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An Introduction to Rapid Climate Change & Energy Strategy for Business Abridged Version for LSC 10062008 Photo: Manure Pit © 2008 Jay Moynihan [email protected] (715) 526 – 6136 “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 ? = 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 Quantify your “Carbon Footprint”; measure, benchmark and inventory Use carbon accounting tools (more on that later) Energy efficiency As your knowledge about climate change increases, leverage it to develop new products and services 5. Figure out how to transition from carbon intensive products and services that heavily contribute to your profits 6. Buy stock, supplies, parts, and feedstock as much as you can local 1. 2. 3. 4. 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: Potential Cost Drivers: • Customer demand •Effect of regulations • What percentage of related costs can pass through? •Effect of new taxes • Revenue streams from new lowcarbon products and services • Anticipate threats of competitors low-carbon products and services • Cost saving due to efficiency •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 • Weather patterns effect on revenue •Energy costs • Carbon credits •Weather pattern effect on revenue “*ECO-EMBEDDED* Sustainability will be on every corporate agenda, for years to come. Forget 'recycling' though: What’s Cool? What’s Hot (not)? 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 ECOEMBEDDED: 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.” “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 01 February 2007: Worlds Largest Investor Coalition representing $41 trillion Seeks Further Disclosure on Climate Change and Shareholder Value From World's Largest Corporations • GHG Emissions • Risks-opportunities-strategies (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 tools http://www.ghgprotocol.org/ . In Shawano County, contact: [email protected] 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! = 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.