Comparing USCAP Recommendations to the EU Emissions Trading System

Side-by-Side Comparison of the USCAP Blueprint for Legislative Action to the EU Emissions Trading System
February 2009

Click here for the document. (pdf)

On January 15, 2009, the U.S. Climate Action Partnership (USCAP) issued A Blueprint for Legislative Action – a detailed framework for legislation to address climate change that calls for an economy-wide greenhouse gas cap-and-trade program. This document (produced while as the Pew Center on Global Climate Change) provides an accessible comparison between the USCAP plan and the EU-ETS on the following key topics:

  • Targets & Timetables
  • Scope of Coverage 
  • Allowance Allocation
  • Offsets
  • Other Cap-and-Trade Cost Containment Elements
  • Additional Climate Related Measures Related to Coal, Performance Standards, Tranportation, and Energy Efficiency

USCAP is an unprecedented coalition of 5 leading non-governmental organizations, including the Center, and 25 major corporations. This diverse group of business and environmental leaders have come together to call for mandatory action, with a comprehensive approach involving near-, mid-, and long-term targets, and a range of effective policies.

Op-Ed: A Blueprint for Action

By Eileen Claussen
February 2009

This article originally appeared in Environmental Finance.

The prospects for serious US action to address climate change have never been better – and it’s not just because we have a new President. In fact, an important reason why we’re likely to see real action on this issue by the current Congress is because of leadership not in the world of politics but in the world of business. Even in the middle of a serious economic downturn, many of America’s top business leaders are standing firm in their support for climate solutions.

Just days before the inauguration of President Barack Obama on January 20, the US Climate Action Partnership (USCAP) took its engagement on the climate issue to a new level, issuing “A Blueprint for Legislative Action.” The Blueprint represents two years and literally thousands of hours of work by USCAP members and offers federal lawmakers a consensus plan for an integrated package of policies to slow, stop and reverse the growth of US greenhouse gas (GHG) emissions.

USCAP includes the CEOs of 26 major companies in industries from automobiles and oil to coal mining and coal-burning utilities, together with representatives of five non-governmental organisations, including the Pew Center. The coalition’s role as a catalyst for change, and one that has significant influence across the political spectrum, was evident when USCAP CEOs testified before the powerful House Energy and Commerce Committee in January. During the hearing, the panel’s new chairman, Henry Waxman, pledged to pass a climate bill through the committee in May.

Since USCAP’s launch in 2007, its corporate members – which include General Electric, Duke Energy and DuPont – have been calling with their NGO partners for enactment of a domestic cap-and-trade programme. USCAP’s new landmark recommendations provide Congress with details for how such a programme could be designed to achieve steep reductions in emissions in an economically sustainable manner.

The USCAP Blueprint calls for a cap on US emissions of 14-20% below 2005 levels by 2020, 42% below by 2030, and 80% by 2050. USCAP believes we can achieve these targets while rebuilding and reinvigorating the US economy. Its key features include:

  • A robust carbon offsets programme, setting an overall annual upper limit for offset use starting at 2 billion metric tons with authority to increase the amount to 3 billion metric tons should market conditions warrant. Within this upper limit of 2 billion metric tons, domestic and international offsets would be limited so that each is no more than 1.5 billion metric tons in a given year. For example, the programme would allow for the use of 1.5 billion metric tons of domestic offsets and 500 million metric tons of international offsets;
  • A Carbon Market Board to oversee a strategic offset and allowance reserve pool, containing a sufficiently large set of other offsets and, as a measure of last resort, allowances borrowed from future compliance periods that could be released into the market in the event of excessive allowance prices; and
  • A combination of an auction of allowances with a significant initial free allowance allocation that facilitates the transition to a low-carbon economy for consumers and businesses, provides capital to support new low- and zero-GHG-emitting technologies, and funds adaptation measures. The free distribution of allowances would be phased out over time.

