An Introduction to Rapid Climate Change & Energy Strategy for Business

Abridged Version for LSC 10062008 Jay.moynihan@ces.uwex.edu (715) 526 – 6136

Photo: Manure Pit © 2008 Jay Moynihan

“A corporate focus on reducing greenhouse gases as quickly as possible is a good business strategy. It will save money for our customers, make us a more efficient business, and help position us to compete effectively in a carbon constrained world.”

Who said this?

• _______ (insert local name)

• Al Gore

• Lee Scott

• Arnold Schwarzenegger

“A corporate focus on reducing greenhouse gases as quickly as possible is a good business strategy. It will save money for our customers, make us a more efficient business, and help position us to compete effectively in a carbon constrained world.”

Lee Scott

CEO of Walmart

Wal-Mart has over 60,000 suppliers. One or more might be in your county.

A carbon constrained world

is Wall-Street-ize for doing business in a world where it is necessary to reduce, then attempt to end release of “old carbon” into the atmosphere.

How your business or organization decides to live in that world, is its carbon,

or rapid climate change strategy.

The Good News:

Since our system is based primarily on fossil fuels, a climate change strategy is the core of your energy cost reduction strategy.

Where does rapid climate change strategy fit in the big picture ?

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Rapid climate change strategy, is the overall approach developed by a business or other organization to the current rapid climate change, and/or “peak oil”.

It comprises an integrated approach to dealing with the risks and opportunities of:

• Regulation and taxation• Liability• Changes in weather (physical risks)• Market risks• costs• Technological innovation• Consumer attitudes and demand• Carbon Markets/carbon credits/carbon sequestration

No! Not another business planning technique…

Relax.

This is not separate from your business strategic plan.

It is part of it, integrated throughout your planning.

Excerpt from Lloyd's of London report (2006), about climate change:

Carbon Strategy includes, accounting for:

Emissions (direct carbon contributions)

And

Indirect or Embedded Emissions,

such as:

•Supply chain

•Transport

•Customer use

•Product disposal

•Operations (travel, utilities, etc.)

Risks and Opportunities

Regulatory Risks

• Regulation of the products you make, or process you use

• Regulation of the same for your suppliers

• Increased regulation of fossil fuel use

Factoid:

As of this writing, the largest corporations in the U.S., corporations in nearly every sector (apart from ExxonMobile operations in the U.S., and Coal companies) are lobbying for mandatory federal regulation of carbon emissions.

Why?

•Big companies want to have an even playing field, and they prefer to deal with at most 2 regulatory sets (U.S. and rest of world), instead of 52 sets.

•The legal legacy of the early shareholder actions vs Henry Ford (i.e., re the primary duty of a board is to maximize (short-term) value for shareholders)

Supply Chain Risk

•along similar lines, and

•Higher transport costs for suppliers

•Geographical distribution of your suppliers (higher transport costs, or physical (weather) risk

Product and technology risk

• Not offering “carbon neutral” products, packaging

• Or services (lawn care, financial management, restaurants etc)

Litigation Risk • Mostly a concern of large corporations, and/or energy,

utility, transportation, and heavy manufacturing sectors and suppliers to them.

• Similar to past litigation in areas of tobacco, asbestos, pharmaceuticals

• In an opinion this year, the U.S. Supreme Court found that climate change was occurring, and the primary cause was human induced CO2 levels.

• In addition to actions against companies, their directors, officers and management may be held personally liable in shareholder actions (Swiss Review)

Reputation Risk

• Public opinion

• Shareholder opinion

Physical Risk• The obvious one. Weather. Higher variability, new

conditions, more frequent and strong storms.• Highly dependant on location• Carries higher insurance rates (property/storm

etc)• Increased health problems/costs----rates

Political risk• CIA, pentagon professionals, and other organizations now

consider climate change induced destabilization as the major threat of the 21st century, (drought, famine, migration, water wars etc).

• Terrorism driver• Can disrupt foreign manufacturers, suppliers, trade routes

• Disruption of employees called for service in failed state relief/occupations

Improving Your Competitiveness

1. Quantify your “Carbon Footprint”; measure, benchmark and inventory2. Use carbon accounting tools (more on that later)3. Energy efficiency 4. As your knowledge about climate change increases, leverage it to

develop new products and services5. Figure out how to transition from carbon intensive products and services

that heavily contribute to your profits6. Buy stock, supplies, parts, and feedstock as much as you can local

Read:

“Competitive Advantage on a Warming Planet”, Jonathon Lash & Fred Wellington, Harvard Business Review (March 2007)

And

• Include carbon strategy as an integral part of your strategic planning process.

• Include carbon strategy in management training.• Integrate the action steps from your planning

into employee training.• Measure outcomes and evaluate.• Is there a business case for the change, i.e. is

justified in terms of costs and benefits?

And

• Initiate change before the threats are too severe.• Allow sufficient time, resources for change,

especially in regard to core or essential areas.• Build internal knowledge, skill and capacity within

your company, instead of outside of it.• Focus on the needs of key customers.• Pay attention to “green” early adopters [lead

customers]

Potential Revenue Drivers:• Customer demand

• What percentage of related costs can pass through?

• Revenue streams from new low-carbon products and services

• Anticipate threats of competitors low-carbon products and services

• Cost saving due to efficiency

• Weather patterns effect on revenue

• Carbon credits

Potential Cost Drivers:•Effect of regulations

•Effect of new taxes

•Capital Expenditures necessary to meet regulatory measures, AND your own new products and services

•Higher costs for your materials, transport, feedstock etc., and those of your suppliers

•Energy costs

•Weather pattern effect on revenue

“*ECO-EMBEDDED* Sustainability will be on every

corporate agenda, for years to come.

