The Future of Business in a World with a Changing Climate
Arthur Lyon Dahl Ph.D.
International Environment Forum (IEF)
ebbf - Ethical Business Building the Future
Paper presented at
Vision Gulf Business Conference
Kuwait, 31 May 2016
Human influence on climate
The world economy and the technological basis of modern society have been built using the energy subsidy from cheap fossil fuels, which have made available high density and transportable energy sources based on ancient solar energy stored in geological formations. The ancient life that captured that energy removed carbon dioxide from the ancient atmosphere and added oxygen, lowering the planet's temperature and making it habitable for animal life. By burning fossil fuels, we are now reversing that process, returning so much carbon dioxide to the atmosphere that its greenhouse effect is warming the planet to dangerous levels. The challenge to present civilization is immense.
The UN Intergovernmental Panel on Climate Change (IPCC) says in its most recent government-approved report that "human influence on the climate system is clear, and recent anthropogenic emissions of greenhouse gases are the highest in history. This has led to atmospheric concentrations of carbon dioxide, methane and nitrous oxide that are unprecedented in at least the last 800,000 years (IPCC 2014).
Impacts of climate change
As a result, the planet is warming faster than anyone predicted even a few years ago. The last 12 years have seen 11 of the warmest years ever recorded. 2015 was the warmest year ever, passing 1°C of global warming, and early 2016 has set new records (Le Page 2015). Sea level rise is accelerating through thermal expansion and the melting of glaciers and polar ice caps. Many species are changing their latitudinal and altitudinal distributions in response to rising temperatures. Coral reefs have suffered bleaching and mortality from unusually high temperatures, with damage this year the worst ever. The number of category 5 cyclones (hurricanes) has increased in all oceans over the last 30 years.
The most vulnerable areas risking catastrophic collapse in this century include the Arctic Ocean and Greenland ice sheet, since warming is greatest in polar areas; the Amazon rain forest which could burn and turn into savanna; northern boreal forests already suffering from insect attacks and fires; stronger El Nino ocean circulation affecting weather in North America, South-East Asia and Africa as last year; collapse of the West African monsoon and an erratic Indian summer monsoon; sea level rise of 2 or more meters; and the loss of a quarter to a half of all land biodiversity.
The human impacts from climate change include iIncreased damage from extreme weather events such as floods, droughts and cyclones; less winter snowfall at mid-latitudes with melting glaciers and water shortages; changing conditions for agriculture and forestry, and shifting fish stocks; sea level rise flooding low-lying areas and islands; millions of environmental refugees with estimate ranging up to 500 million; high costs of mitigation and adaptation; and the greatest impact on the poor. The UK Chief Scientist said in 2009 that the world faces a 'perfect storm' of problems in 2030 as food, energy and water shortages interact with climate change to produce public unrest, cross-border conflicts and mass migrations (Beddington 2009).
Climate change and fossil fuels
This represents an unprecedented challenge for fossil fuel producing countries and companies. The accepted limit for global warming without significant damage to the planet is 1.5°C, reduced recently from 2°C. The estimated remaining capacity of the atmosphere to absorb carbon without going past 2°C is 565 gigatons of CO2, which may be reached in 12 years. Yet proven oil, coal and gas reserves total 2,795 gigatons, not counting unconventional sources like fracking and tar sands (McKibben 2012). To prevent catastrophic climate change, 80% of proven reserves need to be taken off asset accounts and left in the ground, including 88% of coal, 52% of gas, and 35% of oil reserves (McGlade and Ekins 2015).
Fossil fuels have been very profitable because all these costs have been treated by economists as externalities to be paid for by governments or the public. Sir Nicholas Stern, in his report for the UK government on climate change effects on the economy, estimated the annual cost of uncontrolled climate change at more than $660 billion, or 5 to 20% of global GDP, as compared to 1% of GDP for control measures for greenhouse gases. He said climate change represents the greatest market failure in human history (Stern 2006).
