This blogpost about climate preparedness is part of the 2012 State of Green Business Report, published by GreenBiz, where I’m a senior writer. You can download a copy of the full report here.

Last December, government officials, corporate executives and activists met in Durban, South Africa, for high-level climate talks. They went home with an agreement … to keep talking. Meanwhile, we’re emitting more carbon dioxide every year, and atmospheric concentrations of greenhouse gases are steadily rising. If CO2 levels were somehow to stabilize now–they won’t–the world will keep warming. The bottom line: Climate change is inevitable. The world needs to learn how to prepare for it.

Increasingly, smart businesses are starting to do just that. Utilities, the oil and gas industry, agricultural companies and insurers are building assumptions about rising temperatures and extreme weather events into their scenario planning. This is what’s being called climate adaptation or climate preparedness.

The payoff from investing in adaptation could be substantial.  In 2011, insured losses in the U.S. from natural catastrophes, including tornadoes, floods and hurricanes, topped $105 billion, breaking the record of $101 billion set in 2005, the year of Hurricane Katrina, according to Munich Re, the world’s largest reinsurance firm. Some of those losses had nothing to do with climate change, but others did.

Let’s get specific about what adaptation means: Entergy, an $11 billion-a-year utility company based in New Orleans, commissioned a Gulf Coast Adaptation Study that has opened up conversations with customers and elected officials about preparing for a warming climate. Not surprisingly, the company got focused on the problem after Hurricanes Rita and Katrina hit in 2005, followed in 2008 by Gustav.

“That really put a face on what the future was going to be like,” said Jeff Williams, director of climate consulting for Entergy. “Clearly we are facing risks from sea level rise, more intense storms, flooding and surge damage.” The company has looked at “hardening” key assets including power plants, substations and transmission lines; the goal is to make Entergy “more resilient in ways that minimize business interruption loss,” Williams says.

For example, Entergy has begun a five-year $73.5 million project to relocate and harden transmission and distribution lines serving Port Fourchon, LA, which is the single largest point of entry for crude oil coming into the U.S., handling about 13 percent of national imports. (After Katrina damaged the electrical instructure, 25 percent of oil production and 44 percent of natural gas production became shut in, Entergy says. National oil prices went from $60/bbl before Katrina to $70/bbl after Katrina because of supply interruption; national natural gas prices went from $8/Mcf to $15/Mcf.) Smaller businesses are acting, too. The McIlhenny Co., which makes Tabasco Sauce and was founded in 1868 on coastal Avery Island, LA, has made its factory and visitor center more resilient to better absorb future storms.

Agriculture is another industry that will be reshaped by a warming world, with some regions and crops doing better, thanks to a longer growing season and higher levels of CO2 in the air, and other suffering. Seed companies have renewed their efforts to develop drought resistant crops, said John Soper, director of product development at Pioneer,  a unit of DuPont.

“We’re expecting some drier weather to move into the key corn growing areas,” he says. “The climate in Illinois might be more like the climate in Arkansas.” Pioneer is testing drought-resistant corn and other crops in desert-like test fields in California and Chile, he said, in part because farmers who now irrigate their fields are already telling Pioneer that they expect limits on the availability of water. In India, Pioneer is working to develop drought-tolerant varieties of rice, which is now grown on flooded land but may have to adapt to a drier climate. Other seed companies including Monsanto, Syngenta and Bayer Crop Science are working on their own drought-resistant crops.

The insurance industry, meanwhile, has been declining to write property coverage along the Atlantic Coast, in part because of fears that stronger hurricanes will do more wind damage. Citizens Insurance of Florida, a non-profit, state-run company which takes on property owners who can’t get private coverage, has become Florida’s biggest insurer.

Even the oil and gas industry–which, of course, is a major contributor to climate change–is paying heed. Several years ago, IBM, a UK consulting firm called Acclimatise and the Carbon Disclosure Project published a report called Building Business Resilience to Inevitable Climate Change [PDF, download] urging oil-and gas companies to review their strategies, business models and supply chains to “check their resilience to the new risk landscape created by inevitable climate change.”

Environmental groups, which once focused solely on curbing carbon pollution, are now looking at adaptation, in part to underscore the urgency of the climate threat. Theo Spencer, a senior advocate at the Natural Resources Defense Council, which helped organize a meeting early this month with utilities, insurance companies and others to talk about climate preparedness, says companies are coming to understand that “the weather is changing and we really need to do something about it.” He quotes the White House science adviser John Holdren who said the task ahead is not just “avoiding the unmanageable” but also  “managing the unavoidable.” Unavoidable climate change, and its consequences, is likely to be a corporate worry for years to come.

Imagine if you had to put a quarter in a slot every time you took a shower at home. Or 50 cents to run the dishwasher. Or $2 to water the grass.

You’d think about water differently, wouldn’t you?

A San Francisco startup called WaterSmart Software wants to remind people that wasting water is wasting money, and to show consumers how to conserve both.

“People don’t have a mental image of pennies going down the drain,” says Peter Yolles, a founder and CEO of WaterSmart Software, which is based in San Francisco.

But they should.

“We’re helping the consumer save money,” Yolles says. “And we’re helping the utility save money.”

WaterSmart is a small company–just six people–that wants to help tackle a very big problem: Fresh, clean water is a finite resource. As populations grow, incomes grow and the planet warms, water scarcity will create business opportunities.

If you’re like me (and I hope you’re not in this instance), you know very little about your water use. I just checked my quarterly bills for the past 12 months and found that I paid $994.21 for water, or $82.85 per month. That’s higher than I thought and, unfortunately, quite a bit higher than the average bill for US households of about $50 month, according to WaterSmart.

What’s more, Yolles tells me, the water bill is “the fastest growing bill in your home,” faster then the electricity or even the cable bill.

Here’s a chart showing typical household water use:

You may be surprised, as I was, to see how much usage comes from leaks and the toilet as opposed to say, the dishwasher, which doesn’t merit its own slice of the chart. (This is from a 1999 study.)

