Managing climate risk

Nov. 2, 2009
Energy Expert Peter Garforth asks is it such a big deal?

The next months are likely to see heated debate in the United States over climate change. Some will be well informed and balanced, most I fear will not. Before addressing the question that is this month’s title, it’s probably a good idea to remind ourselves of the essentials of the discussion.

The evidence is increasing that added greenhouse gases caused by human activity have produced an average increase in Earth’s temperature, in turn affecting climate. Some people hold the view that this isn’t the case. About 30% of man-made greenhouse gas emissions are caused by changes in land use by agriculture and forestry, about 60% from energy and the balance from non-energy related industrial processes and waste management.

Legislation aimed at reducing man-made greenhouse gases by about 80% from current levels is in discussion in the United States. In other industrialized countries, similar legislation is in place or in discussion, and increasingly China and India are open to some mandatory limits on emissions. The next round of global negotiations will be in Copenhagen in December 2009.

If the U.S. legislation passes, plants producing more than 10,000 tons of emissions probably will have to cap their emissions against an annual target. If they fail to do so, they’ll have to buy emission credits from others; if they beat the cap, they can sell credits to others. Other emitters might be required to report their own emissions. The details of how both the reporting and the cap-and-trade will operate are still in flux. The effects of the various proposals on energy prices and other costs are unknown.


These uncertainties give rise to a wide, some would say wild, set of opinions ranging from neutral or positive effects to extreme cost increases and loss of global competitiveness. All too often, the degree to which an individual accepts the science of climate change is reflected in the opinions they listen to. So what should a company do to be sensibly prepared?

For the vast majority of plants, energy will be the largest, and probably only, significant cause of greenhouse gas emissions. With or without climate change legislation, in today’s productivity-driven world, sound energy management practices should already be in place. As we have discussed so many times, a minimum prerequisite for any energy management program is good energy consumption data for buildings, industrial processes and company-owned vehicles. If this isn’t available, it reflects more on management’s lack of attention to good energy housekeeping than on the needs of climate-change regulation.

Armed with this energy data, the step to translate to greenhouse gas emissions is simply a matter of assigning the right factors for the main greenhouse gases to each type of energy use. These factors are readily available from multiple sources and frequently can be input into the information systems used for building or process control, making energy-related greenhouse gases just one more operational variable. Most energy management programs have reductions already planned that would meet or exceed at least the first few years of potential legislated reductions. If they succeed, this is good news in a cap-and-trade system as they become a potential source of cash.

Industrial process emissions can be more complex, but again, if some common sense is applied, the task is relatively straightforward. Nearly all manufacturing companies have an approach in place to report regulated emissions of one kind or another, so adding the most likely six regulated greenhouse gases shouldn’t be too onerous. Common sense dictates starting with the higher-volume emissions and working down the list. Frequently, these higher-volume emissions have other marketing, cost or environmental challenges, so the pressure from climate legislation could ultimately prove beneficial anyway. In some existing reporting systems around the world, emissions that are a low percentage of a site’s total can be declared “de minimus” and don’t need to be reported. Many expect this will happen in the United States, though this isn’t certain.

If one assumes that climate change is underway, some places might become vulnerable to extreme weather events. This can include raised flooding risks, wind and rain damage, energy supply unreliability and unavailability of critical employees. Insurance premiums also might rise as the underwriting effect of climate change grows. At a minimum, your plant should be assessed for changing weather effects and appropriate precautions taken. Some, such as on-site generation, might both reduce overall emissions and address reliability.

Looked at this way, without the emotional baggage that surrounds the climate debate, most of these activities fall into the category of common sense. They shouldn’t overburden professionally qualified teams. If they do, there might be other issues beyond climate change risks that need addressing.

Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at [email protected].

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