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Consumers’ desire for a healthier, more sustainable world has driven
even mainstream institutions to make major changes. Perhaps most
exciting, the business community is joining the effort to reduce global
warming and to implement more sustainable practices.
In May
2005, Jeffrey Immelt, the man who replaced Jack Welch at the helm of
General Electric (GE), stood with Jonathan Lash, the President of World
Resources Institute (WRI), a leading environmental organization, to
announce the creation of GE Ecomagination. The two co-authored an
article in The Washington Post titled, “The Courage to Develop
Clean Energy.”[1]
Immelt
committed GE, the sixth largest company in the world, and the only
company that would have been on the Fortune 500 list if it had existed
in 1900 and is still on it today, to implement aggressive plans to
reduce emission of GHGs, spending $1.5 billion a year on research in
cleaner technologies. As part of the initiative, Immelt promised to
double GE’s investment in environmental technologies to $1.5 billion by
2010, and reduce the company’s GHG emissions by 1% by 2012. Without any
action, GE’s emissions would have gone up 40%.[2]
GE’s
announcement was rapidly followed by an even more significant
environmental commitment from Wal-Mart, now considered the largest
company in the world. In 2006, Lee Scott, the CEO of Wal-Mart,
announced that his company would undertake a major effort to reduce its
emissions of GHGs. He set a goal of supplying his stores with 100%
renewable energy. Wal-Mart is experimenting with green roofs and green
energy (which is now used to power four Canadian stores, for a total of
39,000 megawatts—the single biggest purchase of renewable energy in
Canadian history). The company pledged to become the largest organic
retailer and to increase the efficiency of its vehicle fleet by 25% over
the next three years. It will eliminate 30% of the energy used in store
and invest $500 million in sustainability projects.[3]
An
unabashedly astonished article in the San Francisco Bay Guardian
reflected: "Wal-Mart’s rationale for all of this, of course, has absolutely
zero to do with any sort of deep concern for the planet (though it does
make for good PR), nothing at all about actual humanitarian beliefs or
honest emotion or spiritual reverence, and has absolutely everything to
do with the corporation's rabid manifesto: cost-cutting and profit."
The reason Scott promised that Wal-Mart will double the fuel
efficiency of their huge truck fleet within a decade? Not to save the
air, but to save $300 million in fuel costs per year. The reason they
aim to increase store efficiency and reduce greenhouse gasses by 20%
across all stores worldwide? To save money in heating and electrical
bills, and also to help lessen the impact of global warming, which is
indirectly causing more violent weather, which in turn endangers
production and delivery and Wal-Mart’s ability to, well, sell more
crap. Ah, capitalism.[4]
In
reviewing the leading business stories of the year 2006, columnist Joel
Makower, a veteran commentator on green issues wrote:
Two thousand six may be
the year that green business crossed the line from a movement to a
market. It was long in coming, of course, with several watershed
moments…In 2006, GE initiatives to harness "green” as an engine for
topline growth hit their stride… ahead of its plan to reach $20 billion
in annual sales of Ecomagination products by 2010.
Dupont launched its own
initiative, committing to $6 billion in new revenue from "business
offerings addressing safety, environment, energy, and climate
challenges.” Dow came on board with the aforementioned water initiative.
Carpet maker Interface introduced a consulting service to help
organizations as diverse as Sara Lee and NASA get their sustainability
programs off the ground. Caterpillar launched an ambitious business unit
to develop a remanufacturing industry in China. And a wide range of
innovators developed new, clean technologies for everything from bottles
to buildings to boats -- part of the year's overall boom in clean-tech
activity….
Shareholders --
specifically, large institutional investors like pension funds and
university endowments -- are emerging as the real power brokers in the
climate arena...
The leading investment
firms are jumping in, too. Merrill Lynch, for one, issued a report
profiling seven companies it believes are best positioned to capitalize
on what it calls the "clean car revolution." Citigroup, JP Morgan Chase,
and Morgan Stanley also published research reports analyzing the
financial performance of the carbon markets, sometimes identifying who's
naughty and nice -- that is, the leaders and laggards in their various
sectors.[5]
The
business community is actually often ahead of the government in being
willing to take an aggressive stance on protecting the climate. For
years, many American businesses succumbed to the concerted media
campaign claiming that taking action against global warming will harm
businesses and the economy.[6]
Now, business leaders are recognizing that, in fact, quite the opposite
is true: The conventional wisdom that businesses will oppose efforts to
implement programs to protect the environment is increasingly antiquated
thinking.
Many
business leaders see a need to abate climate change for moral reasons.
Lee Scott, CEO of Wal-Mart, stated in the pages of Fortune Magazine:
There can’t be anything good about putting all these chemicals in
the air. There can’t be anything good about the smog you see in
cities.
There can’t be anything good about putting chemicals in these rivers in
Third World countries
so that somebody can buy an item for less money in a developed country.
Those things are just inherently wrong, whether you are an
environmentalist or not.[7]
There
is an opportunity now to begin a new conversation between citizens, the
companies that deliver the services we all desire, and the government we
have empowered to set policy to achieve the sort of future we all
desire.
Companies often start a program of GHG reductions because they realize
that acting now is a “no regrets” strategy. If climate change turns out
to be real, they will already be in a leadership position by dealing
responsibly with it. Even if the scientists are wrong and there is no
threat to the climate, these are actions that a well-managed business
would want to take anyway, because doing so is profitable. Enormous
opportunities exist to reduce costs by reducing the energy they use to
run their operations. It just happens that this is exactly the same
strategy they would employ to reduce their GHG emissions.
There
is a very solid business case for such a position. Adopting an
aggressive program of GHG reductions can be highly profitable for
companies and cost-effective for non-profit (including government)
organizations.[8]
Reducing the amount of energy that a business uses reduces costs
and directly enhances a company’s bottom line. Failing to reduce energy
use, and tolerating carbon emissions as part of “business as usual” is
actually a high-risk strategy for a business or for a community.
Companies that reduce GHG emissions, especially in the context of a
broader whole-system corporate sustainability strategy, will achieve
multiple benefits for shareholders beyond reducing their contribution to
global climate change. Governments that take a similar course will
accrue similar benefits to their citizen stakeholders.[9]
These
benefits include:
-
Enhanced financial performance from
energy and materials cost savings in:
industrial processes;facilities design and
management;fleet management; andgovernment
operations.
Enhanced core
business value:sector performance
leadership;greater access to
capital;first mover
advantage;improved corporate
governance;the ability to drive
innovation and retain competitive advantage;enhanced reputation
and brand development;market share capture
and product differentiation;ability to attract
and retain the best talent;increased employee
productivity and health;improved
communication, creativity, and morale in the workplace;improved value chain
management; andbetter stakeholder
relations.
