The Pope came to the US last month and made very forceful and well-publicized arguments about the importance of addressing climate change soon. Of course, he emphasized the moral imperative: how wealthy countries contribute more to climate change, yet poorer countries will likely suffer more. This blog has discussed extensively the practical and business benefits of addressing climate change. One may not “believe” in climate change, yet benefit your company or entity financially by addressing it smartly. But with the aura of the Pope’s visit and his framing of the moral dimension and the upcoming meeting in Paris for potential rules and goals for GHG reduction, how does climate change affect not just the US as a whole, but your company, too? What are the most effective ways to meet the moral and financial priorities of climate change? Should we address climate change wholeheartedly or is it better to address it slowly?
The momentum to address climate change is growing, as a number of national polls show that climate change is being accepted as true and something that needs to be addressed by a growing majority of Americans (despite the demagoguery of some Presidential candidates). Climate change introduces a number of new, significant risks to our nation and institutions. And, many of the steps to be implemented to address climate change (reduction of GHG emissions) also provide direct economic benefits.
As a result, the trend to encourage companies and people to use less or de-carbonized sources of energy will likely continue. For example, Northeast power generators, forced to reduce GHG emissions because of the RGGI rule, have greatly exceeded the rule’s reduction goals, in part, because of the price differential between cleaner fuels and fuels used before the rule went into effect. Because of renewable goals that many states have set, large investments in renewable power are being made. Quietly, the fraction of power from renewable sources in the US is growing. There is also a growing movement of governments and utilities to encourage improved energy efficiency to save money on expensive energy infrastructure upgrades if power demand continues to grow. Energy efficiency is now understood as an investment that pays a better return than the vast majority of banks and Wall St. investments, and has ancillary benefits, such as reduced GHG and air toxic emissions, reduced O&M costs, and increased asset value.
Should the US, the states, and companies invest now in energy efficiency and in clean or cleaner energy technology now or should they wait? There is an argument that it may be better to wait to invest in reduced-carbon energy or energy efficiency, as initial costs of such technologies are expected to fall in the future as they become more common. On the other hand, there are significant costs to waiting to become more energy efficient and use lower-carbon or renewable power, such as:
• paying significantly higher energy costs for more energy used while waiting;
• probable future rules will reward those who reduce GHG emissions early; and
• the potential lower future value of carbon credits in the future as more entities reduce GHG emissions.
Similarly, should companies go “all in” now on reducing GHG emissions or should such moves wait for final global or US regulations to come out of the Paris UN conference or for other priorities to shake out? While the answer depends on the “culture” of each company, it is important to understand that actions to reduce GHG emissions almost always have not only direct, long-term cost savings benefits, but also harder-to-quantify benefits, such as reduced O&M, improved worker productivity, increase in asset value, and more productive tenants, that also improve the bottom line.
Therefore, waiting for exact requirements from the federal government, which will take years, even if US authorities make pledges in an approved agreement in Paris, can result in missed business opportunities for many companies. Just performing a basic GHG emission inventory (“carbon footprint”) and studying and eventually implementing energy reduction projects does not need to wait for an exact finality of regulatory requirements, and will likely not involve any re-inventing of the process.
Besides reducing GHG emissions as a response to climate change and the Pope and/or UN initiatives, another climate change issue that a company must assess is risk. What effects caused by climate change may affect a business.
Four types of climate change risk that could affect a business include:
1. Competitive (cost) risks
• Effect of a decline in consumer demand for energy-intensive product
• Rise in costs for your necessary processes which are energy intensive
• Rise in costs for necessary transportation fuels
2. Reputational risks from perceived inaction on climate change
3. Regulatory/compliance risks from future tightening legislation
4. Physical risks of climate change-influenced events (i.e., extreme weather, rising sea levels, etc.):
• Asset damage
• Inability to make or transport product, raw materials
• Health and safety risks
• Project delays
• Crop damage or agricultural transition as certain crops no longer are viable in certain areas and new supply chains become necessary
Outside the US, many companies have recognized and begun to study and implement strategies to minimize climate change-related risks. US companies have been slower to react. But as climate change is more recognized and accepted, spurred on in part by the Pope’s visit, this is something that is also important for many companies. Entities understand risk affecting operations, revenue, and even existence and deal with this routinely. Climate change represents another set of risks that entities should understand and address – independent of the Pope’s visit and the upcoming Paris UN conference.
CCES can help your firm develop a climate change program and prepare strategies to not only minimize risk, but also take advantage of energy realities to maximize financial benefits while reducing GHG emissions. Contact us today on this at 914-584-6720 or at karell@CCESworld.com.