Climate Change: The Move to Action (AOSS 480 // NRE 501)

1
Climate Change The Move to Action(AOSS 480 //
NRE 501)

• Richard B. Rood
• 734-647-3530
• 2525 Space Research Building (North Campus)
• rbrood_at_umich.edu
• http//aoss.engin.umich.edu./people/rbrood
• Winter 2008
• April 8, 2008

2
Class News

• A ctools site for all
• AOSS 480 001 W08
• This is the official repository for lectures
• Email climateaction_at_ctools.umich.edu
• Class Web Site and Wiki
• Climate Change The Move to Action
• Winter 2008 Term

3
Rest of lectures

• April 8 Business and Climate // Discussion
• April 10 Current Issues // Discussion
• April 15 Final Presentations
• April 21 Submission of Final Presentation. (.ppt
  and .doc) (April 24, absolute latest!)

4
Seeking Project Happiness
Presentation Total time for presentation and
questions is 30 minutes. Aim for
presentation of 20 minutes. My goal, here, is
something like a real world experience.
Therefore, first get the presentation
right. Paper There should be an accompanying
narrative to the presentation. This should
include references. Minimally Narrative is
description of the presentation. Target
Narrative in the spirit of executive summary, or
white paper that the receiver of the
presentation can take away and carry forward.
Needs Abstract. 10 pages is a good
target. If it is longer than 10 pages needs an
Executive Summary. (Due April 21, Latest April
24) If you want to write more it is great! Ive
had as high as 60 pages by groups who really did
plan, and did, take them forward. You should
feel like you have done a good job, in the time
that you have.
5
Readings on Local Servers

• Assigned
• Hoffman Pew Corporate Strategies 2006
• McKinsey Global Business Survey 2008
• Additional Relevant Readings
• U.S. Climate Action Partnership
• CAP Call for Action
• CERES Coalition of Investors, Environmental and
  Public Interest Groups
• Click Publications Look at 2003 and 2006
  Corporate Governance

6
Outline of Lecture

• Synthesis
• Business

7
Early on we started with
...OTHER...
Security Food Environmental National
Societal Success Standard of Living
OTHER
ECONOMICS
POLICY
ENERGY
RELIGION
LAW
SOCIAL JUSTICE
BUSINESS
PUBLIC HEALTH
information flow research, journals, press,
opinion,
SCIENTIFIC INVESTIGATION OF CLIMATE CHANGE
8
I have tried to do

• Provide a meaningful, scientific background for
  climate change.
• Set into relationship the different elements that
  play into the problems that climate change poses.
• What are the characteristics
• Demonstrate the granularity of the problem
• short and long term
• small and large geographical scales
• poor and rich

9
What scientific investigation tells us
Knowledge from Predictions Surface temperature
will rise Sea level will rise Weather will change
Reveals Risk Benefit
Motivates Policy
CLIMATE CHANGE IS PERCEIVED PRIMARILY AS A
LONG-TERM PROBLEM
10
Climate Change Long-Term Problem?

• This is from the perspective that if we were to
  take actions to reduce carbon dioxide, then it
  would be a long time before we see benefit, and
• the general idea that climate change is a slow
  warming that will be a long time coming.
• What are the short-term and long-term aspects of
  the problem?

11
The Relation between Climate Change and Energy is
Dominant

• Burning of fossil fuels and the release of carbon
  dioxide waste into the atmosphere is the primary
  cause of human-caused climate change
• Other greenhouse gases
• Land-use changes
• The other greenhouse gases and land-use change
  are relevant to short-term responses.

12
Climate Change Relationships

• Consumption // Population // Energy

POPULATION
ENERGY
WEALTH
CONSUMPTION
CLIMATE CHANGE
13
What is short-term and long-term?
Pose that time scales for addressing climate
change as a society are best defined by human
dimensions. Length of infrastructure investment,
accumulation of wealth over a lifetime, ...
LONG
SHORT
ENERGY
CLIMATE CHANGE
ECONOMY
25 years
50 years
75 years
100 years
0 years
14
Short-term and long-term

• There are short-term and long-term issues in all
  of these elements. The question is which ones
  are relevant to the problem at hand, and
• which element is the one that demands the most
  priority.

15
Need for Policy

• The extensive reach of both climate change and
  energy availability and use motivate the need for
  policy,
• but it is important to consider the role of
  uncertainty.

