Is the business sector key to tackling climate change?

Just six months before the United Nations climate talks, business leaders and investors are gathering in Paris for “Climate Week” and a parallel “Business & Climate Summit”. Road to Paris spoke to Mark Kenber, an economist with 20 years’ experience in climate policy, CEO since 2011 ofThe Climate Group, which organized Climate Week. The 10-year old organisation has been one of the first in the world to showcase positive engagement by the private sector on climate change, and works closely with regional governments around the world.

What is the role of the business sector in tackling climate change, and how has this changed in the past two decades?

Mark Kenber — The business sector is responsible for the majority of the economy and the vast majority of investment decisions, so it will be the business sector that determines whether we hit a low carbon economic path or stay sputtering along the existing one. What has changed dramatically is that in the last two decades, and until 5 or 6 years ago, businesses, and the rest of society, waited for governments to tell them what to do. Governments agreed targets often on the basis of political negotiations rather than science. Then implemented them to a greater or lesser extent in domestic policies. And businesses followed them. Some businesses complained. Some more proactive businesses engaged positively. But on the whole, the vast majority of businesses waited. What’s changed so dramatically is the role of what we call “non-state actors”: businesses, cities and sub national governments, states and regions. Now it is they who are leading, with governments having to catch up.

What has prompted this change?

There are a number of reasons. The almost unexpected fall in the price of a lot of technologies: wind, but in particular solar. For many, many years, solar was something rather like nuclear fusion. You’ll remember we were all told: “It’s going to be good one day, it’s going to happen in the future, but it’s still too expensive and will be expensive for a long time”. We’ve seen these incredible price falls in the last five years or so. Now in 30 to 40 countries around the world solar electricity is cost competitive with fossil fuel electricity.

What does this mean in practice?

I was recently in in Dubai. They are building a 200 megawatt solar plant that would generate electricity at 4.5 US$ cents per kilowatt-hour. This completely changes the dynamics of the energy sector. Add the possibilities opened by ICT, smart grids, much better control systems and much better ability to respond to demand changes and now some breakthroughs in energy storage. You now have everything you need to have a much more flexible, more reactive energy system that allows not only the traditional centralized power plants, but also off grid or grid connected-distributed renewable power. This can be solar, wind, small hydro, anaerobic digestion, and so forth.

How are governments reacting?

Governments are often uncomfortable with committing to things in the short term that they don’t know how to deliver. Lots of countries commit to 2050 targets. And they did 10 years ago. Why? Most people who made the commitment are unlikely to still be in government by then, and many are likely to be dead. So they wouldn’t be held to account. Now technological developments and cost reductions are giving governments the comfort that they can be more ambitious in their targets. Businesses are also playing a role in being stronger advocates. More than a thousand companies have signed up to a carbon pricing declaration, and many companies are already using carbon pricing in their own investment decisions. These companies are then saying that they want a level playing field, that they want certainty over time. So companies are advocating more for climate policy. They are doing so partly out of self interest. They are making money out of the low carbon economy. So governments are thinking: “this is maybe not such a big stretch, this is real.”

Has this changed the dynamics of the international climate negotiations?

Absolutely. In Lima we had a “non-state actors day”. On the UNFCCC website as well as all the national commitments, we now have a section bringing together all the commitments by cities, by states and by companies. The Climate Group has a network of over 30 sub-national governments who are all committed to this because they see it as an economic opportunity. Last year the governors of Massachusetts and Connecticut said they had evidence that because they had invested in clean energy and energy efficiency, they had suffered less in the recession, they came out of it quicker, and the recoveries created more jobs. A few days after that Connecticut announced a two billion investment in clean energy. The “We Mean Business” coalition – that we are part of – surveyed thousands of companies, and across those companies the rate of return on clean energy and energy efficiency was 27%. That’s fantastic. If I get 1% return from my pension I am happy. And that pressure you are seeing from the divestment campaigns, that consumer pressure is making companies think: “Even if we are not sure, let’s make sure we are on the right side or we may get punished if we are on the wrong side.”

And yet there are still companies like Exxon who now say they accept the climate science but there won’t be an agreement at the Paris UN summit in December, so therefore there will be need for a lot of fossil fuels way into the future. Just last week the top story on the FT front page was that Saudi Arabia wants to “extend the age of oil”. So this doesn’t square so well with your optimism.

Of course they say that. Exxon and the Saudis have done extremely well out of oil over the last 40 years. And yet there’s been a very interesting shift by Exxon: if you remember they have been denying for decades the science of climate change. I think they always believed it but it was convenient for them not to. Ok, so now they accept the science, they are moving slowly along that path. They may not have signed up to the idea there is a “carbon budget” to be respected, but they are certainly investing in efficient fuels and my guess is that when the flip happens they’ll be at the front of it. You do not become one of the world’s largest and most profitable companies by being stupid. They are arguing to maintain their business model but I suspect like many others they will shift. As for Saudi Arabia, their economic boom over the past 40 to 50 years was based on oil. But take Abu Dhabi, or take Dubai which doesn’t have fossil fuels but is obviously dependent on that region. Dubai is investing a lot in becoming an energy efficiency leader and Abu Dhabi a renewable energy leader. Although the oil reserves are there, they recognise the future is going to be different from what it is now. And that’s a smart thing to do. You take what you’ve got and you invest it in the next model of your economy.

