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Lots of “Risky Business” when it comes to the intersection of the environment and the economy

By Jeff Berman, Group News Editor
June 25, 2014

Of late, there has been a fair amount mentioned in mainstream media about climate change and how it has the potential to be a business threat.

In the Wall Street Journal this week, a report cited how Henry Paulson, for U.S. Treasury Secretary, Michael Bloomberg, former Mayor of New York, and hedge-fund billionaire Tom Steyer banded together to issue a bipartisan report, entitled “Risky Business” that stresses the point that “climate change could cost the country billions of dollars over the next two decades,” and, as Paulson said in the article, “to depoliticize the climate change debate and instead focus on how it poses an economic threat to U.S. businesses.

The report noted various findings, including how within the next 15 years, higher sea levels, storm surges and hurricanes could raise the annual financial tally for coastal damage along the East Coast and Gulf of Mexico to $35 billion and that some Midwestern and Southern agricultural areas could see a decline in yields exceeding 10 percent over the next five-to-25 years due to increased drought and flooding, unless farmer adapt their crops.

Even though the report observed that climate change stands to have a negative impact on business, it also pointed out how some members of Congress are still skeptical that climate change will have a severe impact akin to what the Risky Business report suggested. And it said that the U.S. Chamber of Commerce and various energy companies are against new carbon emissions limits impacting coal-fired plants, adding that these EPA-mandated regulations “will lead to job losses, impose heavy costs on the utilities industry and raise electricity prices.”

Another article, this one appearing in last Sunday’s New York Times and written by Paulson, stated that the same mistakes the U.S. made in handling the 2008 bursting of the credit bubble, which served as a prelude to the Great Recession, have the potential to be repeated in the form of a bubble that, he wrote, poses enormous risks to out environment and economy.

Paulson went on to say it is a “crisis we can’t afford to ignore,” but “we can see the crash coming, and yet we’re sitting on our hands rather than altering course.”

Paulson touched upon myriad reasons as to why staying on the sidelines is not the proper approach as it could result in serious economic risks.

His plan to augment the current situation? Putting a price on emissions of carbon dioxide-or a carbon tax, with putting a price on emissions subsequently creating incentives to develop new cleaner energy technologies.

The former secretary also cited the Risky Business report and explained that there is a need to “craft national policy that uses market forces to provide incentives for the technological advances required to address climate change. We can do this by placing a tax on carbon dioxide emissions. Many respected economists, of all ideological persuasions, support this approach. We can debate the appropriate pricing and policy design and how to use the money generated. But a price on carbon would change the behavior of both individuals and businesses. At the same time, all fossil fuel — and renewable energy — subsidies should be phased out. Renewable energy can outcompete dirty fuels once pollution costs are accounted for.”

With these articles as the backdrop, I asked Kevin Smith, president and CEO of Sustainable Supply Chain Consulting what the ramifications could be of the Risky Business report could be for business and the supply chain.

“CO2 generated by the burning of fossil fuels certainly affects things, so we should try to reduce emissions to the best of our ability,” Smith noted. “Alternative energy sources, while interesting, are not generally ready for prime time, yet. Brighter people than I have suggested that electric vehicles are simply a stop-gap until true renewable energy sources like hydrogen can be tapped. By the way, electric vehicles get charges with energy largely generated by coal burning power plants. The President is apparently on a tear to limit coal burning (clean or otherwise). The problems there are multi-fold. First, most of our energy for electricity in the US comes from coal. The coal industry employs a lot of people from miners, truckers, railroads, power plant operators and the people who provide transmission lines. Can we trash that part of the economy without an alternative? Probably not a good idea.

Smith also outlined numerous things that businesses can do to help the environment, including better routing, fuller loads, and aerodynamic designs for trucks as a few things that reduce carbon emissions and highway congestion. And he said that less congestion, speeds up traffic and reduces idling of all vehicles leading to even more reductions in carbon emissions.

He described the Risky Business approach as “interesting,” in that getting businesses to view climate change will probably generate better long-term decisions. Conversely, though, he is not in favor of the EPA being given broad powers to create regulations that should be the purview of Congress.

In his final synopsis, Smith noted that considering climate change as a business risk seems like a great idea.

“Individual businesses will probably do a good job of reducing carbon emissions if there is a benefit for them rather than some grand political agenda,” he said. “Broad strokes of the sword in the good name of climate change may have an unintended fall-out if businesses are forced to cope with egregious rules and regulations. And, finally, jobs lost to carbon emissions in the U.S. without first converting to some new alternative energy will simply migrate to other countries with less regulation. The global effect will remain the same. Our economy, while fresh and clean, will suffer job losses and negative GDP.”

It is clear to see that this is an issue that is not going away and requires the attention and concern of supply chain stakeholders everywhere. It is “Risky Business” to be sure.

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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