aided, in large part, by corporate leaders embracing climate policies that in the past would have been universally condemned by U.S. industry.   

So this is our starting address.  And it is honestly a mixed-bag kind of a place.  A place where we are not doing nearly enough to address this looming crisis, but where there are these signs of hope.  Which brings us to the next question: Where do we want to go from here?  What is our ending address? And our ending address, I believe, is a destination we all can agree on.  That place may not have an exact zip code or street number, but we can describe it in enough detail, I believe, to get a solid set of directions.   

It is a place where the United States and other major emitting countries are--each and every one of them--doing their part to protect the climate.  It is a place where the world is united in pursuing the goal of the U.N. Framework Convention on Climate Change, which was signed by the United States and 190 other nations—nearly every nation on this earth.  And that goal is to “avoid dangerous anthropogenic (or human-cased) interference with the climate system.” 

As I said, the interesting thing about this place we want to get to is that there is no real dispute about it.  It’s how to get there that’s in dispute.  The only thing I can compare it to is going on a trip with your family and agreeing that you want to get to, say, Florida but disagreeing on the best route to take to get there.  And so you have to go to that all-purpose, neutral resource, Google, to find out.  At the Pew Center, we like to think of ourselves as providing the Google map toward practical climate solutions (and this will be my only sponsored link!). 

So what would this Google map tell us about how to get to this place where we want to go, now that we have plugged in our starting and ending addresses?  Well, finding the best route is not an easy task because there are a lot of people throwing out different directions to a climate solution.  And, if we were to follow many of these directions, we would either veer way off course or, more likely, never reach our destination at all. 

These directions tend to fall into opposite extremes.  For example, some call for a mandatory, worldwide cap on greenhouse gas emissions with trading, where every major economy accepts a binding emissions target.  Sounds great but it’s a political non-starter. At the other extreme, many people want the world to join hands and unite around an “aspirational goal” – such as an X percent reduction in global emissions by 2050.  Don’t get me wrong: having an aspirational goal is not a bad thing.  But if aspiration is all you’ve got, well, all you’ve got is aspiration.  Under these proposals, no one is required to do much of anything.  We might all feel good for having this goal but the lack of clear commitments would result in more of the same: a little movement that barely brings us closer to where we need to go.     

The same opposing directions appear when the talk turns to emissions trading.  Some say let’s give away all the allowances; others say auction all of them.  Some say allow offsets for all projects that could conceivably reduce emissions.  Others say don’t give credit for any offsets.  

We know, based on Europe’s experience this past year, that we need a price on carbon that is high enough to give firms a reason to invest in new climate-friendly technologies.  Yet we see proposals that talk about limiting that price to something that will motivate very little innovation.  

Well, there’s another direction we can go—there is a route we can take that avoids all of these detours, and that takes us to our destination.  It involves taking what is useful from all of these highways and by-ways, making the necessary compromises, and following a route that lets us go as fast as we can, and as directly as we can.  For example, we can embrace an aspirational goal but we must back it up with international commitments that are binding but flexible.  And, we can design a cap-and-trade program based on a hard-nosed look at what will be both economically viable and environmentally effective.    

It’s not about aiming low, but rather about abandoning the impossible.     

FOR EXAMPLE: It’s great to talk about the potential of voluntary approaches to reduce emissions, but history has shown that while they do deliver something, they don’t deliver the level of reductions we need.  In the same way, it is pure fancy right now to expect developing countries to agree to binding limits on their emissions.  It actually makes things harder when we lay out these expectations, because when developing countries refuse to join in the global effort because of a perception that they are being asked to do too much, then we lose the United States and others as well. 

And so we need to look for the best route—both domestically and at the global level.  Here in the United States, this means pushing ahead with plans for a cap-and-trade system.  I know there has been some commentary recently about the relative merits of cap-and-trade vs. a carbon tax.  But, once again, the thing we need to look at is what’s actually do-able, what gets us to the place we want to go, and what will actually pass?   

Anyone who thinks this Congress or the next will come close to passing a substantial new tax (even if it is offset by other tax reductions and even if it is designed to achieve the very important goal of reducing U.S. emissions) … well, I have some 20-year-old carbon offsets to sell you.  What’s more, the notion that designing a carbon tax is somehow simpler than designing a cap-and-trade program is simply not true.  It’s just as complex.  Plus, to top it all off, there is no environmental certainty in a tax – you enact it, and you have to wait and see what the effect will be, and you need to adjust it and keep adjusting it to get the effect you want. 

With cap-and-trade, there’s certainty in what the cap will be—and, as a result, you know how much of a reduction in emissions you can expect.   

What are the chances of cap-and-trade legislation passing the Congress?  Well, I will tell you one thing.  The chances improved in a big way when companies such as GE, Caterpillar, Chrysler, Duke, and DuPont all became part of the U.S. Climate Action Partnership.  The USCAP plan would reduce U.S. emissions by 10 to 30 percent within 15 years, and by 60 to 80 percent before 2050.  And, with a whole host of America’s leading companies behind it, I believe USCAP has been, and will continue to be, a significant game-changer.  In fact, I feel confident that I can predict here today that enactment of a cap-and-trade measure is still plausible in 2008, and almost inevitable by the end of 2010.  

