Download The drivers of low carbon business strategies

The drivers of low carbon
business strategies
Andrew Sentance, Warwick Business School
Warwick University Climate Policy Workshop
24th February 2010
Warwick Business School
24 May, 2017
Greenhouse gas emissions, by source
Global GHG emissions in 2000 = 42GT CO2 equivalent
3%
5%
25%
14%
18%
14%
8%
Source: Stern Review (2006)
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Power
Industry
Transport
Buildings
Land use*
Agriculture*
Waste*
Other
13%
* Non-energy emissions
Three key business sectors

Energy (3.7% of UK GDP)

Transport (4.5% of UK GDP)

Agriculture (0.7% of UK GDP)

Note: UK imports of food and fuels = 4.8% of
GDP
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Climate change – the role of business

Reducing energy use and carbon footprint

Transformation of energy and transport sectors

Investing in low carbon technologies

Enabling consumers to make cost-effective low
carbon choices
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Two related questions

What is currently driving business action on
climate change?

What are likely to be the most effective
mechanisms to influence future business action
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Potential business drivers

Price and cost

Regulation and taxation

Brand/reputation

Business strategy
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Business attitudes to climate change
% of companies (N= c.2,000)
Brand/reputation
Environmental issues
Corporate strategy
New products
Investments
Purchasing/supply chain
Importance
Frequent action
Regulatory strategy
Carbon trading
0
Source: McKinsey Survey, 2008
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10
20
30
40
50
60
70
80
Current business drivers

Strategic and reputational drivers seen as most
important by majority of businesses

Brand/reputation, corporate strategy and new
products are the most significant areas of action

Traditional economic drivers appear less significant
in driving action

But current regulatory and price signals are weak
and current business action likely to be inadequate
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Potential size of carbon markets
20000
Million tonnes CO 2 emissions, 2002
18000
Total emissions from fossil fuels
16000
Emissions from power and industrial sectors (estimated)
14000
12000
10000
8000
6000
4000
2000
0
European Union United States of China, India,
Mexico, Brazil,
America
(25)
South Africa
(+5)
G7
EU25, Jap, Aus,
Can, USA
OECD
Top 20 Global
emitters
Extending EU ETS to power and industrial sectors in Top 20 countries would
create a market of US$90-350 bn
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UK carbon “taxes”
£/T of CO2, 2009 values
300
250
200
150
100
50
0
-50
Domestic
gas
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Climate
change levy
EU ETS
permits
Stern carbon
price
Air
passenger
duty
Motor fuels
Carbon emissions per head
CO2 per capita, 2005 values
2050 target
2-2.5 T
Source: OECD
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World GDP growth and CO2 emissions
from energy
Average annual growth rates, percent
GDP
5
Carbon Dioxide
Em issions
4
3
2
1
0
70s
80s
Note: Carbon dioxide is measured in millions of tonnes
Source: World Bank and BP Statistical Review
90s
2000-08
Sustainable global emissions scenarios
Annual greenhouse gas emissions (GtCO2e)
70
60
50
40
30
20
2016:4%
10
Increased early grow th
2000
2010
2020
2030
2040
0
2050
Year
2016:4 trajectory with global emissions peaking in 2016 with subsequent reduction in total emissions of 4%
Source: Climate Change Commission
Strengthening business drivers

Strengthen regulatory and price signals

Reinforce strategic motivations for business
action

These are not alternative approaches – they
should be complementary
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Influencing business strategy

Laissez faire – let the market decide

Direct intervention and “picking winners”

Strategic policy frameworks
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Laissez-faire and “picking winners”

Market failures:
 Uncertainty
 Innovation externalities
 Environmental
externalities
 Incomplete markets

Government failures:




Lack of knowledge
Poor cost control
Delivery failures
Political influence
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Strategic policy frameworks





Government sets overall objectives and
identifies policy tools
Action taken is consistent with the framework
Clear and coherent communication to guide
business expectations and planning
Credible institutions and processes with expert
and independent input
Policy framework is stable and not subject to
major paradigm shifts
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An example
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Climate policy frameworks - issues





International dimension and need for policy
agreement and co-ordination
Long feedback horizon to ultimate policy goal
Short track record of development of policies
and institutions
Multiple policy instruments
Important sectoral dimension (esp for energy,
agriculture and transport)
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Climate policy - implications





International framework is critical to underpin
national policy credibility
Focus on actions, not just targets and
outcomes, to shorten feedback loop
Need to build institutions
Cannot rely on a single policy instrument (eg
carbon tax or carbon price)
Framework needs to encompass vision for
changes required in key sectors
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Why should business respond?







Potential for growth and new business
opportunities
Consistency with regulatory, price and cost
drivers
Anticipating future business environment
Strategic relationship with government(s)
Risk of stranded business model
Risk of stranded investments and products
Competitive threat
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Strategy: Porter’s Five Forces
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Conclusions
Strategic motivation is a potentially strong driver
towards low carbon business models
 Already an important influence on business thinking
and action
 Needs to complement more traditional price/cost and
regulatory drivers
 Credible, coherent and well-communicated policy
frameworks are crucial to drive strategic behaviour
 Design of frameworks needs to take into account
specific characteristics of the climate policy issue,
including international dimension

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