Partners in addressing climate change: Business, policy-makers and consumers

Climate change will cost us, and the bill is likely to be big, according to the recent United Nations Intergovernmental Panel on Climate Change. Policy-makers and business leaders at last week's Business and Climate Change summit, sponsored by the Arizona Investment Council and Arizona Businesses Advancing Sustainability, looked at the potential costs and discussed the importance of consumer acceptance and buy-in to programs designed to reduce greenhouse gas emissions.

Climate change will cost us, and the bill is likely to be big, according to the United Nations Intergovernmental Panel on Climate Change released last week. The panel's Fourth Assessment Report for the first time assesses the impact of failing to respond to climate change.

Although the full report was reviewed (and, in some cases, altered) by delegates from 130 member governments, it still issued a challenging conclusion: "Choices about the scale and timing of greenhouse gas (GHG) mitigation involve balancing the economic costs of more rapid emission reductions now against the corresponding medium-term and long-term climate risks of delay," the report concluded.

Stakeholders (that's all of us) must buy in

"The issue of climate change is perhaps the most important to face our generation, and indeed our planet. There is little, if any, question that the planet is warming," said Gary Yaquinto, President of Arizona Investment Council. "But how do we respond to climate changes without creating major economic dislocation? If our elected officials do develop policies to reduce greenhouse gas emissions, what will the impacts be on Arizona businesses?" he asked.

Yaquinto was speaking at the Business and Climate Change summit, sponsored by the Arizona Investment Council and Arizona Businesses Advancing Sustainability. "There is no doubt that the economic activity generated by alternative energy sources — be they wind, solar, bio, or other alternatives to oil, gas, and coal — will be significant. There may indeed be important health and productivity effects induced by moving to energy sources that produce fewer (or zero) adverse impacts on the environment," said Dennis Hoffman, director of the Seidman Research Institute at the W. P. Carey School of Business.

"At the same time, people need to understand that household energy bills will increase as a result of this transition. And this is an important message for people to hear. I believe that citizens will pay for the costs of transitions to energy sources that improve the environment, but it is important for them to understand the costs that will be incurred so that they can make informed decisions," Hoffman said.

Ed Fox, Vice President and Chief Sustainability Officer at Arizona Public Service Co. and Co-Chair of Arizona Businesses Advancing Sustainability, agrees. "The consumer has to be engaged in the discussion on climate change — and they're not today. The majority of policymakers haven't spent sufficient time talking about the microeconomic impacts of transitioning from fossil fuels to alternative sources of energy. There will be a cost, which the consumer ultimately pays."

Fox said that conferences like the Business and Climate Change summit are exactly the right way to start a discussion. Involvement from policymakers is key, Fox said. "That's just the kind of involvement we need...Together, we have to talk about the costs and the benefits of dealing with climate change," Fox said. "Sure, there is a cost to transition to alternative fuels, but there is also a cost of doing nothing."

Tackling climate change will be costly — so will ignoring it

What is the cost of doing nothing versus acting? "The key is to communicate well, to get consumers' acceptance and buy-in to programs designed to reduce greenhouse gas emissions," said Tina Taylor, director of business development in the environment sector of the Electric Power Research Institute.

With consumer acceptance, she said, businesses can invest in the R&D necessary to develop low-cost, low-carbon energy technologies, which will significantly decrease the costs of a policy designed to mitigate the effects of climate change. Taylor presented a hypothetical scenario: Assume that policymakers in the U.S. and other industrialized countries adopt a CO2 emissions constraint mandating a 3 percent decline in CO2 emissions beginning in 2020. Given that policy, what will be the impacts on the U.S. economy?

An emissions-control policy using a limited portfolio of electricity production technologies would produce a change in GDP through 2050 of $1.5 trillion. A limited portfolio would not include carbon capture and storage or plug-in hybrid electric vehicles; it would maintain existing levels of nuclear energy production. And it would involve some declining costs of renewable energy, improvements in coal and gas technologies, and improvements in end-use efficiency.

