ClimateBiz 101
Climate change, also called global warming, is rapidly emerging as one of the leading environmental sustainability issues facing societies, governments, and businesses. Indeed, because of the potential for climate change to affect virtually all human and natural systems across the planet, it may soon be one of the leading issues that all businesses must confront.
In response to this challenge, governments, business associations, and nonprofit organizations have created an array of tools and programs intended to help companies address global warming in ways that align environmental responsibility with business success. Ironically, this burst of activity has resulted in an information age paradox: an overwhelming amount of resources and information on climate change, but no easy means of accessing them. ClimateBiz.com addresses this paradox by providing a one-stop online resource to help companies of all sizes and sectors understand the landscape of climate change tools and resources.
Following is a brief summary of the scientific and political backdrop against which the field of climate management is taking shape, as well as an introduction to the structure and content of ClimateBiz.
Climate Science
The science behind climate change is complex and evolving. Certain gases in the Earth’s atmosphere accumulate and trap heat from the sun much like a greenhouse, hence the term “greenhouse gas” (GHG). This is a naturally occurring process that helps regulate temperature and is a critical part of the Earth’s biosphere. Human activities, primarily in the form of burning fossil fuels for energy production, manufacturing, transportation, and other uses, also emit and add these heat-trapping greenhouse gases to the atmosphere. About 82% of all man-made greenhouse gas emissions result from the carbon dioxide created by burning fossil fuels to generate electricity and power vehicles. The remainder — including nitrous oxide, methane, and other fluorinated gases (among them, hydrofluorocarbons HFC, perfluorocarbons PFC, and sulfur hexafluoride) — is produced by agriculture, wastes, and industrial processes. The concentration of greenhouse gases in the atmosphere is also increasing due to land use changes, such as the clearing of forests, which release carbon into the atmosphere that had previously been stored in soil or trees.
The overarching scientific organization working on climate change science is the Intergovernmental Panel on Climate Change (IPCC), made up of several thousand scientists from around the world. Most agree that human activity releases more greenhouse gases than can be naturally absorbed by the Earth, that the planet has seen an increase of atmospheric greenhouse gas concentrations of roughly 30% since the start of the industrial revolution, and that a measurable increase in temperatures can be attributed in part to human influences. Less consensus has been reached on how much the climate will change in the future and how extensive the impacts will be. Scientists say the Earth’s average global surface temperature could rise 1.6°F to 6.3°F by 2100, with significant regional variation. In addition to warmer temperatures, climate change could lead to increased frequency of storms, floods, and droughts; the spread of diseases and invasive species into new areas; rising oceans; and shrinking polar ice caps.
Government Policy
Governments at all levels have responded to the threat of climate change. At the international level, many of the world’s governments have joined under the United Nations Framework Convention on Climate Change (UNFCC) to address the issue. Work of the UNFCC led to the creation of the Kyoto Protocol, which calls for developed nations to reduce their greenhouse gas emissions to a specific level below their 1990 emissions. The Kyoto Protocol has been ratified by a number of developed countries, although the United States is not among them. The treaty came into force in early 2005 after it was ratified by countries representing 55% of developed country emissions. Planning for reductions called for under the Protocol has led to an emerging creation of standards for emissions trading, offsets, and other mechanisms to manage emissions. Some of these mechanisms are being implemented in state-level legislation in the United States, and will become more prevalent internationally as the Kyoto Protocol is adopted.
One proposed public policy approach to climate change is a “cap-and-trade” scheme, which — if enacted — would place a limit on tons of greenhouse gases (GHGs) that can be emitted in a given period and for a given region or sector. This limiting of emissions, the “cap,” is combined with the ability for entities to trade emissions credits. For example, a company that emits fewer greenhouse gases than it is allowed could then claim a credit for the difference, which it could sell to one or more companies that are over their allowable emissions level. This “trade” portion of the system is a market-based solution that is more efficient than a simple limit on emissions from all sources, while the “cap” gives the emissions credits value. Emission caps may be applied to entire countries, regions, states, or local entities, as well as to industries.
Several cap-and-trade programs are currently in the works. East of the Mississippi, an emerging trading program in nitrous oxides could include set-asides for renewable energy. In fact, several states already have set-aside allowances, including Massachusetts, New Jersey, and New York , or are creating emissions registries like the California Climate Registry. Another cap-and-trade program could arise to control particulate matter and to reduce regional haze in national parks throughout the U.S.
The Pew Center on Global Climate Change provides good science and policy background reports with a business focus.
Eight Key Steps
ClimateBiz divides climate management into eight topic areas. For each, we provide a concise introduction that: situates the topic, spotlights key players in the field, lists advantages and disadvantages of taking action, provides a basic action plan, and recommends key leads for further information. Each introduction is followed by a select list of organizations, tools, and sample leadership practices that can help companies develop or improve their programs. The following is a brief explanation of each ClimateBiz topic.
