Even Tom Cruise thinks some risky business should be avoided.

What’s needed — quickly — is an international risk management effort, a process that’s more familiar in military and national security circles than it is in environmental and scientific circles.

That process is described in “Degrees of Risk: Defining a Risk Management Framework for Climate Security” — a report just released by the London-based think tank Third Generation Environmentalism (E3G). The report’s recommendations are the result of consultations E3G held over the past two years with military and intelligence leaders in Europe, the United States, and several developing countries. The bottom line:

Climate change is not currently well managed. Agreements at the most recent U.N. climate negotiations in Cancun in 2010 included a goal of limiting climate change to, at most, a 3.6 degree Fahrenheit average global temperature rise. However, the emissions reductions pledged by countries at the same conference would actually result in a 50 percent chance of global temperatures rising by 5.4 to 7.2 degrees F.

The implications of current security analysis are clear: Unless climate change is limited to levels where its impacts can be managed effectively, and unless successful adaptation programs are implemented, there will be major threats to national and international security.

Even in the most powerful countries, high levels of climate change would make open trade, travel, investments, and progress against poverty “highly unlikely,” the report warns.

Other security and intelligence organizations in the United States, from the Center for Naval Analysis to the National Intelligence Council, have reached similar conclusions. So have security analyses published by NATO, the European Union, the United Kingdom, Germany, and Australia. But E3G takes the discussion to a new level, asking:

If the security threat from climate change was analyzed as rigorously as nuclear proliferation, what would an appropriate risk management strategy to deliver climate security look like?

An early step is to deal with several barriers to effective risk management. The report’s authors — Nick Mabey, Jay Gulledge, Bernard Finel, and Katherine Silverthorne — cite several:

• Current security analyses usually are based on mid-range scenarios developed by the Intergovernmental Panel on Climate Change. They don’t reflect the most recent research and don’t cover the full range of future climate risks.
• When policymakers and the public focus on global average temperatures, they fail to consider that climate impacts will vary widely across regions and latitudes.
• Policy makers tend to consider worst-case scenarios for climate disruption to be low-probability events. That’s not necessary true, particularly if we push the climate to tipping points.
• Climate models have underestimated the rate of several impacts — for example, the loss from the melting of the Greenland and Antarctic ice sheets. One reason may be that some factors are not well understood and are not included in climate modeling.
• There remains a widespread perception that climate change will happen gradually over a long period of time. In the recent geological past, however, climate change occurred abruptly at large scale.
• There is a common perception that wealthy nations such as the United States are not as vulnerable to climate risks, so other problems have higher priority. But developed countries are just as susceptible as poor countries to stronger hurricanes, sea level rise, drought, heat waves, flash floods, blizzards, and wildfires. Hurricane Katrina illustrated that even wealthy countries are vulnerable to disasters, particularly when they aren’t prepared.
• Several countries that pledged to reduce their greenhouse-gas emissions have given emission ranges rather than specific goals. Without a comprehensive global climate agreement, those countries will most likely fall back to the low end of their pledges — a result that could push the global temperature increase nearer to 7.2 degrees F.
• We are still at an early stage in our analysis of our vulnerabilities due to climate change, in part because we lack sufficient data. However, we should assume that “all critical systems will be vulnerable without adaptive measures.”
• Policymakers are “systematically underestimating” not only worst-case climate change scenarios, but even likely scenarios.

The authors point out that uncertainty about climate science is often used as an excuse for inaction, but inaction does not reduce risk:

Indeed, it is hard to imagine an American politician trying to argue that counter-terrorism measures were unnecessary because the threat of attack from al Qaeda was uncertain. But precisely this argument is often used by opponents of action on climate change to argue against even small measures to mitigate the threat … We do not have the luxury of waiting for certainty, even it were scientifically possible. Every day we fail to act, the risk becomes incrementally and irreversibly higher. Like the hands of a clock, the risks of climate change can only move forward.