One problem is energy subsidies. Each year governments spend $1.9 trillion on energy subsidies, 8% of government revenues. The benefits go largely to the middle class. Subsidies encourage wasteful use of energy rather than energy efficiency, and make alternative energy sources uncompetitive.
Business and climate change
The cost of climate change is rising rapidly. A decade ago, the reinsurance industry estimated that disasters related to climate change could cost $130 billion annually within 10 years. Already, economic damages from weather-related disasters hit an unprecedented $204 billion in 2005. Natural and human-caused disasters cost $226 billion in 2010 and $350 billion in 2011, according to Swiss Re.
The investment community is obviously worried. The Carbon Disclosure Project (https://www.cdp.net/en), representing a group of 827 investors with $100 trillion of assets under management (more than 50% of the world’s invested assets), has invited companies worldwide to disclose investment-relevant information concerning their greenhouse gas emissions.
Mark Carney, chairman of the G20 countries’ Financial Stability Board, and Governor of the Bank of England, warned in a talk on 2 October 2015 of the threat of a global financial crisis. He said that climate change might make the world’s stock markets and banks unstable and lead to a financial crash. Panic selling could cause a plunge in the value of shares in fossil fuel companies and industries that produce a lot of carbon dioxide. These companies control one-third of stock market assets. If investors realize these stocks are overvalued with stranded assets and try to sell them all at once, it will cause chaos. Banks might become unstable because the billions of dollars in loans they have made to fossil fuel companies might not be repaid. He concluded: “Our societies face a series of profound environmental and social challenges. The combination of the weight of scientific evidence and the dynamics of the financial system suggest that, in the fullness of time, climate change will threaten financial resilience and longer-term prosperity. While there is still time to act, the window of opportunity is finite and shrinking.” (Brown 2015).
The International Institute for Strategic Studies, in its Strategic Survey 2007, said if climate change goes unchecked, its effects will be catastrophic “on the level of nuclear war”. There will be falls in available resources and economic vitality, increased stress on armed forces, greater instability in regions of strategic import, increases in ethnic rivalries, and a widening gap between rich and poor (IISS 2007).
The IPCC warned that "continued emission of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems." "Climate change will amplify existing risks and create new risks for natural and human systems. Risks are unevenly distributed and are generally greater for disadvantaged people and communities in countries at all levels of development." (IPCC 2014).
Responding to climate change
The UN Climate Change Conference (COP21), in Paris, France, in December 2015 adopted the Paris Agreement to address this challenge. It calls for efforts to accelerate and intensify the actions and investments needed for a sustainable low carbon future, with the central aim to keep global temperature rise this century well below 2°C and to pursue efforts to limit the temperature increase to 1.5°C. It includes provisions to strengthen the ability of countries to deal with the impacts of climate change, with appropriate financial flows, a new technology framework, and enhanced capacity building, thus supporting action by developing countries and the most vulnerable countries. The core of the agreement is enhanced transparency of action and support, with all Parties putting forward best efforts through “nationally determined contributions” (NDCs), and proposals to strengthen these efforts in the years ahead. There will be a global stocktake every 5 years to assess collective progress and to inform further individual actions by Parties. Everyone acknowledges that present national commitments are inadequate to meet the target set in the Paris Agreement, so further efforts to increase commitments will be needed.
There is no technological barrier to making this energy transition. Engineering studies have shown that wind, tidal and wave turbines; photovoltaic panels; hydroelectricity; and geothermal energy can be scaled up today to meet 100% of energy needs. In addition, conversion to renewables will reduce demand by 32%. This would mean using battery-electric and hydrogen fuel cell vehicles, and combining and coordinating technologies over a global grid. Fossil fuels can therefore be phased out in 20-40 years without recourse to nuclear energy, carbon capture and storage, or biofuels (Jacobson and DeLucchi 2009).
Recent studies have looked at pathways for total CO2 emissions in this century. While immediate peaking in fossil fuel use and their elimination by mid-century could hold warming to 2°C, achieving a return to 1.5°C would require efforts later in the century to remove excess carbon dioxide from the atmosphere through some kind of carbon capture and permanent storage (Figure 1).
