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This Week
Questions? Read the syllabus first.
Markets
Climate change
You should be choosing the company you will analyze for
your Scenario Planning Assignment by now
Coming up Next Week
An easier week!
Globalization and International Business 5% brief due Wednesda 11 m
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What are markets?
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Working Assumptions of the Political
Economy
The basic unit of analysis are people (i.e.
Stakeholders)
Employees, Customers, Shareholders, etc.
People are self-interested
We look out for ourselves: Whats in it for me?
People are rational (maximize utility)
We dont act randomly or non-rationally (e.g.emotionally) do we?
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Self interest vs. Rationality
Does altruism really exist? You tell me
Arguments for
Arguments against
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Market Failure
Public goods
Externalities
Monopoly Information asymmetry
Agent misdirection
Social goals Inequality
Economic instability
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CLIMATE CHANGE:PHYSICAL IMPACTS
Nardia Haigh, Ph.D.
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The Carbon Cycle http://oceanworld.tamu.edu/resources/oceanography-book/Images/carboncycle.jpg
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Temperature increases
http://www.ipcc.ch/publications_and_data/publications_ipcc_fourth_assessment_report_synthesis_report.htm
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Regional temperature changehttp://www.ipcc.ch/publications_and_data/publications_ipcc_fourth_assessment_report_synthesis_report.htm
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Stern (2006: p294): http://www.hm-treasury.gov.uk/sternreview_index.htm
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Fresh water
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IPCC water forecast
http://www.ipcc.ch/pdf/assessment-report/ar4/wg2/ar4-wg2-chapter3.pdf
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Projected water use by sector
http://www.unep.org/dewa/vitalwater/article43.html
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Extreme weather
http://en.wikipedia.org/wiki/List_of_Atlantic_hurricane_seasons
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Extreme weather
http://en.wikipedia.org/wiki/List_of_Atlantic_hurricane_seasons
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Extreme weather
http://www.wmo.int/pages/publications/meteoworld/archive/june08/auld_en.html
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Useful reports, websites, etc.
IPCC publications:http://www.ipcc.ch/publications_and_data/publications_and_data.htm
http://www.ipcc.ch/publications_and_data/publications_ipcc_fourth_assessment_report_synthesis_report.htm
Stern Review: http://www.hm-treasury.gov.uk/sternreview_index.htm
UN Environment Program:http://www.unep.org/dewa/vitalwater/index.html
US Global Research Program:http://www.usgcrp.gov/usgcrp/nacc/background/scenarios/default
.htm Tyndall Centre for Climate Change Research:
http://www.tyndall.ac.uk/publications/search-all-publications
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CLIMATE CHANGE ANDBUSINESS
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"Scientists make meaningless orambiguous statements.
Advocates and media translatestatements into alarmist
declarations. Politicians respond
to alarm by feeding scientistsmore money[the accepted
evidence is] entirely consistentwith there being virtually no
problem at all."
Dr. Richard Lindzen, MassachusettsInstitute of Technology, 2006
Global atmosphericconcentrations of carbon dioxide,methane and nitrous oxide haveincreased markedly as a result ofhuman activities since 1750 and
now far exceed pre-industrial
values determined from ice coresspanning many thousands ofyears. The global increases in
carbon dioxide concentration aredue primarily to fossil fuel useand land-use changes, while
those for methane and nitrousoxide are primarily due to
agriculture.The Intergovernmental Panel on Climate
Change, 2007
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Over the past 2 hours, I have
offered compelling evidence that
catastrophic global warming is ahoax. That conclusion is
supported by the painstaking
work of the nation's top climate
scientists.James M. Inhofe,
United States Senator, 2003
The debate is over. There's no
longer any debate in the
scientific community about
this. But the political systems
around the world have held this
at arm's length because it's aninconvenient truth, because
they don't want to accept that
it's a moral imperative."
Al Gore, Former United States
Vice President, 2006
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Market Shift
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2Questionsand why theyre the wrong ones.
1. How much will it cost? 0.6-1.4% GDP increase by 2030 to reach 450ppm (McKinsey,
2007). 1% GDP increase to reach 500-550ppm (Stern,2007).
Increase in GDP of H.R. 2454 (CBO, 2009)
Year Percentage Change
2020 -0.2 to -0.7
2030 -0.4 to -1.1
2040 -0.7 to -2.0
2050 -1.1 to -3.4
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2Questionsand why theyre the wrong ones.
1. How much will it cost?
2. Does it pay to be green?
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Source: Hoffman, A. 2007 Carbon Strategies: How Leading Companies are Reducing their Climate Change Footprint
Report by Andy Hoffman
100 question survey of 31 companies.Advanced Micro Devices, AEP, Air Products, Alcan, Alcoa,Baxter, BP, Calpine, Cinergy, DTE Energy, DuPont, Entergy,Exelon, Fairchild Semiconductors, Georgia-Pacific, Holcim,IBM, Intel, Interface, Maytag, PG&E, Rio Tinto, Rohm and
Haas, SC Johnson, Shell, Staples, Sunoco, TransAlta,United Technologies, Whirlpool, and Wisconsin Energy
6 Case studies:
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1 2 3 4 5
Accessing new sources of capital
Enhancing human resource
management and corporate culture
Identifying new market
opportunities
Improving risk management
Social responsibility
Elevating corporate reputation
Protect the global climate
Anticipating and influencing climate
change regulation
Cost savings
Operational improvement
Energy efficiency
Average Response
Why take Action?
