HK Climate Change Forum CPD Program on Climate Change Adaptation – An Industry Perspective 22 September 2010 Dr Jeanne N

1. HK Climate Change ForumCPD Program on Climate ChangeAdaptation – An Industry Perspective22 September 2010Dr Jeanne NgCLP Holdings Limited

2. Why Adapt? While we mitigate, we must also adapt… Adaptation is necessary to address impacts resulting from the warming which is already unavoidable due to past emissions

3. How Can Businesses Adapt? General • Increasing adaptive capacity includes consideration of climate change impacts in: • development planning and • disaster risk reduction strategies • Adaptive responses include: • technological • behavioural • managerial • policy Many early impacts of climate change can be effectively addressed through adaptation, but options diminish and associated costs increase with increasing magnitude of climate change... Source: IPCC 4th Assessment Report (FAR), Working Group 2 Report: Summary for Policymakers

4. How Can Businesses Adapt? Risk Monitoring & Assessment • Physical climate change impacts – anticipate and assess potential impacts and implications to business • Emerging regulations – anticipate and monitor regulatory risks and implications to businesses • Investments – conduct climate risk assessments for potential/new investments • Stakeholder expectations – anticipate and assess potential stakeholder expectations and implications to business Businesses should monitor and assess regularly the potential climate change impacts, regulations and related stakeholder expectations.

5. How Can Businesses Adapt? Risk Mitigation Strategies • Development planning – incorporate climate change considerations into design specifications and contracts • Crisis management planning – incorporate climate change considerations into crisis management plans • Investments – build in carbon-related investment/screening criteria • Maximising opportunities – identify and pursue potential new business opportunities arising from changing market conditions Businesses should develop and implement strategies to reduce business risk and optimise business opportunities.

6. Examples Of Hypothetical Scenarios • Water shortage – changed rainfall patterns and water shortages in certain regions • Higher temperature– increased average temperatures, longer and more intense summer heat waves and a greater number of extreme heat days each year • Legal action – Non-government Organizations begin to take action against major emitters • Investors’ limit – Leading institutional investors institute a voluntary code that limits their investment in businesses with emission liabilities greater than 10% of EBIDTA Begin raising staff awareness and capacity from different units on possible adaptation measures for some climate change scenarios.

7. The Problem: Water Shortage Climate change leads to changed rainfall patterns and water shortages in certain regions. • In the worst affected regions, Governments respond by introducing mandatory caps on water use for industrial purposes and a system of tradeable water rights. • Existing power station water extraction rights are curtailed and power stations must forgo generation or purchase water rights from other users. • New power stations are forced to purchase all their water requirements from other users and to put in place stringent water management practices to limit water use on site.

8. Not as unlikely as you might think… WATER FLOW CUT TO POWER STATIONS The Australian – 8 March 2007 • The Queensland Government will today reduce the water supply to the Tarong North and Swanbank power stations, which is expected to save 3,600 megalitres over the next 12 months. Opposition Leaders called for the Government to go one step further and temporarily shut down the power stations, to save a further 6,530 megalitres of water. The cap on water extraction was only possible after a lengthy process to ensure the Government was legally able to enforce it without leaving itself open to compensation claims. DROUGHT TO PUSH UP POWER BILLS The Advertiser - April 26, 2007 • POWER bills delivered to South Australian homes and businesses will jump unless the drought breaks, one of the state's biggest electricity retailers has warned. The big dry has been blamed for more than doubling the price of wholesale power in SA during the past month. This is occurring because hydro-electric and some interstate coal-fuelled generators on the national power grid are struggling to cope with a lack of water. Analysts say the wholesale price has risen to $63 a megawatt hour, compared with $28MW/h for the same time last year. Industry commentator and Electricity Week editor Laurel Fox-Allen said the market was undergoing a "very dramatic change in conditions…What we are seeing now is most unusual. This is a massive change in the market. "Two months ago, no one would have predicted these sorts of prices in the market.” BABCOCK POWER UPGARDES 2007 GUIDANCE The Age - April 26, 2007 • While Australia's water crisis is causing headaches for some, water shortages have underpinned Babcock & Brown Power Ltd's (BBP) upgraded earnings forecast for this financial year. The energy utility said it expected earnings to be more than 12.5 per cent higher than the previous forecast of $91 million for 2006/07, following favourable conditions linked to water constraints. "The widespread water shortages have resulted in rising wholesale electricity prices across Australia in both the spot and forward…In Queensland, level five water restrictions are now in place, which has led to a significant reduction in baseload generation capacity…In addition, Snowy Hydro has hit a critical point in its water stocks with levels currently around 10 per cent of active capacity,“ BBP said.