Reduced Risk:insurance access and
cost containment;legal compliance;ability to manage
exposure to increased carbon regulations;reduced shareholder
activism; andreduced risks of
exposure to higher carbon prices.
Leading
CEOs around the world know this. CEOs surveyed by the World Economic
Forum in Davos in 2000, stated that for them, “The greatest challenge
facing the world at the beginning of the 21st Century—and the issue
where business could most effectively adopt a leadership role—is climate
change.”[10]
The Climate Group website[11]
lists case studies of companies and communities that are reducing their
emissions and saving money.
In
November 2004, essentially all of the world’s industrial nations
ratified the Kyoto Protocol to reduce the emissions of GHG gasses (the
U.S. and Australia are the only significant holdouts). The Protocol
came into force February 16, 2005, launching a new “carbon-constrained” era for the 141 countries
that ratified it.[12]
Among its many provisions, the accord established regulations
limiting the amount of carbon that nations can emit, and created a
carbon market through which companies that reduce further than they are
required can sell this extra reduction to companies unable to meet their
targets.
European countries, as members of the Kyoto Protocol, are now bound by
this mandatory trading regime. The European Commission plans to cut
energy use 20% by 2020 and increase European use of renewable energy to
12% by 2012. This should reduce Europe’s emissions by a third. The
program is projected to save 60 billion Euros, create millions of new
jobs and increase European competitiveness. American businesses are at
risk of losing ground to European competitors as they innovate to meet
these goals.
For
example, STMicroelectronics (ST), a Swiss-based, $8.7 billion,
multi-national semiconductor company, set a goal of zero net GHG
emissions by 2010 while increasing production 40-fold.[13]
The main sources of ST’s GHG emissions are 45% facility energy
use, 35% industrial process (PFC[14]
and SF6[15])
emissions and 15% more efficient transportation. Its strategy is to
reduce on-site emissions by investing in co-generation (efficient
combined heat and electricity production[16])
and fuel cells (efficient electricity production).
By 2010
co-generation sources should supply 55% of ST’s electricity with another
15% coming from fuel switching to renewable energy sources. The rest of
the reductions ST is seeking will be achieved through improved energy
efficiency (hence reducing the need for energy supply) and various
projects to sequester carbon. ST’s commitment has driven corporate
innovation and improved profitability. During the 1990s, its energy
efficiency projects averaged a two-year payback (a nearly 71% after-tax
rate of return).[17]
Making
and delivering on this promise has also driven ST’s corporate innovation
and increased its market share, taking the company from the number 12
micro-chip maker to the number six in 2004.[18]
By the time ST meets its commitment, it predicts that it will have saved
almost a billion dollars.
Figure: STMicroelectronics
commitment to Carbon Neutrality[19]
In
January 2005, an independent commission of businesspeople, politicians
and scientists[20]
released a report to the G8 meeting, urging member countries to
cut carbon emissions, double their research spending on green technology
and work with India and China to build on the Kyoto Protocol’s
mechanisms for carbon-saving projects. The report recommended that the
major countries agree to generate a quarter of their electricity from
renewable sources by 2025 and to shift agricultural subsidies from food
crops to biofuels.
The
report recommended wider international use of emission trading schemes,
which are already in use in the European Union, under which unused CO2
quotas are sold.
The
profit motive, stated the report, is expected to drive investment in new
technology to cut emissions further.
The
advent of the Chicago Climate Exchange (CCX) carbon trading mechanism
provides companies and other organizations emitting GHGs both the
opportunity to systematically reduce their emissions, sell greater
reductions in emissions and participate in a proven risk-management
system of futures contracts and financial derivatives.[21]
CCX is
North America’s only, and the world’s first, GHG emission registry,
reduction and trading system for all six GHGs of which CO2
dominates. It recently announced a partnership to create the Canadian
Climate Exchange, and is in negotiations with such countries as China
and India. It also offers offset projects in the United States, Canada,
Mexico and Brazil. It is a self-regulatory, rules-based exchange
designed and governed by its members.
Members
make a voluntary but legally binding commitment to reduce GHG
emissions. By the end of Phase I (December, 2006) all members will have
reduced direct emissions 4% below a baseline period of 1998-2001. Phase
II, which extends the CCX reduction program through 2010, will require
all new members to reduce GHG emissions 6% below baseline and extends
current members commitment to an additional 2% reduction below
baseline. In the first year, members of the exchange collectively
reduced their carbon emissions by 9%, or 2% more than would have been
required had the U.S. been a member of the Kyoto Protocol. Companies
undertaking such programs are finding that it can save significant
amounts of money.
Opening
with 16 members in December of 2004, CCX now has over 200 members
(including such businesses as DuPont, and American Electric Power, IBM,
Ford Motor Co. IBM, Motorola, Dow Corning, Waste Management and Baxter
Health Care) representing over 8% of all direct U.S. GHG emissions. The
State of New Mexico, cities such as Chicago and Boulder, universities
such as Presidio School of Management, Tufts and University of Oklahoma, and
a wide array of smaller businesses and non-profit groups are also
members.[22]
CCX has
proven that businesses can engage in reduction of emissions and remain
profitable. But it is only the first of a growing number of efforts to
create carbon markets in the United States. The seven Northeastern
states have approved the Regional Greenhouse Gas Initiative, a mandatory
regulatory scheme. Over 20 states have already either passed or
proposed legislation on CO2
emissions, or have developed carbon registries.
In
August 2006, California became the first state in the nation to impose
mandatory limits on GHG emissions, requiring a 25% cut in GHGs by 2020
that would affect companies from automakers to manufacturers. The state
is the 12th largest carbon emitter in the world despite
leading the nation in energy efficiency standards and its lead role in
protecting its environment.[23]
The California Chamber of Commerce opposed the bill, but such business
groups as A New Voice for Business[24]
supported the measure, stating that it would create jobs and help to
launch a whole new industry in California.
Many believe the legislation will be the turning point in the country's
global warming policy.
There
is now such a proliferation of inconsistent carbon reduction regimes
that in April 2006, a group of major businesses called on Congress to
pass national legislation capping carbon emissions to relieve them of
having to navigate the competing schemes.
At the
hearing before the Senate Energy and Natural Resources Committee leaders
representing eight big energy companies, including GE, Shell and the two
largest owners of utilities in the United States,
Exelon and Duke Energy, spoke. Six of the eight said they would welcome
or accept mandatory caps on their GHG emissions. Wal-Mart executives
also spoke in favor of carbon caps. The companies stated that federal
regulations would bring stability and sureness to the market. David
Slump, the top marketing executive in GE’s energy division, stated, “GE
supports congressional action now.” Two representatives from the energy
sector, Southern Company and American Electric Power, called for a
voluntary rather than mandatory program, but they acknowledged that
regulations may be coming, and offered detailed advice on how they
should be designed.