Looking internationally, we see the same need for cool-headed, practical answers to the climate problem.  The same need to find the sensible center.   Looking at things in this way, we can see that the post-Kyoto framework must have two essential features.  First, it must be based on binding international commitments; and second, it must be flexible in the sense that countries should be able to take on different types of commitments. 

Why commitments?  Because it’s the best and maybe the only way to deliver the level of effort needed to significantly reduce global emissions.  Without commitments, countries can’t be confident that others are contributing their fair share to the global effort.  And without that confidence, it’s hard for any one country to sustain an ambitious climate effort.  

Why different kinds of commitments?  Because countries are different – very different.  Among the major economies, you have developed countries, developing countries, and economies in transition.  Their per capita emissions range by a factor of 14; their per capita incomes by a factor of 18.  The kinds of policies that work for some won’t work for others.  It’s not one-size-fits-all.   

So the post-2012 framework has to integrate different approaches.  Binding emissions targets make sense for developed countries.  But, as I said, it’s naïve to think that China, India, and the other emerging economies are going to agree to them anytime soon.  Still, we need some form of commitment from those countries, so we have to be open to other possibilities.  One possibility is policy-based commitments.  A country like China, for instance, already has some ambitious national policies: an energy intensity goal, renewable energy targets, and fuel economy standards for cars that are stronger than those here in the U.S.  What if China were to commit to fully implementing those policies in a binding international treaty?  What’s key, I think, is that the commitment be credible, quantifiable, and verifiable.   

This, again, is the sensible center … we need a new set of multilateral commitments.  New kinds of commitments.  Which brings us to the other major climate meeting here in Washington this week – the major economies meeting.  What are we to make of it?   

Well, one thing to be said for it is that it brings together the right group of countries.  But what’s the real objective here?  The administration has said its goal is to get a consensus among the major economies by the end of 2008 – just as the president’s about to leave office – contributing to a global deal under the U.N. convention in 2009.  What kind of deal are they hoping to set up? 

From all appearances, a very weak one.  Just about the only thing the Administration thinks countries need to agree on is an aspirational long-term goal.  And, as I have said, that’s not enough.   

The best way to judge the value of the major economies meeting this week is whether it moves us toward or away from a new set of multilateral commitments.  In other words, does it move us toward the sensible center, or not?  That should, in fact, be the test of everything we do on the climate issue in the months ahead.  

I know that some of us are better at following directions than others, but this is one time when we cannot afford to get lost.  By staying on course to the sensible center, we can begin the long-overdue work of figuring out how to reduce domestic and international emissions as cost-effectively as possible — and in ways that deliver real results for the climate.   

We’re just pulling out of the driveway right now, so fasten your seatbelts.  It’s going to be a long and interesting ride.  Thank you very much.    

A Climate of Change: Manufacturing Must Rise to the Risks and Opportunities of Climate Change

By Truman Semans, Director for Markets and Business Strategy, Tim Juliani and Andre de Fontaine, Markets and Business Strategy Fellows

This article originally appeared in US Industry Today, September/October 2007

 

Recent months have seen an explosion of activity on climate change, to the point where it is now almost impossible to pick up a newspaper without reading about a major new climate-related initiative from the business or policymaking community. This is not surprising, as it is clear that climate change will have economy-wide impacts, and create regulatory, physical, and reputational risks for a wide range of companies.

Manufacturing is not immune from these effects, for as a sector it represents nearly one-fifth (19 percent) of domestic direct emissions, and it is indirectly responsible for an additional 11 percent of emissions through electricity use. Furthermore, for powered manufactured goods such as appliances, electronics and autos, up to 90+ percent of emissions are created from product use, not their manufacture. Considering this greenhouse gas footprint, it is clear that manufacturing will be significantly impacted by any future climate change regulatory regime, and must now, as a sector, begin to confront the risks and opportunities that climate change presents. This includes awareness of and engagement in the national policy debate, as well as examining how climate can be factored into core business strategies.

Although a handful of scientists on the fringe continue to garner press attention with their contrarian views, the overwhelming majority of the scientific community believes that the warming in the atmosphere is unequivocal, and that the warming is human-induced. The latest report of the Intergovernmental Panel on Climate Change (IPCC) – a group of 2,500 climate scientists from across the globe that evaluate the peer-reviewed research on this issue – asserts that there is a greater than 90 percent certainty that most of the warming over the past century is human induced, and that a range of impacts are already being observed.

As the science has strengthened over the last decade, momentum has grown at the local, state and federal level to enact policies that reduce GHG emissions. Today, nearly all 50 states have enacted some form of climate-related standard, while the past several years have seen a steady increase in the level of Congressional attention to climate change.