WatersSmart software aims to give people, first, more information about their water use and then, second, advice on how to use water more efficiently. Using billing information from water utilities, along with real estate, climate and geographic data, WaterSmart will compare a household’s water use with the neighbors in a friendly, easy-to-use format, on line and in print. It’s similar in concept to a fast-growing startup called OPower which promotes energy conservation. [See my 2010 blogpost, Opower, peer presssure and climate change.)

Peter Yolles

Yolles, by his own description is a “water guy” having spent 20 years dealing with water issues from a business, nonprofit and government perspective. He’s got a master’s in water resources from Yale’s forestry school, as well as an MBA, and he has worked at GE Capital and the Nature Conservancy, as well as the Pacific Institute, a leading water think tank. He and his co-founder, Rob Steiner, started WaterSmart late in 2009 and they were one of the winners the following year in a competition called Imagine H2O. Since then, WaterSmart has raised venture money from Draper Fisher Jurvetson, Sand Hill Angels and Gary Kremin, an entrepreneur who founded match.com and Clean Power Finance. I heard about the firm from partners Andrew Williamson and Will Rosenzweig at Physic Ventures, which is also backing WaterSmart.

The business model for WaterSmart depends on the desire of water utilities, which are mostly publicly owned, to get their customers to conserve. “They want to provide a clean, reliable souce of water for their customers,” Yolles says. Some utilities are so concerned about the availability of water that they subsidize low-flow shower heads and toilets, or even pay for a homeowner to replace thirsty grasses on their lawns with native plants that need less water. If enough individual homeowners use less water, the utility can avoid the cost of new treatment facilities, reservoirs or even desalination plants.

In California (where I’m spending a couple of weeks), water is on people’s minds. “This is the third driest winter, so far, in California,” Yolles said. “Some California cities had no precipation in December.” WaterSmart software has two pilot programs underway in the state.

But the problem goes way beyond California, of course. Water scarcity, climate change and infrastructure requirements are driving up water prices throughout the United States. Using electricity requires lots of water.

Globally, population growth and urbanization are expected to drive demand for water up 40 percent within 20 years, according to a 2009 report from the 2030 Water Resources Group, an association of the World Bank, major industrial water users and the consulting firm McKinsey, according to The New York Times.

No wonder more companies are developing water strategies. Maybe the rest of us should, too.

Should we worry about Chinese government subsidies to its solar industry? Or send the Chinese a thank-you note?

A group of seven US-based manufacturers of solar panels is alarmed. These manufacturers, led by Solar World, a German firm with a plant in Oregon, filed a complaint with the United States International Trade Commission, which reached a preliminary conclusion in December that US companies were, in fact, being harmed by subsidized imports. If the Commerce Department goes on to find that Chinese firms have been dumping solar panels on the US market at prices below their costs, it could impose steep tariffs of 50 to 250% on Chinese panels, according to this report in The Times by Matt Wald. The Chinese government provides billions of dollars of low-cost financing and free or cheap land to Chinese solar firms.

Jigar Shah

But much of the solar industry–led by Jigar Shah, the founder of Sun Edison, entrepreneur and environmental advocate–thinks this complaint is a terrible idea. Tariffs  would raise the costs of solar power to US business and consumers, at a time when those are coming down; they could also set off a solar trade war that would harm other US solar companies.

As it happens, the U.S. had a trade surplus of nearly $1.9 billion in the solar sector with China in 2010, as exports of raw material and factory equipment more than offset imports of finished solar panels, according to the Solar Electric Industries Association,. What’s more, Jigar says, most of the 100,000 or so jobs in the US solar industry — he says as much as 97-98% — are downstream of the manufacturing business in project development, logistics, construction and installation.

“SolarWorld’s petition will do far more damage than good to the U.S. solar industry as a whole,” Jigar wrote in this letter to Gordon Brinser of Solar World. “Every morning, thousands of hard-working Americans put on their tool belts and go build solar power plants. Our country needs more of those jobs, not fewer.”

What got me thinking about this brouhaha was an email the other day from a California company called Solar Power Inc., or SPI, that underscored for me just how committed the Chinese are to getting their solar panels onto rooftops in the US.  SPI said it had secured construction financing worth $44 million from the state-owned China Development Bank to fund construction of solar projects in New Jersey.

Why would a Chinese bank finance solar panels in the US? Well, it turns out that SPI is 70%-owned by LDK Solar, a Chinese company founded in 2005 that now says it “the world’s largest producer of solar wafers in terms of capacity and a leading high-purity polysilicon and solar module manufacturer.” LDK bought its controlling interest in SPI Solar last year in an effort to gain direct access to the US commercial market. With revenues expected to top $90 million last year, SPI is small to mid-sized developer of rooftop PV–it installed panels atop the Staples Center and the Fox Studios in Los Angeles and a Costco in New Jersey. “We’re a downstream market for LDK,” said Mike Anderson, vice president of communications for SPI Solar.

Now consider those solar panels on their way to rooftops in New Jersey–the Chinese manufacturer, LDK, gets low-cost land and financing from the Chinese government, SPI borrows from the state-owned China development bank to construct the solar arrays, the US government grants the panels a 30% investment tax credit and New Jersey’s renewable portfolio standard makes the project that much more attractive to the state’s utilities. No wonder the solar market is growing!

Supporters of the petition filed by SolarWorld, which employs more than 1,000 workers in Oregon and is the only company named in the trade complaint, argue that too much of the solar PV market is going to China. Chinese manufacturers now enjoy better than 50% of the global market for modules, up from single digit percentages in the late 1990s. Cheap Chinese solar helped drive US firms like the now-infamous Solyndra and Evergreen Solar into bankruptcy.

In a blogpost titled Educating Jigar Shah on Solar Trade, Hari Chandra Polavarapu, a solar analyst at a small firm called Auriga USA, declares: “The lower prices of solar cells and modules from China have so far served as a battering ram in destroying overseas solar PV manufacturing competition.”

“It’s true that lower prices benefit all rate payers — but if that is all there is to an economic argument, then the U.S. and the rest of the world should give up all manufacturing to China and services to India,” Polarapu writes.

My reactions:

1. Trade wars are risky. If the US imposes tariffs on Chinese solar panels, the Chinese will retaliate. They have already promised to investigate US subsidies.