16
Science Knowledge and Uncertainty
Knowledge from Predictions Surface temperature
will rise Sea level will rise Weather will change
Knowledge from Predictions
Reveals Risk Benefit
Motivates policy
Motivating
Uncertainty of the Knowledge that is Predicted
Resisting

1. Uncertainty always exists
2. New uncertainties will be revealed
3. Uncertainty can always be used to keep policy
   from converging

Policy
17
Premise Policy Accelerators

• More is needed than scientific knowledge for the
  development of policy.
• A policy accelerator or catalyst is needed to
  promote convergence on policy.
• The policy accelerators will be anchored on
• Apparent benefit
• Excess risk
• to one of the urgent, short-term elements of the
  problem.

18
Energy Climate Change

• Many alternative energy sources dont reduce
  carbon dioxide in atmosphere.
• Coal is our easy energy security
• Without sequestration (carbon removal), coal
  makes the problem worse.

19
NEED CARBON POLICY

• Quest for energy security-national security,
  demand for cheap energy, economic security will
  reduce priority we give to reduction of carbon
  dioxide in the atmosphere.
• Must have a carbon policy, a climate policy.
• Consumption, sustainability
• Must have sustained management of climate.
• Population

20
Revisit those things that might accelerate policy.

• Time for discussion.

21
Climate Science-Policy Relation
KNOWLEDGE
CLIMATE SCIENCE
POLICY
UNCERTAINTY
PROMOTES / CONVERGENCE
OPPOSES / DIVERGENCE
22
U.S. Codified economic growth and climate change

• SEC. 16__. SENSE OF THE SENATE ON CLIMATE CHANGE.
  (2005)
• (a) Findings.Congress finds that
• greenhouse gases accumulating in the atmosphere
  are causing average temperatures to rise at a
  rate outside the range of natural variability and
  are posing a substantial risk of rising
  sea-levels, altered patterns of atmospheric and
  oceanic circulation, and increased frequency and
  severity of floods and droughts
• there is a growing scientific consensus that
  human activity is a substantial cause of
  greenhouse gas accumulation in the atmosphere
  and
• mandatory steps will be required to slow or stop
  the growth of greenhouse gas emissions into the
  atmosphere.
• (b) Sense of the Senate.It is the sense of the
  Senate that Congress should enact a comprehensive
  and effective national program of mandatory,
  market-based limits and incentives on emissions
  of greenhouse gases that slow, stop, and reverse
  the growth of such emissions at a rate and in a
  manner that
• will not significantly harm the United States
  economy and
• will encourage comparable action by other nations
  that are major trading partners and key
  contributors to global emissions.

23
Economics and climate change

• For the most part, the world has intertwined our
  responses to climate change with economic growth
  hence, consumption.
• By our decision, climate change and acquisition
  and protection of wealth are linked together.

24
The economics argument

• Comes to the conclusion that we must provide
  valuation to the environment, the cost of energy,
  the disposal of our waste.
• Usually collapses to the argument of a market
  versus a taxation problem.
• The economics argument potential provides the
  mechanism of policy, but it still does not compel
  policy.

25
Economics-Policy Relation
KNOWLEDGE
ECONOMIC ANALYSIS
POLICY
UNCERTAINTY
Economic analysis is not the compelling catalyst
to converge the development of policy at least
on the global scale. Different story on the
local scale.
PROMOTES / CONVERGENCE
OPPOSES / DIVERGENCE
26
An integrated picture?
ECONOMIC ANALYSIS
KNOWLEDGE
CLIMATE SCIENCE
ENERGY
POLICY
UNCERTAINTY
PROMOTES / CONVERGENCE
OPPOSES / DIVERGENCE
27
Policy?

• As all of these pieces are brought to bear on
  policy, the fragmentation of those interests
  begins to show up in policy.

28
An integrated picture?
ECONOMIC ANALYSIS
KNOWLEDGE
CLIMATE SCIENCE
ENERGY
UNCERTAINTY
Fragmented Policy
PROMOTES / CONVERGENCE
OPPOSES / DIVERGENCE
29
Fragmented Policy

• Represents the real, rational interests of
  different elements.
• short-term, long-term local, global poor, rich
• As a whole, however, does not work together, and
• may collectively work against, for instance,
  mitigation of climate change.
• Fragmented policy becomes, perhaps, an
  accelerator or more integrated, more federal or
  global policy.