All of these measures were painstakingly negotiated as a way to both reduce emissions and revitalise the U.S. economy. They are joined in the USCAP Blueprint by a range of other proposals that would complement the national cap-and-trade programme with incentives for rapid technology transformation in areas from coal technology and transportation to buildings and energy efficiency.

Now to the question at the top of everyone’s mind: What are the actual chances of this kind of plan getting enacted during the 111th Congress? While we can only speculate at this point, the Pew Center’s belief is that the chances are very good. And we see several reasons why.

President Obama, in one of his first major policy statements after the election, reaffirmed his commitment to reducing US emissions to their 1990 levels by 2020 and to 80% below that by 2050, and to enacting a GHG cap-and-trade law. He has since appointed an environment and energy team with tremendous expertise and commitment to climate action.

In Congress, the Democratic leadership is made up of some of Congress’s strongest advocates of climate action, including Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi, and the chairmen of the key committees: Waxman of the House Energy and Commerce Committee, Barbara Boxer of the Senate Environment and Public Works Committee, and Jeff Bingaman of the Senate Energy and Natural Resources Committee. Key Republicans are also continuing their leadership on the issue, including Senator John McCain, who plans to reintroduce a cap-and-trade bill with his longtime ally, Senator Joseph Lieberman.

Finally, we see the prospects for near-term enactment of a serious cap-and-trade law as good because of the very fact that these proposals have the backing of many of the nation’s leading businesses. Today, for the first time since climate change appeared as a faint bleep on the national radar screen in the mid-1980s, we are seeing what appears to be a critical mass of leadership and engagement in the White House, Congress and the business community.

However, while the stars may be aligned as never before, the push for serious climate action still faces enormous challenges. Designing an effective cap-and-trade programme will be very hard work – and hard politics.

But progress is possible, and we are beginning to see the outlines of a consensus approach to this problem. Even as the US is facing a significant economic challenge, the nation’s business and political leaders are increasingly vocal about their commitment to addressing climate change not at a later date but right now.

The current consensus bodes well for serious climate legislation finally emerging from Congress – and for the US finally to start exercising leadership on the most important global issue of our time.

- Eileen Claussen is President of the Pew Center on Global Climate Change.

Appeared in Environmental Finance— by Eileen Claussen

Climate Change 101 series

To inform the climate change dialogue, the Center for Climate and Energy Solutions has produced a series of brief reports entitled Climate Change 101: Understanding and Responding to Global Climate Change, Updated January 2011.

These reports provide a reliable and understandable introduction to climate change. They cover climate science and impacts, climate adaptation, technological solutions, business solutions, international action, federal action, recent action in the U.S. states, and action taken by local governments. The overview serves as a summary and introduction to the series.

Read the entire series or jump to a single report:
OverviewScience and ImpactsAdaptationTechnologyBusiness International FederalStateLocal • Cap and Trade

For more information, be sure to listen to our Climate Change 101 podcast series


Complete101Climate Change 101: Understanding and Responding to Global Climate Change

The complete set of six reports plus the overview in one volume.




OverviewClimate Change 101: Overview

This overview summarizes the key points from each of the Climate Change 101 reports.




Climate Change 101 The Science and ImpactsClimate Change 101: Science and Impacts

This report provides an overview of the most up-to-date scientific evidence and also explains the causes and projected impacts of climate change.




Adaptation 101 Climate Change 101: Adaptation

This report details how adaptation planning at the local, state and national levels can limit the damage caused by climate change.




TechnologyClimate Change 101: Technological Solutions

This piece discusses the technological solutions both for mitigating its effects and reducing greenhouse gas emissions now and into the future.




Business SolutionsClimate Change 101: Business Solutions

This report discusses how corporate leaders are helping to shape solutions.




InternationalClimate Change 101: International Action

This report discusses what will be needed for an effective global effort, one calling for commitments from all the world's major economies.




Federal ActionClimate Change 101: Federal Action

This report discusses federal policy options that can put the country on the path toward a lower-carbon future.




