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.