The debate on Climate Change isn't over: while there is a broad consensus on the basic model of change, there is still a huge and ever-changing argument about what can, should and will be done, and when: this is where we report on news items that contribute to that debate, to the analysis of what's happening and what needs to happen, from the global treaties such as Kyoto to regional commitments and local and personal initiatives. Copyright 2008 Tue, 23 Dec 2008 00:00:00 +0100 http://www.movabletype.org/?v=3.2 http://blogs.law.harvard.edu/tech/rss Companies in certain consumer goods sectors that do not implement sustainable environmental strategies could face a potential reduction of 13 percent to 31 percent in earnings by 2013 and 19 percent to 47 percent in earnings in 2018. These findings are the result of a “future scenario” analysis released today by the World Resources Institute and A.T. Kearney, Inc. It is titled Rattling Supply Chains: The Effect of Environmental Trends on Input Costs to the Fast Moving Consumer Goods Industry, and is the first report of its kind to calculate the financial impact of environmental issues facing this industry. The analysis provides consumer packaged goods executives with a tool to assess how environmental legislation and climate change could impact their businesses in future years. It also outlines how these executives can begin to develop strategies to address these issues. Although the current financial crisis has resulted in declining commodity prices, the authors find that environmental pressures will continue to impact the supply and price of key commodities in the long term. The crisis should be viewed as an opportunity to address these challenges through transformational change and not as a time to ignore them. “The Ecoflation scenario is a vision of a future where companies have to deal with environmental costs previously borne by society,” said Andrew Aulisi, director of WRI’s Markets and Enterprise Program. “Environmental concerns are driving a global trend of policy activism and regulation. Our scenario describes this trend and the most pressing environmental challenges, and finds that the earnings of consumer goods companies are exposed to significant risk rising out of their supply chains.” For their research, WRI and A.T. Kearney based the “ecoflation” scenario on major environmental trends and policy developments, such as U.S. and international climate change regulations, enhanced forest policies, growing water scarcity, and new biofuel policies. They then analyzed how these drivers might affect prices on selected commodities like oil, natural gas, electricity, cereals and grains, soy, sugar, palm oil, and timber. The results offer tangible illustrations of how environmental costs might impact the value chain, especially for fast-moving consumer goods that are usually produced in large quantities, such as food and beverages or household products. Cereal prices, for example, are shown to have upward pressure from climate change policy and growing water scarcity, but may be reduced if certain biofuel policy changes reduce ethanol demand. The report finds a 6 to 13 percent increase in cereal commodity prices due to these pressures. “The results highlight the need for strategic scenario-based planning,” according to Daniel Mahler, A.T. Kearney partner. “Winning companies will anticipate this changing landscape. These companies will collaborate with suppliers and other stakeholders, and make environmental sustainability a key business principal.” Rattling the Supply Chain outlines a four-step process to develop a robust strategy around a company’s sustainability challenge and opportunities:1. Understand environmental impacts and dependencies by examining how cost drivers are exposed to emerging environmental trends and, when possible, seek substitutes with lower environmental impacts.2. Take inventory of current sustainability initiatives through the value chain to see what the company, its suppliers, and its partners are addressing.3. Prioritize environmental issues and opportunities according to their current and future potential impact on costs, revenues, and reputation.4. Chart a new course by having a cross-functional team systematically evaluate opportunities to reduce cost exposure to critical input commodities. This evaluation should include product re-design, backwards supply chain integration, local versus global sourcing, and an upgrade of sustainability standards for the supply base. http://www.blueglo.be/2008/12/consumer_goods_companies_face.html http://www.blueglo.be/2008/12/consumer_goods_companies_face.html Debate Tue, 23 Dec 2008 00:00:00 +0100 The World Resources Institute (WRI) and the U.S. Environmental Protection Agency (EPA) today announced a collaboration to deliver improved science and practical tools to help companies and governments protect ecosystems and address climate change.“This is an important collaboration in bringing research on ecosystem services into the mainstream of science, business and public policy,” said Rick Linthurst, national program director of the EPA’s Ecological Research Program. WRI’s ecosystem services brochureEcosystem services are the benefits people obtain from forests, wetlands, and other ecosystems. A forest, for example, not only provides wood for timber and paper but also controls erosion, purifies water, stores carbon dioxide, and offers recreation.The partnership will bring a greater recognition and understanding of the importance of ecosystems to economic development and human well-being. It will also help planners better determine development options that allow affected natural resources to continue to produce services that meet the needs of current and future generations. Craig Hanson, acting director of WRI’s People and Ecosystems Program, added, “This collaboration will link EPA’s quality scientific research on ecosystem services with WRI’s work to help private- and public-sector leaders make the connection between healthy ecosystems and the attainment of their economic goals. This partnership will make our Corporate Ecosystem Services Review, mapping of ecosystem services, and economic valuation efforts even more powerful.” Businesses, local and state governments, researchers, and international organizations - which are increasingly retooling their environmental-management systems to address ecosystem services - will benefit from the partnership. As part of the collaboration, Dr. Suzanne Marcy, lead for outreach and education in the Ecological Research Program of the EPA’s Office of Research and Development, will be based at WRI’s headquarters. She will focus on linking emerging scientific data about the health and economic value of ecosystem services with WRI’s various projects on water quality, biofuels, coral reefs, and business sustainability, among others. In addition, WRI’s research will inform the EPA Ecological Research Program’s initiatives in the Coastal Carolinas, the Willamette Valley in Oregon, Tampa Bay, the upper-Midwest, and the Southwest. http://www.blueglo.be/2008/12/epa_partners_with_wri_to_heigh.html http://www.blueglo.be/2008/12/epa_partners_with_wri_to_heigh.html Debate Tue, 23 Dec 2008 00:00:00 +0100 Despite the global economic downturn, China’s environmental and renewable energy sectors are poised for another year of strong growth. However, private investors must exercise caution, as green industries still face a daunting array of