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Part E “ Case Studies of Business Risks

The causes of greenhouse gas air pollution
Greenhouse gases are produced from carbon dioxide and other emissions like
methane, which is emitted from many sources, including the decomposition of
organic wastes, gases from living life forms like herds of cattle, the production of
coal and natural gas and seepage from rotting vegetation from landfill sites.
Emissions to the atmosphere resulting from an organisation™s use of transport
(such as low-level ozone, SOx and NOx, PM-10s from diesel fuel, etc.) also con-
tribute to the problem. This includes greenhouse gases emitted from any vehicles
that are used by the organisation.
The scale of the problem is also being masked by the poor provision of infor-
mation, and an example is that a report from the UK Office of National Statistics
omitted to include that since 1990 there has been an 85% increase in air pollu-
tants from the airline industry and 59% from freight transport (˜Officials try to
hide rise in transport pollution™, The Guardian, 27 May 2004).

Risks resulting from air pollution
Climate change may cause the economic environment to alter more suddenly,
particularly when government policy responds to the perceived threat. A change
in greenhouse gas regulations on utilities, fuel economy standards for vehicles,
airline taxes or building regulations can immediately affect companies™ prof-
itability and prospects.
The effects of air pollutants:

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;
Increased costs and taxation of carbon emission are likely. An example is that
the Australian government in November 2006 said that it would consider tax-
ing industry™s carbon emissions if other countries agree to do so;
Localised air pollution caused by the burning of fossil fuels like coal and
diesel has contributed to a worrisome slowdown in rice harvest growth in
India in the past two decades, scientists said. The so-called atmospheric
brown clouds, formed from soot and other tiny air-borne particles belched
into the air when fossil fuels are burned, can cut rainfall and lower tempera-
tures (˜Air pollution hurts India™s rice crop “ study™, PlanetArk, Reuters USA:
5 December 2006);
The legal environment will become increasingly open to the idea that busi-
nesses may be held legally responsible for damage caused by the greenhouse
gases they produce. A group of state attorneys general has already filed a pub-
lic nuisance suit against utility companies for the companies™ release of green-
house gases. While lawsuits against individual companies for climate issues
remain difficult due to problems with demonstrating causation, more plaintiffs
are now able to show that they are suffering demonstrable, measurable harm
Chapter 20 “ Climate change “ air pollution risk 525

(Burr, Michael T. ˜Corporate America feels the heat™, Corporate Legal Times
(08/05) volume 15, number 165, p. 44);
Global warming, which causes flooding and droughts, has many conse-
quences including the spread of tropical climate diseases to otherwise cooler
regions, and the spread of disease has already begun with victims dying of
West Nile virus in Canada, for example;
Peter Levene warned that vast storms bigger than Hurricane Katrina are likely
to batter the United States in coming years; Levene runs the world™s biggest
insurance market at London-based Lloyd™s and was formerly a sceptic on cli-
mate change;
The developing world™s struggle for food security will increase unless new
crop varieties are deployed to help poor farmers adapt to climate change,
agricultural experts and climate scientists have warned (˜Climate change
increases food security concerns™, ENS, 5 December 2006);
A senior Chinese government official admitted in August 2006 that Hong
Kong™s chronic air pollution was having a negative effect on its economy,
affecting companies™ decisions to invest in the region; and
The UK™s National Trust says 60% of the 700 miles of UK coastline it manages
faces the threat of coastal erosion due to rising sea levels (˜UK environmental
group cites threat of rising sea levels™, Robert O™Connor BestWire, 29 April 2005).

