How climate change will change business Emma Duncan Poland May 2008

1. How climate change will change business Emma Duncan Poland May 2008

2. Positive proof of global warming

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. Will it stop climate change from happening? • Certainly not, unless more countries do a great deal more • Will it affect business? • Yes

10. Global warming will change business • By changing the climate • By changing the market • By changing regulation

11. 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

12. The changing market • Are consumer attitudes shifting? • Are they shifting corporate attitudes?

13. Consumers • Are they ethical? • Or are they hypocritical?

16. Not many carbon offsets • Expedia: 57,000 carbon offsets over 18 months • British Airways: fewer than 1% of passengers buy carbon offsets

17. 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

18. 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?

19. 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

21. Why? • Genuine concern • Hurricane Katrina • Responsibility beyond shareholder returns • Politics

22. American corporations • Federal emission-control system better than a state-level patchwork • Better to be at the table than on the menu

23. 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

24. 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 carbon-intensive ones

25. HSBC • World’s biggest bank • 312,000 employees • Committed to carbon neutrality • Uses shadow carbon price

26. 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

27. Climate change is the most difficult policy problem politicians have ever had to deal with • Uncertain • Transgenerational • Global

28. 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

29. Europe’s tools for dealing with climate change • Product standards • Renewables targets • Cap and trade

30. Commission has used standards to squeeze carmakers • Voluntary ones ignored • Mandatory ones introduced • French and Italians shrug; Germans explode

32. Renewables targets • 20% renewables by 2020 • 10% biofuels by 2020

34. Biofuels illustrate the consequences of mixing motivations • Environment • Energy security • Pandering to the farm lobby

35. Biofuels illustrate the consequences of governments picking technologies • Carbon price avoids that problem: the market does the picking

36. 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

37. Generating electricity with coal... • is cheap • is dirty • requires lots of permits

38. How it works in Europe • Covers 5 dirty industries (electricity, paper, metals, oil, building materials) • Monitors GHG emissions from 11,000 plants

39. 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

40. To keep within their limits, firms can • Cut power consumption • Cut carbon emissions • Buy new permits from each other or developing countries

42. 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

43. How Europe messed up • Gave out permits free • Gave out too many permits

45. Costs? • Power prices in Europe gone up by maybe 10-15% so far • Current package, if agreed, will push them up another 10-15%

46. Opportunities, for investors and others

47. America is going this way • Lieberman-Warner bill • McCain and Obama both committed

49. How climate change will change business Emma Duncan Poland May 2008