challenges. So far, the Chinese green sector appears to be unscathed from the current financial crisis with no shortage of capital flowing in. The most recent boost of course was the central government’s RMB 4 trillion (US$585 billion) economic stimulus package, which includes RMB 350 billion (US$36.5 billion) for environmental projects, such as waste-water treatment and renewable energy facilities. The benefits of this government-backed stimulus are already being felt as there has been in a surge in government-solicited bids for environmental projects across the country. This of course has lead to new investor optimism. The private consulting firm, the CleanTech Group, reported that investors at its recent December conference in Shanghai see no slowdown in the Chinese cleantech industry. Meanwhile, the super-ministry National Development Reform Commission recently reported that for the 4th quarter alone, investments in the country’s rural water resources and energy facilities, such as biogas, topped over RMB 22 billion (US$3.2 billion). While all this no doubt good news for Chinese green industries and the country’s quest to improve its environmental quality, investors seeking to make a quick profit from this growth must beware. The reason is simple: while significantly improving, the Chinese green sector remains an extremely competitive industry that is fraught with challenges in which only the strongest companies can thrive. One key challenge is costs. While labor is no doubt cheaper in China than elsewhere, the Chinese business climate is still exposed to withering competitive pressure, and firms must constantly find ways to make lower-priced products. However, Chinese manufacturing expenditures have surged, particularly on raw materials, many of which must be imported. For example, the August 2008 Chinese purchaser prices for raw materials, fuel and power jumped by 15.3 percent compared to the same period in 2007. These pains are particularly being felt by the Chinese photovoltaic firms who pay as much 100 percent more than their global competitors for imported supplies of silicon needed to produce the wafers. This added cost often negates the competitive advantage in labor costs. Another challenge is the lack of human capital. While China has no shortage of smart people, the brightest minds are entering more lucrative industries, such as finance and information technology. These companies can quickly turn around profits, as opposed the environmental companies whose revenue streams may take years to develop. The result is that many Chinese green companies face a deficit of human capital, unless they are willing to pay top notch salaries. Perhaps the most important challenge is that the market for environmental goods and services remains fragmented because of the undeveloped regulatory infrastructure. No doubt, the country has been strengthening its environmental laws and increasing the powers of its environmental agencies. However, enforcement remains weak. For example, the Ministry of Environmental Protection (MEP) found in an investigation of the country’s 500 largest firm enterprises that more than 40 percent failed to adopt the necessary environmental abatement measures (story in english) they promised in their environmental impact reports. MEP also reported that only one-third of country’s completed waste-water treatment projects are operating at capacity. As a result, China still faces severe pollution problems. According to MEP, the number of reported serious polluting incidents throughout China is increasing by 30 percent annually with one incident now being reported every 2 days. For sure, China remains a fertile ground for greentech entrepreneurs to not only help improve the country’s environment, but earn substantial profits while doing so. But given the cut-throat competitive environment and other market challenges, the success of any particular firm is by no means guaranteed. Investors seeking to profit from China’s environmental cleanup drive should look for firms that have the right combination of human capital, business skills, and strategy. This article is excerpted from the book Sustainable Investing: The Art of Long-term Performance published by Earthscan and edited by Cary Krosinsky and Nick Robins. http://www.blueglo.be/2008/12/the_green_investment_challenge.html http://www.blueglo.be/2008/12/the_green_investment_challenge.html Debate Tue, 23 Dec 2008 00:00:00 +0100 Environmental Stories to Watch is WRI’s annual survey of emerging issues that could have major impacts on environmental coverage. At the Newseum, WRI President Jonathan Lash unveiled what he predicts will be the four “Stories to Watch” in 2009. The key environmental issues to watch for in the year ahead: Will the stimulus be green? What will happen with domestic climate change legislation? How will the US deal with China? and; What impact will the Lacey Act have on illegal logging? Question and Answer Transcript JONATHAN LASH: Good morning. So six years of this and the franchise is Stories to Watch, not predictions that turn out to be wrong. If we just tell you what you ought to watch for, we’re pretty safe, it’s going to be out there. Watching environmental stories over the last six years has not exactly been a way to add cheer to your holidays. I’m not quite sure how we got into the phase of always doing this right around Christmas and providing people with a big downer. But this year it may be a little better. The prospects are a bit different. We try to offer you some notion of what we think will be big stories and also a little bit about how to watch them, what to watch for. I’m going to talk about four today. First, the stimulus. Second, the prospects of climate legislation. Third, China, and fourth some interesting things that may be happening with regard to global forests and illegal logging. Will the stimulus be green? The financial crisis has everybody’s attention. In fact, it has even driven Washington to the point where partisanship is occasionally suspended for pragmatism. That pragmatism we are all virtually certain is going to produce a series of actions to stimulate the economy. In fact, that reflects that people around the country are angry. They feel like blunders by Wall Street and by Washington have imposed consequences on them without much effort yet to help them. They see this as a failure of government to perform its fundamental role of protecting the interests of people who cannot protect themselves. And they want more control. They want action, they want government action. They want strong government action. The Reagan era is over. The notion that government is not a solution, it’s a problem, is done. And the premise in Washington now is that everybody knows government’s going to intervene in a set of problems for the nation and the world. The question is what form that intervention takes. Government is back. And the government that’s back has moved significantly to the left. The whole thing, before Barack Obama takes office, before the new Senators and members of Congress take office. The whole government has moved left. And it’s going be solidified in that position in January. One word of caution though, since our focus is environment. I’ve worked on environmental issues in Washington off and on for about thirty years, and it isn’t actually the left that passes environmental legislation. It hasn’t necessarily always been the left that even most strongly supported