Economics Times interviews Martin Stuchtey, a global expert on climate change, and partner with McKinsey.
Excerpts:
We have done 160 studies over the last 12 months on climate change. Very few are for CSR and sustainability guys. Most of them are being funded straight out of the boards, and typically we talk to the head of strategy when we discuss them. It is not about making the CSR story headlines today; it’s about making your business viable in the long-term, to make your business fit for the low-carbon economy.
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Almost all of them agreed that there is a huge upside to managing this transition.We were surprised to see that almost 30% of the carbon reduction in our own cost curve actually has a negative cost — you actually profit from it! For many companies 60-70% of their emissions can be reduced at net zero cost.
[...] We estimate the market (carbon trading) to be about $1.0-1.6 trillion by 2030, which is about the size of today’s oil market!
It’s a new commodity market that has to be developed from scratch, and that means infrastructure — you need a world carbon bank, lots and lots of certification bodies, many controls. Without that, it is going to be very difficult, and you can’t only rely on local governments coming back with their fuel economy standard or taxes on this or that.
[...] Then there is green urbanisation. New cities are coming up, new SEZs are coming up. Can we really start focusing on these? Renewable energy and generation have already seen a big leap. In both solar and wind, I think we can be the front runners, as is the case in bio-fuels. We feel that 10-20% of the top companies will profit from it, and position themselves completely on the cost curve. Overall, Indian companies see it more as an opportunity rather than a threat. In the next 12-18 months, you will see a big change.
Rediff has an interview with Joseph Massey, Deputy Managing Director, MCX in India which recently started trading in Carbon credits.
India and China are likely to emerge as the biggest sellers and Europe is going to be the biggest buyers of carbon credits.
Last year global carbon credit trading was estimated at $5 billion, with India’s contribution at around $1 billion. India is one of the countries that have ‘credits’ for emitting less carbon. India and China have surplus credit to offer to countries that have a deficit.
India has generated some 30 million carbon credits and has roughly another 140 million to push into the world market. Waste disposal units, plantation companies, chemical plants and municipal corporations can sell the carbon credits and make money.
Carbon, like any other commodity, has begun to be traded on India’s Multi Commodity Exchange since last the fortnight. MCX has become first exchange in Asia to trade carbon credits.
In a significant new development, Bank of America has decided to come open with its cost of carbon for evaluating coal powered plants.
Bank of America says it has decided to start factoring a cost of carbon-dioxide emissions into its decisions about whether to underwrite debt for new coal-fired plants. Specifically, the bank says it anticipates a federal cap that would require a utility to pay between $20 and $40 for every ton of CO2 its power plants emit. Today in Europe, which already has imposed caps, a permit to emit a ton of CO2 is trading at about $29.
A good presentation by Dr Ian Woods from AMP Capital Investors. This was presented in Oct 2007 in Sydney at the Financial Services public forum of the Garnaut review.
If the link above does not work, you can read it at Slideshare.net.
Heather Clancy writes in ZD Net’s Green Tech blog about monitoring carbon and advice from Michael Meehan, founder and CEO of Carbonetworks.
Meehan, who hails from Victoria, British Columbia, figures there are five steps companies need to climb on their way to getting a better grip on their carbon position:
1. Measure actual carbon emissions and document where it’s coming from. What’s true for one division may not be true for another.
2. Understand how your carbon position relates to core business values. In other words, how would reducing your company’s footprint affect profitability?
3. Gauge the financial liability/value associated with your company’s greenhouse emissions.
4. Assess the impact of various reduction strategies across the entire company. Sometimes, something that may seem like a great idea for one division may have a detrimental effect on the company as a whole.
5. Link up with verified offset providers to take action.
Michael Backman in his latest Age column writes about the issue of population and its connection to greenhouse gases.
WHAT is the ultimate cause of greenhouse gases? Excessive reliance on cars? Coal-fired power stations? Clear-felling forests? The answer is none of these. The ultimate cause is people and population growth.
Having one child with your partner instead of two or more is the biggest contribution to reducing greenhouse gases you can make. Have one child instead of two and you will be directly responsible for cutting your family’s greenhouse gas emissions by about 50% in the next generation.
