United States: Adapting Your Business To A Changing Environment

Extreme weather affects our planet, our people and our business. Climate Change partner Jeff Fort examines how adapting to this "new normal" will create challenges and provide opportunities for industries and governments worldwide.

Are extreme weather events associated with climate change?

Yes. The Obama administration has also cited to extreme weather events as evidence that climate change is already occurring, years earlier than expected.

Extreme weather events are associated with climate change through extensive research, verification and modeling. These analyses have been carried out by scores of academic and government-employed scientists. They have reached a remarkable consistency. Those models very strongly indicate, with a high degree of confidence, that mankind is contributing to change in the climate. These analyses also predict extreme weather conditions, such as severe storms droughts, floods and temperature extremes.

How can businesses adapt to climate change?

Another way of phrasing this question is: How do we keep our society, billions and billions of people around the planet and trillions of dollars in commerce, moving in a forward direction? I don't see how any company can really ignore it. These are risks which are substantial and can be material to many companies, particularly those with substantial capital and long-term investment horizons.

Some of the largest multinationals and the largest public companies are considering these issues -- "the price of carbon" is sometimes how it's described. These companies are evaluating their supply chain logistics and a variety of other issues that relate to the risks of extreme weather. These are being built into their long-term strategies.

Adaptation is simply preparing for extreme weather, however that might affect a business or other activity. For some, it means preparations for higher tides and seas. Adaptation may mean measures to break "heat sinks" in cities or measures to better control storm water. Some areas are more vulnerable than others and some are more "resilient" than others to extreme weather events. The risks may be the same, but more significant than the recent past.

Now, in addition to the real world risks of extreme temperature extremes -- of rising seas, of harsher winters and summers, of more severe storms occurring with greater frequency -- the regulatory risks are now evident. The Obama Clean Power Plan is but one example. Another is the EPA proposal to prohibit the use of certain fluorinated gases in the manufacture of a wide variety of products.

What are the opportunities for businesses that can innovate?

The answers will largely depend upon your business or industry.

In the chemical industry, making products with less energy is a key step. Another is to develop new chemicals that are less reliant on fossil fuels or which do not create additional emissions of greenhouse gases. Beyond reducing carbon dioxide emissions, reductions in methane, and fluoro-carbon gases emissions are areas receiving a great deal of investment and scientific attention. Among the more remarkable is a potential process to extract carbon dioxide from the air and create a fuel. And, there are many technologies trying to use algae as a fuel source.

The insurance sector, for example, is seeing challenges to actuarial risk assumptions on weather patterns. Are these extraordinary events covered? Water is also a huge concern as lawsuits are filed for excess storm water, lack of water and rights to water.

One of the opportunities across all sectors is to do what we call a carbon offset credit. We see investments in non-regulated activities through offsets being an important short term tool to reduce total emissions. If a company can find a new way of doing an activity – perhaps a new insulating material or perhaps a pollution control device – that can be put that into a "protocol." Once the protocol is scientifically validated, the company can follow that protocol in making its product or providing a new service , which in turn may create a carbon credit. We are implementing several of these projects, helping companies turn carbon offset credits into cash. It's a business proposition that literally makes green out of doing a green thing. Scores of these protocols have been scientifically demonstrated and accepted by relevant governmental agencies. California has taken the lead in the US with its use of very demanding offset protocols for achieving reductions outside of the regulated sectors (power, oil and gas and manufacturing) which, when proven, can be sold to lower the compliance costs of the regulated industries (we have been involved in a wide variety of proving these carbon credits, from early action, to current reductions and to creating new protocols for use).

One other phenomenon deserves mention here, a clearly international issue and particularly for developing countries. There are more carbon emissions from deforestation activities globally than from all sources of transportation combined. Most of these activities, such as illegal logging, occur in developing countries without a strong rule of law or compliance codes. There are not enough governmental resources to fund all the projects that are needed to control these deforestation and degradation measures. Accepted protocols exist to guide and monitor these projects -- if the resources can be found. Once the project sponsor proves that it has performed the carbon protective measures it promised, it can be issued carbon credits. Those credits are sought after by many investors and companies for their social responsibility commitments, which then funds continuation of the projects. Not only do these measures reduce carbon dioxide emissions, and preserve habitats for endangered species, they also provide education and employment opportunities for the indigenous residents of these areas. Consider what an opportunity those efforts, whether privately financed or governmentally driven, could make.