State ActionClimate Change 101: State Action

This report highlights states' efforts as they respond to the challenges of implementing solutions to climate change.



Local Action Climate Change 101: Local Action

This report describes the actions taken by cities and towns.




Cap and trade 101Climate Change 101: Cap and Trade

This report explains the details of cap and trade.


Partnership Grids - Products and Services

View a listing of various business-government and business-NGO partnerships designed to advance more energy efficient products and services.
Andreas Schafer

Carbon Market Insights Americas 2008

Promoted in Energy Efficiency section: 
An event hosted by the Pew Center and Point Carbon.

November 12-14, 2008
Marriott Wardman Park Hotel
Washington, DC

The Pew Center on Global Climate Change and Point Carbon invite you to Carbon Market Insights Americas 2008, taking place in the heart of political decision making, the week following the U.S. presidential election.

The event will involve key decision makers in the forthcoming U.S. Administration and Congress and provide participants with a fresh analysis on climate policy and carbon markets in North America. It will offer key insights into how federal policy changes are likely to affect regional cap-and-trade schemes in North America, the global carbon market, and emissions trading around the world.

View the Conference Program

Click here to Register and to get more information about the conference.

Dow Chemical Co. & Johnson Controls Join Pew Center's Business Environmental Leadership Council

Press Release                                        
October 22, 2008

Pew Center Contact: Tom Steinfeldt, (703) 516-4146                               
Johnson Controls, Inc. Contact: Jennifer Mattes, (414) 524-2349




Industry Leaders Show Strong Commitments to Advance Climate Change Solutions

WASHINGTON, D.C. – The Pew Center on Global Climate Change announced today that The Dow Chemical Company and Johnson Controls, Inc. have joined the Pew Center’s Business Environmental Leadership Council (BELC) and its efforts to address global climate change.

“It is a testament to both the continued leadership of the business community and the critical nature of the climate issue that in the midst of these trying economic times ¬– we welcome two new members to our Business Environmental Leadership Council,” said Eileen Claussen, President of the Pew Center on Global Climate Change. “Both Dow and Johnson Controls have demonstrated excellent corporate leadership on the climate issue over the years, and I look forward to working with them to fashion a reasonable and economically sustainable climate policy for the U.S.”

Dow is a leading diversified chemical company that combines human innovation, science, and technology to deliver products and services in about 160 countries. With annual sales of $54 billion and 46,000 employees worldwide, the Midland, Michigan-based company helps provide a range of products and services, including fresh water, food, pharmaceuticals, paints, packaging, and personal care products.

“We are very excited about joining the Business Environmental Leadership Council,” said David Kepler, Dow’s Executive Vice President, Chief Sustainability Officer. “At Dow, we believe providing humanity with a sustainable energy supply while addressing climate change is one of the most urgent environmental issues society faces. We look forward to working with the Pew Center on solutions to slow, stop, and reverse the growth of greenhouse gas emissions here in the U.S. and around the world.”

Since 1990, Dow has reduced its absolute greenhouse gas emissions by more than 20 percent, a more rapid reduction than required by Kyoto Protocol targets. Through its conservation and efficiency efforts, Dow has reduced its energy usage by 1,400 trillion BTUs since 1994, equal to the electricity used by California households for 16 months. These actions by Dow have resulted in preventing 70 million metric tons of CO2 from entering the atmosphere.

Johnson Controls is a diversified industrial company that provides innovative automotive interiors, offers products and services that optimize energy use and improve comfort and security for buildings, and provides batteries for automobiles and hybrid-electric vehicles, along with systems engineering and service expertise. The Milwaukee-based company has 140,000 employees in more than 1,300 locations serving customers in 125 countries.