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Determining which countries have been responsible when it comes to population growth generates a different picture when it comes to developing countries. China is a big and growing greenhouse gas emitter. But it has one of the lowest population growth rates in the region due to the success of its one-child policy and also due to its rising wealth levels — richer people tend to have fewer children.
India, on the other hand, is not yet as big a gas emitter as China. Gas emissions per head are about three times less — but its population is growing much faster than China’s. Its population will overtake China’s in the 2030s, when both countries can be expected to have populations of about 1.5 billion. But South Asia, taken as a whole, is already the clear winner in the population stakes. Had partition not taken place in 1947, then India would have overtaken China for the No. 1 spot years ago. The combined population of pre-partition India today (India, Pakistan and Bangladesh) is 1.4 billion, compared with China’s population of 1.3 billion.
[...] Indeed, the population of pre-partition India is expected to rise by another 900 million people in the first half of this century. Changing to energy-saving light bulbs will be a drop in the ocean compared with this
Bjorn Lomberg makes some interesting arguments on how cities around the world are experiencing high temparature rises, are coping with and what possible low-cost solutions would be.
Most of the world’s urban areas have already experienced far more dramatic temperature hikes over the past few decades than the 2.6°C increase expected from global warming over the next hundred years.
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Today, the fastest-growing cities are in Asia. Beijing is roughly 10°C hotter than the nearby countryside in the daytime and 5.5°C warmer at night. There are even more dramatic increases in Tokyo. In August, temperatures there climbed 12.5oC above the surrounding countryside, reaching 40oC – a scorching heat that affected not only the downtown area, but also covered some 8,000 square kilometers.
Looking at a fast-growing city like Houston, Texas, we can see the real effect of the urban heat island. Over the last 12 years, Houston grew by 20%, or 300,000 inhabitants. During that time, the night time temperature increased about 0.8°C. Over a hundred-year period, that would translate to a whopping 7°C increase.
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Even as temperatures have risen, heat-related deaths have decreased, owing to improved health care, access to medical facilities, and air-conditioning. We have far more money and much greater technological ability to adapt than our forebears ever did.
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These options are simple, obvious, and cost-effective. Consider Los Angeles. Re-roofing most of the city’s five million homes in lighter colors, painting a quarter of the roads and planting 11 million trees would have a one-time cost of about $1 billion. Each year after that, this would lower air conditioning costs by about $170 million and provide $360 million in smog-reduction benefits. And it would lower LA temperatures by about 3°C – or about the temperature increase envisioned for the rest of this century.
The Australian fund managers, especially the pension funds are investing $1 trillion dollars and they are interested in the effect of Environmental, Social and Governance (ESG) aspects on the financials and future of large organizations in Australia. They set up Regnan to work in this area.
Their latest study conducted with the help of Monash Sustainability Enterprises (MSE) has come with some interesting information.
Research conducted for Regnan estimates that 43 of Australia’s biggest 200 companies would suffer a significant loss in earnings under a carbon trading scheme in which carbon was priced at $30 per tonne.
Erik Mather is Regnan’s managing director.
“For the analyst community we’re saying, ‘Now is the time to get on top of this issue,’” he said.
“There is no longer a question of whether we are going to be facing a carbon-constrained future.
“It is just a question of price, and now is the time to understand all the variables - and there are many - that are going to impact that future valuation.”
Regnan’s news release (PDF)has some more facts including that there could be some 50 winners due to Climate Change in the ASX 200.
Key results from the study include:
Greenhouse Gas (GHG) intensity issues are more widespread than previously thought. Forty three
companies within the S&P/ASX200 index have GHG intensities above 1750 tonnes CO2-e per $M EBITDA,
over 5% of earnings at a carbon price of $30/tonne. 5% of earnings is a common accounting benchmark for material impact.
Twenty-two of the most GHG-intensive companies in the S&P/ASX200 index do not disclose GHG emissions
to the market.
Only 36% of S&P/ASX200 index companies that currently disclose historical GHG emissions show declining GHG intensity.
25% of S&P/ASX200 companies were identified as having greater opportunity than risk from weather related or market changes.
More than half of the S&P/ASX200 companies fail to provide any evidence of climate change risk
assessment.
Clear and comprehensive consideration of climate change risks and opportunities in company strategy is
evident in only ten S&P/ASX200 companies.