environmental legislation. Environmental legislation has come from the middle. That’s going to be an important issue in 2009. Let’s start with the stimulus. There’s going to be at least one, I would guess, and it’s going to be more like three. Congress is saying they’re going to pass this first one before the President has even been sworn in. Maybe he can even sign it while he’s walking up Pennsylvania Avenue, certainly in the first 100 minutes. A key question from an environmental point of view is going to be how much of this is traditional public works and how much of it is an investment in building the low-carbon, high-efficiency economy of the future. There is enormous pressure to pass a stimulus package that will get into the economy fast. Governor Patterson of New York, I think, coined the phrase “shovel ready,” and there’s a lot of concern that “shovel ready” means public works. The President-elect when he spoke the governors a couple of weeks ago and promised a stimulus package spoke first about a massive investment in making federal buildings more efficient, but he moved quickly to the more traditional red meat for the highway lobby. I think this is issue number one to watch. At some point in the coming days, recommendations from the transition are going to go to the building just over here and they’re going to reflect a set of priorities from the incoming administration, and then Congress is going to have to make a decision how to effectively and quickly move money. They’ve made it very clear they’re not going to authorize new programs, they’re going put money into programs that already exist and look for places where it creates jobs quickly. There’s really only one party there now, it’s the jobs party. The jobs and recovery party. So there’s going to be a tremendous scrum for about four weeks, even though for several of those weeks Congress isn’t going to be here and the highway lobby has always been an effective player in that kind of scrum. Watch in that context whether there are significant appropriations that will be used for building the smart, extended grid of the future. Watch whether there are new appropriations for a set of tax incentives for renewables and creation of a set of renewable projects. And then immediately after that one has left the Congress and gone to the President for his signature, watch the beginning of the debate on the transportation bill, or as it is usually called, the highway bill. And that’s the second thing to watch for. Which do congressional leaders call it? Do they call it the highway bill or do they call it the transportation bill? If the former, we’re losing the opportunity for major investments in clean technology and efficiency. If the latter, it’s a signal that we’ve shifted. In fact, environmentalists are calling to move from the traditional project-based process, in which members of Congress ask for funding for particular projects in their district, to a performance-based formula that might look at jobs created per dollar. Or even better, fuel efficiency improvements per dollar. Or even better than that, carbon reductions per dollar. They’ll also very likely be early movement on an energy bill that goes far behind what’s possible in the short-term stimulus package for clean energy. If you looked at the exit polls, everybody in the country was in favor of clean energy. Over 80 percent said they wanted to see investments in clean energy. If you looked at the campaign websites of the six or seven new Senators who are taking office, all mentioned a commitment to clean energy and improved energy security. Very few mentioned climate change. This is an enormously important issue because the innovation pipeline for clean technologies is absolutely clogged. There are about 5,000 wind projects that were underway and were committed as of six months ago that have stopped. They’ve stopped for three reasons. First, credit is locked up. Nobody can get financing. Second, energy prices have dropped like a stone and nobody’s sure what the payback will be. And third, the tax credits which Congress finally reauthorized and are a major incentive are no use to people who have losses. The tax credit doesn’t help you if you aren’t going to pay taxes anyway. So one issue for Congress is going to be whether they turn them into tax rebates instead of tax credits or other forms that more directly financing the activities of clean energy investors. That’s a key choice. This chart intentionally doesn’t have any numbers on it, it is an oversimplification, but we absolutely know that when the economy recovers, demand increases, the price of fossil fuels led by oil is going to go back up, right? It went down because demand collapsed because the world economy collapsed. So this line is pretty much beyond dispute. And we almost absolutely know that the price for clean energy technologies like wind, central station solar, geothermal and so forth, because they are new technologies where most of the cost is capital investment or installation, is going to go down as demand increases. So the choice we have to make is which curve do we want to be on the next ten years? The free fuel curve or the one that costs us more the more we use it? And that choice is going to be made by Congress. That’s a policy choice, that’s not an economic choice. Interestingly, since most of the cost of a new fossil-fired project is in future fuel use and since none of the costs of a renewable project is future fuel use, it’s all equipment and installation, which creates more jobs? Well it turns out these create five or six times more jobs than these do. So as the energy bill emerges which I think will be third stimulus package, watch the extent to which there is a commitment to put us on the free fuel curve and solving the problem that the existing incentives don’t work. What will happen with climate change legislation? All of that’s important, but if you were thinking of making a few billion dollars worth of investments in clean technology, you would be thinking about the markets into which you’d be selling energy in the next ten years. And it would be important to you to know whether those markets are going to give a premium for clean energy and in some way penalize fossil fuels that emit the carbon dioxide that causes global warming. There’s pretty broad agreement that we are going to enact global climate change legislation, but not much clarity about when or how fast we’re going to make cuts, and that’s what will shape tomorrow’s markets. I’ve been astonished working with leaders of companies like GE and Dow and Dupont and Alcoa, the extent to which they just openly acknowledge that markets are going to be shaped by governmental action, and they need the certainty of knowing what the price is going to be of carbon. So we have a six billion ton carbon question. Our emissions are now about 7.1 billion tons from the United States and over the course the next four decades, there’s pretty broad agreement that we need to reduce that by 80% or more, so by almost six billion tons. Congress needs to tell us when and how in order for us to know what tomorrow’s markets are going to be buying. I’ve been working on climate change issues in Washington for over ten years. I have to say right now working on these issues here is like living in three parallel universes. There’s the universe of the necessary, the universe of the possible and the universe of the probable. The universe of the necessary