Our increasing dependence on nonclean energy sources has come at a cost. Global warming is caused by an increase in the concentration of greenhouse gases. These gases allow direct sunlight, or ultraviolet light, classified as short-wave energy, to reach the surface of the Earth. As this sunlight heats the surface, longer-wave infrared energy (otherwise known as heat) is radiated upwards into the atmosphere. Greenhouse gases absorb this energy and prevent the heat from escaping into space, effectively trapping it in the lower atmosphere and forming a blanket that warms the planet.

Several greenhouse gases, such as water vapor, carbon dioxide, and methane, are naturally occurring. Indeed, their presence is vital to life on this planet. Without them, the entire Earth would be a frigid wasteland, with a temperature hovering at around minus 18 degrees Celsius.85 But recall that old axiom about “too much of a good thing.” Human activity has been increasing the concentration of naturally occurring greenhouse gases in the atmosphere—especially carbon dioxide—through the combustion of oil, gas, and coal. The U.S. National Oceanic and Atmospheric Administration reports that levels of carbon dioxide prior to the industrial revolution were about 280 parts per million by volume (ppmv). Since the industrial revolution, that number has increased by more than 30 percent to 370 ppmv. That’s higher than at anytime in the last 420,000 years. As a result, parts of the world are beginning to feel the heat. Global surface temperatures have already increased by about 0.6 degrees Celsius since the late nineteenth century, with a rise of 0.4 degrees Celsius in just the last 25 years. North America alone has seen its average temperature rise by 1.0 degree Celsius since 1900, with 80 percent of that increase occurring since 1970. Researchers at the University of Bern have found that average summer temperatures in Europe from 1994 to 2003 were the hottest they have been in five centuries. And the 30-year average from 1973 to 2002, for both winter and annual temperatures, also topped the 500-year record. At this rate, the average global temperature will increase by 1.0 or 1.5 degrees Celsius by 2050. The Intergovernmental Panel on Climate Change, which advises countries around the world, warns that the average temperature could rise by 5.8 degrees Celsius by the end of the century.

A temperature increase of even a few degrees could have catastrophic effects as large ice sheets melt and raise global sea levels. The hydrologic cycle—the constant circulation of water from the sea, through the atmosphere to the land, and then back to the atmosphere by way of evaporation—would undergo drastic changes that could affect the water supply, as well as patterns of floods and droughts all over the world. As the scientific evidence of global warming mounts, even confirmed skeptics have become devoted environmentalists. The American Geophysical Union, the United States’ most broadly based professional organization in earth and space science, which had long adopted a neutral stand on the issue, officially declared in 1999 that there was a “compelling basis for legitimate concern” about climate change.

A temperature increase of even a few degrees could have catastrophic effects.

Even defense experts worry that the fallout from global warming could pose a greater threat to national security than terrorism. A 2004 report commissioned by the Pentagon—written by Peter Schwartz, a CIA consultant and former head of planning at Royal Dutch/Shell Group, and Doug Randall of the California-based Global Business Network—warns that sudden climate change within the next two decades could lead to widespread droughts, famine, and rioting. Nations seeking to hoard and protect their dwindling food and water supplies might increasingly resort to nuclear weapons as the ultimate deterrent. “Disruption and conflict will be endemic features of life,” Schwartz and Randall conclude. “Once again, warfare would define human life.”

Although climate change is a global problem, particular regions are likely to be at a greater risk. Since the driest air masses (which are also the coldest) respond first and most strongly to global warming, northernmost regions, such as Siberia and northwestern North America, may be among the most affected. Swiss experts note that if climate change remains unchecked, many ski resorts in the Alps may face bankruptcy. The precise economic losses facing a country like Switzerland are uncertain, but some experts have suggested that tourism losses in that country could eventually be as high as $1.6 billion annually. Some ski resorts are already making contingency plans against global warming by constructing all-season hiking facilities and convention centers.

Yet that will be small comfort to countries that hope to host future Olympic winter games. In late 2003 the International Olympic Committee reported that resorts in Canada, Italy, Switzerland, Austria, and the United States might be unviable hosts by 2030.

Alternatively, some parts of the world may face more winter than they can handle. The rising temperatures that melt the glaciers and snow in Europe could eventually usher in a mini-Ice Age throughout much of the Northern Hemisphere. Ocean currents that flow northward from the equator warm the eastern United States and northern Europe. As this current, known as the Great Conveyor Belt, cools down, it grows denser and sinks into the North Atlantic, thereby drawing more water from the tropical south as it makes its return journey to the equator. However, if global warming prompts arctic glaciers to melt enough fresh water into the Atlantic, the salinity of the Great Conveyor Belt would decline, which would lower the currents’ overall density. At a certain threshold, scientists still aren’t sure when this tropical pump would shut down entirely. Switzerland would once again see snow on the Alps; however, the crop failures throughout the United States and Europe would likely make finding food a higher priority than skiing.