Through its business practices, products and services, Johnson Controls demonstrates a commitment to sensible climate action. Johnson Controls’ guaranteed energy savings retrofit projects have saved their customers $1.5 billion in energy costs and 11.2 million metric tons of greenhouse gas emissions since January 2000. The company has also pledged to work with major cities around the world, through the Clinton Climate Initiative, to reduce emissions by improving energy efficiency in buildings.

"We're honored with this recognition of our climate action initiatives," said Steve Roell, chairman and CEO of Johnson Controls. "As partners with the other 43 members of the BELC and the Pew Center, we are committed to making the world more comfortable, safe, and sustainable by helping our customers around the world address global climate change."

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 44 companies representing over $2 trillion in combined revenue and nearly 4 million employees.

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



The Pew Center was established in May 1998 as a non-profit, non-partisan, and independent 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.

About Johnson Controls
Johnson Controls (NYSE: JCI) is the global leader that brings ingenuity to the places where people live, work and travel. By integrating technologies, products and services, we create smart environments that redefine the relationships between people and their surroundings. Our team of 140,000 employees creates a more comfortable, safe and sustainable world through our products and services for more than 200 million vehicles, 12 million homes and one million commercial buildings. Our commitment to sustainability drives our environmental stewardship, good corporate citizenship in our workplaces and communities, and the products and services we provide to customers. For additional information, please visit

Pew & Alcoa Partner to Make an Impact

Press Release
October 6, 2008

Alcoa Contact: Tricia Napor, + 1 212 836 2798
Pew Center Contact: Katie Mandes, +1 703 516 4146

The Pew Center and the Alcoa Foundation Partner for Unique Employee Program

Growing concern around the environmental impacts of climate change and rising energy costs has prompted many to question what they can do to take action in their daily lives.

In what is believed to be a first for corporate America, aluminium company Alcoa and the Pew Center on Global Climate Change have launched a unique new program to help find the answers.

Make an Impact provides the tools for Alcoa's employees and the local community to manage their individual carbon footprint, reduce their energy costs, and become part of the solution to global climate change.

The Make an Impact program includes:

  • Interactive website with tools and resources on reducing energy bills and living more sustainably;
  • Custom-built carbon calculator with individual 'footprint' analysis and personalized action planning;
  • Comprehensive outreach program of localized interactive workshops.

Pew Center President Eileen Claussen applauded the project, "We often think that solutions to climate change and energy costs can come only from business and government.  But everyone needs to play their part - and through our partnership with the Alcoa Foundation - we are making that possible.

"We expect this program to serve as the benchmark on personal carbon accounting across business and the community and we look forward to sharing it with our business partners in the near future.”

Alcoa CEO Klaus Kleinfeld said that this was a part of a global leadership position on addressing climate change and in addition to Alcoa reducing emissions inside its operations 33% from a 1990 base, Alcoa Foundation had invested over $8 million in community-driven climate change projects in the last year.

"Climate change is the most critical sustainability issue of our time and to make a real difference we all need to take action - on all fronts and at all levels, individually and together, said Mr Kleinfeld.

"Our 97,000 employees are finding new ways to meet this challenge every day and our product is also playing key role – not only can aluminum be recycled endlessly - taking only 5% of the energy needed to make new metal - but it is also reducing fuel use in transport by making lighter vehicles.”

"By providing our employees and neighbours the tools to understand and manage their environmental impact, we support them in being part of the solution to global climate change.  Because as individuals we can all make a difference, but by working together, we can really make an impact.”

The Make an Impact program builds on the success of the program developed in Australia in 2006 through an Alcoa Foundation partnership with Greening Australia.

Make an Impact will kick off in the US on September 18th and initially be introduced at nine Alcoa locations from Washington to Pittsburgh, with plans to take the program elsewhere to other US locations and beyond.

To find out more visit


The Pew Center on Global Climate Change was established in 1998 as a non-profit, non-partisan, and independent organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change.

The Center engages decision-makers at the federal, state, regional, and international levels to achieve its goals for mandatory federal climate change policy and a post-2012 international climate agreement.