[25]
At
subsequent Senate hearings on global warming, Senator Bingaman asked
representatives of CCX whether there were any reasons that the U.S.
should not simply implement CCX as the basis for a regulated U.S. carbon
market. Cities, counties and companies that join CCX might, thus, just
be ahead of the regulatory game.
While
it is highly likely that some form of national cap and trade system will
emerge in the U.S. soon,
companies should not wait until they are forced to limit their
emissions. The early adopters gain substantial first mover advantages.
As
energy prices have risen, many companies have chosen to go ahead and
implement energy savings measures. Over a 12-year period in the 1980s,
Dow’s Louisiana plant was able to save enough energy implementing worker
suggested savings measures to add $110 million each year to the bottom
line. Each measure also reduced Dow’s carbon footprint.[26]
In
2000, as part of re-branding itself as “Beyond Petroleum,” British
Petroleum (BP) announced a corporate commitment to reduce its emissions
of GHGs. In 1997, in a speech at Stanford University, California, group
chief executive Lord Browne stated, “BP accepted that the problem was
potentially very serious and that precautionary action was justified.”
BP then announced a target for 2010: that GHG emissions from its own
operations would be 10% lower than emissions in 1990. BP achieved that
target at the end of 2001, nine years ahead of schedule, and gained
around $750 million in net present value through increased operational
efficiency, the application of technological innovation and improved
energy management. While returns on traditional investments average
40-50%, investments in increasing energy efficiency often return 70% or
more.[27]
BP is now one of the world’s largest solar companies and
sees its 50-year future as one of transition away from fossil fuels to
becoming an energy company.
Financial savings are not the only reason that companies engage in such
behavior. Rodney Chase, a senior executive at BP, subsequently
reflected that even if the program had cost BP money, it would have been
worth doing because it made them the kind of company that the best
talent wants to work for.[28]
It is reducing costs, gaining market share and attracting
and retaining the best talent.[29]
DuPont,
an even earlier entrant into the field, committed itself to reducing its
GHGs by 65% from 1990 to 2010. The company also set plans to raise
revenues 6% per year from 2000-2010 with no increase in energy use; and
by 2010, source 10% of its energy and 25% of its feed-stocks from
renewable sources. The company announced these goals in the name of
increasing “shareholder and societal value.”
To
date, DuPont has kept energy use the same and increased production by
30%. Globally, DuPont’s emissions of GHGs are down 72%. Global energy
use is 7% below 1990 levels, and the company is on track with its
renewable energy targets. It estimates that this program has already
saved the company $3 billion.[30]
In one example, four engineers at DuPont recently figured out how to
spend less than $100,000 to save nearly $7 million per year in energy
costs.[31]
Under
CEO Mike Eskew, United Parcel Service (UPS) has assembled one of the
biggest alternative-fuel fleets, around 1,500 vehicles strong. In
February 2006, UPS announced that it had placed an order for 50
new-generation hybrid-electric delivery trucks, which will reduce fuel
consumption by 44,000 gallons over the course of a year.[32]
Many
participants in the voluntary U.S. EPA performance-challenge programs
(such as 33/50[33]
and Green Lights[34])
reported that energy efficiency enabled them to capture multiple
benefits. For example, Sony Electronics’ U.S. and Mexican facilities
voluntarily installed energy efficient lighting where it was
cost-effective and did not interfere with the quality of light. By the
end of 1994, the organization had upgraded approximately 6.1 million
square feet of floor space with new lighting fixtures, reduced its
operating expenses by more than $915,000 per year and lowered energy
demand by almost 12 million kilowatt hours annually. In addition, these
lighting changes indirectly prevented more than 7,300 tons of air
pollution from being emitted by local utility companies.[35]
Sony
found its participation in the EPA’s Green Lights program often improved
visual performance so significantly that it led to significant increases
in labor productivity and reductions in error rates. The financial
benefits from this far outweigh the value of the energy savings. For
example, Boeing implemented a lighting system retrofit in its design and
manufacturing areas. The program cut lighting energy costs by 90% with
a less than 2-year payback, but because workers could see better they
avoided rework—the error rate decreased 30%—which increased on-time
delivery, and enhanced customer satisfaction.[36]
Lockheed commissioned a new headquarters building for its Sunnyvale
facility. The architects successfully argued that the “literium” that
provided day-lighting throughout the structure was not merely a worker
amenity, but was essential to the performance of the building. They
were right: the lighting system resulted in a 75% reduction in lighting
energy usage. This contributed to enabling the building to use half the
energy of a comparable standard building. The different design added $2
million to the cost of the building—the reason the “value engineers”
sought to eliminate it from the design. However, it is saving Lockheed
$500,000+ per year worth of energy, or a four-year payback. The
greatest benefit to Lockheed was the effect on their human capital:
because workers enjoyed the space, absenteeism dropped by 15% and
productivity increased 15%. The gains from this won Lockheed a very
competitive contract, the profits from which paid-off the entire costs
of the building.[37]
It
appears that people simply perform better in well-designed spaces. A
study by Pacific Gas and Electric Company (PG&E) showed that in good
“green” buildings, day-lighting can enable students to achieve 20 to 26%
higher test scores, and retail stores to have up to 40% higher sales
than conventional stores.[38]
In
1987, the former NMB Bank in The Netherlands completed a new 538,000
square foot headquarters. The bank’s management, desiring to improve
the somewhat stodgy image of the company, commissioned the creation of a
“green headquarters.” The building uses 10% of the energy of a similar
building constructed at the same time (90% savings). The annual energy
savings of $2.9 million required only $700,000 additional building
cost—a three-month payback on energy costs alone. Employees reported
being more comfortable and absenteeism declined 15%, dramatically
increasing project return on investment. The new headquarters achieved
its goal: it dramatically improved the image of the bank—which became
the second largest bank in the Netherlands.
The bank renamed itself and subsequently bought Bearings.[39]
Community programs to reduce energy use are particularly good for small
businesses. Back in the 1970s when energy prices were rising,
communities began implementing programs to reduce their use of energy.
The results were extraordinary, and can be replicated today.
In 1974, the Osage Municipal Utility was faced with the need
to build a new power plant to meet growing demand. Its general manager,
Wes Birdsall, realized that if he built the plant, it would increase
everyone’s rates. Instead, he stepped across the meter to his
customers’ side and helped them use less of his product: electricity.
Why on earth would a businessman ever do that?
Birdsall realized that what his customers wanted was not raw
kilowatt-hours, but the energy “services” of comfort in their homes:
shaft-power in factories, illumination, cold beer and the other services
that energy delivers. People buy energy, but what they really want is
the service. If they can get the same or improved service more cheaply
using energy more efficiently or from a different source, they will jump
at it. Birdsall realized that if he raised his prices, not only would
he be doing his customers a disservice, but that they might turn to
other options. By meeting their desires for energy services at lower
cost, he retained them as customers, and began one of the most
remarkable economic development stories in rural America.