2. Speaking of which, it takes chutzpah (that’s a technical term in economics) for US solar manufacturers to complain about subsidies in China since they, too, benefit from government-backed loans (yes, that means Solyndra), buy-American provisions in the stimulus package and favorable state tax treatment. SolarWorld got $40 million in tax credits from Oregon, where it employs about 1,000 people. Today’s Times has an excellent story about how the government pays for worker training programs for individual companies. Until the US brings a halt to crony capitalism (which would be good), US companies are in no position to whine when they find it elsewhere.

3. Maintaining solar panel manufacturing jobs in the US may be a lost cause. Solar cells and modules are not high tech products. They’re more like a flat-screen TV or an iPod than a Boeing jetliner. Chinese PV manufacturers benefit from efficient operations and low labor costs, according to this article in the MIT Technology Review.

4. The Chinese subsidies create a positive externality–lower carbon emissions, to the degree that solar panels replace dirtier fossil fuels. So long as they continue, we all benefit. If and when they stop, there’ll be no reason why other manufacturers can’t gear up to compete.

I’m not ready to send a thank-you note to China. But I’m thinking about it.

[Disclosure: I was paid last year to moderate an event for the Carbon War Room, which Jigar leads.]

If there’s one industry that ought to be concerned about the threat of global warming, it’s the insurance industry. OK, the ski industry, too, but I digress.

Dave Jones, California’s insurance commissioner, recently put it this way: “Climate change is an obvious physical threat to us all, but increasingly it also poses a serious financial threat to the insurance industry…” When extreme weather causes damage, insurers pay.

So you’d expect insurance companies to be among the most forceful voices in corporate America calling for the regulation greenhouse gas emissions.

Uh, no. They’ve been eerily quiet.

And, at the least, you’d expect them to be proudly steering some of their massive investments to clean energy or energy efficiency projects aimed at reducing emissions of greenhouse gases.

Wrong again.

“It’s surprising, in a sense, because they have so much to lose from climate change,” says Sharlene Leurig, senior manager of the insurance program at Ceres, a nonprofit coalition of investor and environmental groups. But, she notes, insurance is a conservative business. The industry is all about risk, but it doesn’t want to take the risk of speaking out on climate change.

This is the second of two blogposts about the insurance industry and climate. Yesterday, I blogged about federal and state-backed programs that are insure risky properties from flood and storm damage, creating potential liabilities for all of us. Today, I’ll ask why U.S. insurers–in stark contrast to the big European reinsurance companies–have been missing in action during the Washington climate wars.

Consider: The U.S. Climate Action Partnership, an alliance of big companies and environmental groups calling for a cap on carbon emissions, includes 21 companies–seven utility companies, industrial giants GE and Siemens, chemical firms Dow and DuPont, Alcoa, Shell, Rio Tinto, Johnson & Johnson, PepsiCo and not a single insurer since the departure of AIG (for reasons unrelated to climate).

Business for Innovative Climate and Energy Policy, or BICEP (which is a project of Ceres), another coalition pushing hard for policies to drive a low-carbon economy, includes Nike, Starbucks, Timberland, eBay, Gap, Avon and the Aspen/Snowmass, among others. No insurers.

Now…this isn’t to suggest that insurers have been entirely absent from the climate debate but mostly they’ve focused on their parochial interests. Some companies, for example, have asked the federal government to provide wind as well as water coverage in the event of hurricane damage. Others proposed want the federal government to offer reinsurance — that’s insurance for insurance companies — to protect against a major catastrophe, or “mega-cat” in industry argot. Fireman’s Fund, a unit of the German financial services firm Allianz, has been writing “green insurance” policies for building owners. (See my blogpost, Fireman’s Fund: an insuror that isn’t dull.)

But the industry has been a non-factor on the big issues, unlike the European reinsurance firms which have repeatedly warned of climate risks. Way back in 2007, Andrew Castaldi, head of the catastrophe risk unit for Swiss Re America Corp, told a Senate committee: “We believe unequivocally that climate change presents an increasing risk to the world economy and social welfare.” In a 2009 report, Lloyd’s of London warned of climate change contributing to “resource-driven conflicts; economic damage and risk to coastal cities and infrastructure; loss of territory and resultant border disputes; environmentally induced migration; government fragility; political radicalisation; tensions over energy supplies and pressures on international governance”. Munich Re, the world’s biggest reinsurer, said last year:  “It would seem that the growing number of weather-related catastrophes can only be explained by climate change.”

When I emailed the Property Casualty Insurers Association of America to ask why the industry hasn’t been more vocal, David Kodama, senior director of research and policy analysis for PCI, replied:

Climate change is one among many of important strategic risks for insurers. Broadly speaking, insurance companies assess and monitor developments associated with climate change and, as appropriate for the individual insurer, incorporate the relevant information into their business model and practices.

However, climate change is a particularly complex issue and its causes, effects and the relevant variables that impact it are multifaceted and not well understood.

…It is prudent for the many insurers to continue to study the issue.

Could the association be any more cautious? “Climate change is a heavily politicized issue in the US,” Ceres’ Sharlene Leurig says, when I ask her why the companies have stayed on the sidelines. “Why put your neck out there and start messaging about a topic that many consumers are confused about and, in some instances, downright hostile to?” Of course, that’s exactly what bolder companies like Nike and Starbucks are doing with BICEP.

There may, however, be another reason why insurers have been loathe to speak out: They write liability coverage for corporations, including oil and coal companies, which are being sued over climate-related liability.

An aerial view of Kivalina, Alaska

Claims have been filed against fossil fuel companies that remind some people of  class-action suits against tobacco and the asbestos makers. In Comer v. Murphy Oil, plaintiffs sued corporate defendants claiming personal injury and property damages caused by the allegedly climate change-induced impacts of Hurricane Katrina. In Village of Kivalina v. ExxonMobil, a native Alaska group sued oil and gas companies and US utilities claiming that coastal erosion caused by global warming would force them to relocate their fishing village.

In a fascinating interview with an Australian newspaper, Gerald Maples, the lead attorney in the Comer case, said he’ll go after those fossil fuel companies that misled the public about the dangers of climate change, just as tobacco companies sowed doubt about the danger of smoking: “It’s pretty much accepted history that asbestos and tobacco are the role models for climate change litigation now.”

