Exclusive: Porritt urges business to prepare for carbon-constrained world

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BusinessGreen.com: You have warned that businesses should prepare for an increased incidence of “climate shocks”. What should they be doing?

Jonathon Porritt: The key concept here is resilience. Future proofing – what any company needs to do to become better adapted and better equipped to cope with these potential shocks to the system – is what good visionary management is about. All companies now realise we live in a world of what some people call “radical discontinuities”. There are businesses working on models that are not worth the paper on which they are written. Whether you are talking from the perspective of demographics or technology change or the environment or changing consumer expectations, the reality for business now is one of radical discontinuity. So smart management teams are already thinking of ways to proof our businesses against that discontinuity, and ways to build resilience in the company so we are better equipped to deal with all that. And I can see this in large numbers of companies now preparing themselves for a world that is very different, and quite disconcerting, if you are not ready for it and moving with it.

And you would maintain shocks on a scale of several Hurricane Katrina-type events a year are credible?

They are entirely credible. People forget, and I don’t blame them for forgetting because it is a bit uncomfortable, but everything that we are seeing changing in the climate today is a consequence of the emissions we put into the atmosphere 20 years ago, not emissions we put into the atmosphere yesterday. So we have a lot of pent-up change coming down the pipe at us as a result of the growth in emissions over the past 20 years. So some change, some level of climate-induced shock is inevitable now, absolutely inevitable – and many people believe we are already witnessing that in many areas of the world. This is no any longer the zone of scientific hypothesis, this is now empirical evidence on the ground that systems are changing and the threats are growing all the time.

What will happen in the wake of these types of shocks?

Governments will have to respond. They will either respond intelligently by designing in as much incentive to change [business models] as possible, or they will react in the way they often react, which is through regulation late in the day that often entails huge costs. It is inevitable that energy costs will rise once we are through the recession. From the perspective of resilience and good planning for cost control and future proofing yourself against disruption in the energy market, why wouldn’t you try and make your business as resilient as possible against those prospective shifts in energy prices and disruption to energy security? I sometimes think sustainability is sold in the wrong way – this is just good business to me. It is not a wholly different category of concern – it is just another set of business risks and opportunities that we need to factor in.

Are businesses really doing enough to prepare themselves for these shocks?

This is still an emergent agenda. It is there and every big global company will have sustainability on its radar and reflected in its management processes and reporting processes. But you couldn’t claim it is a dominant set of issues – it is emergent rather than fully matured. But nonetheless, the direction is clear. Companies are becoming more attuned to this and aligning business practices to some of the disciplines that come with sustainability. So I see this as an evolutionary process, with the private sector getting more familiar with, and actually quite confident about, sustainability. If I were to put government representatives on the same platform as private sector representatives from the point of view of practice – not theory, but practice, what you actually do – every single one of the permanent private secretaries in government today would look like a complete Charlie against the type of voices you hear from business now. They clearly have not thought it through, they don’t really know about it. They manage huge businesses as it were, with very considerable turnover – if you look at the tax revenues they receive – and none of them have taken the kind of steps that many equivalent-size private sector businesses have taken.

You have also warned that more needs to be done to address population growth. Is this a debate that sustainable businesses should be involved in?

Not really. It is interesting that when population issues are caught up with other issues such as HIV/Aids or immigration, [businesses can be involved]. So in Africa, for instance, big companies are very involved in interventions around HIV/Aids and that often leads to them providing support to family planning programmes and reproductive healthcare. But by and large companies are wise to keep out of the population debate. This is something for governments to negotiate with their citizens not really for business to try and solve.

One area you have called on businesses to address is air travel. Can they really adapt to a world in which air travel is significantly cut?

Already now, for cost reasons as well as sustainability reasons, many companies are thinking about teleconferencing and telecommunication alternatives as a real strategic commitment, not just as a technology that is nice to have. I think we will see business travel reduced quite dramatically for both cost and CO2 reasons. It is one of the reasons I am so sceptical about projection for growth in aviation, because I do not think companies will fly as much in the future as they have in the past.

Another area of low-carbon change that many businesses will simply not regard as practical is cutting down on meat consumption. Can we really move to a low-meat economy?