Forget 'recycling' though:

we‘ve moved from well-intended DIY to 'Eco-Chic' to the emergence of an entire ECO-ECOSYSTEM (highlighted in our previous report) to what we've dubbed ECO-EMBEDDED: no need for consumers to worry about environmental consequences any more, as forward-looking brands have already done the work. Learn how to apply this trend within your own industry.”

What’s Cool?

What’s Hot (not)?

“Cool” Existing Companies and Sectors (near term winners – next 25 years)

• Nuclear power• Renewable energy• Bio-fuels• Green builders• New technology vehicles• Agriculture (depending where, but like here for example)• ATV’s (assuming they develop new power schemes)• Battery/energy storage companies• Bio-technology• Genetics• Biomemetics• Nanotech• Information industry• Eco-industrial manufacture• Bio-plastics• Pyrolisis reactors• “Local”• “Organic”

“Hot” Existing Companies and Sectors(hard adaptation curves)

• Most vehicle manufacturers• HVAC• Watercraft • Snowmobiles• Tourism• Mall retail• Box stores• Fast Food• Grocery• Lawn Care• Anybody making any material out of petroleum

Learning from Investors about carbon strategy

They are interested in a company’s

•Governance

•GHG Management

•Method

• GHG Emissions

• Risks-opportunities-strategies

01 February 2007:

Worlds Largest Investor Coalition representing $41 trillion Seeks Further Disclosure on Climate Change and Shareholder Value From World's Largest Corporations

(for the 5th year running)

From article about the CDP

Carbon Disclosure Project 2007 Questionaire

Governance:

• Who is responsible within the company?• The board or committee with overall

responsibility for climate matters?• Progress and status re climate of methods, and

who is the review party?• Incentives/Bonus structure as related to climate

matters?• What are your GHG reduction targets?

Carbon Disclosure Project

GHG Management

• Direct and/or indirect?• Baseline year• Direct: air emissions, fuel consumption, operations.• Indirect or “Embedded”: supply chain, product use, disposal• Reduction targets / over time• Renewable energy activities• Energy efficiency activities• Emissions in terms of intensity/history/targets• Cost of energy consumption• Amount in fossil fuels• Amount in electric• Investments made• Investments required• Savings achieved• Estimated future savings

Carbon Disclosure Project

Methodology

• Estimation of emissions, w/details• Relationship between cost of future emissions

and capital expenditure planning• Investment decisions and the impact of them

Carbon Disclosure Project

GHG Emissions:• Accounting year• Calculation method• External verification or auditing?• Direct and indirect• Customer use and disposal of products/services• Supply chain data• External distribution and logistics• Employee business travel• % of electricity from renewables

Carbon Disclosure Project

Risks

• Similar to what is covered above except expression in terms of IPCC publications

Opportunities

• Similar to above except divided in to existing or new products / services

Strategy

• Objectives, targets, in place, planned, and plan details

Carbon Disclosure Project

Tools

Baselines, Inventory and Accounting

• the Carbon Disclosure Project http://www.cdproject.net/carbon-disclosure.asp

• The GHG Protocol and toolshttp://www.ghgprotocol.org/

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In Shawano County, contact: jaymoynihan@ces.uwex.edu

Adaptation tools……

Energy Efficiency

• The strategic and tactical combination of energy conservation and technological innovation.

Full Cost Accounting

• Full Cost Accounting, or “FCA”, is the analysis of all the costs, as well as the advantages, of all proposed alternatives, and the presentation of those findings to decision makers. In FCA, “cost” is not just the monetary cost to the organization making decisions. It also includes the social and environmental costs to anyone else affected by the decision. This process can be especially useful for government agencies that represent a variety of interests when deciding how to allocate public funds and/or other resources. Organizations that use FCA have experienced budget savings.

Life Cycle Analysis

• AKA “Life Cycle Assessment” is the assessment of the environmental impact of a given product or service throughout its lifespan. This includes all production inputs through use and disposal.

Ecological Design

• Design process that integrates the result in both the human and non-human aspects of the world.

Ecological, and Carbon Footprints

• A carbon footprint is the total amount of CO2 and other greenhouse gases, emitted over the full life cycle of a product or service . An ecological footprint.

• An ecological footprint is the measure of total human demand for natural capital {raw goods and services before anthropogenic manipulation}

Industrial Ecology

• The shifting of industrial process from linear (open loop) systems, in which resource and capital investments move through the system to become waste, to a closed loop system where wastes become inputs for new processes. Important for future planning, zoning, permitting etc.,and economic development assistance.

Green Building

• Increasing the efficiency of buildings {use of energy, water, and materials} and reducing impacts on health and the environment, through design, placement, construction, operation, and maintenance.

Indicator design

• Designing indicators to measure impacts and outcomes of policies and activities. Indicators measure in cultural, economic and ecological terms.

The Natural Step is a framework

for working towards sustainability.

It is based on sound, basic science. It is in use by various corporations, governments, communities and small

businesses around the world. It provides an understandable, shared “compass” for a systemic view of the “forest”, so that

you can work down to the “trees”, and reach your goals.

www.naturalstep.org

Also makes a great “plug-in” to most management methods!

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1. Develop a Rapid Climate Change Strategy.

2. Learn about the current “voluntary” reporting framework. (CDP/GHGP)

3. Learn how to use the tools relevant to your operation.

4. Develop an action plan to carry out your strategy.

5. Measure your performance.