Carbon Footprinting and Carbon Neutrality

Climate Change

Economics-

Scientific evidences have proved that climate change is a human induced phenomenon. The GHG emissions resulting from economic activities including energy, industry, transport and land use impose additional cost (benefit in some cases) to the society in terms of externality. According to economic theory, externality is one of the main reasons of market failure. Therefore, it is essential to realize this cost and correct it to mitigate the threat to various economies of the world.
The impact of climate change is global, long-term and persistent. However, GHG emissions vary from one country to another and because of geographical features, the impact is also uneven. The marginal damage cost of CO2 emissions have been intensively studied and modified from the standard assumptions.
Realizing the fact that contribution of developed economies of the world has been major in CO2 emissions; the world has agreed that the burden of major part of abatement should be borne by them. Although international protocols, domestic regulations and technological developments in controlling emissions are gradually succeeding in this regard, a lot is still to be achieved.
Finally, as emissions are result of economic activities mentioned above, the impact of climate change is ultimately going to stress these economic activities affecting GDP growth of countries. Macroeconomists have found significant relationship between climate change and GDP growth of different countries. According to IPCC, the losses in GDP per capita are projected as 2.9% in 2100 and 13.8% in 2200. It is also projected that impacts are highest in developing economies. The mean cost to India and South East Asia is expected to be 6% of GDP by 2100, compared with a global average of 2.6% (The Stern Review)

Evidence of climate change impact

Most of the natural disasters in recent years have been linked with climate change. Some of the most extreme events witnessed were:

Hurricane Katrina- Hurricane Katrina hit the southern part of the United States in the year 2005 and till date it has been the costliest weather catastrophe. The total economic loss was estimated as $125 billion which is nearly 1.2% of US GDP. It affected more than one million people in some ways and according to The Earth Policy Institute, 250,000 people have permanently shifted from the coastal areas after this disaster.
European Heat wave- In the year 2003, for over a three-month period in the summer, Europe experienced a temperature increase of 2.3 degrees centigrade that resulted in heat waves. The agriculture loss only due to this was estimated as $15 billion apart from the water and electricity scarcity faced by people and industries in the region. Climate change experts predict that after the middle of this century such events would be very common due to climate change
Mumbai Floods- In the year 2005 Mumbai experienced heavy rainfall that resulted in huge amount of economic losses. In a span of 24hours the city receive a maximum rainfall of up to 104 cm. Around $100 million of financial losses were estimated due to this downpour.
Climate change is directly linked with the rainfall, with some places going to receive high rainfall whereas some places may remain dry. Indian economy is hugely dependent on the monsoon. Erratic nature of monsoon similar to this may further result in losses directly related to agriculture productivity in India and other tropical countries.
Climate change mitigation policies in developing countries
National Action Plan on Climate Change in India- focus on energy efficiency
National Climate change programme in China
Australia finally ratified the Kyoto Protocol

i-climate

“i-climate” certification

The “i-climate” certificate is issued to the low carbon or carbon neutral initiatives which have shown their responsibility towards climate change mitigation and have reduced or neutralised their GHG emissions.

i-climate certification

Benefits

benefits

Financial Implications of Climate Change

Various econometric models relate the effect of global warming with countries’ GDP growth rate
The Allianz Group and WWF (2005) state that there could be under-pricing of weather-related risks by as much as 30%.
A study of Carbon Disclosure Project found that 90% of 354 FT 500 companies consider climate change to pose commercial risks
According to WRI, oil and gas companies can face 5% loss in shareholder value depending on climate change policies

Impact on businesses

Risks

Considering the extreme weather events and increasing awareness about the climate change issues among the people, investors and the policy makers, the impact of climate change in any form of business is unavoidable. It’s crucial for businesses to take steps to combat the effect of climate change before it is too late.
These risks are faced by different sectors/companies with varied intensity. Sectors like automobile, steel, electrical utilities, chemical, paper, retail, banks etc. may face high market and regulatory despite of low physical risk. On the other hand businesses in geographical vulnerable areas like oil, manufacturing, cement etc. are going to have high physical and investment risk despite of relatively lower policy and market risk

Opportunities

The factor favoring the initiatives of businesses to tackle climate change is that the above mentioned risks have brought immense opportunities to establish itself as a niche market player.
Climate change provides a great opportunity to be energy efficient and reduce reliability on sharply depleting fossil fuels.
It also provides opportunity of technological innovation and market them. Industrial experts view emissions/wastes as loss of resources and emphasize on efficient product development and conserve resources for future.
Being efficient has another advantage in terms of carbon trading facilitated by the Kyoto Protocol’s Clean Development mechanism and Joint Implementation program. Apart from this there is immense opportunity in the voluntary carbon market as well.
The opportunity in the carbon trading market in this context is huge amounting to nearly $64 billion in the year 2007. Some data on voluntary and compliance carbon trading market.

Models

The need of the hour for businesses is to create business models that include the climate change factor effectively. From the disclosure of emissions to assessment of risk , proper green house gas management plan and developing low carbon/carbon neutral products, the inclusion of climate change strategic management plan in their port folio is going to boost performances of businesses in a sustainable way. This strategic management plans requires formulation of risk models that take into account the financial performance indicators and environmental performance indicators vis-à-vis their emissions. Various global networks of investors and regulators have started demanding risk disclosure in companies’ security filings. Such risk models are then going to be essential for a company to have to avoid any kind of decline in their performance.

Capacity building on climate change for companies
Analysis of forthcoming climate change policies and its relevance to companies
Assessment of various risks associated with businesses due to climate change
Integrated climate change strategic management planning
Identification of financial opportunities and implementation

Why Carbon Value Advisory?

In most of the business operations, carbon in certain forms (e.g. oil, electricity, etc.) is the major input and also the major output (CO2, CO, etc.)
An in-depth understanding of carbon constraints and valuation of this important element is essential in this environmental sensitive international and domestic market
This valuation helps businesses to address climate change concerns in their business strategic plan and reap the financial benefits associated with it.
There is growing pressure from regulators, investors and insurers to disclose the climate risks and assessment of financial and material threats

India’s National Action Plan on Climate Change
Investment Network on Climate Risk (INCR) is planning to mandate “ Corporate Governance and Climate Change” report
In US, SEC is planning to mandate corporate disclosure of climate risk and opportunities as part of their regular securities filing

Road Map- Abatement to Financial performance

Road Map

For more details:-
Contact: carbon.neutral@emergent-ventures.com