With the release of draft EPA carbon regulations today, a lot of commentary suggests we’re entering a new phase in addressing climate change. Is it a tipping point?
We all have a sense of how tipping points work. In the energy arena, for example, there has been considerable discussion about whether electric vehicles have crossed a “tipping point” in establishing themselves in the vehicle fleet, and whether solar power has passed the “tipping point” in terms of competing with fossil fuels.
When it comes to climate change, the most explicit discussion of tipping points has focused on physical parameters. Is an ice-free Arctic now inevitable? Will melting permafrost lead to runaway methane emissions? With these examples, we’re looking at whether climate change itself has pushed Earth’s natural system out of the steady-state that may have characterized the planet for thousands of years.
However, I’m talking about something else. I’m talking about changes in business risk and corporate competitiveness that can result from actions taken in response to climate change concerns, or from Climate Risk Tipping Points. A company-level CRTP might be local opposition to a coal-export facility. National or global CRTPs could result in emissions reduction mandates far more draconian than companies have contemplated to date.
CRTPs are commonly assumed, but to date they generally have been implicit. How many times have we heard that we “must” (and implicitly that we “will”) address climate change because anything else is unthinkable? Or that the transition to a low-carbon economy is inevitable? In his 2010 book, "The Great Disruption: How the Climate Crisis Will Change Everything (for the Better)," Paul Gilding argues that this is in fact where we will end up, albeit only after climate change claims a few billion people.
We see the same notion reflected in the “stranded investment” movement, which argues that fossil fuel companies’ stock prices are inflated because they do not account for the fact that we simply “can’t” burn all the coal, oil and gas in those companies’ reserves. The tipping point notion also comes up whenever there’s a major natural disaster, as we saw in media coverage after Hurricane Katrina and Superstorm Sandy.
What’s most interesting is not how many people assume CRTPs are inevitable. It’s the number of observers who explicitly or implicitly assume that CRTPs never will happen. The inherent contradiction of these commonly prevailing views of the future when it comes to climate policy is the (often ignored) elephant in the room of corporate climate risk management today.
In its recently released climate risk paper, for example, Exxon Mobil concludes that climate change policy poses no material risk to the company because oil and gas always will be too important to economic development around the world to be significantly regulated for climate reasons. Exxon is far from alone among major corporations in making this assumption, and not only in the energy sector.
The technical literature certainly doesn’t unequivocally support the idea of CRTPs. As stated in the IPCC’s 2007 Fourth Assessment Report:
“The policy window hypothesis refers to the phenomenon whereby adaptation actions such as policy and regulatory change are facilitated and occur directly in response to disasters, such as those associated with weather-related extreme events. According to this hypothesis, immediately following a disaster, the political climate may be conducive to legal, economic and social change which can begin to reduce structural vulnerabilities. ... However, contrary evidence on policy windows suggests that ... short-term risk reduction can actually produce greater vulnerability to future events."
But if we take CRTPs off the table of possible outcomes, we’re left with two options:
- Effective climate policy eventually results from a considered process of discussion, policy analysis, and rational decision-making; or
- Effective climate policy never happens.
The first of these outcomes seems far-fetched based on the results to date of 25 years of “considered process.” The second of these outcomes has implications that are just bad.
From a business risk standpoint, decision-makers can’t (or at least shouldn’t) reject the idea of the third option: high-level Climate Risk Tipping Points. Given that any effective policy or public response to climate change would have enormous implications for a huge number of companies, potential CRTPs are not something that companies wanting to maintain or even enhance their competitive advantage can ignore. Bear in mind, too, that CRTPs will seem obvious in retrospect, so having ignored them won’t look good on corporate CVs.
There can be no doubt that the landscape around climate change decision-making is shifting again. Look at some current indicators:
- The remarkable number of global weather extremes in the last three years
- EPA’s efforts to regulate new and existing power plants in the U.S. for CO2 emissions
- New science in the IPCC’s 5th Assessment Report and the U.S. National Climate Assessment
- Large-scale opposition to the Keystone pipeline and coal export facilities around the U.S.
- The Farmers’ Insurance lawsuit against municipalities for failing to adapt to climate change
- Growing concerns over sea level rise and accelerating ice-melt in Greenland and Antarctica
- Growing press and industry attention to stranded assets and fossil fuel divestment
- Pope Francis’s recent address on climate change
It is even possible that 2012 will turn out to have been a CRTP as many observers suggested after Superstorm Sandy, signaling a fundamental change in perceptions and reactions to climate change.
We can’t know for sure. But it is clear that decision makers will face more policy and stakeholder interest in their decisions when it comes to climate risk management, including what they are doing to adapt to climate change. Unlike many past voluntary climate change mitigation efforts, climate change risk management cannot be simply turned over to the marketing department, or rolled into the responsibilities of the Chief Sustainability Officer.
Effective risk management aimed at both mitigation and adaptation will be local, risk-based, operational and ultimately strategic. Climate Risk Tipping Points that have immediate or strategic decision-making implications for individual companies, business sectors or entire industries, will be on prudent decision-makers’ radar and agendas.
Top image of iceberg by sergioboccardo via Shutterstock