The Center's Business Environmental Leadership Council (BELC), a group of 42 mainly Fortune 500 companies with over $2 trillion in combined revenue and employing more than 4 million people, is the largest U.S.-based association of corporations committed to advancing mandatory policy and business solutions to address climate change.

The Pew Center is also a founding member of the influential U.S. Climate Action Partnership.


Alcoa Foundation is a separately constituted nonprofit U.S. corporate foundation with assets of approximately $500 million. Its mission is to actively invest in the quality of life in Alcoa communities worldwide. Throughout its history, the Foundation has been a source of positive community change and enhancement, with nearly $466 million invested since 1952.

The Foundation's grants address global and local needs in over 36 countries by partnering with Alcoa communities around the world to make a difference. Global and local grantmaking is responsive to the needs and aspirations of Alcoa communities and marshals the combined expertise, energies, and values of Alcoa and Alcoa Foundation to provide a world-class standard of excellence in corporate citizenship.

In 2007, Alcoa and Alcoa Foundation invested a combined total of $49.0 million in community programs in 36 countries, focusing on four areas of excellence: conservation and sustainability, global education and workplace skills, business and community partnerships, and safe and healthy children and families. Alcoa Foundation manages the Alcoa employee volunteer programs ACTION and Bravo! For more information, visit

Press Release: Offset Quality Initiative Releases White Paper


News Release: For Immediate Release — July 28, 2008

Alexia Kelly, The Climate Trust, 541-514-3633
Tom Steinfeldt, Pew Center on Global Climate Change, 703-516-4146


Group Receives Major Grant from the Energy Foundation

PORTLAND and WASHINGTON, D.C. — The Offset Quality Initiative (OQI) will release a white paper today in San Diego at a briefing to be held before the opening of the Western Climate Initiative stakeholder meeting. Titled “Ensuring Offset Quality: Integrating High Quality Greenhouse Gas Offsets Into Cap-and-Trade Policy,” the document offers policymakers practical recommendations regarding the integration of greenhouse gas offsets into emerging regulatory systems at the state, regional and federal levels. OQI, a coalition of six leading non-profit organizations—The Climate Trust, Pew Center on Global Climate Change, California Climate Action Registry, Environmental Resources Trust, Greenhouse Gas Management Institute, and The Climate Group—was founded in November 2007 to provide leadership on GHG offset policy and best practices. 

“The availability of high-quality offsets is key to containing the cost of climate policy while delivering real greenhouse gas emission reductions,” said Eileen Claussen, President of the Pew Center on Global Climate Change. “A rigorous and adaptable offset program design can ensure that offsets play a valuable role in an effective cap-and-trade system. OQI’s work will assist policymakers seeking to develop core components of a credible offsets program.”

In addition to regulatory design guidelines, the white paper addresses the key criteria for offset quality and discusses offset project types most appropriate for inclusion in emerging regulatory systems. OQI member organizations will discuss their recommendations with policymakers and other stakeholders over the next several weeks, beginning with today’s briefing in San Diego.

“Establishing confidence in the environmental integrity of offsets is critical for the successful launch and acceptance of future cap and trade regulatory systems.  The goal of our paper is to provide policymakers with well-conceived and comprehensive recommendations for offset program design based on the collective knowledge and experience of the OQI members.  Each nonprofit member of the coalition is a well-respected and established organization in climate change and brings valuable experience and knowledge to the group,” said Gary Gero, President of the California Climate Action Registry.

OQI recently received a one-year grant of $235,000 from the Energy Foundation to support its work. “We were excited and honored to receive the grant,” said Mike Burnett, Executive Director of The Climate Trust, which was awarded the grant on behalf of OQI. “This generous support from the Energy Foundation highlights the need for the unique work and perspective of OQI. We will use the funds to continue to advance sound greenhouse gas offset policy.”

