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GSB-climate control brochure.6 Climate
Change
The MBAs
Primer
A concise summary of the science,
politics, and economics of climate
change for future business executives.
J
ACOB
H
AROLD AND
R
EBECCA
C
ENTER
, MBA C
LASS OF
2005
S
TANFORD
G
RADUATE
S
CHOOL OF
B
USINESS
C
O
-C
HAIRS
, 2004-2005 P
UBLIC
M
ANAGEMENT
I
NITIATIVE
limate change may prove to be the
most important business issue of the twenty-first century. Every sector from finance to
energy to consumer products will be impacted by changes in regulations,
weather patterns, and commodity prices. On balance, climate change will probably have
a devastating impact on ecosystems and economies especially in the poorest parts
of the world. Important solutions exist, however, to mitigate that impact as the global
economy moves to a new energy future. The question is no longer Is there human-caused
climate change? Now the questions are 1) How intense will the impacts be? and
2) What are feasible and profitable solutions that will limit the intensity?
C
Consensus is growing among scientists,
governments and business that they
must act fast to combat climate change
Many companies are now preparing for a
carbon-constrained world.
Business Week, cover story
August 16, 2004
We are living in a carbon-constrained
world where the amount of CO
2
must
be reduced.
Jeff Immelt, CEO, General Electric,
May 9, 2005
This intensifying level of scrutiny isnt
simply a call for environmental steward-
ship, although that might play a role.
Rather, it is born of a concern that over
the next 5 to 15 years the way a company
manages its carbon exposure could
create or destroy shareholder value.
Preparing for a low-carbon future,
McKinsey Quarterly, 2004, Number 4. T
he basics of climate change have become a
common part of the high school science cur-
riculum but their importance demands
brief repetition: In simple terms, the earths
atmosphere acts like a blanket. Some of the suns
heat bounces back into space and some is kept
close to the surface by the atmosphere. It is this
greenhouse effect which keeps the Earth from
being a frozen rock like Mars or the Moon. And
it is natural controls on that greenhouse effect
which keep Earth from being a boiling hothouse
like Venus.
The narrow band of temperatures we find on
Earth is a product of a delicate balance of a num-
ber of greenhouse gases (GHGs). The concen-
trations of some of those gases are increasing and
with them, the global temperature. The chief
greenhouse gas is carbon dioxide (CO
2
), which is
released through natural processes as well as
through the burning of fossil fuels and through
deforestation. Two other important GHGs are
methane (CH
4
), released through industrial and
agricultural processes, and nitrogen dioxide
(N
2
O), a product of some industrial processes.
These gases have varying impacts on global tem-
perature, with a ton of methane actually causing
21 times more warming than a ton of carbon
dioxide. All told, there are dozens of these green-
house gases, but the greatest volume of emissions
there is a discernible human influence on global
climate. The National Academy of Science, the
British Academy and every other major scientific
body has found that a) the climate is changing; b)
this change is probably very dangerous; and c) it
is caused by increased human emissions of green-
house gases. At the worlds great universities, this
belief is held at least 20 to 1 and any skeptical
reader is encouraged to do a survey of scientists
and see for themselves. Within the scientific com-
munity, skepticism to climate change has become
tantamount to questioning evolution or relativity.
The IPCC predicts, with a 90% confidence interval,
that the range of expected increases in global
average temperature is from 2.3 to 4.5 degrees
Celsius (or 4 to 10 degrees Fahrenheit by the end
of this century). It is important to understand
that this is an average of global changes. Alaska,
for example, could see an increase of around 20
degrees. Also, outside of the 90% confidence
interval are possibilities both below and above
these predictions. In other words, there is a small
chance it would not be that bad, but there is an
equal chance it would be worse. The science is
very complex and challenging but has shifted
to questions of degree and timing. A two degree
increase now considered likely in the next few
decades could have devastating consequences.
are of carbon dioxide and there is a common
strategic focus on reducing carbon dioxide emis-
sions such that the shorthand for greenhouse
gas emissions is often simply, carbon.