Meanwhile, as melting glaciers cause sea levels to rise, coastal populations would begin to see the land beneath them disappear. Current estimates indicate that about half of the world’s population lives in coastal zones, which have been growing at double the national rate of population growth.

The U.S. Environmental Protection Agency estimates that a onefoot rise in sea level is likely by 2050 and could occur as soon as 2025. A two-foot rise, projected within the next century, would eliminate approximately 10,000 square miles of land, an area equal to the combined size of Massachusetts and Delaware, and subject major port cities in the United States at below-average elevation (such as Boston, New York City, Charleston, Miami, and New Orleans) to major flooding and shoreline retreat. Professor Robert Mendelsohn at Yale University estimates that by 2065, the cost of protecting the U.S. coastline from rising sea water could be as high as $1 billion per year.

China’s 11,185 mile-long coastline is home to about 70 percent of the country’s large cities, more than 50 percent of its population, and nearly 60 percent of the agriculture and industry that drives the national economy. Ding Yihui, a climate expert at the China Meteorological Administration, warns that, “With comparatively advanced social, economic and cultural developments, China’s off-shore regions will suffer great losses if the sea level doesn’t cease rising.”

Globally, some of the biggest losses will be in the area of insurance. According to Munich Re, one of the world’s biggest reinsurance companies, flood defense schemes to protect homes, factories, and power stations from rising sea levels and storm surges may cost on average $1 billion per year.

Changes in the hydrological cycle mean that rainy seasons may become shorter and more intense in some regions, while droughts in other areas may grow longer in duration. Brutal storms, typhoons, cyclones, and hurricanes may also become more frequent. The effects are already being felt. The number of major flood disasters has steadily risen over the last half-century: six in the 1950s, seven in the 1960s, eight in the 1970s, 18 in the 1980s, and 26 in the 1990s. Between 1971 and 1995, floods killed 318,000 people and left more than 81 million homeless. The World Water Council estimates that up to 45 percent of reported deaths from natural disasters between 1992 and 2001 were the result of droughts and famines.

Developing nations have been the hardest hit, accounting for 96 percent of the deaths resulting from natural disasters, owing to poor infrastructure, higher population density in vulnerable areas, and the tyranny of geography that locates many of them in humid tropical zones where storms are especially severe. By 2025, half the world’s population is projected to be living in high-risk areas vulnerable to extreme weather. For instance, more than half of Egypt’s industrial capacity is located within a one-meter zone of sea level and would be devastated by even an 11-inch rise in ocean waters. Ghana’s Akosombo Reservoir, a huge manmade lake that at one time supplied 95 percent of the country’s power needs, has been depleted to less than half its size due to intermittent rainfall, prompting the country to ration electricity.

The economic losses from floods and other weather-related catastrophes have been doubling every decade, reaching a total of $1 trillion between 1987 and 2002. The United Nations Environmental Programme’s (UNEP) Financial Initiatives taskforce—a partnership between UNEP and 295 banks, insurance, and investment companies— estimates that economic losses will surge to nearly $150 billion per year by 2010 if current trends continue and warns that, “The increasing frequency of severe climatic events, threatening the social stability or coupled with significant social costs, has the potential to stress insurers, reinsurers, and banks to the point of impaired viability or even insolvency.”

Fifty Years to Extinction?

Plants and animals may also become victims. Warmer seas have already killed 25 percent of the world’s coral reefs due to the loss of temperature- sensitive algae that the corals feed upon. In addition, as the world’s oceans absorb more and more of the carbon dioxide produced by human beings, the concentration of carbonate ions (an essential element for coral growth) is falling. Just as the Swiss face a future without ski resorts, the Australians might witness the death of the Great Barrier Reef, which attracts two million tourists a year and has an estimated value of $40 billion.

Ocean coral might just be the canary in the coalmine. In 2004, a landmark study in the journal Nature predicted how global warming would affect plants and animals in six biodiverse regions, from Australia to South Africa. The researchers plugged field data into computer models that simulated how temperature changes would alter natural habitats, taking into account the ability of species to move to better climates and thrive. The results of the simulation were, to say the least, distressing: More than one million of the world’s plant and animal species could be at high risk of extinction by 2050.

These findings are worrisome to more than nature lovers. One group of ecologists estimates that the value of biodiversity is $3 trillion per year due to the goods (crops, genetic material from plants) and services (air and water purification, climate regulation) that healthy ecosystems provide. Complicating the dilemma, while several species face extinction, disease-carrying pests such as rats, mosquitoes, and ticks would thrive in an environment of increased temperatures, flooding, and higher humidity. Scientific models project an increase in the proportion of the world’s coastal population affected by malaria to increase from 45 percent to 60 percent by mid-century.

Big Oil: Going Green

In light of the growing scientific evidence and wide-reaching impacts of climate change, corporations are also beginning to feel the heat. For instance, ExxonMobil publicly rejected the connection between the consumption of oil and gas and climate change for years. Activists in Europe reacted with a Stop Esso campaign (Esso is the company’s European brand name), encouraging consumers to boycott ExxonMobil’s gas stations in order to push the company to change its environmental views.