The E3G report recommends that policy makers employ a “responsible risk management strategy” that reflects the current international consensus on warming, but remains flexible to keep pace with the latest science. It calls the strategy the “ABC Framework”:

• Aim to mitigate to stay below 3.6 degrees F
• Build and budget for resilience to 5.4 to 7.2 degrees F
• Contingency plan for the capability to respond to 9 to 12.6 degrees F

The authors say that now is the time to help fragile nations increase their stability, to plan for international responses to crises, and to develop the institutions and agreements necessary to manage climate risks. Among those risks is competition between nations for critical resources:

Climate change and growing resource scarcity will put great strain on international agreements to manage water, food trade, borders, and other climate sensitive resources. These international agreements underpin the open global economy our prosperity depends on, but there are clear trends showing major countries are hedging against the collapse of this order by securing bilateral access to vital strategic resources.

Nations must also work now on “crash mitigation programs” to reduce the danger and impact of catastrophic climate disruption, the report says. The lowest-risk strategy would be “rapid diffusion of non-nuclear clean energy technologies” facilitated by changes in government policy and new financing mechanisms:

Deployment of those technologies at a pace and scale needed to meet the emergency of extreme climate risks would require significant and costly immediate retirement of existing high carbon infrastructure at the same time. This will require direct government involvement in commissioning and constructing new low carbon energy capacity …

In its 179 pages, the E3G report offers scores of additional suggestions for assessing, mitigating, and responding to climate risks. It also offers a specific methodology for risk management, too detailed to describe here. But its bottom line is simple:

Current responses to climate change are failing to effectively manage climate security risks. There is a mismatch between analysis of the severity of climate security threats and the political, diplomatic, policy, and financial efforts being expended to avoid these risks.

So, what’s the risk if we don’t regard climate change as seriously as we regard, say, nuclear weapons proliferation? As the authors put it:

In the face of existential threats, countries do not wait for the political conditions to change in favour of an agreement to materially reduce risks, but construct pro-active strategies to change the range of the politically possible in order to advance their national interests.

Which is a very polite way of saying that unless all nations act together now, it will be every nation for itself.

A note about the study’s authors: Nick Mabey, the chief executive of E3G, is a former senior advisor in the U.K. Prime Minister’s Strategy Unit. Dr. Jay Gulledge is the senior scientist and director for science and impacts at the Pew Center on Global Climate Change. Bernard Finel is a senior fellow at the American Security Project. Katherine Silverthorne leads E3G’s Climate Security Program and is a long-time participant in international climate negotiations.

Wait in line for new climate regulations? You won’t catch smart companies falling for that.

When that time comes, politicians’ careers will depend on taking action. Clearly, that moment hasn’t yet arrived.

In the foreseeable future, it appears advocates of climate action will play defense rather than offense on Capitol Hill and in state capitols. They’ll try to maintain the climate and clean energy policies already put in place by Congress and states. All but one of the Republican candidates for the U.S. Senate deny climate change or its anthropogenic roots. Of the 37 Republicans running for governor in the Nov. 2 election, 22 reportedly reject climate science.

Nearly half the local government officials recently surveyed by the International City County Managers Association responded that climate change is “not a priority.” Only 11.4 percent said they are limiting carbon emissions in government operations; fewer than 2 percent are limiting emissions from residential buildings.

So is there any hope for progress on climate mitigation and adaptation over the next few years? Or for making the transition to a clean energy economy? For us eternal optimists, the answer is yes. There is evidence the cutting edge of economic transformation will come not from Washington, but from the business sector; consumers and investors; and a legacy conscious Barack Obama. I’ll explain in the next installments of this five-part post.

Down to business

Last year, the Yale Project on Climate Change Communication conducted a survey [PDF] of American attitudes on climate change. In one question, it asked who should be doing more to fight global warming. The top answer, chosen by 73 percent of the respondents: corporations.

Next, it asked whom people trusted for information about climate change. The least trusted institution: corporations.

Despite the public’s low trust level, corporations are one of our best hopes for helping the global community avoid catastrophic climate change. Three emerging factors are encouraging companies to enter a clean energy economy, even before a climate bill from Congress or regulation by EPA. The three factors are opportunity, risk, and transparency.