is defined by the science. And I’m not going to show you a whole bunch of science slides. This is Issues to Watch, not me telling you what the science shows. This is my favorite temperature chart. This is an averaging of temperature increase over 150 years, the red line. The blue line is 100 years. The orange line is 50 years, and the yellow line is 30 years. If you follow the science, if you had an RSS feed that gave you the BBC and Science News every day, you would have this strong sense that something is going really, really fast that people don’t get yet. Everything that we thought we knew five years ago about climate change has been superseded. All of the trends are going more quickly than we would have predicted. The temperature increase and the occurrence of consequences are all taking place faster than the models predicted. That means that our long-range predictions of what might happen are just off. We just don’t really know, but it’s all going to the high end. And this is the product of 0.8 degrees centigrade of warming. We are virtually absolutely committed to two degrees centigrade of warming. So the necessary is telling us we have to act really quickly, urgently and take significant action. The possible’s telling us that’s quite probable. We can do it. There is no major obstacle. The innovation pipeline at the firms that I work with is just swollen with new opportunities, stuff that would enable us to reduce emissions if we chose to use it. The technical schools are full of young engineers who want to get into clean technology. It’s the majority choice among people at MIT. The business schools are full of young people who want to sell clean energy or buy and sell carbon credits, and it all depends on policy that’s going to be made right over here and hasn’t been made yet. So a quick look at where we’re going. We started charting what Congress was proposing to do about two years ago, a little over two years ago. When we did the initial charts–and each line represents a piece of legislation that has been formally submitted in the untied states Congress. And this is what we saw in the 109th Congress. We saw bills that were sort of all over the place. You don’t need to understand much more except that some went down, some didn’t go down much, some even went up some. They were all over the place. Here’s the chart two years later. Well that’s encouraging. All of the legislation goes down as deeply or more deeply than the best of the legislation two years ago. There is a consensus developing among a remarkable range of political leaders that we have to take action and that action has to be significant. There’s just one problem, which is that most of it has never been voted on and none of it has even come close to passing. One other thing you can see from these charts, there’s sort of an emerging consensus about this end of the process, that there’s going to be deep cuts in four decades. The real battle is what happens in the next 10 years. This is the key thing to watch as Congress begins to move. This was very encouraging. The President-elect, who had campaigned on a strong platform of calling for national cap and trade legation to reduce emissions, reiterated his commitment in exactly the forum he had originally made it, in a statement to the Schwarzenegger summit about 3 years ago, which surprised everybody. That says something about our politics, the fact that the president said, “I actually meant what I said during the camping and intend to go ahead and implement it”–was a big surprise. But that will be extremely helpful and he has appointed an extraordinary team to help him move that commitment forward. This is a group of companies who I talked to you about for the last couple of years, the United States Climate Action Partnership, now 27 companies. Once they had about $3 trillion worth of market cap, who knows what it is now. But they’re the core of the leadership of American industry. In January of 2007, they released along with us and several other environmental groups a call for action that completely changed the political dynamic on Capitol Hill of climate change legislation. Watch what they do in about four weeks. This is a story about a coal plant that was going to be built in Utah to meet increasing power demands and was turned down by the courts because the federal courts said, well the Supreme Court found that carbon dioxide is a pollutant and the EPA has to decide how to regulate that pollutant under the Clean Air Act. And they issued this permit for a new coal-fired power plant that will be responsible for millions of tons of CO2 and they never discussed the CO2. Therefore, the permit was not legally issued. There was also a state utility commission that did the same thing, saying “Wait a minute, how can you build this thing when we have complete uncertainty about whether you’re going to be able to emit CO2 in another 5 years? This is nuts.” So if you’re an investor who’s uncertain about what the returns will be investing in clean technology, now you’re also really uncertain about what the returns will be as you try to invest in dirty technology. Congress is going to have to answer this question. If Congress doesn’t, EPA is under enormous pressure since there is this Supreme Court decision, to just go ahead and start implementing the Clean Air Act in ways that will have less flexibility and much less predictability that having new Congressional legislation. So that’s another reason to hope that there may be legislation. But the only piece of climate legislation that has been voted on recently by the United States Senate was the so-called Lieberman-Warner bill, a bill that was in the lower track in those charts I showed you a moment ago. And those who follow this know that it did not survive a cloture vote, it did not achieve the 60 votes necessary to go to final passage. Much more importantly, a group of Democratic senators who voted for cloture, voted to move the bill ahead, sent a letter saying, “We would not have voted for this bill on final passage because it creates too many uncertainties for jobs and industry in our states. We need to see provisions in the bill that assure us that our industry and our jobs are going to be effectively protected.” This, the yellow states are the states in which that group, which is now 16 democrats, six others later said they agreed, and will be 17 because Mark Warner elected from Virginia has said he would agree—where they’re from. And this is where more than 60% of the electricity comes from coal, and this is where coal is seven cents a kilowatt-hour or lower. Here in California, about 1% of your electricity comes from coal and you pay about 20 cents a kilowatt-hour. The United States Senate was designed by the Constitution to reflect regional issues, that’s why each state regardless of population has two senators and that means that this geographic distribution of coal dependence is an essential political fact as we think about what legislation can pass, and a reflection of why I said at the beginning environmental legislation comes from the middle–in this case the physical middle of the country. And by the way, for some of these other states where you see a sea of low cost electricity but they weren’t yellow, it’s because they have two Republican senators who have always said they were going to vote against the legislation. Nothing passes the Senate without meeting the concerns of these members of the