Birdsall’s program was able to save over a million dollars a
year in this town of 3,800 people and generate over 100 new jobs. A
report on the program found that, “Industries are expanding and choosing
to remain in Osage because they can make money through employees who are
highly productive and through utility rates that are considerably lower
than neighboring cities.”[40]
Birdsall was able to reduce electric bills to half that of the state
average and unemployment to half that of the national average, because
with the lower rates new factories came to town. He held electric
growth level until 1984. The program was profiled in the Wall Street
Journal, and was copied by other utilities.
According to a USDA study of Osage, “The local business
people calculated that every $1 spent on ordinary consumer goods in
local stores generated $1.90 of economic activity in the town’s
economy. By comparison, petroleum products generated a multiplier of
$1.51; utility services, $1.66; and energy efficiency, $2.23. Moreover,
the town was able to attract desirable industries because of the reduced
energy operating costs resulting from efficiency measures put in place.
Energy efficiency has a long and successful track record in Osage as a
key economic development strategy.”[41]
Thirty
years later, a June 2006 article in Business Week pointed out that small
businesses, the economic engine of growth, will be especially hard hit
by climate change, and can disproportionately benefit from programs to
reduce their emissions, stating:
It’s increasingly likely that a mandatory program to reduce
greenhouse gas emissions will come to pass. This prospect of further
government regulation is one reason small business owners should pay
attention.
But it’s not the only one. Small firms could well be among the hardest
hit victims of climate change.
Extreme weather events, for example, can wipe out an entire
region’s small businesses in one fell swoop. And they can't readily
bounce back from disruptions caused by natural disasters. Look at the
impact of Hurricane Katrina on small businesses in the Gulf Coast region, where
they constituted the backbone of the economy . . .
There’s been virtually no research on what global warming means for
small business, even though 23 million U.S. small businesses
constitute one-half of the economy.
There is some good news for small businesses, however. To start
with, reducing energy waste in U.S. homes, shops, offices,
and other buildings must, of necessity, rely on tens of thousands of
small concerns that design, make, sell, install and service
energy-efficient appliances, lighting products, heating,
air-conditioning and other equipment.
What’s more, devising technological fixes to curb GHG emissions
must rely on the capacity of small business innovators and entrepreneurs
to produce “clean-tech” breakthroughs in photovoltaics, distributed
energy, fiber-optic sensors, and the like.
Finally, every single small business in the nation can profit by
making its own workplace more energy-efficient. According to the EPA’s
Energy Star Small Business program, small firms can save (at least) 20%
to 30% on their energy bills through off-the-shelf cost-effective
efficiency upgrades. The job consists largely of installing the same
few simple devices—programmable thermostats, for example—over and over
again in millions of small business workplaces.[42]
Small
office buildings can achieve similar savings. A project to remodel a
2,800 square foot law office in Louisiana improved employee productivity
with energy systems that saved over $6,000 while eliminating 50 tons of
CO2
emissions per year.[43]
In
1989, the municipal utility in Sacramento, California
shut down its 1,000-megawatt nuclear plant. Rather than invest in any
conventional centralized fossil fuel plant, the utility met its
citizens’ needs through energy efficiency and such renewable supply
technologies as wind, solar, biofuels and distributed technologies like
co-generation, fuel cells, etc. In 2000, an econometric study showed
that the program has increased the regional economic health by over $180
million, compared to just running the existing nuclear plant. The
utility was able to hold rate levels for a decade, retaining 2,000 jobs
in factories that would have been lost under the 80% increase in rates
that just operating the power plant would have caused. The program
generated 880 new jobs, and enabled the utility to pay off all of its
debt.
Toyota’s Torrance, California office complex, completed in 2003,
combines energy-efficiency strategies such as roof color, photovoltaic
solar electricity and “little things,” including an advanced building
automation system, a utilities metering system, natural-gas-fired
absorption chillers for the HVAC system, an Energy Star cool roof system
and thermally insulated, double-paned glazing. The 600,000+ square foot
campus exceeds California’s stringent energy efficiency requirements by
24% at no additional cost than a conventional office building.[44]
A
recent article by utility regulator S. David Freeman, once Chair of the
Tennessee Valley Authority, and Jim Harding of the Washington State
Energy Office announced that a company called Nanosolar is building a
$100 million manufacturing facility in California to produce solar cells
very cheaply. The resulting solar panels would bring the cost of power
to below what is now available in a large part of the world.
Backed by a powerful team of private investors, including Google’s
two founders and the insurance giant Swiss Re, Nanosolar announced plans
to produce 215 megawatts of solar energy next year, and soon thereafter
capable of producing 430 megawatts of cells annually.
What makes this particular news stand out? Cost, scale and
financial strength. The cost of the facility is about one-tenth that of
recently completed silicon cell facilities.
Second, Nanosolar is scaling up rapidly from pilot production to
430 megawatts, using a technology it equates to printing newspapers.
That implies both technical success and development of a highly
automated production process that captures important economies of
scale. No one builds that sort of industrial production facility in the
Bay Area—with expensive labor, real estate and electricity costs—without
confidence.
Thin solar films can be used in building materials, including
roofing materials and glass, and built into mortgages, reducing their
cost even further. Inexpensive solar electric cells are, fundamentally,
a “disruptive technology,” even in Seattle, with below-average
electric rates and many cloudy days. Much like cellular phones have
changed the way people communicate, cheap solar cells change the way we
produce and distribute electric energy. The race is on.
The announcements are good news for consumers worried about high
energy prices and dependence on the Middle East, utility executives worried about the long-term viability of
their next investment in central station power plants, transmission, or
distribution, and for all of us who worry about climate change. It is
also good news for the developing world, where electricity generally is
more expensive, mostly because electrification requires long-distance
transmission and serves small or irregular loads. Inexpensive solar
cells are an ideal solution – by far the least expense way to bring
electric power to areas not now served by an electric grid, safer from
terrorists and saboteurs, and able to be put “on-line” years ahead of
traditional central generation plans and their elaborate transmission
and distribution systems.
Meanwhile, the prospect of this technology creates a conundrum for
the electric utility industry and Wall Street. Can—or should—any
utility, or investor, count on the long-term viability of a coal,
nuclear or gas investment? The answer is no. In about a year, we’ll
see how well those technologies work. The question is whether federal
energy policy can change fast enough to join what appears to be a
revolution.[45]
Renewable options are not only the best choice for developing countries;
they are now the fastest growing form of energy supply around the world,
and in many cases are cheaper than conventional supply. Solar thermal
is outpacing all conventional energy supply technology around the
world. Modern wind machines come second, delivering almost 8,000
megawatts of new capacity a year, or more than nuclear power did at the
peak of its popularity. The next fastest growing energy supply
technology is solar electric, even at current prices.[46]
Renewables can also be cheaper than any conventional supply. Energy
from wind turbines in good sites now costs 3¢ per kilowatt-hour (kWh).[47]
And once the turbine is constructed, the fuel is free forever more.
