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companies to press them to report on their carbon emissions. The Association
of British Insurers (ABI) has announced that climate change claims have
already doubled from 1998 to 2003 (to more than £6 billion), and that claims
could treble in the future, pushing up premiums (The Observer, 6 June 2004).
The business community is also concerned as rising energy prices are
˜set to hit company profits™ (analyst™s warning in the Financial Times, 4
August 2004).
Chapter 19 “ Aspects of environmental risk 473



Risks resulting from air pollution
The effects of air pollutants:

Acid rain and eutrophication: when sulphur dioxide and nitrogen oxides can
cause sulphuric acid and nitric acid in rainfall. Acid rain has been linked to
the killing of birds, fish, trees and entire water ecosystems, particularly lakes
and ponds where concentrations of acidity build up;
Climate change: the six greenhouse gases act so as to trap the infrared radi-
ation emitted from the earth™s surface. Some of the predicted changes are
massive damage to economics, hundreds of millions of refugees, flooding of
low lying land and greater strength of storms and increased desert spreading;
Human health impacts: many air-borne pollutants affect human health, from
cancer causing (dioxins and PM-10 particles), to nervous system damage
(mercury and lead) and breathing problems. In the UK alone there are esti-
mates of over 24 000 people dying prematurely as a result of poor air quality
due to avoidable air pollution; and
The hole in the ozone layer is still getting bigger and is now at its largest on
record, according to US government scientists. ˜From September 21 to 30, the
average area of the ozone hole was the largest ever observed, at 10.6 million
square miles (27.4 square kilometres)™, said Paul Newman of NASA™s
Goddard Space Flight Center. Residents of Punta Arenas, the most southerly
city in Chile, are warned to stay indoors on occasions now.

Localised air pollution is responsible for large numbers of deaths, mostly as a
result of transport generated fumes. There is an increasing body of legislation
and market mechanisms being applied to this problem and the trend will con-
tinue. More cities around the world will establish ˜congestion charging zones™
and subsidies for ˜greener™ transport.
There are major indirect impacts associated with air pollution, such as
alteration of the weather and associated risks. These ˜climate changes™ are now
a reality in many regions of the world, and risk managers need to begin prepar-
ing for the consequences and possible intense weather situations that will
occur in the UK. This could involve increased incidence and durations of
extreme weather events and other disastrous events that could interrupt daily
operations. Companies should plan for more power interruptions and
increased spending on energy supplies.
According to Swiss Re™s ˜Sigma™ report, overall economic losses from nat-
ural disasters (aggravated by climate change) in 2003 amounted to an estimated
$70 billion. At the same time the global rate of ice melts has more than doubled
since 1988 and could raise sea levels 27 centimetres (nearly 11 inches) by 2100
(State of the World, 2003):

The evidence for warming is now overwhelming. Over the past 100 years the global
temperature has risen by around 0.6 degrees centigrade, according to the latest Intergovern-
mental Panel on Climate Change (IPCC) report about climate change, published in 2001.
(Reinsurance Magazine, ˜Energy and climate risk™, Marc Jones, 1 February 2004)
Part D “ Overview of the Environmental Aspects of Business Risk
474



The consequences could be severe, for example if all the ice sheets melted on
earth then the sea levels would rise by 60 metres, the height of a 20-storey
building.


Other air emissions
There are other environmental and health damaging properties of air emis-
sions. The following are examples of damage caused by air emissions:
Carbon monoxide can damage the cardiovascular system and the lungs, and
reduce brain function and cognitive abilities;
Sulphur dioxide affects the lungs and can cause respiratory illness; it can
prove problematic for asthmatics and could even help cause asthma. It also
acts as a precursor to ˜acid rain™;
Nitrogen dioxide can affect the lungs and weaken the immune system. It can
also cause ˜acid rain™;
Low-level ozone can cause premature ageing of the lungs, eye irritation and
damage to plants. In London one of the main causes of low-level ozone is the
London Underground system. Depletion of the ozone layer through use of
chemicals (CFCs, HFCs) in a company™s refrigeration equipment, air condi-
tioning systems, fire fighting equipment or in any industrial solvents can
result in criminal prosecution and the imposition of a fine; and
Other particulates, including metals such as lead, can accumulate in the
body™s tissues, blood and bones, causing a range of side effects including
damage to liver, kidneys and the nervous system as well as damage to unborn
children. Smaller particles, like the PM-10 in diesel fuel, lodge in the lungs
and cause particularly severe lung problems. The smaller the particles, the
more serious are the risks to human health.

Legal risks of air pollution
There is an increasing reliance on market mechanisms to regulate environmen-
tal damage, including environmental health impact issues, attempts to estab-
lish a carbon emissions market, and in the UK the Local Air Pollution Control
(LAPC) which seeks to regulate air emissions from certain prescribed
processes. The Integrated Pollution Control (IPC) seeks to regulate emissions to
air, water and land from other prescribed processes.
The UK government seeks to control air pollution via permit regimes and
workplace regulations as reviewed below:
A UN report due in early 2007 will show stronger evidence that humans are
causing global warming and this is likely to spur more lawsuits around the
world;
The Local Air Pollution Control (LAPC) to regulate air emissions and the
Integrated Pollution Control (IPC) to regulate emissions to air, water and
land were enacted under the Environmental Protection Act 1990 (EPA 1990),
Part I;
Chapter 19 “ Aspects of environmental risk 475



The Pollution Prevention and Control (PPC) regime is currently being phased
in to replace LAPC/IPC under the Pollution Prevention and Control Act 1999;
this is being brought in at an industry level, but all new installations require
a PPC permit; and
The Air Quality Standards Regulations 1989 (SI 1989 No. 317) and the Noise
in the Workplace Directive 86/188.

