What smart business needs to know about the economics of climate change

Smart Business in Action SeriesSustainable Business Australia

Brisbane, 26 June 2014

Professor Jeremy B Williams

Director, Asia Pacific Centre for Sustainable Enterprise

@TheGreenMBA

@TheGreenMBA@APCSE

tinyurl.com/SBiA26

France will host 21st UN Climate Change Conference. The goal is to establish an agreement that is binding and ambitious enough to limit global warming to 20C

Dr. Malte Meinshausen

The modelling conducted for the 2013 study produced larger budgets than indicated by the modelling of Meinshausen et al (2009) in 2011 Carbon Tracker work. That approach produced a range of 565 – 886GtCO2 to give 80% - 50% probabilities of limiting warming to a two degree scenario (2DS)

<20C Ian DunlopChair, Australian Coal Association (1987-88); CEO of the AICD (1997-2001)

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“The 20C target is too high. It is now the boundary between dangerous andextremely dangerous climate change”

IPCC Fifth Assessment Report (AR5)

The One Percent doctrine

‘If there's a 1% chance that Pakistani scientists are helping al-Qaeda build or develop a nuclear weapon, we have to treat it as a certainty in terms of our response. It's not about our analysis ... It's about our response.’

Dick Cheney, 2001

Pyndyck (2013)

Limitations of IAMs• The systems modelled are large, complex, and chaotic

• It is difficult to capture the complexity of natural and social systems

• The full consequences of policies may not be known for decades (and beyond)

• Over this time period, many unforeseen events can occur

• Scientific knowledge may be incomplete (or absent) in certain areas

• The values of human, animal, and plant life, health, and diversity are difficult to quantify.

Center for International Earth Science Information Network (CIESIN) (1995)

Stern (2006) attracted a lot criticism for using a low discount rate

The two reasons used to justify the application of a discount rate …

(i) The future always counts for less in the present

(ii) People in the future will be better off because of economic growth

• The future for future generations, will be their present!

• This could be a valid reason, but can we be sure that they are going to be?

‘When we add in the prospects for environmental degradation, Australians in 2011 can’t be quite so sure as earlier Australians might have been that future generations will be better off than themselves.’

Garnaut (2011: 21)

‘The problem is framed as one of profitable returns on an investment not precaution to avoid a disaster.’

Spash (2007: 713)

http://www.smh.com.au/environment/climate-change/models-grossly-underestimate-costs-of-global-warming-nicholas-stern-says-20140616-zs8tr.html

The revised model by Dr Dietz and Professor Stern takes into account the likelihood that the ability to generate new wealth would be affected by extreme weather and other impacts from climate change

• Policy decisions should be based on a judgement about the maximum tolerable increase in temperature /CO2 levels given scientific understanding

• Smart business will develop business models that seek to reverse the impact of climate change

• It will also make provision for significant climate adaptation costs

Summing up …

Thankyou for listening