Miami Beach oceanfront properties

Well-to-do Brazilians are buying up luxury condos on the beach in Miami, The Times reported last week. “They are taking Miami by storm,” one real estate executive declared.

It’s an unfortunate metaphor.

That’s because, sooner or later, storms will likely damage or destroy much of the property on the Florida shoreline. And, while a beachfront real estate revival may be welcomed by developers who, according to the Times, are “starting or restarting ambitious condo projects,” the risks are being borne not by the developers or by the condo buyers or even by private insurance companies but, for the most part, by a state-run, not-for-profit, tax-exempt corporation called the Citizens Property Insurance Company. Citizens has become the biggest insurance company in Florida since it was created in 2002, and many of its policies ($232 billion worth, according to a 2009 story in the Miami Herald, referenced here) are written on riskier, coastal properties. As a government-sponsored entity, Citizens has the implicit backing of Florida taxpayers who, you can be sure, will turn to the rest of us for help if the big one hits.

“Who’s on the hook when a wall of water hits the coast of south Florida? You and me,” says Sharlene Leurig, senior manager of the insurance program at Ceres, a nonprofit alliance of investors and environmental groups. Her  job is to raise awareness of climate risk within the insurance industry, and to prod the industry to respond.

It’s not just a problem in Florida–many states are assuming the risk of natural disasters, despite the rising costs of extreme weather events, which are more frequent and more severe because of climate change, scientists say. So is the federal government: The National Flood Insurance Program (NFIP) has $1 trillion in exposure, according to Ceres, and it’s $20 billion in debt. Although no individual storm can be attributed to climate change, the rising prevalence and intensity of storms, floods, droughts and wildfires are consistent with what scientists say can be expected as global temperatures rise.

Sharlene Leurig

Today, I’m devoting the first of two blogposts to the insurance business and climate change. Have another cup of coffee if you must, but this is important. According to Leurig and a September 2011 report from Ceres, the insurance industry has yet to fully recognize the risks posed by climate change. This isn’t just their problem. It’s ours because what Ceres describes as he industry’s “sluggish and uneven response to the ever-increasing ripples from global climate change” threatens not just the insurance business but the stability of the global economy.

The most pressing worry is the  federal flood insurance program, which insures about 5.5 million homes, and the state-backed insurance pools that are underwriting seashore development. They’re under political pressure to make insurance affordable and available. If this sounds familiar, it should: Fannie Mae and Freddie Mac felt political pressure to make housing affordable and available, and that didn’t turn out so well.

More broadly, we depend upon insurance companies, acting in their own self-interest, to make the world a safer place. To avoid losses, insurers helped bring about fire safety codes for buildings and seat-belt laws.

They could be performing a similar service, by sounding an alarm on climate change, but they’re not, at least not in the U.S. By contrast, big European reinsurance companies like Munich Re and Swiss Re have been among the loudest voices in the corporate world, calling attention to climate risks and urging action.

“The reason that Ceres works with insurance companies is that they have a unique ability to change the way we behave,” Leurig told me.

In the U.S., insurers have responded to climate risk by excluding coverage or exiting markets. The federal flood insurance program was created in 1968 after Hurricane Betsy caused more than $1 billion in damages along the Gulf Coast. Private flood insurance was unavailable.

A 2010 report on the NFIP from the Institute for Policy Integrity at NYU Law School found:

• Because of its below-market insurance rates and the intense, hurricane-related floods in recent years, the NFIP has accrued a substantial deficit: $19 billion. [Now $20B] As currently structured, the program will not be able to repay this debt
• Since the NFIP cannot charge market rates, hold reserve funds, or purchase reinsurance, the program faces a constant financial risk of insolvency. The NFIP also causes environmental damage, by externalizing the risk of building in ecologically-sensitive floodplains.
• Those costs—financial risk and ecological damage—are widely distributed to taxpayers and citizens across the country.
• The benefits of the NFIP, by contrast, are enjoyed largely by wealthy counties and by a significant number of owners of vacation homes.

On the state level, special property insurance plans, known as residual insurance, have been set up by regulators to provide insurance in locations where the risk of severe storm damage is substantial. This is a classic example of moral hazard, where developers or homeowners take the risks but others — the insurance industry as a whole, or taxpayers — will be left with the bill if things go wrong.

A report issued last month by the Insurance Information Institute found that residual property insurance has grown dramatically over the past two decades:

Over the period 1990 and 2010, total exposure to loss in the residual property insurance market (FAIR and Beach and Windstorm Plans) surged from $54.7 billion in 1990 to $757.9 billion in 2010, which means that if all the policyholders insured by the two plans suffered a total loss, property damage claims would total that amount. Over the same period, the number of policies in force in the residual property insurance market went from 931,550 in 1990 to almost 2.8 million in 2010, a record.

It also said:

In July 2010 the Government Accountability Office (GAO) released a study that examined the condition of state natural disaster funds. Of the 10 state programs examined, the GAO found that six of the 10 charged rates that were not actuarially sound in that they did not accurately reflect potential losses.

Some government officials are addressing the problem. Florida Gov. Rick Scott has sought ways to shield taxpayers from the future claims that Citizens may be unable to pay. Louisiana’s Citizens Insurance has been shedding policyholders, returning them to private companies. Alabama and Mississippi offer discounts to owners whose homes are fortified to withstand strong winds. The chart below shows that exposure peaked back in 2007, so the, er, tide may be turning.

Still–the industry’s losses from extreme weather are a big worry, or they should be. Just last week, Bloomberg News reported that “U.S. property and casualty insurers’ profitability fell to the lowest level since 2008 as losses from natural disasters exceeded gains in sales and investment income.”

Until the insurance industry and its regulators recognize climate risks–and prices them into their products– those losses are likely continue.

According to the Financial Times, no less an authority than Lloyd’s of London, the largest reinsurer of US risk, said last fall:

“We don’t believe that the U.S. has the balance between industry and government intervention right, you have government intervention in federal and state level, it demonstrates this is not a sustainable way to proceed,” said Sean McGovern, Lloyds general counsel and the director of North America. He added: “The cost to the U.S. taxpayer is huge and is not sustainable.”