A carbon-constrained future is imminent, a fact that many businesses now realize. In a survey of large corporations conducted during the development of the Pew Center’s 2006 report, Getting Ahead of the Curve: Corporate Strategies That Address Climate Change, 67 percent of businesses said they expect greenhouse gas regulations to take effect between 2010 and 2015.

A further 17 percent expect this before 2010. This implies climate legislation will pass Congress even sooner. The question now is not whether legislation will pass, but about its timing and the form it will take. Companies that prepare for this future will be the winners, while the rest will be left playing catch up.

Action on emissions
Manufacturing operations that are most likely to be affected by climate change regulations are those that result in significant direct greenhouse gas emissions (GHG), such as cement, iron and steel production, as well as those that are highly energy intensive, such as paper and chemicals operations. Climate change rules are likely to result in upward pressure on energy prices, which means that operational efficiency improvements will have greater benefit than in the past as a basis for advantage. Companies such as DuPont, which figures it has saved over $3 billion from efficiency since 1990, demonstrate the financial benefits embedded in these efforts. Manufacturers that produce highly efficient consumer products will also gain a competitive advantage over producers of similar, but more energy intensive goods and services.

Driven at least partly from a desire to influence the policy debate, a growing number of leading companies across many industries are now openly calling for national GHG limits. One of the most significant recent developments was the formation earlier this year of the U.S. Climate Action Partnership (USCAP). This coalition is an unprecedented collaboration of 23 major corporations and six leading nongovernmental organizations that is calling on Congress to enact mandatory, economy-wide climate protection legislation at the earliest date possible. Specifically, the group recommends Congress establish an emissions reduction pathway with short and mid-term targets equivalent to: between 100-105 percent of today’s levels within five years of rapid enactment; between 90-100 percent of today’s levels within 10 years; and between 70-90 percent of today’s levels within 15 years. Additionally, USCAP recommends a long-term reduction target of 60-80 percent below current levels by 2050.

USCAP believes a cap-and-trade system should be the cornerstone policy to meet these targets, but that additional policies should also be pursued in sectors such as transportation and buildings, in which the initial price signal from cap-and-trade will not be sufficient to reduce emissions and advance new technologies. The coalition also recommends that a federal technology research program be established that provides stable, long-term financing for low-GHG technologies. Additionally, Congress should urge the administration to engage in international negotiations with the aim of establishing emission reduction commitments by all major emitting countries.

The companies involved in USCAP, which include major manufacturers such as Alcoa, Caterpillar, Dow, DuPont, GE, John Deere, Johnson and Johnson – and the big three U.S. automakers – have chosen to become closely involved in the policymaking process because they realize, as the popular saying goes, “If you’re not at the table, you’re on the menu.” Yet, to earn a credible seat at the policymaking table, many companies have found they need to demonstrate their own commitment through meeting their own voluntary emission reduction goals. According to the Pew Center’s research, companies that have taken these steps report financial benefits from a range of climate-related programs, including energy efficiency improvements, process changes, fuel switching, and customer relations (see chart).

The Pew Center’s research found that the ultimate achievement related to climate is a game-changing strategy that allows a company to jump ahead of competitors by creating new markets or reshaping the rules of existing markets in their favor – for climate this means reshaping policy. And such strategies are beginning to emerge. GE and BP are working together to develop up to 15 clean-burning fossil-fuel based power plants that will separate and burn hydrogen while capturing and piping the resulting carbon dioxide into either deep geologic formations or existing oil wells to boost petroleum production. At the same time, BP is also partnering with DuPont to produce biobutanol, a biologically-derived, lower carbon transportation fuel that could replace ethanol for a wide-range of applications in the economy for significant market segments.

The consequences of climate change policy will be most severe for those who do nothing to prepare for it today. By engaging in the policy debate now, firms will help shape the carbon-constrained future in which they will operate. And while there is undoubtedly risk from climate regulation, there is also a great opportunity for the U.S. manufacturing sector to lead the world in producing new climate-friendly products and technologies, thereby helping not only the climate, but also the top and bottom lines.


Truman Semans is the Director for Markets and Business Strategy at the Pew Center on Global Climate Change. He manages the Center's Business Environmental Leadership Council (BELC), a group of 43 largely Fortune 500 corporations working with the Pew Center to address issues related to climate change, and directs Pew research on business and climate. He has consulted with McKinsey & Co. and served as the U.S. Treasury Department’s International Economist on global environment and natural resources.

Timothy Juliani and Andre de Fontaine are Markets and Business Strategy Fellows at the Pew Center on Global Climate Change. They work with the Center's BELC and engage in Pew Center analytic work on climate-related markets and investment issues.

by Truman Semans, Director for Markets and Business Strategy, Tim Juliani and Andre de Fontaine, Markets and Business Strategy Fellows— Appeared in US Industry Today, September/October 2007
Andre de Fontaine
Timothy Juliani
Truman Semans
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