How will climate change affect business?

Is climate change speeding up? A new study by James Hansen, perhaps the world’s foremost climate scientist, and 16 co-authors suggests that ice shelves and glaciers in Greenland and Antarctica may be melting 10 times faster than previous consensus estimates suggested. That would lead to a rise in sea levels of 10 feet in as little as 50 years. To understand the potential new risks, Knowledge@Wharton spoke with Erwann Michel-Kerjan, executive director of Wharton’s Risk Management and Decision Processes Center, to discuss this new study.

An edited transcript of the conversation appears below.

Knowledge@Wharton: What does this striking new study mean for planet Earth and for business?

Erwann Michel-Kerjan: First of all … this [study] hasn’t been peer reviewed, which means that we still have to see what the IPCC [the Intergovernmental Panel on Climate Change, which meets in the fall] will think about their assumptions. These are models, so there will be assumptions behind the models — but clearly they want to trigger a big signal toward international communities.

What’s interesting to me is that we typically refer to the IPCC as almost the benchmark today, while in reality the IPCC is a consensus document: A very large number of scientists agree on a number [to use for allowable carbon emissions] so we basically will select the lowest common denominator. [So, it is] a great experience with the IPCC, except that yes, we have to make assumptions.

[Jim] Hansen used to be the chief climate scientist at NASA. Most of the co-authors are top people in the field. There are many top people, but they’re among that group from the U.S., from Europe, from China, so that’s an interesting coalition…. For many years we thought we had the luxury to believe that we’re facing a linear threat, so basically next year will be a little bit worse than last year, but only on the margin. And let’s be honest, the discussion about climate change is often pushed off into 2100, not really telling the people what it means for them tomorrow or for their kids tomorrow.

What Hansen is doing now is [to point out that] we don’t have much time. We’re talking about 2050 — so literally, [that is] almost tomorrow. Andwe’re not talking about an increase in sea level by only a few feet; we’re talking about a large number Twitter  — five, 10, 20 meters — basically two, three, four, five floors. So if that’s true, that’s a radical change in the way we think about the impact of climate change.

Knowledge@Wharton: The IPCC has a big meeting in the fall, and I believe that Hansen has been quoted as saying they did not wait for a peer review, which would take months, because they wanted to get this study out before the IPCC meeting.

Michel-Kerjan: And just for people to understand, [studies like this are] typically peer reviewed before being published, but the way that journal works is they publish first, then you invite the entire scientific community to comment, and that becomes peer review by a large number of people. So it’s not a negative that it hasn’t been peer reviewed yet….

Knowledge@Wharton: The study has been published in the Atmospheric Chemistry and Physics Discussion Journal so it is, literally, a discussion journal. So, this is a potentially a big change — a geometric change rather than a linear change that is being talked about here. That means that coastal cities like New York City could be in big trouble…. For so many coastal cities, if people have to migrate inland and if it happened very quickly, it could create great conflict…. On the business side, this could change how much companies pay for insurance — maybe you can’t get insurance. It’s nothing immediate, of course, but if more evidence for this starts to turn up over the next couple of years, concerns about the speed of climate change will be taken even more seriously.

Michel-Kerjan: If you take the United States as our example — 40% of our population lives in coastal areas. So it’s not just New York or Miami; there is a larger number of people affected here. You can think about a real estate indication. Your apartment or your house used to be worth $500,000, but now no one wants to buy it. The implications could be massive. Insurance companies are obviously looking at these types of analyses very carefully because what is insurable today may not be insurable tomorrow, or if it’s still insurable, it would be insurable at double the price or triple the price depending on what the risk is.

I think the big discovery, again, is that it’s [at] that tipping point almost. The fact that we may wake up one day … in 2025, 2030 and see rapid sea level rise — that’s what people have been fearing for years, because they don’t have the time to adapt. If you have 50 years, 100 years, if you are the chairman of the board, you can talk to your board of directors and say, “Well, this is a new environment that our firm will have to live in 20 years from now. What should do we do about it?” That’s fine. If you move 20 years to the next five years, that’s a radically different execution.