Senate. And they’re not unreasonable or ideological concerns. They are representative of the people who voted these senators into office. So a couple of things that I would suggest that you watch as climate bills begin to be introduced in both the House and the Senate. Surely, the first bill introduced will be Senator Boxer’s bill. She’s chair of the Environment and Public Works Committee. When that’s introduced, does Sen. Boxer make it clear that it will also go to the two other committees who might assert jurisdiction, Energy and Finance? Since it has huge energy implications and Finance since the process of cap and trade will generate revenues and there’s a discussion about how those revenues would be used. How are these 17 democrats pulled into the process of shaping the legislation to meet their concerns? Is the bill a what some people have described as a short bill, or a framework bill, that just lays out the need to reduce emissions over a certain time and pushes off the issues perhaps to be resolved by EPA, or does it confront the underlying questions about who pays, what the coverage is, how the trading system works, and how many of the credits are allocated for free versus auctioned, a crucial difference between the Congress and the President. Same in the House, where Congressman Waxman will surely introduce a bill in close negotiation with the White House. How does he treat the allocation issue? Will there be free credits for utilities? What is the coverage of the bill? How do we treat fuels, oil and gas? How will the US deal with China? And then lastly, how do we deal with the possibility that other countries might not regulate carbon as soon as the US. Fear of China is a big sub-current in this debate. The concern goes like this: if we impose the cost of reducing CO2 emissions on American industry and country X, read China, does not, we’ll lose even more jobs to country X and we can’t afford to do that at a time of financial crisis. One proposed solution is the inclusion of some sort of mechanism for making a trade adjustment at the border, for penalizing countries that don’t take action. But that brings me to the third issue that I want to talk about, which is how we deal with China. Some very interesting trends underway. There’s a huge amount going on in China with regard to energy and climate change. If you had gone to China five years ago and tried to have a conversation with top government officials about climate change, you would have gotten a very simply line: “We are not going to impose costs on our economy to solve a problem you created. It’s your problem, you deal with it.” That’s just gone. That is not the case any longer. There is a massive intellectual focus in China among top officials on what they can do, how they can do it, when they can do it, what the costs are, what are the opportunities are. And there is an ongoing, real-time commitment to improving efficiency with which they use energy—20% improvement by next year. And to developing their next five year plan to make much deeper cuts. And because during the Olympics they took a series of measures to eliminate pollution, including limiting driving in Beijing to alternate days. They are finding that there’s huge public support for reducing emissions and have allowed a very public debate on whether this alternate day driving scheme should be continued. In the official press and on the websites of the official press, continuing discussion of, “Isn’t it cool when the traffic isn’t as bad and the sky isn’t as polluted?” But here’s the key. The US and China are the axis of emissions. They’ve recently passed us. Between us we are something more than 40%, about 44%, of emissions. We are both dependent on coal, dependent on imported foreign oil. Countries whose economies have shown high technological capacity and are driven by strong trends of entrepreneurship. Countries who would like to be selling into tomorrow’s carbon constrained markets. And if we were to find agreement on dealing with climate change, reflecting our mutual interests in defining and competing for tomorrow’s markets and our capacity to make reductions, the world will move. If the US and China find agreement, the world will move. If we do not find agreement, the world cannot go much further. It is to me, about as clear as that. So think what you might watch for. When and who is, does the first trip from the new administration to China? I would put aside thinking about what happened at Poznan or didn’t. I told one of you beforehand, I think that people who are disappointed that there wasn’t some sort of agreement at Poznan were just looking for the wrong thing. You don’t go to a mixer hoping to see a wedding. This was a mixer, not a wedding ceremony. Don’t look at that. Don’t listen to the screams of frustration from negotiators at the various interim meetings that’ll take place over the next twelve months. Watch who goes to China and what they talk about. If an agreement between the US and China on climate, technology, clean energy, energy security begins to emerge, that’s a really, really big deal for the hopes of what we can do together. And China by the way is also making a huge investment in a stimulus package, over 20% of which is for clean technology and energy efficiency. If we do that well, we will be doing very well indeed. What impact will the Lacey Act have on illegal logging? Last point I want to talk about. Forests may get more attention in the coming year, for a variety of reasons. We all know because of work that has been done by people like Tom [Lovejoy] for decades that forests are incredibly important as natural systems, as storehouses of biodiversity, as the key to a variety of ecosystem services from water supply to nutrient cycling to above all right now, control of CO2. Deforestation is now responsible for something between 15% to 20% of all greenhouse gas emissions globally, and the international negotiations are focusing on how to control emissions from deforestation. And there’s something else interesting going on. Last year, the United States Congress amended a 100 year–old statute that had been designed to limit the trade in illegally taken species to cover wood. Because by some estimates, in many parts of the world, half of all the wood that’s harvested is illegally harvested. The Lacey Act was recently amended to allow the federal government to deal with that, suddenly vaulting the US past Europe, which has been talking about dealing with it, but has not. This is a map of the state of the world’s forests. The dark green is impact forests, the light green is forests that have become working forests and are not original forests, and the brown is lost as forest, that’s about half lost, another 20% that’s working forest. And these are places with substantial illegal logging problems. If you look to the places where there’s likely to be an effort to find some way to control deforestation through a climate agreement, they all fit right within those big red splotches, which is why I find this Lacey Act possibility so interesting. What Congress did was not just say, “Oh gosh, we hate illegal logging and if you can catch somebody doing it you can penalize them.” It’s much more sophisticated than that because of course when a load of logs or pulp comes in some container ship to the Los Angeles port, there’s no way to separate out the chip that came from the illegally harvested log. So what they said was, if you can