30
Impacts

• The knowledge that comes from climate science
  suggests a set of impacts
• Agriculture
• Forestry
• Fisheries
• Public health
• Water resources
• ....

31
An integrated picture?
ECONOMIC ANALYSIS
KNOWLEDGE
IMPACTS
CLIMATE SCIENCE
ENERGY
UNCERTAINTY
Fragmented Policy
PROMOTES / CONVERGENCE
OPPOSES / DIVERGENCE
32
Impacts

• We used heat waves as an example of an impact.

33
Lessons from heat waves

• Existing problem with existing system to address
  the problem
• Weaknesses in the system often associated with
  population stress, by vulnerable population,
  highly (anti) correlated with wealth and
  education
• Strongly dependent on extreme events, not the
  average
• Hence want to know how extreme events will change
• Not clearly and distinctly addressed by efforts
  to mitigate greenhouse gas emissions
• Motivator for Kyoto like policy?

34
Lessons from heat waves

• Strongest levers for addressing the problem are
• Societal capability (social integration,
  structure, communications)
• Environmental warnings and alerts
• Education (first responders, general public,
  ....)
• Engineering (air conditioners, green spaces, ...)

35
Imagine your job was to reduce deaths from heat
waves
POPULATION
CONSUMPTION
ENERGY
CLIMATE CHANGE
Its going to get hotter!
MITIGATE CLIMATE CHANGE or USE MORE ENERGY or ...
36
Integrated or systematic impacts

• Water resources, public health, agriculture,
  taken in isolation rich countries can imagine
  that they have technological and engineering
  solutions to these problems, but
• what about their combined impacts

37
An integrated picture?
ECONOMIC ANALYSIS
KNOWLEDGE
IMPACTS
CLIMATE SCIENCE
ENERGY
UNCERTAINTY
INTEGRATED IIMPACTS
Fragmented Policy
PROMOTES / CONVERGENCE
?
OPPOSES / DIVERGENCE
38
There are important elements still missing

• Law
• Law offers a possible entry into the system.
• Links policy and de facto laws
• Links economic windfalls and losses
• Links impacts
• Links ethical considerations
• ....
• Promotes, perhaps, policy

39
An integrated picture?
ECONOMIC ANALYSIS
KNOWLEDGE
IMPACTS
CLIMATE SCIENCE
ENERGY
LAW
UNCERTAINTY
INTEGRATED IIMPACTS
Fragmented Policy
PROMOTES / CONVERGENCE
?
OPPOSES / DIVERGENCE
40
We keep arriving at levels of granularity
WEALTH
TEMPORAL
NEAR-TERM
LONG-TERM
Small scales inform large scales. Large scales
inform small scales.
41
Other elements

• Beliefs
• religion
• ethics
• value systems that are, in principle, different
  than money
• Business
• value systems that are, in principle, money

42
Business

• Business has often been posed as the villain in
  climate change discussions
• But business is far from uniform in motivations,
  practices, and beliefs
• Business is core to the economy, core to
  consumption, core to energy use
• Ultimately business is a key element of the
  solution set

43
Readings on Local Servers

• Assigned
• Hoffman Pew Corporate Strategies 2006
• McKinsey Global Business Survey 2008
• Of Interest
• U.S. Climate Action Partnership
• CAP Call for Action
• CERES Coalition of Investors, Environmental and
  Public Interest Groups
• Click Publications Look at 2003 and 2006
  Corporate Governance

44
CERES

• About Us
• Ceres (pronounced series) is a national network
  of investors, environmental organizations and
  other public interest groups working with
  companies and investors to address sustainability
  challenges such as global climate change.
• Mission Integrating sustainability into capital
  markets for the health of the planet and its
  people.

45
Climate Action Partnership

• Account for the global dimensions of climate
  change
• Create incentives for technology innovation
• Be environmentally effective
• Create economic opportunity and advantage
• Be fair to sectors disproportionately impacted
  and
• Reward early action.

46
What is the position of business?

• McKinsey et al. Global Survey
• gt 2000 Corporations Respond
• This report defies me when I try to take graphics
  from it!