In 2002, top energy analysts at Deutsche Bank warned that ExxonMobil was risking its brand and business reputation due in part to its views on climate change and opposition to the Kyoto Protocol to reduce global greenhouse gas emissions. “Being handed a reputation as environmental enemy number one for such a big consumer-facing business has to be considered a brand risk,” wrote analyst JJ Traynor of Deutsche Bank. Traynor put ExxonMobil’s shares on a “hold” rating, questioning, “[H]ow nimble has the current management been in terms of . . . communicating a detailed strategy to shareholders, and dealing with the new environmental age?”

At the company’s annual meeting in May 2003, two shareholder proposals—one suggesting that the company conduct a climate change report and another urging a report on renewable energy— won more than 20 percent of the vote. Dave Ebner of the Globe and Mail suggests that as the current CEO, Lee Raymond, heads toward retirement, ExxonMobil will likely select a CEO more open to environmental concerns.

Cooler Heads Prevail: Managing Climate Change

Since the consumption of fossil fuels is the main source of greenhouse gases, mitigating the impact of global warming will be intimately tied to how we consume energy. As is the case with water scarcity, the best solution might be to use the invisible hand of the market to prod countries toward more efficient energy use and the accelerated development of breakthrough technologies.

One proposal advocated by the Earth Policy Institute’s Lester Brown is lowering income taxes while increasing taxes on environmentally destructive activities. “The basic idea is to establish a tax that reflects the indirect costs to society of an economic activity. For example, a tax on coal would incorporate the increased healthcare costs associated with breathing polluted air, the costs of damage from acid rain, and the costs of climate solution.”

Previous experiments with environmental taxation have proven effective. Finland, for instance, adopted a tax on carbon emissions in 1990 that led to a 7 percent decrease in emissions by 1998. In Europe and the United States, opinion polls reveal that 70 percent of the public would be willing to support environmental taxes, as long as they did not increase their overall tax burden.

In recognition of the spiraling costs associated with changing weather patterns, the insurance and financial services industry, in cooperation with the UNEP, has issued a detailed list of recommendations on how companies can better cope with environmental problems and remain solvent. Among the proposals:

• All financial services companies should incorporate climate change considerations into their business practices by developing carbon risk management and benchmarking tools.

• Asset managers, such as pension funds, should develop more robust, quantitative tools to assess the potential implications of climate change and use these tools to conduct portfolio-wide assessments of risk exposures arising from equity and debt holdings and asset allocation decisions.

• Insurance companies should strive for greater clarity on the potential threats and opportunities from altered climate conditions through cooperation with scientific research.

• Commercial banks should fully price the risks associated with climate change into loan agreements and provide incentives to develop cleaner energy sources.

Corporations are also committing to better controlling and reducing greenhouse gas emissions. BP was a pioneer in this endeavor. In 1996, it broke ranks with other industry leaders and threw its support behind the Kyoto Protocol. Then, in 1998, BP CEO John Browne upped the stakes further when he pledged to cut BP’s carbon dioxide emissions by 10 percent below its 1990 levels by 2010, a steeper cut than the Kyoto Protocol itself prescribed.

To obtain this objective, BP consulted with nongovernmental organizations such as the Pew Center on Global Climate Change, which advises Fortune 500 companies. BP gave each one of its 150 business units in 100 different countries a designated quota of emissions permits. Each unit was given the freedom to decide how to bring itself into compliance, whether by reducing emissions, buying credits from other BP units, or selling leftover credits to BP units that failed to meet their quota. Business units that successfully reduced emissions or decreased fuel consumption would see cost savings reflected in pay scales and bonuses. By 2002, BP had not only exceeded its target, but announced a net gain of $600 million thanks to greater fuel efficiency.

For BP and other companies striving to reduce global warming, their motivations are not simply altruism and public relations. Rather, it is the growing recognition that if they do not act, governments may act for them. Companies are also seeing that environmental sustainability and the growing “green” sentiment of consumers can be a com- petitive advantage. Mauricio Reis, Environment Systems Manager of the Brazilian-based CVRD, the largest diversified mining company of the Americas, with a market capitalization of approximately $10.5 billion, admits that, “we at CVRD are not doing what we are doing because we love the monkeys, birds, and butterflies—but in order to keep the company competitive . . . our ecosystems are under the spotlight . . . our clients, particularly from Europe, demand that our production uses clean methods.”

Corporations have also recognized that acting in a more environmentally friendly manner can cut costs. Acer Incorporated, a Taiwanese company that is chiefly involved in manufacturing and marketing of personal computers, motherboards, multimedia products, and peripherals, has made significant efforts to reduce pollution and lower its impact on the environment. In addition to demanding that its employees strengthen end-of-pipe treatment and reduce their use of resources, Acer also considers the impact of every step of the production process on the environment—from green design, green production, green packaging, and green reuse to industrial waste reduction and environmental initiatives in the office. As a result of the environmental improvements, Acer saved costs to the extent of approximately $2.5 million.