9. Implications Shortage of water supply Cooling water restriction Increased cost for generation Water rights and potential legal issues – leading to water trading markets Responses Seek government incentives/funding to retrofit Seek government approval Different tariff Additional water source Community awareness & engagement Assets

10. Implications Rise of ambient river temperature Change in water salinity May need to use substitute or alternative water sources e.g. recycled, reclaimed, seawater cooling, etc. Technical safety and environmental issues encountered when making these changes Responses Retrofit new technologies although high cost Moving to ZERO discharge sites Securing additional/ alternative water sources or options Purchasing water from others e.g. market, other entitlement holders, etc. Introducing different operating regimes e.g. for cooling water blow down Systems & Processes

11. Implications During planning consider: Technology selection e.g. gas/renewable, hybrid dry-wet cooling, co-generation, etc. High cost Water entitlement issues Migration of customers/industries (shifts of location of rainfall patterns) Government policies Responses New technology e.g. integrated generation & desalination (produce water as well) Alternative generation technology Changing of geographical location Securing water entitlement Pass through of cost to customers\upfront project planning Partnership with water suppliers & customers Growth & Development

12. The Problem: Higher Temperature • Climate change leads to increased average temperatures, longer and more intense summer heat waves and a greater number of extreme heat days each year when temperatures exceed 40C.

13. Not as unlikely as you might think… GLOBAL WARMING CAUSES HEAT WAVE China Daily – 7 Feb 2007 • Beijing reports record high temperatures. After temperature records were broken on "Lichun" (the beginning of spring, the first of China's 24 traditional agricultural "terms" in the lunar calendar, which this year fell on February 4), Beijing reported another record high temperature of 16 degrees Celsius on the afternoon of February 5, the highest recorded temperature on that date in the last 167 years (systematic temperature records have been kept since 1840). Meteorological data shows that the average temperature in Beijing last December and this January were significantly higher than in previous years and that trend will continue this month. Meteorological experts say that the recent abnormally high temperatures have seldom been seen during this period at any time in history. Temperatures also remain high in Harbin city. The snow in the streets is melting. In Shanghai, the temperature was above 20 degrees Celsius for a few days in early February. HEAT WAVE HITS EAST CHINA CITIES China Daily - 2004-07-27 • The city of Shanghai is expected to remain on red alert as the temperatures are expected to remain above 35 C until the end of this month. Electric generators have been kept running near maximum load so as to meet the surging power demand of households while 5,000 industrial producers have been co-ordinated to shift their working hours to reduce the pressure. The electric load reached 14.44 million kilowatts Monday, following 15.006 million kilowatts recorded last Friday according to Shanghai Municipal Electric Power Company. The company has worked out arrangements with other power suppliers such as introducing electricity from the East China Power Grid to help the city through the hot summer. The city saw four successive days last week with the temperatures rising above 38 C. On Saturday, the temperature soared to this summer's highest of 39.5 C . The heat has also worsened the serious power shortage in the city. Although the local government launched emergency measures last week to ensure the residents have electricity during the night, more than a hundred lines of electricity have to be cut off. As the number of high-temperature days outnumbered officials' predictions, 97 local enterprises have been required to stop operation today.