Says Leurig: “People should understand just how risky their behavior is, and price has become a good way of communicating that risk.” If the insurance industry, Florida real estate developers and Brazilian condo-buyers don’t pay a high enough price for the risk they are taking, the rest of us will get stuck with the bill.

Tomorrow: The eerie quiet of the insurance industry, on the climate issue.

Happy New Year! And good riddance to 2011, a year during which we made little or no progress on some of the issues that I care most about: climate change, the long-term federal debt, social mobility (aka the American dream), and our dysfunctional Congress. Yet I remain an optimist.

Texas drought 2011

I could write many words about our woes. Instead, I’ll try to be succinct. On the climate issue, global emissions of carbon dioxide from fossil-fuel burning jumped by the largest amount on record in 2010, we learned recently, and 2011 surely brought further increases.  Concentrations of CO₂ are 39% above where they were at the start of the industrial era and approaching the point when some scientists say it will be nearly impossible to contain global warming, the Guardian reports. Neither the US nor the UN moved closer to regulating CO2. In a discouraging development, Republicans Mitt Romney and Newt Gingrich backed away from their once-sensible support of greenhouse gas regulation, in what can only be seen as shameless pandering to the know-nothing wing of the Republican Party. Discouraging, too, was the Fukushima nuclear disaster, which will slow down the growth of carbon-free nuclear power. So will the failure of Solyndra. Meanwhile, the U.S. suffered massive flooding of the Mississippi and Missouri Rivers, a terrible drought in Texas, record wildfires and at least 2,941 monthly weather records that were broken by extreme events, according to the NRDC.. Coincidence? Uh, no.

Like the atmospheric concentrations of CO2, the federal budget deficit has been growing.That’s no coincidence either. We’re living beyond our means, whether by burning fossil fuels or taxpayer dollars, and sticking future generations with the cleanup bill. Just last week, the White House asked for a $1.2 trillion increase in the federal debt limit, raising it to about $16.4 trillion. According to Marketplace Radio, that amounts to about $52,000 for every American. For a typical  family of four, that’s bigger than the mortgage.

Social mobility is harder to measure than income inequality (and more important, methinks), but indications are that it’s more difficult to climb the economic ladder in the U.S. than in other western democracies. The Economic Mobility Project, a  bipartisan effort to study the issue, reported recently on a study of 10 western nations that concluded: “In the United States, there is a stronger link between parental education and children’s economic, educational, and socio-emotional outcomes than in any other country investigated.” The sluggish U.S. economy in 2011 didn’t make life easier for those on the bottom who want to work hard and better themselves.

And yet.

As I wrote a year ago (see my blogpost, China, cappuccino and cell phones: reasons to cheer!),  life on this planet is getting better all the time. We humans are richer, healthier and and more peaceful than ever. It’s easiest to forget that, especially if you focus too much on the day-to-day headlines.

Here are several reasons to feel good about the year ahead:

Western economies are slumping, but the rest of the world is growing robustly. The most urgent problem facing mankind isn’t climate change: It’s the human misery that’s caused by poverty. There’s less of that today than there was a year ago, and there will be less on Jan 1, 2013, I’d bet. China’s GDP grew by about 10% in 2010 and by an estimated 9% in 2011. India grew by 6 to 7 percent last year.

A Nairobi street

Then there’s Africa. As Forbes reported last week, in the middle of the 2009 global economic recession, Africa was the only region apart from Asia that grew positively, at about 2%. The continent’s growth has been on an upward trajectory ever since then- 4.5% in 2010 and 5.0% in 2011.

Reliable statistics are hard to come by, but you can be sure that this means that many millions of people are living longer and healthier lives, and that their children have a better shot at an education. This is good  for all of us because the global economy is not a zero-sum game. An expanding pie means a safer world, and more markets for U.S. goods. And there’s even reason to hope believe that the US economy is due for a rebound. See what Matthew Yglesias writes in Slate that Happy Days Are Here Again.

Corporations are taking a more expansive view of their responsibilities: One reason why I write about business is that I believe that corporations can be a powerful force for good. Many are not, but I found reason in 2011 to applaud changes at Walmart (Have I Fallen in Love with Walmart?), McDonald’s (Mainstreaming Sustainability? ), Smithfield Foods (Sustainable pork?), Office Depot (No tree hugging, please), Shaw Carpets (This carpet has moral fiber), Unilever (CEO Paul Polman: Don’t stay on the sidelines), Starbucks (We are indivisible), Marks & Spencer (Sustainability, profits and a carbon-neutral bra),  TD Bank (America’s greenest bank?) and GE (How GE learned to think small and serve the poor). My most popular post of the year, by far, was about Patagonia (Maybe the best retail ad ever).

These companies are responding to rising expectations–from advocacy groups, consumers, a handful of shareholder activists and especially from their own workers. The changes they are making aren’t big enough, and they aren’t happening fast enough, but the forces driving companies to become more sustainable are getting stronger all the time.

Protesters in Egypt

Citizens’ movements are growing here and abroad. Whatever you think of Occupy Wall Street, they got one thing right–the deck is stacked in the US in favor of the well-to-do and the powerful, not just the 1% but the 10 or 20 or 30%, and it’s stacked against those at the bottom of the income ladder. So many laws and cultural practices that we take for granted–from the mortgage interest deduction to the dismal quality of the public education system in our big cities and poorest rural areas–serve the interests of the rich and powerful. Wall Street got bailed out. Main Street got left behind. Thank goodness for people didn’t take that lying down. Thanks, too, to the Tea Party, which is wrong about most things but right about the fact that the federal government can’t keep spending money that it doesn’t have.

Of course, Occupy Wall Street was largely inspired by citizens uprising in Tunisia and Egypt, which in turn seem to inspired people in Russia and even in China to demand more of a voice in their own affairs. This is all to the good, and it should be a reminder to those of us here in the U.S. not to take our freedoms for granted and to exercise our rights as citizens. A big job ahead is to convince Congress to act like adults and treat us that way, understanding that they were elected to solve big problems, even if that requires. We can’t have big government, generous services and low taxes. Or cheap energy without climate risk. Or affordable, unlimited health care for all.