For a copy of the white paper or for more information on the briefing, please visit


About the Offset Quality Initiative
The Offset Quality Initiative (OQI) was founded in November 2007 to provide leadership on greenhouse gas offset policy and best practices. OQI is a collaborative, consensus-based effort that brings together the collective expertise of its six nonprofit member organizations: The Climate Trust, Pew Center on Global Climate Change, California Climate Action Registry, the Environmental Resources Trust, Greenhouse Gas Management Institute, and The Climate Group.

The four primary objectives of the Offset Quality Initiative are:

  • To provide leadership, education, and expert analysis on the issues and challenges related to the design and use of offsets in climate change policy.
  • To identify, articulate, and promote key principles that ensure the quality of greenhouse gas emission offsets.
  • To advance the integration of those principles in emerging climate change policies at the state, regional, and federal levels.
  • To serve as a source of credible information on greenhouse gas offsets, leveraging the diverse collective knowledge and experience of OQI members.

White Paper: Ensuring Offset Quality

Ensuring Offset Quality: Integrating High Quality Greenhouse Gas Offsets Into North American Cap-and-Trade Policy
An Offset Quality Initiative White Paper
July 2008

Download full paper (pdf)

Download executive summary (pdf)

Read press release

This paper aims to provide policymakers with practical recommendations regarding the integration of greenhouse gas (GHG) offsets into emerging regulatory systems. Offsets have an important role to play in controlling the costs associated with regulating and reducing GHGs, and in driving technology transformation in sectors not mandated to reduce their GHG emissions. In order for offsets to deliver on their intended purpose — the achievement of a real and verifiable reduction in global GHG emission levels beyond what would have otherwise occurred —regulatory programs must be designed to ensure the quality and effectiveness of offsets used to meet GHG reduction requirements. Policymakers must also have a clear understanding of both the opportunities and challenges presented by the integration of offsets into GHG emission-reduction systems.

This document represents the consensus of the member organizations of the Offset Quality Initiative: The Climate Trust, Pew Center on Global Climate Change, California Climate Action Registry, Environmental Resources Trust, Greenhouse Gas Management Institute and The Climate Group. The GHG mitigation field is evolving at a rapid pace and will continue to do so over the next several years; this document will be updated over time to reflect any changes in the Offset Quality Initiative’s consensus positions.

The work of the Offset Quality Initiative is generously supported by the Energy Foundation.


Adapting to Climate Change: A New Frontier for Business

This article originally appeared in ClimateBiz.

The past several years have seen a steady transformation of business attitudes and behavior on climate change.

Faced with the prospect of new regulations, increased pressure from shareholders and changing consumer demands, many companies are developing comprehensive corporate strategies to address new climate-related risks and opportunities. Companies have set internal greenhouse gas reduction targets, developed new low-carbon products and services, and become increasingly engaged in the national policy debate.

Despite these actions, businesses have been relatively slow to address one critical piece of the climate challenge: adaptation to the physical impacts of climate change.

As with most climate-related issues, adaptation can initially appear complex. Some businesses are reluctant to take it on because it adds a new layer to the existing challenge of preparing for regulatory changes and shifting markets. Meanwhile, projections of physical impacts of climate change are often characterized by uncertainty and extended time horizons.

A new report from the Pew Center on Global Climate Change, "Adapting to Climate Change: A Business Approach," attempts to break down the adaptation challenge to more tractable components. Authored by Frances G. Sussman and J. Randall Freed of ICF International, the report builds a clear business case for adaptation, presents a screening process companies can use to assess climate-related physical risks, and provides three case studies of companies in the Pew Center's Business Environmental Leadership Council (BELC) that have taken action on adaptation.

The business case rests on the notion that early preparation can prevent, or at least reduce, future losses from climate-related impacts. Many of these projected impacts, including sea level rise, increased incidence and severity of extreme weather events, and prolonged heat waves and droughts, could have serious consequences across a range of businesses.

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 extended drought could render large swathes of previously arable farmland unusable. While some sectors face greater risks than others, all businesses face the possibility of property damage, business interruption and changes or delays in services provided by private or public infrastructure.

