Transcript Slide 1
How climate change will change business Emma Duncan Poland May 2008 Positive proof of global warming Is climate change happening? • • • • Yes, but very slowly Global temperatures up by 0.6°C in a century Arctic temperatures up by 3°C over 20 years Summer sea ice cover shrinking by 10% a decade • Increase in serious hurricanes over the North Atlantic • Thousands of species are moving northwards —problem for polar bears Are we sure it’s serious? • No, we’re sure of very little • Climate is an infinitely complex mechanism • Some feedback loops (eg, CO2 emissions from warming earth) are understood • Some (eg, clouds) are not • IPCC estimates of temperature increase by 2100 range from 1.2°C to 5.4°C Why are we worried? • Possibly catastrophic outcomes • The modern age is a remarkably mild period: historically, the climate has been more extreme • Sea levels have varied by 100m • Greenland and Antarctic ice caps have frozen and reformed Should we spend money on this? • No—future generations will be richer than we are • Yes—risk of a catastrophe is large enough that we should start trying to avert it now The insurance principle • As individuals, we insure our houses to protect our property • As nations, we pay for armies to protect our countries • As a world, we need to invest to protect our climate Action is being taken • In Europe, at national level and in Brussels • In America at state level, and soon at federal level • In emerging markets not at all, but the pressure is on Will it stop climate change from happening? Certainly not, unless more countries do a great deal more Will it affect business? Yes Global warming will change business • By changing the climate • By changing the market • By changing regulation The changing climate • Good for oil and gas in the Arctic (reckoned to be the source of 20% of the world’s undiscovered energy reserves) • Bad for investments on the Florida coastline The changing market • Are consumer attitudes shifting? • Are they shifting corporate attitudes? Consumers • Are they ethical? • Or are they hypocritical? Not many carbon offsets • Expedia: 57,000 carbon offsets over 18 months • British Airways: fewer than 1% of passengers buy carbon offsets Even if customers can save money by buying green, they don’t always do so Low-energy lightbulbs: • Save around $50 in electricity bills over their lifetime • Invented 25 years ago • Only just getting off the ground What’s going to happen to attitudes? • Maybe carbon becomes morally and socially unacceptable • Are you racist? • Are you homophobic? • Do you boil the planet by buying dirty? Corporate customers Big change over the past four years • 2004: executives were prepared to doubt the value of trying to mitigate climate change • 2008: uniformly, publicly convinced of the need to take action Why? • Genuine concern • Hurricane Katrina • Responsibility beyond shareholder returns • Politics American corporations • Federal emission-control system better than a state-level patchwork • Better to be at the table than on the menu To be at the table you need to be seen to be green • To be seen to be green you have to do something • Hence the move to carbon neutrality Carbon neutrality means you don’t add to the carbon dioxide in the atmosphere. So when you emit a tonne of carbon, you have to buy a tonne of carbon offsets As a result: • Carbon has a price • Price gets fed into tenders • Greener suppliers favoured over carbonintensive ones HSBC • World’s biggest bank • 312,000 employees • Committed to carbon neutrality • Uses shadow carbon price Will corporations continue to move in this direction? • High-profile commitments hard to reverse • Recession could change that • But politicians will force them to keep getting greener Climate change is the most difficult policy problem politicians have ever had to deal with • Uncertain • Transgenerational • Global It’s happening • All rich countries regulate to limit power and gasoline consumption • Regulations are being tightened • Even Bush has proposed to cap US greenhouse gas emissions by 2025 Europe’s tools for dealing with climate change • Product standards • Renewables targets • Cap and trade Commission has used standards to squeeze carmakers • Voluntary ones ignored • Mandatory ones introduced • French and Italians shrug; Germans explode Renewables targets • 20% renewables by 2020 • 10% biofuels by 2020 Biofuels illustrate the consequences of mixing motivations • Environment • Energy security • Pandering to the farm lobby Biofuels illustrate the consequences of governments picking technologies • Carbon price avoids that problem: the market does the picking How a cap-and-trade system works • To emit carbon you need a permit • Price is determined by number of permits issued and demand for them • Permit price is carbon price Generating electricity with coal... • is cheap • is dirty • requires lots of permits How it works in Europe • Covers 5 dirty industries (electricity, paper, metals, oil, building materials) • Monitors GHG emissions from 11,000 plants • Firms tell national governments how many permits they think they need • National governments tell Brussels how many permits they think they need • Brussels tells them they are greedy and rejects the bid • National governments sue Brussels To keep within their limits, firms can • Cut power consumption • Cut carbon emissions • Buy new permits from each other or developing countries Market has gone from zero to $64 billion in three years • Of which $72m is Chicago Climate Exchange • Almost all the rest is generated by ETS • Bizarre trade fair in Cologne How Europe messed up • Gave out permits free • Gave out too many permits Costs? • Power prices in Europe gone up by maybe 10-15% so far • Current package, if agreed, will push them up another 10-15% Opportunities, for investors and others America is going this way • Lieberman-Warner bill • McCain and Obama both committed How climate change will change business Emma Duncan Poland May 2008