Sure, there’s reason to be gloomy but it always helps to think long term. More people are free today than at any time in human history. More people live comfortably. We’re more tolerant and loving that we used to be. We’ve got an African American president and my daughter, who is gay, will get legally married in June. MLK Jr. had it right: “The arc of the moral universe is long but it bends toward justice.”

Yalmaz Siddiqui is a dark-green environmentalist, who once started a business called, of all things, “eco-eco.” But in his job as the senior director for environmental strategy at Office Depot, the $11.6-billion a year office-products giant based in Boca Raton, FL, he doesn’t talk about saving the planet. Instead, he focuses on the  business benefits of sustainability, particularly those that accrue to Office Depot’s customers.

“It really is rare for me to invoke climate change or landfills or toxicity in my internal arguments,” Yalmaz says.  “We’re in Florida. We’re not in San Francisco or the Pacific Northwest. Impassioned arguments about environmental issues don’t resonate.”

Whatever his approach, it seems to be working: Office Depot has green cred. In Newsweek’s ranking of U.S. companies, they were the top retailer and No. 8 overall,  ahead of rival Staples (17), Best Buy (19),  J.C. Penny (64), Starbucks (82) and Whole Foods Market (106). While the rankings are debatable, Newsweek wrote:

Office Depot, at No. 8, is the single retailer to make it into the U.S. top 10. It’s had its share of operational successes—saving 3,000 tons of wood and up to $1.5 million a year simply by delivering goods in paper bags rather than cardboard boxes, for instance. But, as with IBM, perhaps more significant are the tools Office Depot provides to its largest customers, including cities, states, and large corporations. It shows customers the environmental and financial tradeoffs of their purchasing decisions on everything from copy paper to cleaning supplies.

This customer-centric approach helps explain what Office Depot can do, and what it can’t, when it comes to “green.” You won’t see solar on the roofs of  Office Depot stores, at least for now, because the return on the investment is insufficient.  You will see attention paid to energy efficiency because the ROI makes sense, and you will see even more attention paid to selling greener products because profits from those sales drop right to the bottom line.

I spoke to Yalmaz by phone the other day because I’m  interested in how people inside companies — intrapreneurs, they’re sometimes called — promote change. There’s a small army of these folks in corporate America, and the work they do matters. With Washington gridlocked (or worse) on environmental issues, it’s up to corporate America (as well as state and local government) to deliver the change we need.

Yalmaz, who is 41, started “eco-eco” after college to sell organic clothing, reusable organic cotton bags and other dark-green stuff. “It didn’t resonate with the marketplace,” he said. Subsequently, he got a masters in environment and development, did consulting work with PwC and IBM focusing on the forest, paper and packaging industries and then joined Office Depot in 2006.

The company divides its environmental strategy in three: Be Greener, Buy Greener and Sell Greener. Be Greener focuses on internal operations, and this is mostly about saving money. Mostly but not entirely: Office Depot, as you’d expect, buys recycled paper, for which there’s essentially no business case. (If classical economists were right about how the world works, there’s be no recycled paper. It costs more and performs no better than paper made from virgin forest.)

But, as Yalmaz notes: “It’s an iconic product, when it comes to organizational greening. It’s the everyday symbol of environmental commitment. It’s very tangible.” Through its purchasing requirements, he explained, the federal government helped create the market for recycled paper.

Office Depot also got a lot of attention for replacing cardboard boxes with lighter weight bags when delivering supplies to institutional customers. That was a double win, saving the company money and pleasing customers. “It was sold as way to satisfy customer desire to have less packaging,” Yalmaz says.

Office Depot also took a pragmatic, customer-driven approach when it set out to define greener products. The firm looked at the purchasing policies of key, leading-edge buyers like the EPA and the U.S. Green Building Council, rather than setting out on its own to measure the environmental impact of what it sells. “We’ve tried to make the definition of green products as simple and accessible as possible,” Yalmaz says. That’s a different approach from the one taken by Walmart and its partners in The Sustainability Consortium, who are setting out to do complex, science-based life cycle analyses of thousands of products.

Unlike Walmart, Office Depot hasn’t set big attention-getting goals like zero waste or being powered entirely by renewable energy. It’s ranked No. 16,  behind Staples (No. 4) and Walmart (No. 5) in EPA’s list of the top 20 retail green power partners. But, to its credit, Office Depot is unusually transparent about its environmental performance, posting a dashboard that tracks its progress or lack thereof. For example, you can see that the percentage of copy paper sold with post-consumer recycled content actually fell between 2008 and 2010.

This week, to spur sales of green products, Office Depot recognized 25 of its own customers for their “leadership in greener purchasing.” Winners from the FORTUNE 500 include Chevron, JP Morgan Chase, Google, Bechtel and Comerica. Says Yalmaz: “If I was to be asked, what is the ultimate metric of success of our environmental program, I’d say it was ‘green spend’ by customer.”

To borrow a phrase from economist and author Gernot Wagner, but will the planet notice? That’s hard to say. Clearly, if Office Depot sells a lot more greener products in place of conventional products, we’ll be better off. And if greener corporate behavior paves the way for the political action needed to have a big impact on climate change and other issues, great. “Normalization of green behavior works better than a message of environmental guilt,” Yalmaz says. On the other hand, let’s not fool ourselves into thinking that buying recycled paper or Pilot pens made out of recycled bottles (try them, they’re cool) get us where we need to go. It won’t.

So what the heck happened in Durban? Is the world closer to dealing with the problem of global warming? Or not?

If, like me, you aren’t a devotee of the UN climate negotiations, reading the headlines isn’t much help.

From the glass-half-full crowd: Progress at end of Durban Cop17 climate talks (LA Times). Reason to smile about Durban climate conference (Eugene Robinson in the WPost). Climate deal salvaged after marathon talks (The Guardian).

From the pessimists: How the world failed to address climate change–again (Michael Levi at The Atlantic.com). The Durban climate deal failed to meet the needs of the developing world (The Guardian, again). COP out (South Africa’s Cape Times).

