Planning for Climate Change
How are corporations planning for the risks of a warming world?
So what are the likely economic effect of tighter greenhouse gas regulations and the adoption of a cap-and-trade system for pricing carbon emissions? Conservatives insist it would devastate the economy, but in California, at least, a new report says the effect would be pretty small:
It concluded that the measure will yield modest job gains statewide, will have a negligible effect on the state's overall economy — the eighth largest in the world — and could benefit some sectors like alternative energy businesses.
...."These policies can shift the driver of economic growth from polluting energy sources to clean energy and efficient technologies, with little or no economic penalty," the report said. Thousands of manufacturing, mining and utilities industry jobs will be lost, but service, finance, and other sectors will gain similar numbers, leaving the most populous U.S. state about the same in terms of total jobs, income and growth, the report said. Five scenarios found a maximum effect of tens of billions of dollars on state output of $2.5 trillion in 2020.
So: no economic catastrophe. On the other hand, there are certainly specific sectors that would be affected. Which gives me a good opportunity to plug a new project called The Climate Desk, a collaborative project of Mother Jones, the Center for Investigative Reporting, Grist, Slate, The Atlantic, Wired, WNET, and the Nation Institute. Our website will be up soon, but reporting projects are already underway. In particular, Felix Salmon of Reuters is looking into the ways that not just specific sectors, but specific companies, are preparing themselves for the downside risk of climate change. A few days ago he posted an update on what he's found out so far:
First, there’s the banks. I heard of one Brazilian bank — I’m not sure which one — which was asked for a 20-year loan to fund a major agricultural project in the Amazon, and which responded by asking for an environmental audit. They don’t want to lend money to a coffee project, say, if the land is not going to be arable for coffee in 20 years’ time. Has anybody heard tales of environmental models playing a role in banks’ loan underwriting?
Secondly, there’s the hospitality industry, especially the parts of it which have a lot of assets on islands and beaches and the like. Are any of these companies doing environmental studies on coastal erosion and sea-level rise, and if so, how are they managing those risks? This isn’t a question of insuring against a disastrous event happening in the next year or two — that can be done by writing a check. It’s more a question of positioning the company so that it wouldn’t be devastated by the inability to insure against a disastrous event in the future, if insurers decide the risks are too big.
Finally there’s companies like ADM or Heinz, which are creating new crops designed to cope well with low-water conditions or large swings in temperatures. This is the point at which risk mitigation becomes profitable in and of itself: once you’ve mitigated risks by creating those crops, you can cash in on demand for those crops if and when climate change causes demand for them to rise.
Anybody know of any other examples? The SEC recently decreed that companies have to disclose the effect of climate change in four different areas, which means that more and more companies will be forced to take this seriously. If you know of any interesting corporate reactions to a warming world, leave 'em in comments.