Just running an existing coal plant costs 5¢ to 6¢ per kWh. Solar
electric is more expensive, although about a dozen companies are
competing to deliver amorphous thin-film solar at 3¢ per kWh. Such
renewable technologies lend themselves to construction and delivery by
small to medium sized enterprises - the backbone of most economies
around the world.
The
Governor of Pennsylvania recently announced the opening of a factory to
make wind machines. Creating 1,000 new jobs over the next five years,
it is the biggest economic development measure for Johnstown, PA, in
recent memory. The city of Chicago underwrote Spire solar to enable the
company to open a manufacturing plant in Chicago. The city wanted the
jobs and to be able to install solar on municipal buildings. California
has announced that it will spend over $8 million installing solar in
2006, and create a $1.5 billion investment fund to help environmentally
responsible companies that are developing cutting-edge clean energy
technologies.
A 2006
study by University of California professors recently found that
investments in renewable energy create ten times as many jobs as
investments in fossil supply.[48]
Business success in a time of technological transformation demands
innovation. Since the Industrial Revolution, there have been at least
six waves of innovation, which shifted the technologies that underpinned
economic prosperity. In the late 1700s textiles, iron mongering,
water-power and mechanization enabled modern commerce to develop.
The
second wave saw the introduction of steam power, trains and steel. In
the 1900s, electricity, chemicals and cars began to dominate. By the
middle of the century it was petrochemicals, and the space race, along
with electronics. The most recent wave of innovation has been the
introduction of computers, also known as the digital or information
age. As the industrial revolution plays out and economies move beyond
iPods, older industries will suffer dislocations, unless they join the
increasing number of companies implementing the array of sustainable
technologies that will make up the next wave of innovation.
Figure: Waves of Innovation[49]
Aidan
Murphy, vice president at Shell International, stated in 2000: "The Kyoto treaty has prompted us to shift some of its [Shell’s] focus
away from petroleum toward alternative fuel sources. While the move has
helped the company make early strides toward its goal of surpassing
treaty requirements and reducing emissions to 10% less than 1990 levels,
Shell is being driven largely by the lure of future profits… We
are now involved in major energy projects involving wind and biomass,
but I can assure you this has nothing to do with altruism… We see
this as a whole new field in which to develop a thriving business
for many years to come. Capital is not the problem, it’s the lack of
ideas and imagination.[50]
Sweeden
has set a national goal of an oil-free economy by 2020 without building
any new nuclear plants. A report in the BBC stated, “The country aims
to replace all fossil fuels with renewables before climate change
damages economies and growing oil scarcity leads to price rises.” The
program is driven in part by worry on the part of The Royal Swedish
Academy of Sciences that oil supplies are peaking, and that high oil
prices could cause global economic recession. In 2003, 26% of all
energy consumed came from renewables.[51]
To
drive such innovation, Sweden,
along with Germany and other European nations are experimenting with
what is called “Tax Shifting.” This would increase the taxes on
resource use, while lowering employment taxes and other disincentives to
use more people. Lester Brown recently reported that, "A four-year plan adopted in Germany in 1999
systematically shifted taxes from labor to energy. By 2001, this plan
had lowered fuel use by 5%. It had also accelerated growth in the
renewable energy sector, creating some 45,400 jobs by 2003 in the wind
industry alone, a number that is projected to rise to 103,000 by 2010."
Both
Japan and China are now considering implementing such tax shifts.[52]
Recently, 2,500 economists, including eight Nobel Prize laureates in
economics, endorsed the concept of tax shifts. Harvard economics
professor N. Gregory Mankiw wrote in Fortune: "Cutting income taxes while increasing gasoline taxes would lead to
more rapid economic growth, less traffic congestion, safer roads and
reduced risk of global warming—all without jeopardizing long-term fiscal
solvency. This may be the closest thing to a free lunch that economics
has to offer."[53]
Without such a shift in policies, jobless growth for major corporations
worldwide is likely to remain not a forecast, but an established trend.
The world’s 500 largest corporations have managed to increase their
production and sales by 700% over the past 20 years, while at the same
time reducing their total workforce. The outsourcing of
industrial jobs to China and service jobs to India has accelerated the
impact of this process.[54]
At the same time however, good people
are increasingly critical for the functioning of any business that seeks
to compete in the Knowledge Economy. Tom Peters, one of the world’s
leading business authors, states: "We
are in the midst of redefining our basic ideas about what enterprise and
organization and even being human are–about how value is created and how
careers are pursued. Welcome to a world where “value” (damn near all
value!) is based on intangibles—not lumpy objects, but weightless
figments of the Economic Imagination. We have entered an Age of
Talent. People (their creativity, their intellectual capital, their
entrepreneurial drive) is all there is. Enterprises that master the
market for talent will do better than ever. But to attract and retain
the Awesome Talent, an organization must offer up an Awesome Place to
Work."[55]
As
stated above, this is driving such companies as BP to make public
commitments to cut their emissions as a strategy for attracting and
retaining the best talent.
Richard
Florida, in his book, The Rise of the Creative Class,[56]
points out that the cutting-edge businesses follow the knowledge
workers, establishing corporate operations where they can access this
new class of talent. He notes that regions that wish to be economically
successful will do what it takes to attract the knowledge workers, which
includes preserving the environment and establishing the sort of
innovative cultural atmosphere that such people treasure.
The
failure by the American federal government to take action on global
warming has created a leadership vacuum that is rapidly being filled by
cities, states and businesses.
In the
U.S., over 355 cities have formally committed to take following three
actions:
-
Strive to meet or beat the Kyoto
Protocol targets in their own communities, through actions ranging
from anti-sprawl land-use policies to urban forest restoration
projects to public information campaigns;
-
Urge their state governments, and
the federal government to enact policies and programs to meet or
beat the GHG emission reduction target suggested for the United
States in the Kyoto Protocol—7% reduction from 1990 levels by 2012;
and
-
Urge the U.S. Congress to pass the
bipartisan GHG reduction legislation, which would establish a
national emission trading system[57]
The
International Council for Local Environmental Initiatives’ (ICLEI)
“Cities for Climate Protection Program”[58]
offers a coherent program a community can follow to implement a global
warming mitigation program. This manual is offered as part of that
program.
These
cities now understand a simple but important formula: climate
protection saves tax dollars. In fact, climate protection can protect a
city and its taxpayers from one of the most volatile demands that
municipal budgets are likely to face in the years ahead: fossil energy
prices.