show that this came from a source, a mill, that accepts illegally harvested logs, you can prosecute. Now that becomes really interesting because we can do that. In fact, this is something that WRI has been working on. I started my career as a federal prosecutor just up the block here, and this particular opportunity has really raised my old interests. It has long been technically possible to use satellites to track what’s going on in forests. This is a map that some folks who work for Craig Hanson over here have done using satellite data. This is a log that shouldn’t be there because no logging is allowed here. This is in Cameroon, it could be in Indonesia. That’s a wetland. And this is a single tree that has been illegally harvested. And that is the track by which it was hauled to the road that leads to the mill, owned by a French company in this case, that says it doesn’t accept illegally harvested wood. The road doesn’t go anywhere else. That’s a Lacey Act case. So imagine what happens if some environmental group makes the investment to track this and have partners on the ground verify this and provides this information to the Justice Department, which sends the Coast Guard to swoop down on a container ship coming in to the Port of Los Angeles and begins a Lacey Act prosecution. And then a bunch of major wood buyers, because we’re the largest market in the world, a bunch of major wood buyers say, “We’re going to blacklist any company that is subject to prosecution under the Lacey Act.” The supply chain just became a really neat way for changing what’s going on in these forests. And you can tell that I find this really exciting because I think you can have a huge impact from just a few prosecutions, and I think they’ll take place in the coming year. Question and Answer Q: I have a couple of questions on the China front. Do you think because Steven Chu is Chinese-American that that gives him some special ability to be an emissary on climate change? I know that his announcement made headlines in China. People were kind of proud of that achievement. Also, do you think it’s true that the rumors and rumblings here that a climate bill might include some trade restrictions on goods from China, if China did not take action to reduce their emissions, that that had some effect? That that’s partly why China is showing a greater inclination to do some of these things,? That they didn’t want to be in this situation where the rest of the world was limiting import of their goods? And if so, is that become a tool that we should exploit further? LASH: I hope the answer to the first is yes. It’s speculation, you can speculate as well as I do, but the key question is, do we put it to the test? How soon does he go and begin talking to the Chinese and will that be a delegate? Maybe the Vice President and the Secretary of Energy and the Climate Czar go sometime in February or March. That would be a terrific sign. I don’t think that the policies I’m talking about are a reflection of the debate over imposing some sort of a penalty in climate legislation. First, they’d started earlier and seemed to initially reflect China’s concern of about the environmental consequences, of its energy use, and more importantly, its energy dependence. Secondly, I think that the Chinese have been extremely reluctant to back down when faced with trade sanctions, but Pershing have you had any direct discussions with Chinese officials on this? JONATHAN PERSHING: I was in China about three weeks ago, and at that point in time, the conversation had already been fairly far advanced in the US Senate with respect to some of the discussions on protectionist structures. They’re not focused on that. They hate them, they don’t want them, they’re going to push back on them in ways that they can. But that’s not driving policy. Policy’s being driven, which we talked to them, by number one, an energy security concern. Number two, a local pollution concern. And number three, and I think Jonathan mentioned this, the climate change concern because the damages there look pretty ferocious. LASH: We did an analysis with the Peterson Institute for International Economics looking at how real this threat is. How much of what China produces that is carbon-intensive is in fact exported to the United States? There’s much less there than people assume, much less than meets the eye. There’s a single chart that shows this, but if you’re interested in pursuing it come by. Q: There were three tracks, and you mentioned the China-US track, on climate change. There’s of course the ongoing meetings, the UN meetings, over the course of the year. And the domestic, what happens here domestically. And everyone is pointing towards Copenhagen at the end of next year as reaching a final deal, although that may look problematic. Do you think those tracks will come together in time for there to be a legitimate shot at a final deal? LASH: I think it is possible. I don’t think that what the Congress does is going to be driven by the Copenhagen schedule. There hasn’t been much history of the Congress being willing to respond to international pressures. I do think it is possible, though not likely, that climate legislation will pass both houses within the next twelve months. And I do think it’s possible that US engagement in the process and US engagement with key nations will build the basis for an agreement in Copenhagen. But it’s impossible to say yes it will happen, no it won’t happen. It’s not time yet. Q: And if it goes beyond Copenhagen, will that be a problem for a post-2012 regime? LASH: You increasingly see the key negotiators beginning to prepare for that possibility. If it goes beyond Copenhagen it goes beyond Copenhagen, but why take the pressure off the negotiation? Q: Can you talk a little bit more about Congressman Waxman’s role, new role, and how he will manage to write this type of legislation given this sort of increasingly moderate chamber that he’s working in? LASH: If there is a member of Congress who has expertise and history on these issues, it’s Henry Waxman. Henry Waxman is a real legislator. He has had his name on a lot of very important pieces of environmental legislation over thirty years or more. And he has always shown the ability to figure out where the votes are that are necessary to get legislation through. Everything that I hear suggests that he is looking for what the package is that can pass both his new committee and on the floor of the House. I think a very interesting question will be the extent to which that legislation becomes a close reflection of the preferences of the new White House. I suspect that when Henry introduces a bill, it will be somewhere in the center, and it will have taken into account the questions of how do you assure members that the costs imposed on the economy will not be extreme. Our legislative director is in the back. Anything you would add Christina? Christina DeConcini, WRI’s legislative director. CHRISTINA DECONCINI: I would just also say that is going to be very important, what Mr. Waxman does in his committee. And he has laid out a group of principles with 152 cosponsors in the House of what he thinks should be in the climate bill, and has given that to Speaker Pelosi and that’s been circulated widely. Those are very, very progressive principles. And he serves as a chairman now of a committee that isn’t very left-leaning and very progressive. So the politics of it are going to be very, very