COP out strikes me as about right. To gain some insight in what happened, and why, I called David Victor, a political scientist at the University of California, San Diego, the author of an excellent new book called Global Warming Gridlock and one of the smartest people I know when it comes to understanding global climate politics. David has followed the UN process closely since its beginnings in the early 1990s, and he has become convinced that it is the wrong way to deal with the climate threat.

David Victor

Durban didn’t change his mind.

“In terms of substance, they have not really achieved much,” David says. “They’ve agreed to have negotiations about what they might agree to in the future.”

To be sure, as the optimists argue,  this is the first time that the governments of countries that are the biggest carbon emitters — China, the United States, the EU and India — have agreed to negotiate legally binding restrictions. That’s a big change from the terms of the Kyoto protocol, which essentially excluded developing countries, among them China, the world’s biggest carbon emitter.

But, as David writes in his book:

The world is full of promises that are not kept, and the study of international institutions is about understanding when those promises are credible and have an impact on behavior, and when they are smoke.

The so-called Durban platform is a promise to negotiate a new climate deal  by 2015 to replace the Kyoto protocol and take effect in 2020. It’s a commitment to “a process to develop a protocol, another legal instrument or an outcome with legal force under the Convention applicable to all Parties.” (If this doesn’t strike you as faintly ridiculous, you’ve been spending too much time at the UN.) David, by the way, told me he read all the documents to emerge from Durban, explaining: “I was up at 4 o’clock this morning, and had nothing better to do, I guess.”

More interesting than parsing the texts is understanding why two decades of UN climate talks have produced so little progress. David argues that the diplomatic gridlock stems not merely from the unhappy reality that the climate problem is devilishly complicated and hard to solve–both true–but because the UN setting, the number of governments at the table and even the goal of the negotiations — currently, to set targets on emissions that would limit global warming to two degrees C — are all misguided.

“A process that involves every country on the planet focused on legally binding agreements in some ways brings out the worst in everybody,” David says. Poor countries like China and India, in particular, are understandably reluctant to pledge to limit their greenhouse gas emissions as they struggle mightily to bring hundreds of millions of their citizens out of poverty.

“Universal treaties are a very bad way to get started on serious emission controls,” David writes. Better, he argues, for smaller groups of countries to form “clubs” and negotiate flexible, evolving agreements that work more like trade deals. India and the U.S., for example, might work together on ways to burn coal more cleanly, or Russia might be encouraged by Europe to sell more natural gas to China as a substitute for coal.

What’s more, David argues, negotiations that focus on setting targets for emissions are unlikely to succeed, if only because the levels of emissions reflect forces — economic growth, fuel costs, technology breakthroughs (or their absence) — over which governments have limited control.

Instead of agreeing to numerical emissions targets, governments could pledge to adopt “greener” policies. They could, for example, set efficiency standards for buildings or cars, or impose a carbon tax.“Especially when it comes to countries that are growing rapidly, it’s much easier for them to make promises about policies and measures than about emissions outputs,” David says.

Reading Global Warming Gridlock makes the difficulties ahead depressingly clear, for many reasons. Once emitted, CO2 persists in the atmosphere for decades. Replacing fossil fuels with clean energy will take decades and cost many billlions of dollars. Countries will have to absorb costs now (for cleaner energy) to generate benefits that are abstract, uncertain and in the future. This, of course, is precisely the opposite of what governments like to do, which is deliver benefits now and pay later.

These are some of the reasons why David says: “Even a serious effort to control emissions is unlikely to stop global warming. The climate’s going to change.” The question is, how fast and by how much?

I see two takeaways here for business. First, those companies that worry about climate change need to bring their voices more forcefully to the policy arena; they can’t assume that governments are on the right track. Second,  companies ought to prepare for climate change–when they site new facilities, for example–because it’s unavoidable.

Perhaps in a future blog post, I’ll explore David’s provocative ideas about bracing for climate change, including the need for adaptation and the prospect of geoengineering. In the meantime, know this: Durban and the UN process aren’t getting us where we need to go. No way, no how.

Led by Unilever, Astra Zeneca and Nike, consumer brands are taking climate change more seriously than ever, says a new report from Climate Counts, a nonprofit that rates some of the world’s largest companies on their climate impact.

Big companies are reporting emissions, committing to targets and becoming more vocal in the policy arena, according to the report.

“There’s evidence to suggest we have reached a remarkable tipping point,” says Mike Bellamente, project director of Climate Counts. “Global corporations are increasingly acknowledging climate change as reality and are adopting measures to reduce their emissions and environmental impact.”

This is the fifth report from Climate Counts, which is the brainchild of Stonyfield Farms CE-Yo Gary Hirshberg. The ratings are intended to make consumers more aware of leaders and laggards on climate — the term of art for this is “rank ‘em and spank ‘em — as well as to spur companies to do better. or whatever reason, companies are improving: Bellamente told me over the phone the other day that the average score for the 136 companies rated this year is up by an impressive 54% from the initial set of ratings.

This is nice to hear but the news comes with a big caveat. If there’s one thing we’ve learned from this past decade of growth in both “green” talk and carbon emissions,  it’s this: Voluntary corporate behavior won’t produce an adequate response to the climate crisis. Indeed, it has not: Greenhouse gas emissions rose by record levels last year. “We haven’t made (climate) progress as a society,” Mike acknowledges. Only climate policy will bring meaningful progress.

The trouble is, even companies that have adopted their own sustainability programs are not as active as they need to be in the policy and political arena. Climate Counts reports that 30 of the big companies it ranks expressed  strong support for federal level climate policy, but 82 companies (or 60%) remained silent or in opposition of such efforts. The companies in the survey don’t include stalwart opponents of climate regulation–the coal, utility and oil companies–and so it actually overestimates the degree to which business supports climate action.

Still, as more companies  acknowledge the reality of climate change and reduce their own emissions, this will help set the stage for better policy.

“Many companies are performing well,” Mike told me. “Sustainability is integrated as a philosophy across their business.” Prominent examples include Unilever, this year’s No. 1 company with a score of 88 out of 100, and Nike, with a score of 85, which topped the list last year. (See my blogposts, Unilever CEO: Don’t stay on the sidelines and Nike: Running towards sustainable consumption.)

