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The Costs and Opportunities of Global Warming

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By Fred Wellington

Science has lately painted an increasingly detailed and consistent picture of the severe environmental impacts of climate change.  Now, the British government is about to release a report on the economics of climate change.  The study, led by Sir Nicholas Stern, is one of the most rigorous and comprehensive to date, and suggests that the economic costs of climate change will reach into the trillions of dollars if the world does not act quickly and significantly on climate change.  The report concludes that addressing climate change makes economic sense as well as environmental sense.

The Stern report was highlighted at a meeting of the top 20 emitting countries in Monterrey, Mexico this week, a follow-up on the work at the G8 summit in Gleneagles in 2005.  The top 20 emitting countries account for 75 percent of global emissions, according to WRI estimates.

 

 

On the other side of the coin, the World in 2050 report from PriceWaterhouseCoopers looks at the costs of transforming to a greener global economy.  It estimates that a 60% reduction in emissions by 2050 would reduce economic growth by 2-3 percent compared to a baseline scenario.  That's the equivalent of about one year's growth spread over 4-5 decades.

Changing Economics Under Carbon Constraints

Governments are now developing policies that internalize the cost of carbon emissions. These policies create new business issues for business, entailing both risk and opportunities. The CDP4 report from the Carbon Disclosure Project summarizes many of these. Companies like General Electric, Wal-Mart, and Dupont, as well as financial institutions like Bank of America, Goldman Sachs, JP Morgan, and Citigroup are developing policies and strategies to effectively manage climate change risk and opportunities.

WRI's Capital Markets Research project looks at how climate change affects the risk and opportunities of various economic sectors.  Each company's climate risk profile differs, and climate risk implications are more salient in some industries than others. For example, the Changing Drivers report examines several auto sector companies, including Ford, General Motors, Honda, and Volkswagon, and finds considerable differences in how climate change regulation might affect their stock performance.

Furthermore, a joint WRI/Merrill Lynch report identified 7 auto-sector companies that could actually benefit from carbon constraints:

A WRI/Citigroup Investment Research (CIR) study also identified several North American companies that would likely be winners under carbon regulation:

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