tricky. It’s pretty hard to imagine how you would get that committee to vote on a bill with those principles. But he is also serving at the pleasure of Nancy Pelosi, as all the folks are, and she is the leader and there are a lot of different political maneuverings that you could see happening. I don’t really want to predict that they will happen, of how you could get that kind of bill to the floor. You could do it without going through the committee, I’m not suggesting that that will happen, but that is a possibility. Or you could, as Jonathan was saying, start with a more moderate bill and maybe be able to figure out how to get that through committee. So it’s tricky because while it’s a significant change that he’s the leader and where he is on this issue from where Mr. Dingell has been, the committee hasn’t completely changed just because he’s taken over leadership of it. So I definitely think that’s going to be something to watch. And I also think that it’s likely that his committee will move first before the Senate. And I think that’s a positive thing and I mean, I hope that’s the way it happens. I think folks are hoping that the House does move first on climate legislation. LASH: So let’s say that Mr. Waxman–it’s sometime in February and Mr. Waxman has just introduced a bill–look at four things. Look at the target. And particularly, look at the target in 2020. That’s the tough issue for us all, how fast to get this moving. The president-elect reaffirmed his commitment to bringing US emissions back to 1990 levels by 2020. That’s about 14 percent below where we are now. If a bill goes further than that by 2020, I think you can consider it on the strong side. If it’s weaker than that by 2020, you would consider it on the fairly weak side. I think the president has kind of defined a middle there. Second, allocations. Who gets allocations for free? So you have a cap and trade system, in order to emit CO2 you have to buy credits. But the government owns the credits. The government can give some credits away for free. That is a way to reduce the costs for those states in the middle of the country that are over 60 percent dependent on coal. So that’s question two. Question three, coverage. How much of the economy is subject to the control in the bill? Do they deal with automobiles separately or within the cap? Do they deal with fuels, et cetera? And fourth, is there some mechanism that says if costs get above a certain level, the government will intervene to hold them down? Look at those four things to tell you what kind of a bill it is. The bill will be like this, there’ll be lots more in it, but I’d watch for that. Q: I was just curious going back to your first point. I just actually finished Tom Friedman’s new book and I wondered if you had a comment on that, if you read it. But one of the points that struck me was the potential for updating and modernizing our utilities, our energy utilities. And if you think that that could, the potential of that being an element in the bailout, if we are going to apply modern technologies and hopefully make them much more energy efficient. LASH: I think that even if you ask the CEOs of the utilities they would answer that question yes. I heard Jeff Immelt, the CEO of GE, say something along the following lines once. He’s been at GE his entire career and his father was at GE all his career. And he said, “You know, we make basically medical technology, aircraft engine technology and turbines for power plants.” Right? I mean they do some other stuff, but that’s the core. He said, “Since I’ve been at GE, we’re on the fourth generation of medical technology, we’re on the third generation of jet engine technology and we’re still selling the same turbines that my father sold.” That absolutely has to change. That’s why this ten year time frame is so important. I thought Tom Friedman had it exactly right, and what a great opportunity for doing it. One piece of it has to be changes in the grid. We need a grid that’s much bigger that reaches places where there’s sun and wind to bring electricity from there to the places that need it. We need a grid that’s much smarter that enables us to manage electricity use better. We need a grid that’s much smarter because instead of a model in which there’s a hub—big power plant—and spokes going to all the customers, there are multiple nodes and they’re all moving energy around all the time. That’s a classic federal investment and it’ll only happen with federal investment. Q: You’ve talked a little bit about the appointments, the energy and environmental appointments in the Cabinet. Could you just sum it up, how these appointments reflect the policy of Obama going forward? How do you see these appointments? LASH: I think the most significant thing was the creation of a very strong position in the White House to coordinate energy and climate policy. That represents a structural statement about both the importance they’re giving to the issue and their understanding that you have to connect the dots in order to do this policy. And they selected someone to manage that office who has tremendous experience and a very strong reputation as being able to get things done in Washington. So that was a strong signal. Carol Browner is a great pick for that job. I’ve already expressed my admiration for Dr. Chu. I think that the choice of an Energy Secretary who is an expert on all these issues who has a long expertise, who has actually been leading the research on clean technology is again, a very strong statement about what’s important, that they want leadership in that agency that is capable of driving a national agenda. And when there’s an energy bill and more money to be spent, capable of spending it effectively. Those are great signals. Q: It seems like recently in the EU there’s been increasing pressure from labor and some business to ratchet back a bit out of concern for what policies mean for the jobs and the economy. I wanted you to comment on that and if you think that is going to be moving more in this country too. LASH: Absolutely, jobs and economic recovery are topic one, it’s going to be a discussion of compelling importance. If there is climate and energy legislation, it will be climate and energy legislation that among other things is designed to invest in jobs, create the technology of tomorrow and build future markets. I will also ask my colleague Jonathan Pershing to comment, but I thought that the ultimate deal in the EU was actually not a serious step back. They had to deal with a set of coal-dependent countries who have lower standards of living. They made a few adjustments to take care of them but they didn’t step off their fundamental commitment to reduce emissions and they made a huge commitment to spending on carbon capture and storage and new technologies to move ahead. So I did not see that as a big loss. PERSHING: I agree, that’s exactly right. LASH: There were some stories coming out for awhile that were kind of scary, but it didn’t turn out so badly. Anything else? Thank you all for coming, it was a real pleasure. http://www.blueglo.be/2008/12/environmental_stories_to_watch_1.html http://www.blueglo.be/2008/12/environmental_stories_to_watch_1.html Debate Tue, 23 Dec 2008 00:00:00 +0100 http://www.blueglo.be/2008/12/fact_sheet_international_negot.html http://www.blueglo.be/2008/12/fact_sheet_international_negot.html Debate Tue, 23 Dec 2008 00:00:00 +0100 Increasing pressure on natural resources will