Other companies that led their industry sectors, with scores in parentheses, include Southwest Airlines (55), Anheuser-Busch/InBev (57), Bank of America (82), UPS (83), Starbucks (70), Herman Miller and Masco (63), Marriott (73), L’Oreal (78), AB Electrolux (80), Microsoft (68), GE (77), AstraZeneca (86) and Hasbro (52).

Some other highlights:

Amazon and Apple are among the laggards in the Climate Counts ratings. That may surprise you because both are innovative companies, and tech companies generally score well on green behavior, but it shouldn’t. Amazon is all but invisible on the climate  issue, scoring a meager 11. “There is little evidence to suggest that Amazon has a management plan in place to account for emissions, reduce their overall environmental impact or report on their progress,” Mike told me. (Not coincidentally, my friends in Seattle tell me that the company plays a minimal role in the sustainability conversations and civil life of the city, in contrast to Microsoft, Starbucks, Costco, REI, etc.) I emailed Amazon for a reaction, and haven’t heard back.

Apple does far better, scoring 60 out of 100, but it still places last in the electronics sector, behind leaders Siemens, HP, IBM, Nokia and Sony. “Unlike corporations of similar size, they fail to disclose a formal company-wide emissions reduction target,” Mike says. Nor does Apply publish a sustainability report.

Rising up the charts were Wyndham Hotels and Resorts, Amgen and VF Corp. Wyndham Hotels surged 30 points  to 57 by launching a green initiative, topping Starwood (48), Hyatt (36) and Hilton (22). Pharmaceutical company Amgen rose 29 points to achieve a score of 57, and VF Corporation, which owns such brands as Nautica and Wrangler, gained 13 points to lift its score to 34.

The “footprint” graphic below reflects the fact that Climate Counts divides companies into three groups. Those that score 50-100 are “striding” towards a low carbon future and identified in green, those that score 13 to 49 are “starting” to address their climate impact and marked in yellow, and those that score 12 or less are “stuck” and colored red.

Building a low-carbon economy requires bold ideas and long-term thinking on a scale that matters.

Ideas like The Atlantic Wind Connection.

The Atlantic Wind Connection,  you may recall, is a company that has embarked on a multi-billion dollar, decade-long project to build an undersea transmission cable stretching about 350 miles from northern New Jersey to southern Virginia. (See my 2010 blogpost, Google’s Atlantic coast wind deal.)

It will bring down the cost of offshore wind projects, create a more reliable electricity grid along the east coast and create thousands of jobs. The Atlantic Ocean is well-suited for offshore winds because its relatively shallow waters extend for miles out to sea, so turbines can take advantage of stronger winds and they are barely visible from land.

“It’s a scalable platform that literally creates a superhighway for offshore wind,” said Michael Terrell, who leads energy policy at Google, a major investor in Atlantic Wind.

But like most big, bold ideas, this one is risky,  and so to assure the public that the project is alive and well, its executives and financial backers held a briefing yesterday (Nov. 30) at the National Press Club.

Mostly they talked about the economic impact of offshore wind. “Here is an opportunity to create an entirely new industry,” declared Bob Mitchell, the CEO of the Atlantic Wind Connection and a transmission-industry veteran. Chet Culver, the former governor of Iowa who is now an energy and infrastructure consultant, described how Iowa has become a manufacturing and distribution hub for the midwest wind-power industry, generating thousands of jobs. Mid-Atlantic states, he said, now have the same opportunity, if they embrace offshore wind. “We went from five percent to 20 percent renewable energy in Iowa in just five years,” he said. Keith Frederick, a political pollsters, said that nearly four out of five people in the region support wind power, and would be willing to pay $2 a month extra on their utility bills to pay for it.

But the Atlantic Wind Connection  — which is a transmission line, not a power-generation project — won’t go forward without an offshore wind boom along the Atlantic Coast.. This is not a case of “if you build it, they will come.” Until wind farms are developed, financed and approved, the transmission line can’t go forward.

And, for now, the state of the mid-Atlantic offshore wind industry is, well, uncertain at best. The most advanced project between Virginia and New Jersey is a 450 megawatt farm begin developed by NRG Bluewater Wind off the coast of Delaware, which has been in development since 2006. According to NRG, the project needs to clear dozens of regulatory approvals from the state and federal governments, under such laws as the Clean Water Act, the Rivers and Harbors Acts of 1890 and 1899, the Archaeological and Historic Preservation Act of 1974 and the Abandoned Shipwreck Act. Who knew the wind business was so good for lawyers?

To put that 450 MW farm into context, the Atlantic wind people would like their transmission to be capable of integrating 7,000 MW of offshore wind generation into the mid-Atlantic power market. The more turbines that are connected, the more the project makes economic sense, obviously, because its costs can be spread over a broader base of consumers.

Offshore wind is, unfortunately, very expensive–more expensive that solar photovoltaic energy, more than twice the costs of ground-based wind, and three to four times more expensive than power plants that burn natural gas, at least at today’s low natural gas prices, according to the U.S. Energy Information Administration. Although Delaware, Maryland and New Jersey all have renewable portfolio standards that require their utilities to bring on more wind and solar power, offshore wind projects are tough to sell to state regulators and electricity consumers. While the Atlantic Wind Connection is expressly intended to bring down those costs, it’s hard to know by how much.

With all those obstacles arrayed against the Atlantic Wind Connection, why pay attention at all?

Essentially, because of the backers. Google isn’t known for being dumb. Rick Needham, green business operations director at Google, says the company invested because the project “offers a solid financial return while helping to accelerate offshore wind development.” Google has invested roughly $850 million in a variety of clean energy projects in recent years. Says Needham: “We’re willing to take calculated risks on early stage ideas and projects that can have dramatic impacts while offering attractive returns.”

The other investors are heavyweights, too. Originally, they included  Good Energies, a global investment firm that focuses on renewable energy and energy efficiency, and Marubeni, a publicly-traded Japanese conglomerate. Last summer they were joined by Elia, a transmission company based in Belgium whose CEO, Daniel Dobbeni, said at yesterday’s briefing that Elia has built transmission lines for offshore wind farms in the Baltic Sea.

Patience will be required from all. Bob Mitchell told me that if all goes well, construction of the transmission line could begin in 2014.