Hunter Lovins, the founder and president of Natural Capitalism Solutions, is one of our sharpest experts on the business case for “climate capitalism.” With examples lined up like bullets on a bandolier, Lovins cites company after company that has boosted its profits and market share with energy efficiency and renewable energy technologies. DuPont cut its carbon emissions 80 percent, saved $3 billion over five years, and saw the value of its stock rise 340 percent, Lovins says. In 2005, Lee Scott set out to cut Walmart’s energy consumption 30 percent over three years and to double the fuel efficiency of its fleet. Walmart expects these measures to save $300 million by 2015. It’s already saving $25 million every year just by installing a device that reduces the idling time of its trucks, Lovins says.

She believes the pull of profits and global market share will bring climate capitalism to the planet’s rescue. The international carbon-cutting sector already is developing rapidly. HSBC Global Research reports the number of companies providing climate-related products and services has grown 140 percent since 2004. The sector now produces $530 billion in revenues worldwide and will reach $2 trillion by 2020, HSBC says.

However, some companies, perhaps many, will continue betting on the carbon-intensive economy. That’s where risk and transparency come into play. Climate change already is creating a variety of risks for corporations; unless they manage or avoid those risks, companies are likely to see an exodus of investors, lenders, and shareholders.

Some risks are physical as sea levels rise, extreme weather events take their toll and other disruptions, from floods to drought, threaten corporate facilities and operations. Some risks are legal as victims of climate change seek compensation from carbon-intensive industries — an emerging area of law called “climate tort.” New technologies, scientific findings, renewable energy portfolio standards — and yes, EPA regulation or a price on carbon — all constitute risks for the producers and consumers who continue betting on the carbon economy.

Corporations will be less able to hide these risks from investors, shareholders, and lenders because of a trend toward greater transparency. Groups like Ceres and the Climate Disclosure Project have encouraged companies for many years to voluntarily disclose their environmental policies and performance. Now transparency is becoming a requirement of doing business. Ceres notes that public and private policies both are moving toward “robust climate risk disclosure across various industry sectors.”

In the public sector, the Securities and Exchange Commission (SEC) issued guidance this year on how publicly traded companies should disclose climate risks. Said to be the first of its kind in the world, the guidance advises companies that their obligation to inform investors of climate risks may be trigged not only by extreme weather, lawsuits, technological breakthroughs, and regulations, but also by international accords, political and scientific developments, or business trends.

The Environmental Protection Agency also is contributing to corporate transparency by requiring large greenhouse gas polluters to publicly report their emissions starting next year.

In the private sector, Walmart launched an initiative last year to create a “sustainability index” that discloses the social and environmental impacts of all the products it sells. The company’s first step was to survey its 100,000 suppliers around the world on their sustainability practices, including whether they monitor and publicly report their greenhouse gas emissions. Walmart’s goal is to produce a comprehensive electronic product rating system that will become the standard in the retail sector.

The National Association of Insurance Commissioners requires insurers with annual premiums of $500 million or more to disclose climate risks to regulators, shareholders, and the public.

Sometimes companies incur risk by association. For example, a number of banks are protecting their public images by backing away from companies engaged in harmful environmental practices. The New York Times reports:

After years of legal
entanglements arising from environmental messes and increased scrutiny of banks that finance the dirtiest industries, several large commercial lenders are taking a stand on industry practices that they regard as risky to their reputations and bottom lines.

In the most recent example, the banking giant Wells Fargo noted last month what it called “considerable attention and controversy” surrounding mountaintop removal mining, and said that its involvement with companies engaged in it was “limited and declining” …

(T)he policy shift by Wells Fargo follows others over the last two years, including moves by Credit Suisse, Morgan Stanley, JPMorgan Chase, Bank of America and Citibank, to increase scrutiny of lending to companies involved in mountaintop removal – or to end the lending altogether.

HSBC, which is based in London, has curtailed its relationships with some producers of palm oil, which is often linked to deforestation in developing countries. The Dutch lender Rabobank has applied a nine-point checklist of conditions for would-be oil and gas borrowers that includes commitments to improve environmental performance and protect water quality.

There’s also competitive risk. Fossil energy costs will rise as easy supplies disappear, international competition for resources grows, government agencies enforce environmental laws, and Congress finally puts a price on carbon. Meantime, the cost of several renewable energy technologies is coming down. These trends make stockholders nervous.

The story of the Rockefeller revolt against ExxonMobil is familiar by now. Two years ago, several members of the family introduced resolutions at Exxon’s annual meeting, calling on the company to invest more in renewable energy.