Risk management
The pace of a firm™s development of a sustainable risk management framework
and adaptation to climate change and related policies and taxation is thus
likely to prove to be another force that will influence whether any given organ-
isation survives and prospers, or withers.
Companies that prosper in an environment of changing climate and pol-
icies will tend to be those that are early to recognise its importance and inex-
orability, foresee at least some of the implications for their industry and take
appropriate steps well in advance. These practical steps could include:

Developing a strategic analysis of climate risk and
emissions management
Organisations™ management should consider a strategic analysis of climate risk,
including a clear and straightforward statement about implications for compet-
itiveness, for example how the access to resources like fuel will be affected;
The following issues should also be addressed where they are relevant to the
Climate change statement: a statement of the company™s current position on
climate change, its responsibility to address climate change, and its engage-
ment with governments and advocacy organisations to affect climate change
The development of an emissions management plan providing an explan-
ation of all significant actions the company is taking to minimise its climate
Part E “ Case Studies of Business Risks

risk and to identify opportunities: specifically, this should include the
actions the company is taking to reduce, offset, or limit greenhouse gas emis-
sions. Actions could include establishment of emissions reduction targets,
participation in emissions trading schemes, investment in clean energy tech-
nologies, and development and design of new products. Descriptions of
greenhouse gas reduction activities and mitigation projects should include
estimated emission reductions and timelines;
Inculcating in management a constructive culture of adaptation to a chan-
ging economic landscape;
Encouraging employees to embrace change, and equipping them to do so; and
Undertaking the research and development on the risk issues and how to
manage them and translating this research into appropriate investments.

Undertaking an assessment of physical risks of climate
Climate change is beginning to cause an array of physical effects, many of which
can have significant implications for companies. Organisations should begin to
investigate how climate and weather generally affect their operations and supply
chain. These effects may include the increased number and intensity of storms;
sea-level rise; water availability; changes in temperature; and impacts of health
effects, such as heat-related illness or disease, on their workforce. After identify-
ing these risk exposures, companies should describe how they could adapt to the
physical risks of climate change and estimate the potential costs of adaptation.

Reporting on the steps organisations are taking to manage
these risks
Organisations should disclose their total greenhouse gas emissions. Investors
can use this emissions data to help approximate the risk companies may face
from future climate change regulations.
Specifically, investors strongly encourage companies to disclose:
Current and historical direct and indirect emissions; and
Estimated future direct and indirect emissions of greenhouse gases from their

Develop a framework for the analysis of regulatory risks
As governments begin to address climate change by adopting new regulations
that limit greenhouse gas emissions, organisations will face regulatory risks
that could have significant implications. Companies should research:
Any known trends, events, demands, commitments and uncertainties stem-
ming from climate change such as increased energy and transportation costs.
The analysis should incorporate the possibility that consumer demand may
shift sharply due to changes in domestic and international markets;
Chapter 20 “ Climate change “ air pollution risk 527

A review of all greenhouse gas regulations that have been imposed in the
countries in which the organisation operates and an assessment of the poten-
tial financial impact of those rules; and
The future cost of carbon resulting from emissions reductions.

Develop a proactive programme for tackling the issue
The best risk management options for reducing your impacts are to operate
more efficiently by:
Increased efficiency in delivering services from a given energy input, elimin-
ation of waste, more efficient products and more efficient power generation
and transmission;
Redesigning products, services and premises, as well as substitution and
lifestyle changes, from high energy to low energy services (assuming they
have the same or better utility). For example, video-conferencing as a substi-
tute for tiring and expensive business travel;
Re-engineering the systems by substituting high carbon forms of energy with
low carbon sources, such as natural gas instead of coal, and from gas to zero
carbon sources, such as renewable energy and possibly nuclear energy; and
Reclaiming CO2 through the creation of sinks to absorb the organisation™s
greenhouse gases.

Risk management case studies
Enel has also been developing renewable energy projects in Latin America and
two of them have already been approved by the CDM board and generated
credits for Enel worth several hundred thousands tonnes of CO2 equivalent,
said Fabrizio Barderi, head of Enel™s Strategies and Sales Analysis Department.
In China, Enel also participates in renewable energy projects in wind and
hydro generation. Enel has also been working on pilot projects to capture CO2,
but they were still far away from industrial realisation;
Dell says it is the first global technology company to offer customers the
opportunity to offset the emissions associated with the electricity used to
power their computers;
The makers of the independent film Sweet Land seem pleased with another
accolade, being carbon neutral. This means that all of the carbon dioxide
emitted by the filmmaking process “ lights, cameras and transportation “ was
totalled up and offset by comparable investments in renewable energy;
Rock band Coldplay bought 10 000 mango trees for villagers to plant to offset
the carbon emissions of greenhouse gases the creation of its CDs would create;
The US is choosing a site for its US$1 billion FutureGen project for what
President George W. Bush calls the ˜world™s first coal-based, zero-emissions
electricity and hydrogen power plant™. Increasing numbers of companies,
including American Electric Power, BP, E.ON, Statoil and Vattenfall, are in a
race to develop technologies that store carbon and reduce carbon emissions; and
Part E “ Case Studies of Business Risks