Of course there are some sectors that refuse to see the light. They refuse to see they need to change. The coal sector is one of these. As in any process of structural change there are winners and losers. The losers will be those who don’t react quickly enough and those who are in the sectors of the past, not the sectors of the future. But if you look at some of the big energy companies, the smart ones can reinvent themselves. You can think of the electrified future. You can imagine that petrol companies who have a fantastic network of petrol stations can become fast electric vehicle charging points on motorways. They can still be powering transport but will be just adapting to the changed circumstances. But those that are not prepared to adapt, those like coal that really are part of the past, of course they will suffer and of course they shout and scream. Losers always do.

What are your expectations for this week’s Business and Climate Summit in Paris?

There will be 25 different events under the umbrella of Climate Week which we have co-organized, which is quite a good indicator of how much interest there is in this from so many sectors. There’s an energy and there will be a lot of people.

But is it going to be just grand statements and no substance?

There will be a grand statement. There will be a declaration. You could say: “If that’s all it is, what’s the point?” But firstly, the declaration will be markedly stronger than declarations from previous business events, which will show to governments and the wider world how business sentiment is changing. Second if you look at the speakers and participants, it is not just the usual suspects of banks and fast moving consumer goods and renewable energy companies. There are some big, big industrial companies attending, speaking in sessions about how we make the transition to a low carbon economy. Not in sessions about how to avoid the problem, how do we keep our heads down and hope we don’t get bashed. That’s a shift. Thirdly, the very act of taking part in a conversation is part of a change in narrative. If we think back (this is something I heard Al Gore say): 30 or 40 years ago it was considered acceptable to be sexist or homophobic or racist, but now it’s not. That’s because of conversations, because somebody said: “You can’t say that,” so we don’t’ act like that any more. The change of discourse is as important as the change in actions.

Finally, it’s the power of example. We run a campaign called “RE100”, for companies that are committed to 100% renewable energy procurement. They are doing it because of climate change but most importantly they are doing it because it makes sense. It’s cheaper, they save money by hedging against energy price volatility, so it convinces their Chief Financial Officers, and it gives them an advantage in clean energy markets in the future. When other businesses hear about that, they may not do 100% renewable energy but they may still want to do something, whether it’s getting long-term power purchase agreements with a wind farm or whatever it may be. Then there will be the companies that will show that by having internal carbon pricing they are making better investment decisions, and those that have adopted energy efficiency programmes right at the heart of their business strategies. So it has a multiplier effect.

The example of solar panels is really interesting. There is quite a lot of evidence that if you know someone who has solar panels, you are about three times as likely to put a solar panel on your roof compared to someone who doesn’t. So that power of example is really important. My father, who is 92, put solar panels on his roof about 14 years ago. He is a Conservative and so are many of his neighbours. In his village many people initially laughed about it: “You’re doing this just because your son is into climate change.” Then he showed them how much money he was saving and now half the village has solar panels. It’s that power of example. Often we don’t know what is possible.

What do you expect from the UN climate conference in December in Paris?

I am getting slowly more optimistic. Like you, I’ve been doing these climate COPs (Conferences of the Parties) for donkey’s years. Two decades now. 20 years since my first one. And I see these people stuck in windowless rooms and my heart sinks. COP15 in Copenhagen was a difficult moment at the beginning of the financial crisis, but now the economy is different from back then, it’s starting to grow, technology and costs have changed a lot, more countries are up for it. China is showing what’s possible. India, still not sure what its position on climate change is, but it’s booming in renewable energy, it has seen the opportunity. So I think if – and it’s a big if – we can get through those traditional political boundaries which have almost more to do with other things than climate change – that north-south divide thing, then I am pretty optimistic. What I hope is that [the UN conference in] Paris creates certainty over the longer term.

Yet many say the European Union position is not as ambitious as it could be.

The EU position is for a greenhouse gas target of “at least” 40% reduction for 2030 on 1990 levels. It’s not enough. But then you look at the words “at least”. And you can interpret those in a couple of ways. One is rather like their previous target for 2020 – if other people do stuff, and have ambitious targets, we’ll raise our level of ambition. The other interpretation is that the minimum we are going to do is 40%. We don’t know what the world is going to be like in 2030. We don’t know how technology is going to change. Battery storage may be free by then. In which case 40% is low. We’ll do 50%, 60% because business will have gone way beyond us.

What about other country commitments, the “INDCs”?