The Rockefellers were concerned that Exxon — the descendent of the oil company founded by their patriarch, John D. Rockefeller — was not investing in the energy technologies that will be most competitive in a carbon-constrained world.

If oil companies are earning huge profits the old-fashioned way, why should stockholders care? Because traditional energy companies that don’t invest in the growing market for clean energy will become the General Motors of tomorrow, going broke by focusing too much on near-term profits and too little on emerging market forces.

The Rockefellers’ resolutions failed, but they may have been the early sign of a shareholder revolution. The SEC announced last March that it received nearly 100 shareholder resolutions dealing with corporate behavior on climate change, a 40 percent increase over last year and a new record. Some resolutions were filed by investors who have gambled very big money on corporations likely to be most affected by climate policies and climate change.

Earlier this month, 68 investors representing $415 billion in assets issued a statement urging California voters to defeat Proposition 23, the Nov. 2 ballot initiative backed by oil companies to kill the state’s progressive climate law. According to the Los Angeles Times, the shareholder resolutions “mark the beginning of a concerted campaign by a group of large investors to … preserve the California law cutting industrial and vehicle emissions.”

Oil, coal, and gas companies argue their fuels will remain America’s principal energy supply for a long time to come. Perhaps. But a perfect storm is developing around fossil energy. That storm may become disruptive enough to trigger the industry’s own positive feedback loop as lenders, investors, and shareholders move away from carbon-intensive fuels.

In addition to tighter enforcement of environmental laws, more competitive renewable energy technologies and growing pressure to phase out taxpayer subsidies for oil, coal, and gas, the clouds on the horizon for fossil energy include the nationalization of foreign oil fields; increasing incidents of climate-related disasters that undermine confidence in oil and coal; growing recognition in the Pentagon and the intelligence community that our reliance on fossil energy is a serious threat to national security and military effectiveness; and the growing costs and environmental risks of fossil energy extraction.

According to one recent analysis, an investor exodus could render the world’s remaining fossil energy reserves worthless:

The emergence of a budget on carbon emissions within a tight timeframe is a ‘rubber band’ of tension waiting to break. When it does, the impact will be felt directly and heavily by coal, oil and gas extractive industries because the valuations of those companies are driven by the potential value of their proven and probable reserves. Downstream energy intensive industries will also be at risk. This makes business-as-usual an unrealistic planning assumption. As a result, coal, oil and gas extraction companies face substantial risks, including 75% of their reserves being potentially worthless.

For the time being, congressionally created market mechanisms will not be the principal driver of climate capitalism. EPA regulation under the Clean Air Act, at the moment the subject of a variety of lawsuits, will target only the nation’s largest carbon polluters. But smart companies won’t wait for new laws or regulations. Rising risks and growing opportunities will motivate them — and those who finance them — to participate in building a clean energy economy.

Next, in part 3, a few thoughts about the role of the citizen-consumer.

He’s ready for a new plan.Photo: The White House

Congress has chilled the atmosphere again, four months before the international community meets in Cancun to resume its marathon crawl to a global climate treaty. From Bonn, where nations were attending five days of pre-Cancun negotiations this week, the Associated Press reported the Senate’s failure to act on a climate bill has “deepened the distrust among poor countries about the intentions of the United States and other industrial countries” to cut their emissions.

The response from members of the Obama team has been: a) the president is not backing off his commitment to legislation or a 17 percent reduction in greenhouse gas emissions; and b) there is more than one way to skin this cat. Hints of executive action are in the wind.

Also in the wind is a renewed discussion about the role states can play in cutting our carbon emissions. For example, the World Resources Institute concludes [PDF] that if states are “go-getters” with the policies they already have in place, they can make a significant contribution to the president’s 17 percent goal.

Now comes an even fresher report — this one from the Presidential Climate Action Project (PCAP) — that details several ways President Obama also can be a “go-getter,” using powers Congress delegated to the Executive Branch in the past.

PCAP offers five ideas for presidential action, with details on how to implement them before Cancun:

1. In full partnership with state, tribal, and local government leaders, create a national roadmap to the clean energy economy: Great Britain has a detailed roadmap with specific milestones for achieving a low-carbon economy by 2020. The United States does not.