In the Netherlands, for example, one oil refinery began pumping its carbon
dioxide emissions into 500 greenhouses to reduce its emissions and to cut down
on the energy needed in the summer to create the gas for the growing season.
Energy consumption has become one of the biggest obstacles recently as gas and
oil prices continue to soar and economies are forced to seek out alternatives.

A business opportunity?
European Commission President Jos© Manuel Barroso met with a group of 15
business leaders telling them it was ˜to their advantage to lead and not to be led™
on the way to a low-carbon economy. Several agreed saying:
˜Climate change is business and will lead to new jobs™, said Lars Goeran
Joesfsson, chief executive of Swedish power company Vattenfall; and
˜Combating climate change ¦ is a business opportunity™, said Fulvo Conti from
Enel, saying the Italian utility and other energy groups were already investing
billions in energy research and energy efficiency.
Other noted research comes up with savings and benefits to the economy at
large, furthering other business opportunities:
Research by Shell Springboard shows that the challenge of tackling climate
change could create a market of up to £30 billion for British business over the
next 10 years (Climate change to be 30 billion pound opportunity for UK busi-
ness: http://www.greenbiz.com/news_third.cfm?NewsID 34128). The research
identifies major opportunities for small and medium-sized enterprises in a wide
range of markets, by responding both to consumer demand for environmentally
friendly goods and to demands created by government action. The biggest
identified markets for SMEs in 2010 will be:
Building regulations for commercial and industrial use “ £950 million;
Renewable electricity “ £800 million;
Renewable road transport fuels “ £500 million;
Domestic energy efficiency “ £400 million; and
Building regulations for domestic use “ £275 million.
The European Environment Agency (EEA) argues that ˜stringent EU climate
change policies™ offer general health and cost-savings benefits to Europe. The
report notes that reducing the air pollution that fuels global warming will
reduce premature deaths in Europe related to air pollution and estimates
Europe could save $15.4 billion a year in air pollution-control costs by 2030
through ˜burning smaller amounts of fossil fuels™ (˜EEA report says “tackling
climate change” will save lives™, Insurance Journal, 15 May 2006).

Emerging technological opportunities
Renewable energy
Using and investing in renewable energy will increase “ combustible renewables
and waste and hydro power account for nearly all the world™s renewable energy
Chapter 20 “ Climate change “ air pollution risk 529

production. ˜New™ renewable energy sources like geothermal, solar, tidal, wave,
wind and others will rapidly increase from their small proportion of production:
China is the world™s leading producer of energy from renewable sources,
using it for 7.7% of its total energy supply, and this will increase to 19% of
the nation™s needs by 2020. China is also the world™s leader in passive solar
energy (for water and space heating) and it is also the largest source of emis-
sions credits under the Kyoto Protocol™s Clean Development Mechanism, and
is expected to remain so (source: http://www.newenergyfinance.com/);
China will build the world™s largest solar power station (100 megawatt (MW))
in the northwestern province of Gansu, at an approximate cost of 6.03 billion
yuan (US$766 million);
˜BP Solar to invest $70 million to expand U.S. facility at Frederick, MD™, World-
Wire, 16 November 2006: BP Solar today unveiled its plans for a $70 million
expansion project at its North American headquarters in Frederick, MD;
Google took steps in a greener direction, announcing it is to make its Silicon
Valley headquarters the largest solar-powered office complex in the world.
The 1.6 MW of solar power generated will meet about a third of the offices™
electricity needs; and
Technology rival Microsoft has installed 2288 solar panels at its research site
in Mountain View, which will produce 480 kW of energy.

Carbon capture
˜Clean™ coal-fired power plants that bury greenhouse gases will be up and run-
ning in 5“10 years but will be money-losers unless governments impose tougher


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