Why climate change is everyone's business

(AP)  

 

 

With the Bali conference on climate change behind us, it is a great time to consider how policies to combat the threat of global warming may affect various sectors of the world economy. Are there business opportunities here or is the whole issue going to be at best a kind of tax on economic activity?


Quite a few business people and investors are conflicted when it comes to climate change. As parents and grandparents they feel some responsibility to pass a livable planet on to the next generations, and for some their faith enjoins them to be responsible stewards of the Earth. Still others are moved by their compassion for the poor in coastal areas who will be the worst and earliest hit if sea levels rise, and others regret the loss of wildlife and natural beauty that the marching climate change is causing.

Yet from a business perspective, any requirement for the world economy to reduce greenhouse gas emissions looks like a curb on growth, and that is anathema. Interestingly though, some major corporations spotted early on that there were business opportunities in energy efficiency and alternative fuels. And even the corporate petroleum giant that fought hardest to discredit climate change science seems at last to have accepted that the consensus of world scientific opinion is now too overwhelming to debate.
 

A very exciting sign recently was when Google announced its RE


“Powering a clean energy revolution,” Google calls it, and highlights advanced solar thermal power, wind and geothermal power as its initial focus. The organisation has set itself the goal of generating one gigawatt of electricity using renewables, which is enough, it says, to power San Francisco. Most important of all the goal is to do this at a lower cost than coal. If Google can develop the technology to achieve economic renewable-electricity generation, then there will be few barriers to that capability being used everywhere.

One of the companies Google is partnering with is eSolar, which is developing a low-cost design that arrays heliostat mirrors to concentrate the sun’s rays and generate steam that powers electric turbines. Between the backing of Google and the pressure the Western countries created by setting a mandate for 20 per cent of power to come from renewables by 2015, such breakthroughs now seem plausible. It must be a thrilling time to be an engineer in this sector.

Nor is this all futuristic talk from Google. It just installed solar panels on the roof of one of its large computer centres in California that generates 30 per cent of the facility’s electricity and will pay for itself in less than eight years. At its centre in Hyderabad, India, it is going to switch to solar water heating. The beauty of this is every capital investment of this kind pushes manufacturing along the learning curve and helps decrease the cost of the modules for the next business purchaser, bringing them closer to being cost-competitive with traditional, carbon-emitting technology. Indeed, it is sobering to find only 7,000 homes in the United States installed solar water heating panels last year: we are a long way from harnessing the simple energy-savers, but if visionary investors can bring down the capital costs, that could change quickly.

Google is not the only one taking a venture capital approach to the carbon business. Nobel Prize winner Al Gore – whose movie An Inconvenient Truth did so much to put the warming issue high on the political agenda – has recently joined the leading venture firm, Kleiner Perkins, where he will be promoting and nurturing its ‘clean tech’ investments. A trade group reports that in the first half of 2007 venture capitalists put $1.9bn (Dh6.97bn) into clean tech start-ups.

It is helpful to stand back and look at the big picture of what it will take to reduce carbon emissions, should the world’s leaders and publics muster the determination to achieve this. McKinsey & Company, the leading international consultancy, has developed estimates of the size of each of the carbon-saving opportunities and arrayed them on charts from lowest to highest cost. What the exercise shows is that many approaches to carbon savings would also save the users money: installing more efficient lighting in homes and commercial buildings, for example. The improvements possible in buildings and appliances alone could reduce projected carbon emissions in 2030 by 10 per cent and produce net expense savings along the way. Apart from lighting retrofits, heating and air-conditioning systems and controls would need upgrading along with better insulation and improved appliance efficiency.
 

It is pretty clear this spells all sorts of new business opportunities from design and manufacture to managing swarms of low-tech installers, though the consultants warn that, for big things to start happening, policy has to get the incentives right – between landlords and tenants, builders and homeowners and so forth.


McKinsey’s next lowest-cost cluster of major carbon abatements is in fuel efficiency of cars and trucks. The US legislature is currently squabbling about mandating new standards for miles per gallon. It seems likely that there will be some progress on this at last, if not this year, then after the 2008 elections.

In addition, consumers may be taking matters into their own hands, faced with higher petrol prices than they have seen in many years. A shift of the motoring public away from fuel guzzlers would begin to do the trick. Of course, the European approach to high petrol taxes has been an effective application of the old principle that the price mechanism is the best tool for influencing consumer behaviour.
 
Japanese and European cars have always been far more fuel-efficient than the American fleet: so some of the design technology is already there for the taking. Hybrid cars, where Toyota’s Prius currently leads the field, can obtain significantly better mileage than conventional vehicles by exploiting the kinetic energy released when the car brakes, and it is a fair bet this technology has room to improve and expand market share.

For McKinsey, the Google thrust of RE

It is highly desirable for the business world to have certainty over international carbon emissions policy and to face uniform rules across the entire global marketplace, or as close to that as is humanly possible. Knowing the cost of emitting a tonne of carbon lets business executives plan everything from investments in new photovoltaic technologies to the size of parking structures for their new office buildings. Google, for example, says since the US has not passed legislation on carbon yet, it has decided to use a ‘shadow price’ of carbon when purchasing electricity, to manage the financial risk of its investments. In other words, it does not want to be caught out if its power supply suddenly leaps in price.

To say that getting such inter-governmental carbon policy agreement is frustratingly hard is, of course, an understatement. At Bali, China has continued to assert that the developed nations, especially the US, have to do all the heavy lifting on curbing emissions. The Bush administration refuses any leadership role on emissions, with the one bright spot for environmentalists being the commitment of Australia’s Government to play its part. Although the Chinese are right that the US is currently the worst offender in energy waste and carbon emissions, it is also clear the world will not just let China be the world’s manufacturer if that country refuses to treat its responsibilities seriously.

Eventually, American, European and Japanese businesses seem bound to insist any carbon regime that applies to them must be applied to competitors. The threat of tariffs on goods produced by non-compliant nations may be what will finally get everyone on the same page.

Much as they would like predictability and universality, business leaders know carbon abatement rules will proceed in fits and starts. The smartest ones will take the lead, looking for opportunities that capitalise on their natural advantages.

  

 

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