In
longhand, the formula goes like this: Global warming is slowed by
reducing GHG emissions. GHG emissions are cut by reducing the
consumption of fossil fuels. Fossil fuel use is cut by employing energy
efficiency measures. Energy efficiency measures lead to lower energy
bills. Lower energy bills mean lower operating costs. Lower costs for
city operations save citizens tax dollars. So, taking action to slow
global warming is one way to reduce tax expenditures. The savings can
be used to cut taxes, to slow their growth, to improve critical city
services that have been under-funded in the past, or to invest in more
energy efficiency improvements (see case study).
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CASE STUDY: States of Michigan and Oregon
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In Ann Arbor,
Michigan, a Municipal Energy Fund was established in 1998 to be
a self-sustaining source of funds for investment in
energy-efficient retrofits at city facilities, so the city would
be able to continually reduce its operating costs over time.
The city operates 60 facilities and spends $4.5 million per year
on energy (out of an annual budget of $288 million in 2005).
The Fund is administered by the city’s Energy Office under the
supervision of a three-person board, which must approve all
projects. The Fund has invested in street light improvements,
parking garage lighting, a boiler, two electric vehicles and
photovoltaic cells. By providing the difficult up-front costs
and then capturing 80% of the resulting savings, the Fund
motivates facility managers to undertake energy efficient
projects, and became self-sustaining in 3-5 years requiring no
additional annual appropriations.
To launch its energy
efficiency program, in late 1990s, Portland, Oregon created a
“One Percent for Energy” program. It assessed eight municipal
bureaus 1% of their energy bill to raise $70,000 a year for
efficiency improvements without requiring direct support from
the city’s general fund. In return, contributing bureaus were
given technical assistance to help them save money through
energy efficiency improvements. The 1% is based on previous
years energy bills including transportation, fuels, electricity,
etc with a max of $15,000 per bureau. To date, the program
successfully brings in approximately $70,000 each year.
CONTACT
Portland’s Office of Sustainable Development Energy Efficiency and
Renewable Energy
(503) 823-7582
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Energy
costs—and potential savings—are likely to increase in the future. Many
experts predict that the volatility in fossil energy supplies and prices
will continue. Most scientists now agree natural gas and oil are finite
resources and that world oil production is expected to peak in the next
couple of decades. China, India and other rapidly developing countries
are competing with the U.S. for the same supplies, pushing up prices.
Severe storms like Hurricane Katrina, which experts predict will become
more common with global warming, can cause petroleum supply
disruptions. Conflicts in, or political disputes with, oil-producing
countries also will cause disruptions to oil and gas supplies. Even
coal, which the U.S. currently mines in abundance, may prove to be a
more expensive way to produce electricity in the future, as the industry
invests in new processing technologies and sequestration measures to
reduce carbon emissions.
During
the winter of 2005-2006, the Massachusetts Municipal Association asked
city managers around the state whether they expected increased energy
costs. Sixty-five percent said they believed that energy costs would
increase by more than 10% in the coming year—and one in four expected
costs to increase by more than 25%.
In
1991, well before global warming because a prominent issue for the
public, Portland launched a “City Energy Challenge” to cut the annual
energy bill of city buildings by 10% over 5 years. Over the last 15
years, the city saved $15 million and generated an additional $1.2
million in incentive payments from state government and utilities.
In
addition, the city negotiated a purchase of wind energy from Portland
General Electric, further reducing its demand for coal-fired
electricity, preventing 4,500 metric tons of CO2
emissions over five years, and deriving part of the city’s energy
from a resource that is immune from volatile price spikes because wind
is a “free” fuel.
The
city of New Haven, Connecticut, another leader in picking the
low-hanging fruit of energy efficiency, created an energy conservation
program in 1994 and estimates it has saved $24.7 million since then by
doing simple measures.
Local
schools provide a dramatic example of the savings waiting to be captured
by public institutions. Schools in the U.S. reportedly spend more than
$6 billion each year on energy, more than they spend on computers and
books combined. In the typical school, about a third of that energy is
wasted. Cost-effective energy efficiency measures could easily save 25
to 30% of school energy bills, enough to hire 30,000 new teachers[59]
while reducing the schools’ contributions to global warming. Yet, some
of the most obvious ways to save energy remain undone. An example: In
the fall of 2005, two energy consultants in New Haven, CT, found a way
to save the local school district $1.1 million in one year—by the
elementary act of turning down thermostats when school buildings were
not in use.[60]
These
stories—and similar examples in cities across the U.S.—illustrate the
multiple benefits of a municipal climate protection program. In this
time of global warming and energy volatility, energy efficiency,
renewable energy technologies and climate protection are three pillars
of sound fiscal stewardship.
By
investing in energy efficiency and renewable energy systems, local
communities are also preparing themselves for the possibility of
heightened regulations regarding GHGs coming in the future. Cities and
companies that adopt the Kyoto Protocol agreements, and reduce GHG
emissions below 1990 levels, will be able to sell their emission credits
in any one of several carbon emission exchanges and stand a better
chance of avoiding down-graded bond or stock ratings.
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CASE STUDY: U.S. Army
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Energy efficiency
and renewable energy are of particular interest to the U.S.
military. It has not been lost on those tasked with the
security of the country that wasted energy, and dependence of
foreign sources compromises their mission. A growing number of
bases and commanders are implementing programs to reduce waste
and secure greater energy supplies from local sources.
At Fort Detrick,
Maryland, an energy performance contract will save 33,000 tons
of CO2 and $2.9
million annually.[61]
Fort Carson's goal is 100% renewable energy by 2027; it is a 25
year plan initiated in 2002.
Fort Carson also
has interim goals to achieve 40% of electricity and 10% of
facility heat from renewable sources by 2013.[62]
CONTACT
Christopher Juniper
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The
bottom line is simple: Protecting the climate is good fiscal
stewardship. Global warming is an issue with many dimensions. For many
people, the most important issue is the pocketbook—and the pocketbook is
a strong argument for municipal climate action, sooner rather than
later.
In a
world that overwhelmingly recognizes climate change as a serious threat,
businesses within a community that ignore it are increasingly seen as
irresponsible. Conversely, an aggressive business posture to reduce GHG
emissions is becoming a proxy for competent corporate governance. A
2003 Columbia Journal of Environmental Law article demonstrated the
legal feasibility of lawsuits holding companies accountable for climate
change. Though the effects of such litigation on companies’ market
value and shareowner value remains to be seen, the first such suits have
already been filed.[63]
In the
U.S., the Sarbanes-Oxley Act[64]
makes it a criminal offense for the Board of Directors of a company to
fail to disclose to shareholders information that might materially
affect the value of the stock. This includes environmental liabilities
(including GHG emissions) that could alter a reasonable investor’s view
of the organization. In France, The Netherlands, Germany[65]
and Norway, companies are already legally required to publicly report
their GHG emissions.