What can businesses do when they have significant existing investments, but are not in a high tech or "innovation" space?

Virtually all businesses are looking to improve, continually. Being more efficient is certainly a key strategy for climate protection; indeed note that two of the four "building blocks" in the EPA's Clean Power Plan are focused on efficiencies.

The notion of "stranded assets" sounds popular to some, But the world will need fossil fuel-based energy for a very, very long time. Those companies with significant assets, capital and access to markets can still diversify, as these components are critical to the development of new ideas and technologies. As long as companies see the big picture, there are significant opportunities.

Many of these opportunities relate to basic infrastructure, and how existing facilities can cope. There are perhaps more opportunities for businesses with respect to adaptation and mitigating the risk of weather, than in the climate change "mitigation" space – new ways to do more with less energy consumption and less emissions of greenhouse gases.

How do approaches differ around the world?

There are many different approaches now being used in different countries. Suffice it to say that carbon regulation, or the regulation of greenhouse gases, is very well advanced in Europe. The European trading system is and has been a leader. There are programs in North America, particularly California's Cap-and-Trade Program (AB32), and the Alberta Program, which also regulates greenhouse gas emissions.

There are many other ways of dealing with the issue. Taxes are certainly one option, but technological innovation is most important. Significant technological progress will be required to meet and cope with a growing society, with greater numbers of people aspiring to advance from a developing living standard to developed state. This will require increasing amounts of energy and technology breakthroughs just to meet basic living standards.

While it is important to understand how approaches differ, it is equally important to find synergies. As a result of the myriad approaches to reducing risk, mitigating impacts on air and water, and adapting to a changing climate, we are seeing massive pricing distortions in the market around the costs of mitigation . A key tool to addressing this issue is translating different activities into a common unit of measurement. There are experts now attempting to develop sustainability indices and unify those approaches.

What will be the role of state and local governments?

The states are at the forefront of the measures outlined by the Clean Power Plan, as they have been since the Clean Air Act was first adopted in 1970. Indeed, one of the interesting aspects of the Clean Power Plan is that it recognizes climate measures that were done by the states, without federal help or demands. Nearly 30 states have Renewable Portfolio Standards. The nuclear power industry produces electric power without carbon emissions. These comprise one of the four "building blocks" which EPA says it will recognize in state plans. States are also being asked by EPA to consider greater use of natural gas in electric generation, often at the expense of coal. However, at the same time, Carbon Capture and Storage projects are advancing around the country, supported by DOE grants, tax incentives, and other funding arrangements, including substantial private investments. These CCS projects are another tool that can be used by states.

Other key tools to be used, particularly at the local level, are known as "public-private partnerships". These are well-established in most areas of the world but not so developed in the United States. These will be critical to coping with climate change and extreme weather. Solutions for climate change will need to be applied on a local basis in order to most effectivly adapt to extreme weather, whether it's a drought, excess water or heavy wind. Solutions will be very site specific, and therefore each business is probably going to be looking for unique opportunities. Governmental agencies are going to play a critical role in coordinating these efforts.

The US military may be the largest investor and customer in protecting against climate change. The US has bases around the world, some of which could be affected by melting glaciers and the rise of ocean levels. We know that a sea level rise of only a small amount would displace millions of people, creating many more refugees and instability. Projecting military power takes a lot of energy, and the military has been quite resourceful in finding ways to save energy -- for example, by insulating tents in Afghanistan by spraying the tents with polyurethane foam so that less fuel is needed to cool portable barracks and by developing innovative bio-fuels. Look for the innovations from universities and the private sector to be taken up by the military, scaled and turned back into the private sector for further development and deployment.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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