Leading companies recognize compelling business reasons to reduce emissions of greenhouse gases that go beyond the obvious concern of protecting the natural environment. By minimizing dependence on fossil fuels and improving operational efficiencies, companies can save money, reduce compliance costs, and avoid additional tax burdens. Proactive companies also can protect themselves from potentially risky climate-related trends such as rising insurance rates for higher-risk industrial activities and tighter regulations that may affect operating costs. Reducing GHG emissions also can create future business opportunities such as cleaner energy sources and advanced vehicle technologies.
For many companies, one of the first climate-related actions to be taken is making a commitment to reducing their climate impact. Issuing a public commitment to a concrete goal helps in publicizing a goal both internally and externally, thus helping to ensure the success of projects that typically reach across many business units, require active support from top management on down, and are implemented over long time frames. The existence of a concrete goal makes measuring progress and determining success or failure much simpler.
Many companies have made climate commitments, sometimes in collaboration with a nonprofit organization or government agency such as WWF’s Climate Savers, Environmental Defense’s Partnership for Climate Action, or EPA’s Climate Leaders. for example, aluminum company Alcoa, which promises to reduce “direct GHG emissions to 25% below the 1990 baseline on a worldwide basis by 2010,” represents a typical public commitment.
A company that has made a climate commitment soon realizes that in order to manage greenhouse gases, it needs a way to track company emissions accurately. It may also find that stakeholders are increasingly interested in having a way to track companies’ performance in managing greenhouse gases. These internal and external needs have led to greater interest in standards for measuring emissions and company reports that can be verified by third parties.
Measuring and reporting GHG emissions should be done according to common standards of rigor that are similar to those used in financial accounting and reporting. This creates a high level of confidence among investors and other stakeholders. Collaborative efforts are underway to establish common standards, such as the GHG Protocol Initiative.
Many companies report their emissions on their Web sites, making the information easy to find and transparent. BP, for example, has extensive reporting on its emissions and other performance measures.
The central component of an emissions strategy is to reduce GHG emissions from business operations. Many actions that companies can take to reduce emissions are common to most organizations. Examples include increasing energy efficiency in manufacturing or office equipment, switching to renewable energy, and reducing paper use. Other actions are sector-specific. Some actions, such as reducing travel, can be taken in increments and require little or no upfront investment. Other actions may be taken over time, such as replacing equipment with models that have greater energy efficiency. Further actions, which may yield large benefits, can require upfront investment and can have longer payback periods. An example is incorporating energy efficiency, natural lighting and shading, and other “green” elements into new buildings as they are built or retrofitted. Cool Companies, a Web site of the Center for Energy and Climate Solutions, has many examples of ways to reduce emissions.
The use of renewable energy, also called green energy or green power, is a key strategy to reduce greenhouse gas emissions. Switching from a fossil fuel-based energy source to a renewable source (such as electricity produced by solar energy or wind, or fuels in which plant-based matter replaces petroleum) instantly reduces greenhouse gas emissions, often by a significant amount. Also, unlike measures such as increasing energy efficiency, switching to renewable energy results in absolute emissions savings, not savings relative to output. This means that a company can increase production or output without increasing emissions. For these and other reasons, a pledge to purchasing renewable energy is sometimes tied to a climate commitment. For example, DuPont states “We will source 10% of our global energy use in the year 2010 from renewable resources.”
EPA’s Green Power Partnership provides extensive information on green power as well as opportunities for companies interested in renewable energy.
Companies frequently look to emissions trading to complement their efforts to increase efficiency. A trade occurs when a company seeking to reduce emissions purchases emissions credits from a company or an organization that can absorb or reduce greenhouse gases beyond its own obligations to do so. This transaction can benefit both participants. Purchasers are able to reach goals that require more emissions reductions than they can achieve, cost-effectively, through their own operational changes. Meanwhile, sellers receive an added return on their investments in emission reductions. In addition, a few large energy-intensive companies have developed internal trading mechanisms to reach company-wide goals as cost-effectively as possibly.
Concurrent with the evolution of the Kyoto Protocol, a number of regional and national GHG emissions trading programs have been launched with corporate participation, and independent GHG trades brokered. The International Emissions Trading Association offers a number of useful resources for companies interested in emissions trading.
An offset is any project that negates the impact of a company’s emissions by avoiding or sequestering an equal amount of pollution at another site. Similar to emissions trading, offsetting enables companies to look beyond the limits of their operations to find projects that are cost-effective. Because it may be impossible or impractical to reduce emissions to zero, offsets are an especially important tool for companies hoping to neutralize the impact of their operations, or offer products that can be labeled “Climate Neutral.” Other companies may be prompted to invest in offsets by legislation. For example, Oregon state law requires that new energy facilities avoid, sequester, or displace a portion of their carbon dioxide emissions. At the international level, the World Bank has set up the Community Development Carbon Fund to link small-scale carbon projects with companies looking to fund offset projects.
Companies that improve their climate performance may seek external recognition as a natural way to publicize their actions and results. Not only does this help companies celebrate milestones on the path towards sustainability, but recognition programs also are a useful method of sharing best practices with the wider community. Numerous awards and recognition programs exist, some of them national or international and others at state or regional levels, or apply only to specific sectors.