They should be stronger. I also think they should be framed not as a political offer about what we can get away with but they should be presented as a investment prospectuses. They should be saying “we are open for low carbon business; we are the best, because we’ve got great targets, political certainty, etc”. And, if it’s Britain, we are competing with Germany, with Italy. Investors are looking for where to invest, so they should be looking at us because we can give them certainty.

So what happens after the UN conference in December? Does everything fall off a cliff in January 2016, given that the agreement will be about what happens after 2020?

No, and that’s why the rise of the non-state actors is so important. As we know, the Paris agreement will kick in in 2020, then there are various 2020 commitments that countries have made and the sputtering end of the Kyoto Protocol. But we also know science and the carbon budgets tell us we need to see emissions peak in the next five years and then they need to start falling. And that’s where cities and state governments and companies will really have to start playing a role. This is why that NAZCA registry is so important. At the UN summit last year in NY, you had cities, states and regional governments committing to their own targets, using standardised methodologies and reporting against them. Our network of states and regions includes the biggest and most powerful economic regions in their countries, California, New York, Baden Wurttemberg, North Rhine Westphalia, Lombardy, Catalonia, Basque country, Quebec, Gujarat, etc. These are the ones that have led the way economically in their countries and now they have committed to targets and are reporting against them. That’s what will drive change over the next five years. It has to, because I suspect governments may sign a deal in Paris and say right we’ve done our work, we have our policies, right we go away again. We need great action over next five years and I’m pretty confident it’s going to happen.

What’s the significance of these “net zero emission targets” companies are talking about?

You need to distinguish between companies that are calling for this and companies that are committing to this. It’s the right thing to call for, but it can be a bit like calling for global carbon pricing: you know it’s not going to happen so you are happy to call for it. Sure, a net zero carbon goal is more realistic than that. But the really interesting thing is that there are companies that are setting their own net zero carbon goals, and I think that’s fantastic. Because it’s consistent with what the science tells us it’s what we need to do. And also because they wouldn’t do it if they didn’t think that they could do it profitably. So it sends a really powerful signal. Or they know they have the innovation processes, they’ve got the capacity or the ingenuity to make it happen.

Which companies are real frontrunners?

We work closely with IKEA. They have committed to 100% renewable power by 2020, net zero waste, net positive impacts on their forests, and there is a lot of wood in IKEA stores. I think they are one of the benchmarks. But many others are following suit, and then there are all the new companies that are coming through. It’s a vanguard at the moment, but it’s growing quickly.

But what about transport? What can realistically be done about this sector in a below 2 degree scenario?

Transport is always in a difficult box for most governments. Not least because it you talk about power stations there aren’t many of them, but for transport you are dealing with millions of people. And this has become a big part of many people’s lives – getting in their car. So transport is going to require a package of things. There will have to be much better investment in public transport. Much more ability to reduce transport use through use of IT. But also electrification combined with the sharing economy. Some of these new taxi companies such as Uber and others, if you had them in urban areas using electric vehicles, then you can get to a point where the number of private vehicles burning fossil fuels is going to be reduced. Two things make me quite confident. When I talk to my daughter and her friends, I see things have changed. When I was her age, my dream was to have a car. Now they don’t feel the same way. They want access to a car, but perhaps through car sharing. They don’t want to pay the tax, deal with maintenance. Young people are much smarter on how to use public transport because of the internet. Also, electric vehicles are not quite at the cusp but it’s going to happen much more quickly than we expect it, the same as solar electricity.

Is this focus on business and climate change just about “the 1%”: privileged people talking to each other? How does it affect the rest of the world?

Climate change itself is a major attack on human rights because it affects the poorest, most vulnerable people who haven’t caused the problem. It deprives people of the basic right to shelter, security, food, water, and so on. And then there are human rights aspects about how we deal with it. We need to pay proper attention to adaptation and involving people in decisions.

In terms of impacts on ordinary people, whether one likes it or not the decision of what gets produced and what gets sold partly responds to existing demand. But demand is partly also manufactured. According to “Says law” in market economics, supply creates its own demand. People didn’t know they needed iPhones, but now they are being provided everyone wants them. My dad didn’t know he wanted solar panels. It’s about creating choices for people and helping them to make the right choices. I am not asking my neighbours to be climate change advocates but I can show them that because of clean energy my house is warm, well ventilated, cheaper to run, more comfortable.

There are some major behavioural challenges like the addiction to the private car. But we’ve learned that telling people it’s going to be a disaster and it’s their fault therefore they should feel bad and turn the lights off doesn’t work. Providing alternatives and choices that make it easier to do the right thing is better. There are also those who argue whether a market based economy is a good thing or a bad thing for the climate, but the fact is we have one. And that’s how it works.

This article is published in collaboration with Road to Paris. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Germana Canzi is a freelance writer, researcher and consultant with extensive expertise in sustainable development. 

Image: Lake Louise is pictured at Banff National Park, in the Canadian Rocky Mountains outside the village of Lake Louise, Alberta.    REUTERS/Mark Blinch