Climate adaptation issues for businesses

Last May we gave a talk at a UBS-sponsored conference on climate change.  In the talk we illustrated some ways in which mitigation of and adaptation to climate change should be considered investment issues.  We identified some market inefficiencies and opportunities that we saw on the horizon and noted that companies that start thinking about adaptation issues now stand to gain first-mover advantage over their competitors.

Today ClimateWire ran a story on the Pew Center’s new report Adapting to Climate Change: A Business Approach.  A conclusion out of the ClimateWire story that mirrors the message we gave at the UBS conference:

The report … says that many companies must “challenge their embedded routines for dealing with weather” because many of the historic measures of risk they are relying upon may be outdated.

We would go further by pointing out that weather and climate risk is only the most obvious issue for businesses.  The climate system is a non-linear system, with so many complexities and interdependencies that we cannot even begin to accurately model the potential outcomes.  Companies face risks throughout their supply chains, from seed to final sale.  The smart ones are thinking about no regrets choices now, realizing that simply reacting to government regulation and taking no further action is a very weak position.

CBO analysis on Lieberman-Warner

The Congressional Budget Office has released its EPW-requested analysis of S.2191, the Lieberman-Warner Climate Security Act. The analyses cover S.2191 as passed out of committee and as proposed to be amended. CQ covers the release here.

The good news for those who want to see S.2191 pass the full Senate is that the CBO analysis expects the bill to be essentially revenue-neutral. This removes a parliamentary hurdle, as any Senator could have raised a budgetary Point of Order against the bill during floor debate had it substantially raised government spending. The bad news is that the CBO analysis projects that the bill will cost the private sector $90 billion each year from 2012-2016. This number will likely change the floor politics and will cause not a few key fence-sitters to cringe. Whether the Senate even has 60 votes to pass a filibuster check is still unclear and the $90 billion/year number casts further doubt.

Last week Senator Lieberman told a conference that he thinks a climate bill has a 50-50 chance of passage this year. Considering that the House has yet to float even draft language on their bill (a lot of proposals and a white paper from Rep. Dingell’s committee, but nothing remotely firm), and considering that the final House bill will be markedly different than the final Senate bill, we think the chance of a climate bill passing Congress this year are somewhere in the 1%-5% area. It is possible that the Senate will pass S.2191 when it comes to the floor in June, but not likely that a bill will pass through Conference Committee before this session is over. We think the new CBO estimate will make it politically harder than it already was going to be.