Dr. Javier Carrillo Hermosilla, Executive Director of the Centre for Eco-Intelligent Management at Instituto de Empresa Business School
Despite the enormous amount of research and complex debate about global warming, the science behind the problem is relatively simple and easy to understand. Anyone who has got into a car on a sunny day is familiar with the so-called “greenhouse effect”. The gases in the atmosphere, especially carbon dioxide (CO2), act like a car´s windscreen, allowing the sunlight to enter but trapping the heat inside. This effect keeps the Earth warm enough and is an essential condition to life on our planet. However, human activity is creating too much of a good thing.
Over the last several years a growing consensus has arisen among scientists, governments, companies and, indeed, society as a whole, about the fact that industrial activity has contributed significantly to the problem of global warming. Greenhouse gas (GHG) emissions, including CO2, are released into the atmosphere principally as a consequence of the burning of fossil fuels. Since the start of the Industrial Revolution, around 1750, the generation of energy from oil and coal has been a key input into economic activity and human progress. Since then, CO2 in the atmosphere has risen from 280 parts per million to nearly 380 ppm today –its highest level in at least 420,000 years.
Not surprisingly, the Earth’s temperature also rose during this period and this warming has accelerated in recent decades. Since 1976, global temperatures have risen by 1 degree Fahrenheit. Nine out of the last ten years have been the warmest since 1861, when global temperatures started to be recorded. If fossil fuels were to continue as the dominant energy source, and their carbon emissions were not contained, atmospheric CO2 would surpass 550 ppm by the middle of the century and would possibly reach 1,000 ppm by the end of the century. This would mean that average global temperatures could increase by 3 to 10 degrees F by 2100. Future generations could inherit the warmest Earth since the end of the dinosaur era, 65 million years ago.

One would tend to think that humans could easily adapt to warmer weather, and that is possibly true. However, we have to distinguish between “weather”, in the sense of what we experience everyday and changes frequently, and “climate”, by which we mean the pattern of weather that persists over centuries. It is what distinguishes tropical countries from Mediterranean countries, for instance. Global warming has the potential to alter such climates, turning cold and wet countries into hot and dry ones. It also increases the melting of glaciers and polar ice, resulting in rising sea levels that may threaten coastal cities and industries. The Oori Kalis glacier in Peru is shrinking at a rate of 200 metres per year, 40 times faster than in the 1970s. Ice is disappearing from the Artic and Greenland at a steadily increasing pace. Additionally, a warmer atmosphere also threatens to increase the intensity and variability of weather patterns and to cause more frequent storms and droughts. A record of 26 tropical storms and hurricanes formed in the Atlantic Ocean in 2005. The cost of natural disasters exceeded $255 billion worldwide last year, an amount equivalent to Danish annual Gross Domestic Product.
Several scientific studies have concluded that stabilizing the atmospheric CO2 concentration at around 550 ppm, compared with the current 380 ppm, may hold back the most alarming effects of global climate change. There is also a broad consensus about the policies needed to fight global warming, namely mandatory reductions by country on GHG emissions combined with a market of carbon “credits”, financial instruments that represent a quantified reduction of GHG emissions. That is, in short, the idea underlying the well-known Kyoto Protocol, which came into force in February 2005 and which commits Europe, Canada, Japan, Russia and many other industrialized nations curbing collectively their greenhouse gas emissions a 5.2% below 1990 levels by 2012. For the time being the United States, responsible for 1/4 of GHG global emissions, has declined to sign up to this mandatory target, calling instead for its industry to impose voluntary reductions and funding research into new technologies. The protocol also encourages the participation of developing countries in the fight against global warming, by using the Clean Development Mechanism (CDM), which is expected to channel clean technologies and financial resources to these countries. Under the CDM, companies operating in industrialized countries committed to the protocol can compensate for their emissions with the reductions resulting from projects in developing countries.
It is becoming self-evident that both the impacts from a changing climate and the measures needed to reverse it have the potential to affect the way business is done in virtually every sector of the economy. For some industries, climate change is a threat to profitability. This is particularly true for those activities that rely on a stable, predictable climate, like agriculture, tourism or insurance for instance. For others industries, climate change might open up enormous new market opportunities. Quite obviously, renewable energy sources, like wind and solar, are destined to take increasing shares of the energy market in the coming decades. Companies that manufacture nuclear reactors, like General Electric and Toshiba, and also uranium producers, could clearly benefit. So could companies developing CO2 capture and storage technologies, like BP and Germany’s Siemens. Automobile transportation accounts for over a third of global CO2 production, and some carmakers are trying to differentiate their products by offering new and cleaner engine technologies. Toyota has first-mover advantage in gasoline electric hybrid technology with the Prius and other models. General Motors is spending millions on developing hydrogen-powered cars that do not emit CO2. Conventional fossil fuels can also be substituted by bio-fuels, including biodiesel and bioethanol, seen as a way to reduce emissions of GHG. As regards the pressing need for improvements in the efficiency of energy use, there is plenty of room for entrepreneurial companies that can find new ways to monitor and reduce energy use in businesses and homes. Information technologies and Internet applications will be increasingly used for this purpose.
Paradoxically, global warming, a consequence of past (wrong?) decisions in the process of industrialization, is shaping the future of business. Fortunately –insofar as we trust in the power of the market to solve the problem it created one century ago– most companies that have cut emissions have discovered that not only does this effort save money, but it also spurs the development of innovative technologies and differentiate their products. Few companies will be able to lead the way towards sustainability, but it is equally certain that few will be able to avoid it.


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