14. Implications Increase in electricity demand (sales increase) More peaking capacity needed (load factor decreases) Generation efficiency decreases Higher risk of damage to transmission and distribution systems Bush fire risks to assets in very dry areas e.g. Australia Difficulty of supply responding to meet the rapid increase in demand Future Developments New assets must work reliably in high temperatures Embedded generation (smaller plants) for meeting peak power demands Responses Build more peaking capacity Need to optimise cost Demand side management Incentives to customers to reduce demand in high temperature period Build embedded generation (smaller plants) for meeting peak power demands Operations integrity Keep plants running May mean retrofitting to provide more plant capacity, more cooling capacity Asset flexibility to meet peak and shut down when not required Crisis management plan for potential blackout – emergency response Increase fuel inventory Assets

15. The Problem: Legal Action Non-government Organizations, like Greenpeace, WWF, Climate Justice and Stop Climate Chaos, begin to take action against power companies. • Action takes the form of: • Legal actions filed against leading electricity generating companies with large coal-fired portfolio. • Legal challenges filed against all new coal fired power plant planning/permitting. • Activist protests at individual power stations; and • Public campaigns against large regional electricity generators.

16. Not as unlikely as you might think… US POWER GIANTS FACE LANDMARK CLIMATE LAWSUIT • Eight states and New York city have launched an unprecedented civil action against five of America's largest power companies, demanding that they cut carbon dioxide emissions because of global warming. The companies being sued are American Electric Power Co, Southern Co, Xcel Energy, Cinergy and the federal Tennessee Valley Authority. They collectively own 174 fossil-fuel-burning power plants which produce 646m tons of carbon dioxide a year - about 10% of the nation's total, the statement said. GREENPEACE HIGHLIGHTS THE HAZARDS OF CLIMATE CHANGE • Greenpeace India today sent a strong message about the hazard of climate change caused by the excessive burning of coal. Greenpeace activists beamed messages on the Ennore Coal Power Plant to highlight the fact that coal is one of the highest emitters of carbon dioxide which causes climate change. This is part of a series of activities Greenpeace India is undertaking to draw attention to the immediate threat from climate change. Greenpeace wants subsidies to the coal industry to be phased out. Greenpeace demands that 30% of the energy generated in India by the year 2030 should come from renewable sources and that this should increase to a 60% by the year 2050. CLIMATE ACTIVISTS BRING POWER STATION TO A HALT • Climate activists from around the East Midlands managed to stop some operations at Radcliffe on Soar Power Station after climbing onto conveyor belts and dumper trucks inside the plant yesterday. The power station is the 3rd biggest emitter of CO2 emissions in the UK. The owner of the plant, E-On, said operations ran as normal and that their environmental record is good with aiming to be a clean coal-fired power station. The blockade lasted for 3 hours and 11 people were arrested all of which were later released.

17. Implications Short term Disruptions in day-to-day operations from protests Security & safety issues from protests Publicity, reputation & credibility issues Governments may react under public pressure, particularly where rule of law not as entrenched Medium – long term In Thailand and India, can lead to close-down of facility (high risk to our investment and serious economic implications) Delay in granting permits Impact our decisions on strategy, facility planning, fuel mix Responses Need to have a proactive, positive responses to public and NGOs to show responsibility and long term commitment Sizable stakeholder engagement programme Government, community, NGOs, academia, customers, etc. Collaboration, communication, education, sponsorship of green project Influence policy makers and authorities Formulate corporate climate strategy/carbon reduction plan Flexible business models to cater for new technologies and changes required of a responsible company Business

18. The Problem: Investors’ Limit Leading institutional investors, such as AMP, California Public Employees Pension Scheme, HSBC Holdings, Henderson, etc, institute a voluntary code that limits their investment in businesses with emission liabilities greater than 10% of EBIDTA. • The emissions liabilities are to be calculated on the basis of total greenhouse gas emissions coming from direct sources – and apply to operations in all countries, irrespective of the existence of climate change regulations. • The emissions liabilities are to be valued against an indexed carbon price published by a recognized trading exchange, such as the European Climate Exchange.