The report stresses the importance of proactive adaptation, or recognizing and acting on threats before they occur. This means relying less on historical trends and past decisions to guide business planning, and instead relying more on the anticipation and analysis of projected future impacts.

Proactive adaptation will initially be more difficult but, ultimately, less costly for most businesses to execute than a strictly reactive approach. Consider, for example, the cost of moving an existing manufacturing facility further inland to avoid damage from rising sea levels compared to the cost of conducting a preliminary study to select a less vulnerable construction site. The guiding principle is a familiar one -- an ounce of prevention is worth a pound of cure.

Businesses that begin evaluating potential physical risks will also be better positioned to exploit climate-related opportunities. For example, some tourist regions may benefit from an extended spring and summer recreation season. Biotechnology companies could profit from early development of new seed and other agricultural products that help crops withstand new climatic extremes. Melting ice could open new shipping routes in the Arctic. While these opportunities exist across various sectors of the economy, it is important to note that the Intergovernmental Panel on Climate Change made it clear that climate change will almost certainly result in net costs to society, with these costs growing steeper over time as temperatures increase.

The Pew Center report lays out a screening process companies can use to evaluate the potential physical risks of climate change and decide if more action is needed. In brief, the first step is to determine whether climate is an important factor in business risk. If the answer is yes, the next step is to determine whether climate change presents an immediate risk or threatens assets and investments over a longer-term horizon. The final step is to determine the cost of a wrong decision. If the costs are large, then a more comprehensive risk assessment that looks in greater detail at climate projections and their impact on the business may be warranted.

Depending on how these questions are answered, the screening process will lead to one of three possible outcomes: 1) climate change poses a significant risk that should be managed in the short term; 2) climate change poses a potential risk that should be monitored and reassessed over time; or 3) climate change does not appear to pose a risk and no further analysis is required.

A key message from the report is that companies should take a broad view of climate risks as they conduct the screening process. This means going beyond core operations to include a review of the entire value chain, along with broader supply and demand networks such as electricity, water and transportation infrastructure. A manufacturing plant may escape direct damage from a major storm but still face business interruption risk if transmission lines delivering power to the facility are knocked out, or roads and highways surrounding the facility are left inoperable.

While adaptation is a new issue for many companies, there are some notable exceptions. Three of these are highlighted in the report:

  • A New Orleans-based utility, Entergy, suffered $2 billion in losses from Hurricanes Katrina and Rita and has begun relocating important business operations to areas less vulnerable to severe weather events. Entergy also recognizes that, if it goes unchecked, climate change poses long-term risks to the economic viability of its service area and is working with local government agencies and civic organizations to enhance the region's adaptive capacity.
  • Travelers, a major property insurance company, is exploring new pricing strategies to encourage adaptive actions from its commercial and personal customers. It is also working with a range of stakeholders to help better integrate climate change science into catastrophe modeling and loss estimates.
  • Mining giant Rio Tinto is using high-resolution climate modeling to conduct detailed site assessments and gauge risks to high-priority assets. Extreme flooding and prolonged drought have emerged as the greatest sources of concern, creating additional justification for the development of a strong water strategy.

Not every business will need to take action to adapt to the physical impacts of climate change, but all firms should be aware of the potential risks. An initial screening can often be conducted relatively easily using publicly available information on climate trends and projections. This screening helps companies determine whether more focused action is needed. It can also help firms uncover hidden opportunities that a changing climate may hold. The companies that take early action on adaptation may gain a competitive advantage over industry peers that stand idle as the physical effects of climate change creep up and surprise them -- and their bottom line.

Andre de Fontaine is a Markets and Business Strategy Fellow with the Pew Center on Global Climate Change.

by Andre de Fontaine, Markets and Business Strategy Fellow— Appeared in ClimateBiz, May 15, 2008
Andre de Fontaine
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