But using new technologies would reduce that cost. Making plug-in hybrid electric vehicles available, for example, would reduce the total policy cost to about $1.4 trillion. Further declines in the costs of renewable energy sources would reduce the total policy cost to about $1.3 trillion. Accelerated improvements in the efficiency of electricity usage would bring the number down to $1.2 trillion.

Expand nuclear energy production and the cost declines to $1 trillion. Carbon capture and storage brings it down to $900 billion. And using the full portfolio of new technologies, the total policy cost through 2050 would be a $600 billion reduction in GDP. "The fact is that we can't continue to provide electricity to more and more people at lower carbon emissions rates without making a significant investment," Taylor said.

Lofty plans

Arizona itself has lofty emissions reduction plans: a 72-million metric ton reduction from the current projected amount of CO2 emissions in 2020 (to keep emissions levels in 2020 equal to the 2000 level). That 72-million metric tons of CO2, Fox said, is equivalent to 5 million fewer Arizona residents, or 13 million fewer vehicles on the road, or 3 new nuclear power plants like the Palo Verde facility located west of the city.

"We have to be very clear with each other and honest with consumers about what it's going to cost," said Corporation Commissioner Kris Mayes. "No politician in Arizona has put a price tag on the state's plans to reduce emissions by 2020." Digby, Lord Jones, the United Kingdom's minister for trade and investment, said that one key is establishing in people's minds the fact that emitting carbon has costs.

That, he says, is one good reason to establish a market to set an accurate and sustainable price for carbon. "If the U.S. and the UK can get together and establish best practices for dealing with climate change, including establishing emissions markets, then we can go to China, India, Brazil, and the other countries. It's the U.S. who has to set an example," he said.

The conference focused on costs — on the impact that climate change, and policies to reduce greenhouse gas emissions may have on business. "But it's important to remember that there are also benefits associated with reducing carbon emissions," Fox said. Lord Jones agreed. "Estimates suggest that battling climate change could cost 1 percent of the world's GDP," he said. "But the question is: if we don't confront climate change, what will happen? The economies of the world will grind to a halt."

Business must be a leader

Lord Jones echoed the other speakers' sentiment that the real solution starts with the community and moves upward. "You have to get the people behind it," he said. Salt River Project's Lori Singleton agreed. "If we're not present at the table, we'll probably be on the menu," she said. Jim Sims, President and CEO of the Western Business Roundtable, said that whether business leaders agree or disagree with carbon emissions caps, "we have to be at the table. We have to engage in the debate."

"If lawmakers enact policies that dramatically increase energy costs for consumers, without first getting the consumers' buy-in, there will be a revolt. Politicians will be thrown out and any progress made toward confronting climate change will be pushed way, way back," Sims said.

To avoid that outcome, he said, policymakers and business leaders must come — with consumers — to the table early. "If business leaders engage the legislative and regulatory process to help design a successful outcome; if we get consumers to buy in, then maybe we won't see a consumer backlash when costs start rising."

"Governments can't fix this on their own," Lord Jones said. "Their role is to set out the football pins for business. But it will be business that provides the solution." About business's role in leading communities to develop solutions to climate change, Lord Jones said, "Doing this properly, business doesn't make a difference; if we pull this one off, business will make the difference."

Bottom Line:

• Speakers at the Business and Climate Change summit, sponsored by the Arizona Investment Council and Arizona Businesses Advancing Sustainability, emphasized the need to balance the costs of acting to curb CO2 emissions now compared to the costs of waiting.
• The success of climate change policies will depend on policymakers talking to consumers about the costs of those policies.
• New technologies, such as carbon capture and storage, expanding nuclear energy production, and increasing the efficiency of electricity usage, would decrease the cost of policies to reduce carbon emissions.
• Ultimately, it will be business that provides the solution to combating climate change.