47
Summary of 2008 McKinsey Report
ACTION
IMPORT
Reputation, Brand
Environmental Issues
gt 60
Corporate Strategies
New Products
Planning Investments
Supply Side Management
Influence Regulatory Process
lt 40
Carbon trading / Market
48
Geographic Sector
ACTION
IMPORT
Asia NOT China and India
China
gt 60
gt 30
Europe
India
Latin America
50
lt 30
North America
49
Hoffman Pew Report 2006

• Interview 31 American Companies.
• Getting Head of the Corporate Curve

50
Why take Action?
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Once begun, how important are the following
measures of success in undertaking your
climate-related strategy? (Rate their level of
importance 1 not important 3 neutral 5
important).
51
Why take Action?
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Once begun, how important are the following
measures of success in undertaking your
climate-related strategy? (Rate their level of
importance 1 not important 3 neutral 5
important).
1. Increase Profits
2. Influence Government Regulation
3. Enhance Corporate Reputation
52
Why take Action?
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks

• Increase Profits
• Increasing energy costs
• Investor interest
• Growing greentech sector
• Influence Government Policy
• Enhance Corporate Reputation

53
Why take Action?
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks

• Increase Profits
• Increasing energy costs
• Investor interest
• Growing greentech sector
• Influence Government Policy
• Enhance Corporate Reputation

54
Why take Action?

• 2. Influence Government Policy

If you believe that federal standards on climate
change are imminent when do you believe these
standards will take effect?
55
Climate Action Partnership

• Congress needs to take action as quickly as
  possible
• 450-550 parts per million goal
• Stepwise, cost-effective approach
• Cap and Trade is Essential
• Short and mid-term greenhouse gas goals
• Complementary energy policy

56
Climate Action Partnership

• Upstream and hybrid upstream-downstream points of
  regulation
• Emissions offsets
• Emission allowance
• Cost control mechanisms
• Inventory and registration
• Credit for early action

57
Business

• Business effective accelerator of policy?
• Policy risk greater than climate risk
• Remember business, like all of us, act in
  self-interest

58
Signposts for Future Action
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks

• Establishment of Regulations
• Rising Energy Prices
• Interest within the Investment Community

59
How to take action?
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks

• Ensure Strategic Timing
• Establish Appropriate Levels of Commitment
• Influence Policy Development
• Create Business Opportunity

60
Ensure Strategic Timing
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks

• Not whether to take action, but when.
• Not too soon, not too late.

61
Establish Appropriate Levels of Commitment
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks

• How aggressive should the strategy be?
• Pay attention to market signals.

62
Influence Policy Development
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks

• Policy sets the rules of the game
• There are still many possible mechanisms
• Reduce uncertainty by gaining a seat at the
  policy table
• BUT, you must take action first.

63
Create Business Opportunity
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks

• Climate change cannot be an add-on.

Risk Management, Bottom-line Protection
Business Opportunity, Top-line Enhancement
64
Hoffman Pew Strategy Development
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Three Stages of Climate Strategy Development
Stage I Develop A Climate Strategy Stage I Develop A Climate Strategy Stage I Develop A Climate Strategy Stage I Develop A Climate Strategy Stage II Focus Inward Stage II Focus Inward Stage III Focus Outward Stage III Focus Outward
Assess Emissions Profile Gauge Risks and Opportunites Evaluate Action Options Set Goals and Targets Develop Financial Mechanisms Engage the Organization Formulate Policy Strategy Manage External Relationships
Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Step 8

Feedback and monitoring to refine business case,
strategy elements, and tactics.
65
CORPORATE STRATEGIES

• BELOW ARE A SET OF SLIDES FROM ANDY HOFFMAN ON
  DEVELOPING CORPORATE STRATEGIES.

66
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Three Stages of Climate Strategy Development
Stage I Develop A Climate Strategy Stage I Develop A Climate Strategy Stage I Develop A Climate Strategy Stage I Develop A Climate Strategy Stage II Focus Inward Stage II Focus Inward Stage III Focus Outward Stage III Focus Outward
Assess Emissions Profile Gauge Risks and Opportunites Evaluate Action Options Set Goals and Targets Develop Financial Mechanisms Engage the Organization Formulate Policy Strategy Manage External Relationships
Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Step 8

Feedback and monitoring to refine business case,
strategy elements, and tactics.
67
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 1 ASSESS EMISSIONS PROFILE

• Nearly all companies measure direct emissions and
  most measure indirect emissions. Yet, there is
  great variability in what emissions are
  considered.
• Companies are evenly split in their use of
  absolute or indexed measures for tracking and
  reporting emissions.
• Companies can measure actual emissions or develop
  estimates using fuel-based calculations.
• Companies have developed or are working to
  develop new systems for measuring and tracking
  emission reductions.

