Global Climate Change asBusiness Strategy

Andrew HoffmanBoston University School of Management

BELL Conference, July 20, 2002University of California, Santa Barbara

In a Business School Context,

• Climate Change represents some (as yetdefined) form of Market Shift.

• A market shift represents Uncertainty.• And dealing with uncertainty is the domain

of Business Strategy.

In Terms of Business Strategy,

• Capital Asset Management.

Capital Asset Management

P S I Energy, Inc. 51.5Ohio Power 47Pacificorp 43Tenn. Valley Auth. 42OK Gas & Electric 38Tampa Electric 37.5Cinn. Gas & Electric 36No. IN Public Svc. 33Midamerican Energy 32.5Wes t Penn Power 32LILCO 5PSE&G 4.5SCE 4.2ConEdis on 3NY P ower Authority 2.7S DG&E 2.5Bos ton Edis on 2.1CT Light & Power 2.1PG&E 2BPA 0.5

Highes t Liability

0.00 10.00 20.00 30.00 40.00 50.00 60.00

PSI Energy, Inc.

Ohio Power

Pacificorp

Tenn. Valley Auth.

OK Gas & Electric

Tampa Electric

Cinn. Gas & Electric

No. IN Public Svc.

Midamerican Energy

West Penn Power

LILCO

PSE&G

SCE

ConEdison

NY Power Authority

SDG&E

Boston Edison

CT Light & Power

PG&E

BPA

Lbs of CO2/Dollar of Revenue

Lowest Liability

Highest LiabilityHighestLiability

Lowest Liability

Source: Hawkins, D. & E. Svenson (1998) Benchmarking Air Emissions of Electric Utility Generators in the US, (Washington DC: Natural Resources Defense Council).

In Terms of Business Strategy,

• Capital Asset Management.• Market Economics.

In Terms of Business Strategy,

• Capital Asset Management.• Market Economics.• Global Competitiveness.

In Terms of Business Strategy,

• Capital Asset Management.• Market Economics.• Global Competitiveness.• Influencing the New Business Environment:

– Corporate Decision-Makers– Policy-Makers– Consumers/The Public

The New Business Environment

Cutting CO2 emissions may cause a declineor an increase in US Gross DomesticProduct — depending on which assumptionsprove to be correct

0

-1.97 -1.74

-0.58 -0.47

0.95

1.76 1.95

% change in level of US GDP in 2010

Assumptions:1. Alternative energy becomes competitive. NO YES YES YES YES YES YES YES2. Markets respond efficiently to higher fuel prices NO NO YES YES YES YES YES YES3. Low-carbon options, like natural gas, expand. NO NO NO YES YES YES YES YES4. International trading of emissions rights. NO NO NO NO YES YES YES YES5. Govt. revenues used to boost capital investments. NO NO NO NO NO YES YES YES6. Costly air pollution reduced. NO NO NO NO NO NO YES YES7. Climate-change damage, like drought, averted. NO NO NO NO NO NO NO YES

WorstCase

BestCase

Source: The World Resources Institute and Stipp, D. (1997) “The cost of cooling it,” Fortune, December 8: 128-129.