There is a near-universal consensus in the interna-
tional scientific community that human-caused
increases in these greenhouse gases are directly
leading to significant changes in the average
global temperature with a 1 degree Celsius increase
observed in the last 100 years. This increase
almost perfectly matches increases in GHGs,
carbon dioxide in particular.
Prediction of future climate change is very diffi-
cult. However, it is important to understand that
the scientific consensus surrounding climate
change is essentially unprecedented in human his-
tory. The 3000-member Intergovernmental Panel
on Climate Change (IPCC) was a unique experi-
ment in the history of science to take stock of the
collective wisdom of the worlds expert commu-
nity. The IPCCs extraordinary effort at sifting
through an extraordinary amount of evidence
found that the balance of evidence suggests that
2
T H E M B A s C L I M A T E C H A N G E P R I M E R
S E C T I O N O N E :
T H E S C I E N C E O F
C L I M A T E C H A N G E
The global climate system is a non-linear system made up of overlapping cycles and patterns. This
non-linearity makes it very robust in reaction to small changes in an input. A small, human-induced
change in an input (CO
2
) will be absorbed by the overall system without much change in the output
(storms, precipitation, heat). However, non-linearity also means that, upon crossing an input thresh-
old, the impacts can be sudden, severe, and almost irreversible. Altering the inputs in a non-linear
system is playing with fire, because, with enough stress, gradual impacts can suddenly become
catastrophic, system-wide change. For example, warming in the artic melts permafrost which, in
turn, releases more carbon dioxide and accelerates warming. Or, in the case made famous by the
(highly exaggerated) science fiction movie, The Day After Tomorrow, gradual warming could essen-
tially flip off the Gulf Stream, plunging temperatures in Europe and the Northeastern United States.
S E C T I O N T W O :
ANTICIPATED IMPACTS ON
WEATHER PATTERNS, ECO-
SYSTEMS, AND COMMUNITIES
Source: UN Intergovernmental Panel on Climate Change, Third Assessment Report, Summary for Policy Makers, Figure 5.
www.ipcc.ch. Note: Graphs indicate a range of possible outcomes.
Anticipated impacts of climate change include:
1. Sea level rise
.
Average global sea level could go
up one meter or more due to melting ice caps and
expansion of the oceans. Sadly, as the 2004
tsunami showed, it is not average sea level but
peaks of high sea level which are dangerous to
human life and economies. A higher sea level
would make coastal communities more
vulnerable to regular flooding.
2. Reduced agricultural output.
Some areas, like
Russia and Canada could see increased agricul-
The Global Climate of the 21st Century tural output with global warming, but on balance
global agricultural productivity could be devas-
tated. The developing world in particular could
be devastated. A late monsoon in India in 2004
cost the country 1-2% of GDP, effectively cutting
national growth by a third.
3. More frequent and severe storms.
No individual
hurricane or severe storm can be traced to global
warming and nor can any isolated severe
season like that which hit Florida in the summer
of 2004 but there is significant evidence that
global warming is responsible for the increased
frequency and severity of disastrous weather
events. In 1998, more people were made refugees
by environmental disasters than wars for the first
time in recorded history. In developing countries,
weather events like Hurricane Mitch result in
significant fatalities. Severe weather effects have
significant economic costs as well: insurance
claims for Floridas recent hurricanes could total
over $20 billion.
4.Worsened droughts, heat waves, and desertification.
The heat wave which killed 20,000 people in
Europe in 2003 could, sadly, be a sign of things
to come. Around the world, the human and eco-
nomic costs of global warming are significant:
and engage in trade. All those skills and infra-
structure are climate-specific. An agricultural
economy cannot quickly or easily switch from
growing rice to growing corn. A coastal commu-
nity cannot instantly rebuild its infrastructure to
respond to increased hurricanes.
Ecosystems face the same absolute restrictions. To
respond to a one degree Celsius rise in tempera-
ture, an ecosystem must move 200 miles towards
the poles. There is a problem, though: trees do
not have legs and a stand of f