Weather impacts on earnings are rising as drought and extreme weather cause production stoppages,
project delays, impacts to supply chains, rising input costs, reduced sales and increased underwriting costs.
In some cases the earnings impacts were greater than 30% in 2006/07.
Money isn’t the only thing flowing through China right now. Pollution has filled the streets, contaminated the rivers and clouded the skies.
Half of China’s population - 600 people to 700 million people - drinks water contaminated by human and animal waste. In fact, 1 billion tons of untreated sewage is dumped into the Yangtze River each year. And, according to a recent study conducted by the World Bank, air pollution causes more than 400,000 premature deaths every year.
With the health of its population fading and global opposition to carbon emissions rising, China has no choice but to address its pollution epidemic. And thanks to a blistering economy and a stockpile of cash reserves, throngs of investors are eager to help Beijing wash away its troubles.
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According to a Cleantech Network report and industry insiders attending the clean energy forum in Beijing, water treatment and energy efficiency projects boast the greatest investment potential.
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Both Guo and Liu agree that the greatest obstacle to solving the nation’s water crisis is economics.
“Artificially low water prices, as well as lack of preferential policies from the central government, mean that it doesn’t make economic sense for companies to adopt costly technologies to improve water usage efficiency and re-utilize wasted water at the moment,” Guo told InterFax.
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The second biggest environmental concern for China is the nation’s suffocating air pollution. So far, China has relied heavily on coal-fired power plants to power its rapid industrial expansion.
Between 2003 and 2006, worldwide coal consumption increased as much as it did in the 23 years prior. China was responsible for 90% of that increase. China used 2.5 billion tons of coal in 2006, more than the next three highest-consuming nations combined. The country is home to more than 2,000 coal-fired power plants, and a new one goes into operation every week.
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The nation’s climate-change program has set a target of reducing greenhouse gas emissions by 950 million tons over the next two years. Last week, at the U.N. climate conference in Bali, Xie Zhenhua, vice chairman of the National Development and Reform Commission, said China’s investment in renewable energy would reach $20 billion this year.
“China is already the world’s factory,” Yang Ailun, climate change program manager at Greenpeace China, told Bloomberg News. “It could be and should be the manufacturing hub of clean technology for the world as well.”
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China-based manufacturers of alternative energy technologies are already taking off in a big way. Companies specializing in alternative energy have seen their stock prices soar. Suntech Power Holdings Co. (STP) has seen its stock price skyrocket by 137% this year. Solarfun Power Holdings Co. (SOLF) has jumped 125%.
Vcs are already there. Large companies like GE are building desalination plants. Suntech’s technology was developed in Australia. More entrepreneurs are looking to China for growth in this area. For individual investors, ETFs can be a possibility. However, figuring out the right value at this time is tough. And there is always the need for people who can understand China and the green tech sector!
Carbon offsets are being the used by organizations and individuals to cut down their greenhouse gas emission (in net) or to become carbon neutral. Carbon offsets are sold by different companies and they do come in various flavours.
Carbon Offsets are created by projects that reduce, avoid or remove greenhouse gas emissions from the atmosphere.
For example:
A landfill gas project that traps and uses the methane gas caused by decomposing waste reduces the emissions that would otherwise escape to the atmosphere
A windfarm project produces electricity instead of coal-fired power stations and avoids the emissions would otherwise have been caused by those coal-fired power stations
A forestry project removes emissions from the atmosphere as carbon dioxide is taken in by the trees as they grow
Carbon Offset units are created according to the rules of regulated schemes to which those projects belong or according to international standards for emission offsetting projects.
RECs are “Renewable Energy Certificates” created under the Commonwealth Government’s Mandatory Renewable Energy Target (we only use RECs to offset electricity emissions)
GACs are “Greenhouse Abatement Certificates” created under the New South Wales Government’s Greenhouse Gas Abatement Scheme
GFCs are “Greenhouse Friendly Credits” created under the Commonwealth Government’s Greenhouse FriendlyTM program
CERs are “Certified Emission Reductions” created under the Kyoto Protocol
ERUs are “Emission Reduction Units” created under the Kyoto Protocol
VERs are “Verified Emission Reductions” created under international standards such as the WWF, Gold Standard and the International Emissions Trading Association’s Voluntary Carbon Standard