A
group of 143 institutional investors writes annually to the
Financial Times
500, the largest quoted companies in the world by market capitalization,
asking for disclosure of investment-relevant information concerning
their GHG emissions.[66]
Initially, perhaps 10% of the recipients bothered to answer the survey.
In 2005, 60% answered. Companies like Ford Motor Company produced a
major report detailing its emissions. Why the change? Passage that
year of Sarbanes Oxley clearly played a role. Perhaps more
significantly, the Carbon Disclosure Project represents institutional
investors with assets of over $31.5 trillion. Increasingly, companies
that wish to limit their risk exposure, obtain insurance or get
financing are implementing programs to reduce their emissions of GHGs.
The
FTSE Index, the British equivalent of Dow Jones, states: "The impact of climate change is likely to have an increasing
influence on the economic value of companies, both directly, and through
new regulatory frameworks. Investors, governments and society in
general expect companies to identify and reduce their climate change
risks and impacts, and also to identify and develop related business
opportunities."[67]
The banking industry is also reducing its greenhouse footprint. In
2006, HSBC won the Financial Times’ First Sustainable Banking Awards for
being the first bank to become carbon neutral. It has purchased
renewable energy for itself, and provided financing for renewable energy
companies.[68]
Wall
Street’s most prestigious investment bank, Goldman Sachs, is putting $1
billion into clean-energy investments. It has also pledged to purchase
more products locally.[69]
In
March 2006, the business and investment network CERES released a report
showing that many major American companies were more potentially liable
for lawsuits and other risks than their European counterparts because of
their emissions of climate changing gasses. The New York Times stated,
Dozens of U.S.
businesses in various climate-vulnerable sectors ... are still largely
dismissing the issue or failing to articulate clear strategies to meet
the challenge. Companies that disclose the amount of emissions of
heat-trapping gases they produce and take steps to limit them cut their
risks, including potential lawsuits from investors.[70]
A
growing number of investors are concerned about climate change. The
number of investors participating in the Investor Network on Climate
Risk (INCR, the leading group on sustainable investing) has quadrupled
in the past three years, and the collective assets of INCR members
increased from $600 billion to $2.7 trillion (an increase of 450%).[71]
While cities are not directly involved, it is important to understand
the trends occurring in the financial sector.
Large institutional investors are leading the way. Institutional
investors have reason to be concerned about the impact of climate risk
on their portfolios, and have been successful in urging companies to
increase disclosure of climate risk by engaging the companies with an
enduring shareholder campaign. Despite these successes, some investors
are still frustrated with the Securities and Exchange Commission, which
has done little to mandate disclosure of climate risk, and with many
companies that have not yet taken proactive steps to address climate
risk.
A
group of 28 leading institutional investors from the U.S. and Europe,
who manage over $3 trillion in assets, announced a ten-point action plan
which calls on investors, leading financial institutions, businesses,
and government to address climate risk and seize investment
opportunities.[72]
The plan represents the first time that American and European investors
have cooperated on a comprehensive climate risk initiative.
The 2005 action
plan calls on U.S. companies, Wall Street firms and the Securities and
Exchange Commission to intensify efforts to provide investors with
comprehensive analysis and disclosure about the financial risks
presented by climate change. The group also pledged to invest $1
billion in prudent business opportunities emerging from the drive to
reduce GHG emissions.
Climate change will have an impact on the value of investments, and
could cost U.S. public companies billions of dollars, ranging from
unexpected drops in earnings due to fines and clean-up costs (following
the violation of environmental laws), increased operating costs
(following changes in environmental regulations), and greater than
expected management costs due to understated or undisclosed liabilities.
Investors are starting to evaluate
corporations on the basis of their preparedness for associated risks and
opportunities. Indeed, some investors believe that companies that can’t
adapt to a carbon-constrained world will be forced to compete with
forward-thinking competitors ready to leverage new business models and
capitalize on emerging markets in renewable energy and clean
technologies.
Despite the likely threat of global
warming, the largest CO2
polluters in the U.S. are failing to address the related financial
risks. A recently released study by the nonprofit Investor Responsibility Research Center
(IRRC) finds that while foreign rivals struggle to meet European Union
CO2
emission reduction targets, American companies such as ChevronTexaco,
ExxonMobil, General Electric and Xcel Energy continue to ignore the
threat of global warming.[73]
While it is not a current threat, cities
may find their own bond ratings down-graded if they fail to take steps
to prepare their own buildings and the homes and buildings of their
residents and businesses to meet the climate challenge.
Other investors are using the power of
shareholder resolutions, which mandate yes or no votes on specific
practices at corporate annual meetings to affect company policies on
climate change. According to the nonprofit Investor Network on Climate
Risk, 28 shareholder resolutions calling for companies to either
quantify and reduce GHG emissions or disclose corporate responses to
climate change risks and opportunities were filed at 22 companies in
2004.[74]
While the majority of such resolutions fail, the pressure often makes an
impact, sending executives scurrying to make changes in anticipation of
growing investor concern.
Companies which received resolutions included Allergan, Anadarko
Petroleum, Analog Devices, Apache, Avery Dennison, Centex, Chevron,
Corning, Dominion Resources, Dow Chemical, ExxonMobil, FirstEnergy, Ford
Motor Company, General Motors, Health Care Property, JPMorgan Chase,
Lennar, Liberty Property Trust, Newell Rubbermaid, Progress Energy,
Ryland Group, Simon Property Group, Tesoro, Unocal, Vintage Petroleum,
Wachovia, Wells Fargo and XTO Energy.[75]
In
July 2004, eight state attorney generals and New York City led the
first-ever climate change lawsuit against five of the nation’s largest
electric power generating companies to require them to reduce their CO2
emissions.
In
2005, investor intervention and persuasion contributed to the decisions
by several large companies (Anadarko Petroleum, Apache, Chevron,
Cinergy, DTE Energy, Duke, First Energy, Ford Motor, GE, JPMorgan Chase
and Progress Energy) to make new commitments such as supporting
mandatory limits on GHGs, voluntarily reducing their emissions, or
disclosing climate risk information to investors.[76]
The
United Nations Environmental Programme (UNEP), working with the
organization Ceres, announced a new Climate Risk Disclosure Initiative
to create a global standard for climate risk disclosure.[77]
The UNEP is developing Principles for Responsible Investment to align
the long-term goals of sustainable development with the obligations of
institutional investors. Ceres and UNEP are establishing a new
international forum for collaboration and information sharing by
institutional investors on climate risk.
