Climate change was placed firmly on the international political agenda in 2005 through the UK’s presidencies of the G8 and EU. 2005 was also the year that the challenge posed by climate change entered the boardroom. Businesses and investors are increasingly concerned about the potential impact climate change could have on their bottom line.
And they are right to be concerned. Current economic evidence suggests that the longer the world delays reducing harmful emissions, the higher the economic cost will be. Even a delay of five years could be significant. If action is delayed by as much as 20 years, emission reductions may need to be three to seven times greater, scientists believe, in order to meet the same temperature target.

Rewards will flow from a shift to a low-carbon economy

By comparison, the cost of taking action now is thought to be relatively small. Modelling work commissioned by the UK government suggests that the cost to GDP in 2050, implied by a 60% reduction in carbon dioxide emissions, equates to between 0.01 and 0.02 of GDP a year. The Intergovernmental Panel on Climate Change Third Assessment Project cites a similar global impact.
The UK government is responding to the complexities of economic analysis with a major review of the economics of climate change. This study will provide us with the most economical and effective ways of tackling climate change at a global level, focusing not just on the need to mitigate greenhouse gases, but also to adapt to the changes that are already inevitable.

Last year’s G8 presidency showed that the debate about the science of climate change was over. A scientific conference held at the beginning of last year, attended by scientists from over 30 countries, concluded that there was “greater clarity and reduced uncertainty about the impacts of climate change across a wide range of systems, sectors and societies”.

Each day, more scientific evidence emerges that oceans are warming, that a long-term reduction in Arctic ice cover is accelerating and that the strength of hurricanes is increasing. The science also tells us that deep cuts in emissions will be needed to stabilise the climate. To avoid severe climate change, global emissions must peak and start to decline over the next couple of decades.
At the G8 Summit in Gleneagles last July, Prime Minister Tony Blair secured an agreement that met all three government objectives. First, on the science, the Gleneagles communiqué stated that human activity did contribute to climate change, that greenhouse gas emissions needed to slow, peak and reverse, and that countries needed to make “substantial cuts” in emissions.

Second, G8 leaders agreed to an action plan to increase the speed with which we reduce greenhouse gas emissions. The package included improvements to energy efficiency in appliances and buildings, cleaner vehicles, aviation, work on developing cleaner fuels, renewable energy and promoting research and development and the financing of future projects. The G8 asked the International Energy Agency (IEA) and the World Bank to undertake further work on actions to reduce emissions, and to improve funding for clean technologies in developing countries.

Third, there was agreement on a new dialogue on climate change, clean energy and sustainable development between G8 countries and other interested countries with significant energy needs. The dialogue allows continued, more informal, discussion of the issues around climate change and measures to tackle it, such as those agreed at Gleneagles. The government has also engaged closely with rapidly growing economies such as India and China. As part of the EU–China Partnership, the UK will lead a near Zero Emissions Coal (nZEC) project, which aims to develop and demonstrate in China and the EU advanced, near-zero emissions coal technology based on carbon capture and storage by 2020.

All of this complements the United Nations’ process to which the UK remains committed. The UK’s G8 and EU presidencies are milestones in the international climate change debate and have created the conditions for further international progress within the United Nations Framework Convention. At the Montreal climate change conference in December, participants saw the global community, including the US, India and China, agree to work together through a UN process.

In businesses worldwide, climate change is increasingly discussed in the boardroom. The work of the UK government has involved increasing awareness of the fundamental role that businesses and government play in tackling climate change, and highlighting
the policies businesses can implement, and are already implementing, to reduce emissions. Many businesses now accept that emissions reductions need not harm their competitiveness, but can increase profits.

A number of prominent businesses provide evidence of this. BP, for example, has met its internal target to reduce greenhouse gas emissions ahead of schedule, achieving emissions reductions of 14% between 1998 and 2004 and gaining around $650m as a result. HSBC, another global player, has committed itself to becoming carbon neutral by reducing its energy use and by buying green electricity. In a survey of 22 corporations conducted by The Climate Group, five of these corporations alone saved over $5.5bn from improved energy efficiency, fuel switching and reduced waste.

Global powerhouse DuPont offers a compelling example of how progressive emission reduction programmes can increase profits. DuPont garnered excellent returns on its initial investments in emission reduction in Texas and around the world. The company spent $50m on facility retrofitting programmes in Texas, Canada, the UK and Singapore, to reduce nitrous oxide emissions from nylon production. These efforts resulted in a 67 % reduction in greenhouse gas emissions since 1990 and a 9% reduction in energy use below 1990 levels during a 35% increase in production. Those reduced emissions translated into $2bn savings through increased energy efficiency. In addition, an additional $10-15m was saved annually through the use of renewable energy sources.
Businesses are increasingly recognising the need for strong co-operation between the corporate and government sectors. Business leaders such as Jeff Immelt of GE and Jim Rodgers of Cinergy have called for long-term regulatory certainty and market-led mandatory policies. Growing numbers of blue-chip businesses (such as Caterpillar, Johnson & Johnson and Intel) are arguing that voluntary action is not enough. These corporations see increasing opportunity in the carbon market, and in developing new technologies.

Admittedly there has been a debate on the mechanisms for how we should move to that low-carbon economy. The solution is often touted as a choice between setting targets, or developing technology. But, in reality, such a choice does not exist. While technology is essential to make the transition to a low-carbon economy, targets have a vital role in driving forward that progress.
UK experience demonstrates that decoupling greenhouse gas emissions from economic growth is perfectly possible in a developed economy – the UK economy grew by 31.6% (1990–2002), while emissions fell by 14.9% over the same period.
The opportunities for businesses to drive forward innovative solutions in combating climate change are clear. The rewards that will flow from a successful shift to a low-carbon economy are high. Neither governments nor business can afford to let these opportunities pass them by.

Climate change is on everyone’s agenda