Figure 1: Pathways for total CO2
See: http://www.cdproject.net and http://blog.cdp.net/behind-the-headline-shells-2c-scenario/
Another focus of efforts must be increasing energy efficiency. This could halve the growth in primary energy demand by 2035, with oil demand peaking in 2020. The additional investment of $11.8 trillion would be more than offset by reduced fuel expenditures, and it would be good for the economy, with economic output increased by $18 trillion. This alone could limit global warming to 3°C (IEA 2012).
Even more encouraging is the New Climate Economy Report, prepared by the Global Commission on the Economy and Climate, which found that the energy transition would provide net benefits for the world economy. Investments over the next 15 years in greater efficiency, structural transformation and technological change in cities, land use productivity and restoration, and clean energy systems would boost the economy. Efforts were needed to raise resource efficiency, invest in infrastructure, and stimulate innovation. This would produce better growth as well as a better climate (Global Commission on the Economy and Climate 2014).
Climate change and justice
In addition to the economic logic for an energy transition, there is a more fundamental ethical case for responding to climate change. The IPCC stated: "Sustainable development and equity provide a basis for assessing climate policies. Limiting the effects of climate change is necessary to achieve sustainable development and equity, including poverty eradication." "Mitigation and adaptation raise issues of equity, justice, and fairness. Many of those most vulnerable to climate change have contributed and contribute little to GHG emissions. Delaying mitigation shifts burdens from the present to the future, and insufficient adaptation responses to emerging impacts are already eroding the basis for sustainable development." (IPCC 2014).
"Mitigation of climate change poses real financial, technological and political challenges. But it also asks profound moral and ethical questions of our generation. In the face of clear evidence that inaction will hurt millions of people and consign them to lives of poverty and vulnerability, can we justify inaction? No civilized community adhering to even the most rudimentary ethical standards would answer that question in the affirmative, especially one that lacked neither the technology nor the financial resources to act decisively." (UNDP 2007, p. 68).
"Against the backdrop of climate change, environmental degradation, and the crippling extremes of wealth and poverty, the transformation from a culture of unfettered consumerism to a culture of sustainability has gained momentum.... ...it is a transformation that will require an earnest examination of our understanding of human nature and of the cultural frameworks driving institutions of government, business, education, and media around the world. Questions of what is natural and just will need to be critically re-examined. The issue... will need to be considered in the broader context of an ailing social order—one characterized by competition, violence, conflict and insecurity—of which it is a part." (BIC 2010).
In August 2015, a group of Islamic scholars and leaders from across the Muslim world issued an Islamic Declaration on Climate Change (Islamic Declaration 2015). It provides a basis in Islamic texts for climate change action, and issues calls to different groups to play their part. Well-off nations and oil-producing states should phase out greenhouse gas emissions, leave two thirds of proven fossil fuel reserves in the ground, invest in the green economy, reduce consumption so that the poor may benefit, and preserve the environment. People of all nations and their leaders should phase out greenhouse gas emissions, commit to decentralized renewable energy, and pursue economic growth in moderation, with priority to adaptation and resilience to climate change. Corporations, finance and the business sector should reduce their carbon footprint and environmental impacts, shift investments to renewable energy, and divest from the fossil fuel economy. All groups are invited to join in collaboration and cooperation. The declaration acknowledged the significant contributions of other faiths to the climate change debate, and called on all Muslims not to "strut arrogantly on the earth".
The Declaration calls for a fresh model of wellbeing, based on an alternative to the current financial model which depletes resources, degrades the environment, and deepens inequality, requiring a change from the current business model which is based on an unsustainable escalating economy, and the adoption of a circular economy that is wholly sustainable and more socially and ecologically responsible. It concludes with the Hadith: "The world is sweet and verdant, and verily Allah has made you stewards in it, and He sees how you acquit yourselves." (Dahl 2015).
In conclusion, climate change may be the common threat that forces us all to work together in our collective interest. An ethical approach will be essential to convince all of us to act.
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Last updated 14 June 2016