In
another ominous sign for chief executives and board members, some
experts in corporate governance say company officers could be held
accountable for failing to protect their companies from climate-related
risk. And the lawsuits could come from governments as well as investors
and other aggrieved parties. Peter Lehner, chief of the New York
attorney general’s Environmental Protection Bureau, said the bureau was
studying the issue of climate change and might sue polluters along the
lines of the successful tobacco litigation by states in the 1990’s.[78]
Perhaps
the greatest pressure for change, however, will come from the insurance
industry. As described above, the insurance companies are already being
battered by losses from the increase in the violence of storms. In
2003, The Wall Street Journal reported that,
With all the talk of potential shareholder lawsuits against
industrial emitters of greenhouse gases, the second largest re-insurance
firm, Swiss Re has announced that it is considering denying coverage,
starting with directors and officers liability policies, to companies it
decides aren’t doing enough to reduce their output of greenhouse gases.[79]
In
March 2004, Reuters reported: “The world’s second largest re-insurer,
Swiss Re, warned … that the costs of natural disasters, aggravated by
global warming, are spiraling out of control, forcing the human race
into a catastrophe of its own making.”[80]
In the
Fortune Magazine article “Cloudy with a Chance of Chaos,”[81]
author Eugene Linden reported, "Already the pain of weather-related insurance risks is being felt by
owners of highly vulnerable properties such as offshore oil platforms,
for which some rates have risen 400% in one year. That may be an omen
for many businesses. Three years ago John Dutton, dean emeritus of Penn
State's College of Earth and Mineral Sciences, estimated that $2.7
trillion of the $10-trillion-a-year U.S. economy is susceptible to
weather-related loss of revenue, implying that an enormous number of
companies have off-balance-sheet risks related to weather—even without
the cataclysms a flickering climate might bring."
In 2004, Swiss Re, a $29 billion
financial giant, sent a questionnaire to companies that had purchased
its directors-and-officers coverage, inquiring about their corporate
strategies for dealing with climate change regulations. D&O insurance,
as it is called, insulates executives and board members from the costs
of lawsuits resulting from their companies' actions; Swiss Re is a major
player in D&O reinsurance.
What Swiss Re is after, says Christopher
Walker, who heads its Greenhouse Gas Risk Solutions unit, is reassurance
that customers will not make themselves vulnerable to
global-warming-related lawsuits. He cites Exxon Mobil as an example:
The oil giant, which accounts for roughly 1% of global carbon emissions,
has lobbied aggressively against efforts to reduce GHGs. If Swiss Re
judges that a company is exposing itself to lawsuits, says Walker, "We
might then go to them and say, 'Since you don't think climate change is
a problem, and you're betting your stockholders' assets on that, we're
sure you won't mind if we exclude climate-related lawsuits and penalties
from your D&O insurance.'" Swiss Re's customers may be put to the test
soon in California, where Governor Arnold Schwarzenegger is pushing to
restrict carbon emissions, says Walker. A customer that ignores the
likelihood of such laws and, for instance, builds a coal-fired power
plant that soon proves a terrible bet could face shareholder suits that
Swiss Re might not want to insure against.
Alarmed
at the sharply rising cost of hurricanes and other disasters, home
insurers are pulling back from some U.S. coastal markets, warning of
gathering financial storm clouds over how the U.S. pays for the damage
of catastrophe. This development is another fallout of Hurricane
Katrina, whose mounting toll of destruction along the Gulf Coast has
precipitated a growing industry debate about the combined effect of
climate trends and population growth in coastal areas.
Seven
of the 12 costliest insured disasters in U.S. history occurred in the
past two years. At $57.7 billion, private insured losses in 2005 were
more than double those of 2004. Meanwhile,
government-provided crop and flood insurance programs are experiencing rising losses,
wildfire events are causing two times more damage compared to a few
decades ago and coastal erosion insurance is now entirely unavailable.[82]
In March 2006, catastrophe modeler Risk Management Solutions Inc. raised
its estimate of insurance losses this year by nearly 50% above pre-2004
baselines for the East and Gulf coasts. The company, whose estimates
are used by insurers to calculate premiums, blamed “higher sea surface
temperatures.”[83]
Rating agencies are putting large insurers such as Allstate and State
Farm on notice for possible ratings downgrades. Significant premium
increases, tightening terms and market withdrawals are sure to come
next. Companies are shedding homeowner’s policies and driving residents
to taxpayer-funded state insurance plans:[84]
-
Florida’s Citizens Property
Insurance Corp., for example, has 815,000 policyholders and is
adding 40,000 a month.
-
Poe Financial Group collapsed in
2005, and many of its 316,000 policyholders probably will move to
Citizens, which already faces a $1.7 billion deficit.
-
Since 29 August 2005, when the
Katrina hurricane hit along the Gulf Coast, Allstate Corp., the
industry's second-largest company, has ceased writing homeowners
policies in Louisiana, Florida and coastal parts of Texas and New
York State. They have stopped underwriting earthquake coverage in California and elsewhere.
-
Louisiana Citizens Property
Insurance Corp., the state’s last-resort insurer, expects to reach
200,000 policies this year; it had none in 2004. Texas’ insurer of
last resort says it is down to $1.3 billion in reserves and wants to
raise rates by at least 22%.
Homeowners are moving to state-backed insurer plans of last resort,
whose costs are rising. Taxpayers, who subsidize such plans, are
already feeling the impact. While Katrina caused an estimated $38-$50
billion in private insured losses, it also cost the federal flood
insurance program $50 billion and prompted federal relief spending of
more than $100 billion.[85]
That includes about $10 billion for Mississippi and Louisiana
homeowners.
Governments assume a considerable share of the exposures to the costs of
weather-related events. Requests for all forms of disaster relief
(including those for the agriculture sector) doubled between the
mid-1980s and mid-1990s and total federal disaster-related payments
amounted to $120 billion between 1993 and 1997. Federal aid for
Hurricane Katrina alone is anticipated to top $200 billion.[86]
Climate stresses will place more political and financial burden on
federal and local governments as they assume broader exposures and are
pressured to serve as insurers of last resort. Governments also are
compelled to address events for which there is no insurance at all,
while paying for disaster preparedness and recovery operations. For
example, federal and local governments are incurring substantial
liability and expenses due to landslides in southern California, with
losses averaging $100 million per year.[87]
Business and consumers will be burdened because cash-strapped
governments generally cap paid losses and shift greater portions of risk
back to consumers.
There
is a business case for aggressively moving to limit emissions of the
gasses that are changing the climate, and companies are implementing
it. Books like the international bestseller, Natural Capitalism
and a staggering array of others prove how the rapidly emerging best
practice in sustainable technologies can meet basic human needs around
the world and solve most of the environmental problems facing the planet
at a profit.
There
are enormous risks to companies and communities that do not participate
in such programs.
This
manual describes how your community can work with its business community
to enable citizens and companies to capture these advantages, and avoid
these risks.
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