mean higher costs along corporate supply chains. Only firms that incorporate environmental sustainability into their business practices will be well-positioned to meet the challenges ahead. After climbing rapidly for two years, prices on commodities such as oil and wheat have declined since the financial crisis hit, yet upward price pressures on these goods look likely to resume in the long-term. Approximately 60 percent of the planet’s ecosystem services are degraded or currently being used unsustainably. Climate change will further degrade these ecosystems. In addition, population growth and increased levels of consumption in India and China will further stress our planet’s finite resources. A new report by WRI and A.T. Kearney indicates that these environmental trends and their consequences could have even wider ramifications for businesses in the coming years. According to the study, Rattling Supply Chains: The Effect of Environmental Trends on the Fast Moving Consumer Goods Industry, businesses in the fast-moving consumer goods (FMCG) industry could see earnings fall by 13-31 percent by 2013 and 19-47 percent in earnings in 2018 if they do not implement sustainable strategies throughout their supply chains. These pressures will affect firms in an array of industries, particularly companies that depend on natural resources to produce consumer goods. The “Ecoflation Scenario” As natural resources become scarcer and sustainability issues become more pressing, environmental costs will increasingly be borne by private firms. These increased costs will lead to ecological-inflation–or “ecoflation”—that is not currently priced into economic transactions. Under this “ecoflation scenario,” corporate supply chains will soon have to internalize costs society currently bears. WRI and A.T. Kearney based this scenario on several assumptions about major environmental trends and the subsequent policy actions taken. The study predicts the future drivers of increased environmental costs will be: Climate Change Policy. The United States implements a comprehensive climate-change policy, which spurs international cooperation and results in a global price for greenhouse-gas emissions. Water Scarcity. Climate change causes more drought and water scarcity throughout major agricultural regions and leads to increased production costs and declining yields. Deforestation. Consumer products companies in the United States and the European Union voluntarily agree to source all wood and fiber from sustainability-certified forests, and to increase the use of recycled fiber for all paper packaging and products. Biofuels. Major biofuel-producing countries retreat from existing mandates and apply sustainability requirements to all relevant government policies. The study analyzed how these drivers might affect prices on selected commodities like oil, natural gas, electricity, cereals and grains, soy, sugar, palm oil, and timber. As stated above, firms could see their earned reduced 13-31% by 2013 if increased costs cannot be passed onto consumers. The results offer tangible examples of how environmental costs might impact the value chain, especially for food, beverages, and other fast-moving consumer goods that are usually produced in large quantities. The Case Of Cereal Cereals and grains, which are the direct ingredients of many food and beverage products, face long-term supply constraints and price increases. The report finds a 6-13 percent increase in cereal commodity prices due to these pressures. Cereal prices are susceptible to upward pressure from climate change policy and growing water scarcity, but may be reduced if certain biofuel policy changes reduce ethanol demand. The following chart shows how policy changes will impact price (click the chart to enlarge): Solutions Even though the earnings at risk for the selected sample are significant, Rattling the Supply Chains finds that companies have the capacity to develop solutions, and then transform their operations to mitigate risk and take advantage of growth opportunities. Companies can take the following actions to address the emerging environmental risks to their supply chains: Understand the environmental impacts and dependencies: Examine how cost drivers are exposed to emerging environmental trends and, when possible, seek substitutes with lower environmental impacts. Take an inventory of current initiatives: Learn what the company, its suppliers, and its partners already are doing through the value chain. Prioritize: Rank environmental issues and opportunities according to their current and future potential impact on costs, revenues, and reputation. Chart a new course: Make sustainability principles part of an action plan by including externalities in the decision-making process and establishing the principal performance indicators. WRI and A.T. Kearney believe that in order to adapt to these challenges, companies will need to implement real structural changes, such as product innovation and restructured value chains, which will affect both the companies and millions of existing and new consumers. Successful firms will be those companies that anticipate the implications of a changing landscape, collaborate with suppliers and other stakeholders, and make environmental sustainability one of their core business principles. http://www.blueglo.be/2008/12/ecoflation_set_to_rattle_suppl.html http://www.blueglo.be/2008/12/ecoflation_set_to_rattle_suppl.html Debate Tue, 23 Dec 2008 00:00:00 +0100 Little Progress At Poland Climate Summit, But Change is Coming, unfcc, poznan http://www.blueglo.be/2008/12/little_progress_at_poland_clim.html http://www.blueglo.be/2008/12/little_progress_at_poland_clim.html Debate Tue, 23 Dec 2008 00:00:00 +0100 United Nations Must Address Deforestation at Poland Meeting, U.S. Science Group says http://www.blueglo.be/2008/12/un_climate_meeting_must_addres.html http://www.blueglo.be/2008/12/un_climate_meeting_must_addres.html Debate Tue, 23 Dec 2008 00:00:00 +0100 Green Groups Issue Recommendations to President-Elect; obama http://www.blueglo.be/2008/12/green_groups_issue_recommendat.html http://www.blueglo.be/2008/12/green_groups_issue_recommendat.html Debate Tue, 23 Dec 2008 00:00:00 +0100 The Union of Concerned Scientists (UCS) looks to the Obama administration and new Congress for decisive action to combat climate change. http://www.blueglo.be/2008/12/election_should_yield_swift_ac.html http://www.blueglo.be/2008/12/election_should_yield_swift_ac.html Debate Tue, 23 Dec 2008 00:00:00 +0100 British climate and energy policy is incoherent and needs an overhaul, says a pro-nuclear scientist. http://www.blueglo.be/2008/09/uk_must_dump_unreachable_clima.html http://www.blueglo.be/2008/09/uk_must_dump_unreachable_clima.html Debate Thu, 18 Sep 2008 00:00:00 +0100 http://www.blueglo.be/2008/09/doing_more_than_you_think.html http://www.blueglo.be/2008/09/doing_more_than_you_think.html Debate Thu, 18 Sep 2008 00:00:00 +0100 http://www.blueglo.be/2008/09/global_leadership_on_deforesta.html http://www.blueglo.be/2008/09/global_leadership_on_deforesta.html Debate Thu, 18 Sep 2008 00:00:00 +0100 http://www.blueglo.be/2008/08/world_bank_struggles_to_priori.html http://www.blueglo.be/2008/08/world_bank_struggles_to_priori.html Debate Fri, 01 Aug 2008 00:00:00 +0100 http://www.blueglo.be/2008/08/investors_pressure_corporation.html http://www.blueglo.be/2008/08/investors_pressure_corporation.html Debate Fri, 01 Aug 2008 00:00:00 +0100