There will be an number of halfway houses. You won’t get people going immediately to a position of saying “you all ought to be vegetarians”. But it is worth noting that Dr Pauchari, who is head of the Intergovernmental Panel on Climate Change, said that as part of your commitment to living less carbon-intensive lifestyles, don’t eat meat two days a week. In Western economies that is the approach we are likely to see. The truth is that all the stats add up on this – meat consumption is a major contributor to all sorts of health problems such as coronary heart disease and so on. People are worried about health issues and the fact that we have a heap of sustainability issues coming in will just reinforce the outcome.

You have referred to those operating in the carbon market as spivs and speculators.

Not my phrase, but nonetheless.

But you have argued that it is strange to see a market mechanism being used to address carbon emissions at a time when markets are being slammed.

It is strange that they are turning to this trading system at this time. But you have to remember all these market-based mechanisms were developed when markets were in ascendance. The whole Kyoto process was at a time when this commitment to marketisation was very strong in both America and Europe and the idea that government could deliver through regulation was dismissed out of hand and deemed to be ridiculous. The view was “governments cannot have the answers to this because markets work much more efficiently and cost effectively”. So the current toolkit for carbon management was developed at the height of the pro-market, pro-liberalisation period. Now we are beginning to reassess, beginning to think of a different balance between what markets can do and what governments can do and we’ll get a reassessment of the so-called benefits of trading and more discussion about alternative routes to cutting emissions.

So would you like to see cap-and-trade schemes scaled back? That doesn’t seem very likely, given president Obama’s support for carbon trading.

No, this is not an anti-trading commentary. We need those schemes to become more mature, more sophisticated and do more business – and I think we will continue to see that, certainly through to the post-2012 period. But my hunch is that we will see alternative thinking being given more airtime by economists, campaigners and probably by companies themselves, because the one thing that companies will be aware of is that they hate this idea of price volatility. From an investment perspective they want to know what the cost of carbon will be in 2020. It does not help them that 2020 prices might shoot to some ludicrous level because of unknown reasons such as a change in the rules by government or speculators in the market. That is hopeless for them trying to manage very complicated investment planning processes. Predictability and long-term transparency in carbon markets is becoming a big part of the business ask now. They would rather have a system that is a bit tougher than a system that is prone to massive price volatility.

Would a carbon tax represent the best way of delivering that certainty?

It is more easily done through a tax approach. Though there is a hybrid idea based on a trading system with a floor price set by government. You would promote a global trading system but governments would say that by 2015 you can guarantee the price of carbon will not be less than x.

You said you are concerned that the price of carbon in the European scheme could go back down to zero again if the recession continues. Are those fears valid?

It very nearly did go to zero [in the last phase] when we suddenly realised how many free permits government had doled out, and I am worried again now. I do not think it will go to zero but we are in a very difficult period because companies have committed to a level of allocations based on an assumption of two per cent growth in the European economy. Without that growth their activity will fall, their emissions will fall, and they will not need as many credits as they have. Some companies are selling credits now… and others are holding on. But if there was a bit of a rush on the selling of credits, you could see the price come right down.

You are also on record as saying we will need to generate 45 per cent of our electricity from renewables by 2020 to meet the EU’s renewables target. The government’s target is for 32 per cent of the electricity mix to come from renewables. How do you account for the difference?

If you look at the expectations around heat and transport you have to be massively optimistic to think we will meet those, particularly on transport. The Department of Transport has shown no real innovation at all, no real interest in driving behaviour change or technology shift to achieve the percentage gain we need on transport. So the reason why inside government – though they may not issue this publicly – they are reckoning they will probably have to do 45 per cent of the total take from electricity is because they know it will not happen on transport.

Can we reach a 45 per cent mix by 2020?

It will not happen unless they bring forward the licensing of these offshore wind farms as you will not make it without them. But a lot of this is predicated on government doing as little as it does now on energy efficiency. Every energy analyst says that if you have these eye-wateringly difficult targets, 45 per cent of a lower figure is obviously much more viable to aim at and until you do the efficiency bit you will always look at it and say it is impossible.

About Jonathon Porritt

Jonathon Porritt is chair of the government’s Sustainable Development Commission.

He is also co-founder of the Forum for the Future think tank and previously served as director of Friends of the Earth and co-chair of the Green Party.