Rather than preempting the power of states to deal with climate change, as some climate bills in the Senate would do, the national roadmap should show how the federal government can help states be even better go-getters. Cities, too.

According to the Center for Climate Strategies, if all 50 states adopted a set of 23 energy and climate policies (policies the Center identified in working with more than 1,500 stakeholders), they could cut emissions 27 percent by 2020 compared to 1990 levels, about nine times deeper than the cuts the president has proposed. At the same time, those 23 policies would boost GDP by $134 billion, save consumers $5 billion, and create 2.5 million new jobs. That’s the ideal case, of course, but it illustrates the potential.

Another recent report, from IHS Emerging Energy Research, calculates renewable energy generation in the U.S. will grow 250 percent in the next 15 years if the states that already have renewable energy portfolio standards fully implement them.

2. Declare a war on waste: The American Council for an Energy Efficient Economy (ACEEE) calculates that the U.S. economy wastes 87 percent of the energy it consumes. During his campaign, Obama cited a United Nation’s report that placed the United States 22nd in energy efficiency among the major economies. The Obama/Biden energy platform promised “an Obama Administration will strive to make America the most energy efficient country in the world.”

It’s time to make that goal official. Obama should challenge the United States — with the help of every citizen and sector — to become the world’s most energy-efficient industrial economy by 2035. According to economist Skip Laitner at the ACEEE, that goal can be achieved if the nation begins improving its efficiency 3.1 percent annually.

3. Reinvent national transportation policy: This is a goal mostly for Congress as it considers the surface transportation reauthorization bill next year. But Obama can give traction to real reform if he gets behind it.

Today, states are awarded more federal funding for building roads than for building mass-transit systems. The incentives should be reversed. Reducing America’s “vehicle miles traveled” should be at the top of federal transportation policy, alongside better vehicle fuel efficiency. Meantime, President Obama can fulfill another campaign promise by starting work on a national low-carbon fuel standard.

4. Stop subsidizing fossil fuels: The oil, coal, and gas industries in the United States are like 50-year-old children still on the breast. They are mature and ridiculously wealthy; they shouldn’t need taxpayers to subsidize them.

In his 2011 budget, Obama proposed cutting fossil energy subsidies by $30 billion over 10 years, but that only scratches the surface of public subsidies for these industries. Likewise, Obama championed and won approval by the G-20 to phase out about $310 billion annually in fossil energy subsidies in other countries. New estimates from the International Energy Agency indicate, however, that subsidies of fossil energy consumption (not counting subsidies for production) were around $560 billion in 2008. Phasing out these subsidies over the next decade would achieve more than 30 percent of the cuts in carbon emissions necessary to keep rising atmospheric temperatures at no more than 2 degrees C above pre-industrial levels, the IEA says [PDF].

President Obama’s goals on fossil energy subsidies could be more aggressive. Meantime, he should phase out taxpayer subsidies over which the Administration has some control — for example, increasing the fossil industry cost-share for federal research and development and bringing U.S. royalty and lease rates up to the levels charged by other nations.

5. Make ecosystem restoration a central strategy in climate mitigation and adaptation: Over the last century, human activity has destroyed or degraded many of the ecosystems that provide flood control, storm surge suppression, ground water recharging, water purification, carbon sequestration and other services that will become even more critical because of climate change. Ecosystems provided these services for free. We replaced many of them with large engineered structures that cost fortunes to build and to maintain — if they’re maintained at all.

Today, we have more than 400 major federal dams and reservoirs in the United States, along with 500 miles of levees and dikes, according to the American Society of Civil Engineers. In its most recent report on the state of infrastructure in America, it gave flood control structures a D- and estimated it will take $50 billion over five years to fix them.

In October, the president’s Interagency Climate Change Adaptation Task Force will send Obama its recommendations for creating a national adaptation strategy. The task force should address the potential of ecosystem restoration to help communities mitigate and adapt to climate change.

These recommendations alone won’t save the world. Nor can President Obama. A national cap and price on carbon remains an essential game-changer. But executive action can provide a far better start than Congress has given us so far, particularly if it warms the
negotiating climate in Cancun.