If a company operates an installation that falls within either regime, such
installation can only be operated under, and to the extent permitted by, the
consent obtained.
International treaties exist for the protection of the ozone layer.
Under European law, the supply and use of certain specified ozone deplet-
ing chemicals is prohibited (although certain exemptions do apply). The Envir-
onmental Protection (Controls on Ozone Depleting Substances) Regulations
2002 (SI 2002 No. 528) mean an organisation must (a) identify whether or not it
uses any of the prohibited chemicals, and (b) make all changes necessary to
ensure compliance.



Health risks
The significance of the problem should not be underestimated as over the
last 10 years there has been a 500 000 increase in the incidences of asthma
in the UK, and it is estimated that the death rate as a result of air pollution
is increasing. Recent research from the US shows the scale of the problem
with nearly one in five counties in the US having unhealthy air (according
to the US Environment Protection Agency). It was also discovered that 159 mil-
lion Americans live in counties that violate the Bush administration pollution
rules.



Stakeholder risks
The scale of this risk to human health and the emerging economic sense of regu-
lation to control the problem will lead to more stakeholder pressure. The sav-
ings are potentially vast, as between 1970 and 1990 the US Clean Air Act has
been estimated to have had total benefits of US$22 trillion. The costs of compli-
ance for businesses were estimated at $0.5 trillion (studies are available at
www.epa.gov/oar/sect812).



Sector overview
The following graph shows the environmental risk from air pollution from
production by sector.
Part D “ Overview of the Environmental Aspects of Business Risk
476



Air/GHG Emissions from Production
1.4%

AEROSPACE & DEFENCE
1.2%
MINING
1.0%
OIL & GAS
Net (Residual) Risk




FOOD PRODUCERS &
0.8%
PROCESSORS
ELECTRONICS & ELECTRICAL
0.6% EQUIP'T
STEEL & OTHER METALS
0.4%
SECTORS
0.2% FTSE 350 AVERAGE

0.0%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%
Gross (Inherent) Risk

The table below shows the environmental risk from air emissions in
selected sectors.
Sector Possible direct impacts/risk

Aerospace and defence The sector has been a below average reporter on sustainability
and risk issues, as well as being susceptible to a wide range
of air emission liabilities.
Automobile The car industry (the Society of Motor Manufacturers and
Traders) is challenging the government to reduce their
demands for cuts in energy use, which have been set at 18%
over five years (100 000 tonnes of CO2). They were looking
for targets of 7%.
Chemicals Energy efficiency is crucial as the industry™s energy costs are a
large proportion of their production costs. Climate change
mitigation costs and taxation will directly affect the bottom
line. Indirectly, competitive advantage may be lost as more
energy efficient, lower CO2 alternatives may be encouraged,
such as sustainable wood usage instead of plastics.
Construction and Building material, cement and glass manufacturers building
materials are huge users of energy and the energy costs increases will
affect them disproportionately. There are opportunities for
improvement. House builders™ raw materials will increase
in price.
Electricity suppliers This sector is responsible for a substantial proportion of the
UK™s CO2 emissions and the climate change levy could force
a switch to lower CO2 emission stations. High CO2 emitters
will find themselves at a market disadvantage, as they will
not be able to pass on costs easily due to market conditions
(and subsidisation of renewable energy).
(Continued)
Chapter 19 “ Aspects of environmental risk 477




Sector Possible direct impacts/risk

Electrical and electrical Significant energy use by products and at production
equipment stages. Many products do not have energy efficiency built
in. Production cost will increase unless secure energy
supplies are sought.
Food producers and Increased exposure to transport dependency risk. There are
processors the direct costs of air freighting food from around the
world and the social fallout of not buying local produce.
Reputational damage is reduced as most resellers of food
produce import from great distances. These ˜food miles™ dis-
tances have large CO2 usage implications.
Steel and other metals Energy efficiency is crucial as the industry™s energy costs
are a large proportion of their production costs. Climate
change mitigation costs and taxation will directly affect the
bottom line.
Mining High possibility of coal miners facing litigation for their
products having been major contributors to any damage
caused by climate change as a result of greenhouse gas
emissions. This in turn will appeal to governments who
will seek to impose extra CO2 taxes on the mining of coal.
Oil and gas The sector has a long-term strategic business model,
which is dependent on the sale of fossil fuels (CO2 emitters)
and therefore there is a risk embedded within the business.
However, repositioning as energy companies and focusing
additional resources on the alternatives to CO2 emitting
fuels can mitigate this.


Case studies
Dongguan city in China™s booming southern province of Guangdong has
closed 43 cement factories for pollution, a move that was in line with a gov-
ernment campaign to cool the overheating economy;
Scottish Power plc was reported to have had problems at their Dundee
energy-recycling incinerator. Attempting to restart it after a fire, authorised
limits were breached 19 times, 18 of those relating to hydrogen chloride,
VOCs or nitrogen oxides. Twenty-four kilograms of ash were released into the
air when a filter burst in June (ENDS Report, 4 June 2001);
GlaxoSmithKline plc has attracted the attention of Friends of the Earth who
note that the Glaxo Wellcome Ulverston plant (now GlaxoSmithKline plc)
was third in their top 10 of sources of cancer-causing chemicals. According
to an Ecologist report, the same plant emitted 773 tonnes of carcinogens in
2001, which translates into 10% of the total carcinogens released by large fac-
tories that year (ENDS Report, August 2000, and restated in November 2002
when they noted an increase in emissions from the plant); and
Whitbread plc was ranked eighth in the ENDS Report on the ˜Top ten pol-
luters by number of court appearances™ in July 2000. In 1999 they had
appeared in court twice and been prosecuted for two offences. In total they

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