68
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 2 GUAGE RISKS AND OPPORTUNITIES

• Benchmarking is geared towards gaining
  information on best practices.
• While companies begin with a focus on risk
  management and bottom-line protection, their
  ultimate goal is to seek ways to integrate their
  climate strategy with their business strategy.

69
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 2 GUAGE RISKS AND OPPORTUNITIES

• Benchmarking is geared towards gaining
  information on best practices.
• While companies begin with a focus on risk
  management and bottom-line protection, their
  ultimate goal is to seek ways to integrate their
  climate strategy with their business strategy.
• In the 1980s, energy efficiency was number ten,
  eleven or twelve in consumer priorities. In the
  last four or five years, it has come up to number
  three behind cost and performance, and we believe
  these concerns will continue to grow.
• Casey Tubman, Brand Manager of Fabric Care
  Products, Whirlpool

70
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 3 EVALUATE ACTION OPTIONS

• Search first for Low hanging fruit.

71
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 3 EVALUATE ACTION OPTIONS

• Search first for Low hanging fruit.
• If youve never focused on energy efficiency
  before, achieving a 30 percent reduction is
  simple.
• Andreas Schlaepfer, Head of Internal
• Environmental Management, Swiss Re

72
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 3 EVALUATE ACTION OPTIONS

• Search first for Low hanging fruit.
• If youve never focused on energy efficiency
  before, achieving a 30 percent reduction is
  simple.
• Andreas Schlaepfer, Head of Internal
• Environmental Management, Swiss Re
• Silver bullets.
• On-system and off-system opportunities.
• Ultimately, the goal is to find ways to reduce
  greenhouse gases in a manner that supports other
  business objectives.

73
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 4 SET GOALS AND TARGETS

• Most develop goals by analyzing risks and
  opportunities in their many business units.

74
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 4 SET GOALS AND TARGETS

• Most develop goals by analyzing risks and
  opportunities in their many business units.
• You need the tension of a very challenging goal.
  Inspirational goals call an organization to act
  beyond conventional boundariesAn easy goal
  fails to challenge the creative potential of the
  organization.
• Craig Heinrich, Titanium Technologies Division,
  DuPont

75
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 4 SET GOALS AND TARGETS

• Most develop goals by analyzing risks and
  opportunities in their many business units.
• You need the tension of a very challenging goal.
  Inspirational goals call an organization to act
  beyond conventional boundariesAn easy goal
  fails to challenge the creative potential of the
  organization.
• Craig Heinrich, Titanium Technologies Division,
  DuPont
• Energy-efficiency and greenhouse gas-reduction
  targets.
• In making the business case for climate-related
  strategies, companies typically focus on
  quantifiable and less quantifiable benefits.
• Other related targets.

76
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 5 DEVELOP FINANCIAL MECHANISMS

• Absent legal mandates, U.S. companies are
  currently using internal pricing mechanisms to
  support climate change efforts.
• Costs for climate-related strategies vary widely.
  
• Internal and external trading Pros and cons.
• Expertise and knowledge gained by developing
  these mechanisms can help companies understand
  when climate programs make sense only with an
  external carbon price and when they can be
  sustained without one. 

Absolute Costs DuPont spent 50 million to
develop end-of-pipe control technology to reduce
N2O emissions
Normalized Costs Cinergy estimates that the
average per-ton cost of CO2e reductions was 8.28
in 2004 and 12.49 in 2005.
Financial Return Alcoa has traditionally not
pursued climate and energy projects unless they
have a payback of one year or less.
77
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORGANIZATN STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 6 ENGAGE THE ORG.

• Gaining buy-in from the workforce takes time and
  effort. Many companies link climate-change goals
  to what the organization already knows. Others
  link it to rewards, bonuses, and public awards.

78
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORGANIZATN STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 6 ENGAGE THE ORG.

• Gaining buy-in from the workforce takes time and
  effort. Many companies link climate-change goals
  to what the organization already knows. Others
  link it to rewards, bonuses, and public awards.
• Weve got a train moving on efficiencyWed
  just start confusing things if we tried to start
  a new train.
• Mark Dahmer, Director of Laundry Technology,
  Whirlpool

79
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORGANIZATN STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 6 ENGAGE THE ORG.