Knowledge@Wharton: My understanding is that there are these huge ice shelves on land that move towards the sea — particularly in Greenland and Antarctica — and they’re melting. First of all, maybe they shouldn’t be melting at all, but not only are they melting, but they are also melting at a rapid pace. That’s fresh water going into the ocean that changes the salinity; it changes the hot and cold levels of the ocean. It can cause the ocean temperature to rise, but then somehow warmer water can get stuck under the ice in Antarctica, which causes it to melt faster. It’s very complicated but things are really melting even though it may seem like [ocean temperatures] are getting colder at first.

Michel-Kerjan: It’s complicated, and that’s part of the difficulty — to communicate about it — because very quickly, people get overwhelmed with the information. And the reason it’s complicated is that you’re talking about planet Earth: multiple interrelated systems, air, water, soil and sun.

Knowledge@Wharton: Feedback loops.

Michel-Kerjan: Feedback loops. You described that pretty well. Basically it’s like you take a piece of ice and you put it in your glass of water — you let it melt, nothing happens. Your glass stays at the same level. Now if you take the piece of ice and let it melt on the plate, you see water. And that’s exactly what we’re talking about. That ice is actually above sea level, which means that it’s additional water coming in. That’s one aspect – that at the sea level, Antarctica and Greenland are by far the largest source for ice around the world.

So when the ice starts melting, you have sea level rise — that’s one. Two, you have less reverberation [of solar energy], so basically planet Earth is going to have thawed much more than before.

Knowledge@Wharton: Not as much ice reflecting the light and heat back out into the atmosphere.

Michel-Kerjan: Exactly, correct. The second part is you’re starting to challenge the ocean systems in a way in which we don’t know how they’re going to react. I think that the issue here — that is what is in the paper, too — is that we don’t know for sure, but it’s totally possible that we’ll have that rapid ice melting. That’s what they are referring to.

Knowledge@Wharton: We’ll see what happens when it becomes more peer reviewed or when more scientists have a chance to look at the data. But this does seem like a steep change in prediction compared with what we’ve seen in the past from top people. Would you sum up what this study means or how important it is?

Michel-Kerjan: It’s fair to say that other people have predicted this before. They are not the first ones or the only ones — except that, as time passes, we will have more information that’s being collected. The technology is more advanced as well, and so we’re in a better position to validate certain theories than we were maybe 10 or 15 years ago.

Planet Earth is already changing; that’s a big thing. We don’t have another 200 years to see changes; it’s already happening as we speak — so more drought — look at the situation in California. You can take anecdotes here and there. When you take them all together and start looking at the system, the planet system, planet Earth is already starting to fight back.

So the question for businesses, to me, is twofold. One is, what does that mean for my current business model — that kind of risk management asset protection? Two is on the value-creation side: If that is the world we are going to live in in the next 20 or 30 years, what type of new products, new services, new intellectual properties should we develop between now and then to be living in a world with higher sea levels? So that’s interesting.

Knowledge@Wharton: The IPCC has made many consensus predictions. How have they fared over the last 10, 15, 20 years — when they predict something, how accurate has it turned out to be? Because, as you say, we have more evidence, better technology for collecting evidence today.

Michel-Kerjan: That’s a great question, and the answer is not the one that, as scientists, we would like to see. But the reality is, if you go back to the very beginning of the IPCC and you look at the prediction back then — 15 years ago, let’s say — and if you look at what they predicted for 2020 in terms of greenhouse gas emission, in terms of impact on the planet, the worst-case scenario is already happening, and I think that’s important for people to realize that we have more data.

I think it’s fair to say the international community thought we had more time — that it would take much longer for planet Earth to react — and what we’re discovering year after year is that we don’t have much time, actually. Planet Earth is starting to react much quicker than we had thought it would, and that new paper says potentially not only much quicker, but much more intensely as well.

This article is published in collaboration with Knowledge@Wharton. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Erwann Michel-Kerjan is the executive director of Wharton’s Risk Management and Decision Processes Center.

Image: Splinters of ice peel off from one of the sides of the Perito Moreno glacier in a process of a unexpected rupture during the southern hemisphere’s winter months, near the city of El Calafate in the Patagonian province of Santa Cruz, southern Argentina. REUTERS/Andres Forza