Once begun, how important are the following measures of success inundertaking your climate-related strategy?(Rate their level of importance: 1 = not important; 3 = neutral; 5 = important).
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1 2 3 4 5
Accessing new sources of capital
Enhancing human resource
management and corporate culture
Identifying new market
opportunities
Improving risk management
Social responsibility
Elevating corporate reputation
Protect the global climate
Anticipating and influencing climate
change regulation
Cost savings
Operational improvement
Energy efficiency
Average Response
Why take Action?Once begun, how important are the following measures of success in undertaking yourclimate-related strategy?(Rate their level of importance: 1 = not important; 3 = neutral; 5 = important).
1. Increase Profits
3. Enhance Corporate Reputation
2. Pending Government Regulation
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Why take Action?
1. Increase Profits
Uncertain energy costs
2. Pending Government Regulation
3. Enhance Corporate Reputation
Source: Bloomberg
$0
$20
$40
$60
$80
$100
$120
$140
$160
May-83 May-87 May-91 May-95 May-99 May-03 May-07
WTI
$/bbl Crude Oil Price
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Why take Action?
1. Increase Profits
Increasing energy costs
Investor interest
2. Pending Government Regulation
3. Enhance Corporate Reputation
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
1 2 3 4 5 6
Growth in SRIFunds in U.S.$ billions, 1995-2005
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Why take Action?
1. Increase Profits
Increasing energy costs
Investor interest
Greentech sector
2. Pending Government Regulation
3. Enhance Corporate Reputation
$0.6 $0.9$1.9
$5.1$6.5
$10.6
$7.9
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
2002 2003 2004 2005 2006 2007 2008 YTD
Global New Investment in Clean Energy
Source: New Energy FinanceNote: Includes buyouts, excludes projects
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Why take Action?
1. Increase Profits
Increasing energy costs
Investor interest
Greentech sector
Growing consumer demand
In the 1980s, energy efficiency was number ten, eleven or twelve in consumer priorities. Inthe last four or five years, it has come up to number three behind cost and performance, and
we believe these concerns will continue to grow.
Casey Tubman, Brand Manager of FabricCare Products, Whirlpool
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Why take Action?
1. Increase Profits
Increasing energy costs
Investor interest
Growing greentech sector
Growing consumer demand
2. Pending Government Regulation
3. Enhance Corporate Reputation
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Why take Action?
2. Pending Government Regulation
[If you believe that federal standards on climate change are imminent]when do you believe these standards will take effect?
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Beyond 2020
2015-2020
2010-2015
2005-2010
Percentage of Respondents
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Why take Action?
1. Increase Profits
Increasing energy costs
Investor interest
Growing greentech sector
Growing consumer demand
2. Pending Government Regulation
3. Enhance Corporate Reputation
Businesses that ignore the debate over climate change do so at their peril.
The Conference Board
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How to take action?
Ensure Strategic Timing Not whether to take action, but when.
You should always remain one step ahead of the competition. But if youare two steps ahead, you lose the crowd. The ideal is for you to be theleader of the pack and everyone pulling in the same direction. David
Bresch, Head of Atmospheric Perils Group, Swiss Re Establish Appropriate Levels of Commitment Within the Firm
How aggressive should the strategy be?
Pay attention to market signals.
Influence Policy Development
Policy sets the rules of the game Reduce uncertainty by gaining a seat at the policy table: hold the seat,
companies have to bring experience, you cant take a seat withoutbringing experience to the table.
Create Business Opportunity
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Create Business Opportunity
Climate change cannot be an add-on.
We need to understand, measure, and assess market opportunities. Howdo you know and communicate which products will be successful
in a GHG constrained world?...The company that answers these
questions successfully will be the winner.
Linda Fisher, Vice President andChief Sustainability Officer, DuPont
Risk Management,
Bottom-line
Protection
Business Opportunity,
Top-line
Enhancement
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Climate Change Represents a Market
Transition
The key is both influencing the rules of the game and timing your shift to a
new carbon-constrained strategy. Its knowing what the next technology forenergy production is, and shifting when the market is ready to reward it. Were
not going to get out of the oil business in the near term. But, you have to ask,
What is the iPod for energy? Is it out there? You have to be on watch.
David Hone, Group Climate Change Advisor, The ShellGroup
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Source: Enkvist, Naucler, & Rosander. A Cost Curve for Greenhouse Gas Reduction. McKinsey Quarterly, no. 1 (2007): 17
Climate Cost Abatement Curve
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Source: Schilling, M.A. & Esmundo, M. 2009. Technology s-curves in renewable energy alternatives: Analysis and implications for industry and government. Energy Policy,
37:1767-1781.
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This telephone has too many shortcomings to be seriously
considered as a means of communication.
The device is inherently of no value to us.Western Union internal memo (1876)
Who the hell wants to hear actors talk?H. M. Warner, WarnerBrothers (1927)
I think there is a world market for maybe five computers.Thomas Watson, chairman ofIBM (1943)
We don't like their sound,
and guitar music is on the way out.Decca RecordingCo. rejecting the Beatles (1962)
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Id put my money on the sun and solar energy.
What a source of power! I hope we dont have to waituntil oil and coal run out before we tackle that.
Thomas Edison (1931)
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The Business Case
MarketShift
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Source: Schilling, M.A. & Esmundo, M. 2009. Technology s-curves in renewable energy alternatives: Analysis and implications for industry and government. Energy Policy,
37 1767 1781