• Gaining buy-in from the workforce takes time and
  effort. Many companies link climate-change goals
  to what the organization already knows. Others
  link it to rewards, bonuses, and public awards.
• Weve got a train moving on efficiencyWed
  just start confusing things if we tried to start
  a new train.
• Mark Dahmer, Director of Laundry Technology,
  Whirlpool
• Senior leadership is critical.
• Identify departments or functions that will act
  as change initiators, implementers, and
  resistors.
• The ultimate goal is to move climate change as an
  issue from the periphery of the organization to
  its core.

80
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 7 FORMULATE POLICY STRATEGY

• Government policy on climate change is coming.
  All companies see a strong need to participate in
  policy development.

81
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 7 FORMULATE POLICY STRATEGY

• Government policy on climate change is coming.
  All companies see a strong need to participate in
  policy development.
• Avoid avoid stroke of the pen risk, the risk
  that a regulator or Congressman signing a law
  can change the value of our assets overnightIf
  there is a high probability that there will be
  regulation, you try to position yourself to
  influence the outcome.
• Jim Rogers, CEO, Duke Energy

82
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 7 FORMULATE POLICY STRATEGY

• Government policy on climate change is coming.
  All companies see a strong need to participate in
  policy development.
• Avoid avoid stroke of the pen risk, the risk
  that a regulator or Congressman signing a law
  can change the value of our assets overnightIf
  there is a high probability that there will be
  regulation, you try to position yourself to
  influence the outcome.
• Jim Rogers, CEO, Duke Energy
• Varying perspectives about several key aspects of
  prospective policy.

83
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 7 FORMULATE POLICY STRATEGY

• Government policy on climate change is coming.
  All companies see a strong need to participate in
  policy development.
• Avoid avoid stroke of the pen risk, the risk
  that a regulator or Congressman signing a law
  can change the value of our assets overnightIf
  there is a high probability that there will be
  regulation, you try to position yourself to
  influence the outcome.
• Jim Rogers, CEO, Duke Energy
• Varying perspectives about several key aspects of
  prospective policy.
• The technologies will emerge when CO2 has a
  price signal, and that market signal will be
  regulation.
• Kevin Leahy, GM of Environmental Economics and
  Finance, Duke Energy

84
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks
Stage I Develop A Climate Strategy
Stage II Focus Inward
Stage III Focus Outward
STEP 1 ASSESS EMISSIONS PROFILE STEP 2 GUAGE RISKS AND OPPORTUNITIES STEP 3 EVALUATE ACTION OPTIONS STEP 4 SET GOALS AND TARGETS STEP 5 DEVELOP FINANCIAL MECHANISMS STEP 6 ENGAGE THE ORG. STEP 7 FORMULATE POLICY STRATEGY STEP 8 ENGAGE EXTERNAL RELATIONS
STEP 8 ENGAGE EXTERNAL RELATIONS

• External outreach efforts are aimed first at
  employees and NGOs, and then at government, the
  broader public, and the investment community.
• Survey respondents also report reaching out to
  customers and other companies through research
  consortia, trade groups, and other avenues.
• In the end, all the steps in a firms climate
  strategy have to fit with each other and with
  overall strategic objectives.

85
Conclusion Climate Change Represents a Market
Transition
86
Conclusion Climate Change Represents a Market
Transition
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks

• I worry that we are using 100 year-old
  technologyAt what point will our generation and
  transmission lines become obsolete? There are a
  lot of things you might do, if you think there
  will be a new technology in 25 years. You need to
  hit your numbers with a short-term view, but you
  need to run your company with a long-term view.
• Jim Rogers, CEO, Duke Energy

87
Conclusion Climate Change Represents a Market
Transition
From Andy Hoffman Pew Getting Ahead on Climate
Change. Thanks

• The key is both influencing the rules of the
  game and timing your shift to a new
  carbon-constrained strategy. Its knowing what
  the next technology for energy production is, and
  shifting when the market is ready to reward it.
  Were not going to get out of the oil business in
  the near term. But, you have to ask, What is
  the iPod for energy? Is it out there? You have
  to be on watch.
• David Hone, Group Climate Change Advisor, The
  Shell Group