19. Not as unlikely as you might think… GET ECO-SAVVY, OR LOSE OUT ON MEGA INVESTMENTS 21 Apr, 2007 – The Times of India • When a group representing institutional investors controlling $41 trillion (that's trillion with a T) sends an innocuous-looking questionnaire asking about your GHG (greenhouse gas) emissions and preparedness to tackle climate change, can any CEO afford to ignore it? Boardrooms of the top 100 companies in India will be pondering over this eight-page survey that seeks to assess potential risks and opportunities relating to climate change for global businesses. From Reliance Industries to NTPC to ICICI Bank to Ranbaxy to even computer giants such as Infosys and the corporate giants of the Bombay Stock Exchange are part of the select group of 2,400 companies that have been asked to fill a questionnaire by the Carbon Disclosure Project (CDP), a UK charity representing the World's Largest Investor Coalition comprising a group of 284 institutional investors. The investors include ABN Amro Bank, California Public Employees Retirement System, CIBC, Deutsche Bank, Development Bank of Japan, Goldman Sachs, HSBC Holdings plc, Morgan Stanley, Old Mutual plc, Rabobank, UBS Global Asset Management, Warburg-Henderson and Zurich Cantonal Bank among others. CITY TRADERS FACING UP TO CLIMATE CHANGE BBC – August 15, 2005 • If some of Britain's biggest pension funds get their way, City traders will soon be discussing how climate change could affect the stock prices of FTSE 100 companies. Nick Robins, of Henderson Global Investors, believes that the market will see a profit warning from a company as a result of a failure to grasp the impact of emissions on business. A recent report published by Henderson and Trucost estimates that up to 12% of the pre-tax earnings of FTSE 100 firms could be at risk from measures required to incorporate the cost of emissions into market prices. A recent report by the UK-based Institutional Investors Group on Climate Change (IIGCC) and the Carbon Trust warned that "virtually all" types of asset could be affected by climate change. "We're not trying to save the world, what we want is for people to realise that climate change is an issue that can affect the value of their investments," says Mr Scales of the IIGCC.

20. Implications Risk warning raised by institutional investor on asset liability If investors leave Company share price drops Credit rating drops Cost of finance increases Financing for operations or new projects may become difficult Responses Reduce emissions through technological improvements Change dispatch / fuel mix, based on assumption that there is cost past-through to the customer Buy credits to offset liabilities Sell off high emitting assets Sell greener power at higher price to increase earnings Existing Assets

21. Implications Hard to find funding for new projects Credit rating drops, so cost of financing increases Investors sell off their shares Public image of company negatively impacted Change of investor mix e.g. % of institutional investors drops Responses Acquire non-emitting projects / business e.g. transmission, gas, nuclear, retail, etc. Join / acquire partners with cleaner portfolio Privatise the company so not affected by these investors Set a target or aim for more stringent liabilities / EBIDTA ratio <<10% Growth & Development

22. Implications Alter the profile of some existing systems - need to be elevated Monitoring, reporting, etc. Responses Integrated GHG / financial accounting reporting system Scenario modelling capacity to optimise future liabilities and earnings Strengthen emissions monitoring system – more timely, more accurate Carbon credit / offset system Bank pools of credits for future Negotiate with investors on timeframe to achieve their requirements Process & System

23. CLP-JV Environmental Synergy Conference CLP Adaptation Workshop Case Studies: Vung Ang II, Vietnam and Samana Wind Farm, India 27th May 2010, Hong Kong

24. Project methodology The potential loss arising from climate change was quantified for each site and adaptation options identified where possible Identify Vulnerability Identify Adaptation Options • Already implemented • Future options • Past impacts • Future climate scenarios Cost-Benefit Analysis (loss vs. adaptation cost) Adaptation Decisions Regulatory Requirements CLP Values / Best Practice Economic Benefit of Mitigating Emerging Risk

25. Climate Change Impacts on Vung Ang II Coal Fired Power Plant CLP-JV Environmental Synergy Conference 2010/GEA

26. Potential Adaptation Options for Vung Ang II Coal Fired Power Plant CLP-JV Environmental Synergy Conference 2010/GEA

27. Climate Change Impacts on Samana Wind Farm, India CLP-JV Environmental Synergy Conference 2010/GEA

28. Potential Adaptation Options for Samana Wind Farm, India CLP-JV Environmental Synergy Conference 2010/GEA

29. Thank You!