Facing a climate tipping point in the next decade, companies eye energy opportunities

By Joe Boomgaard | TBL
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WEST MICHIGAN — Ever been to Little Rock, Ark. in the summer? In July and August, the average high temperature is over 90 degrees Fahrenheit. From May through September, the average high temperature there is over 80 degrees. The average summer high temperatures in Little Rock are more than 10 degrees hotter than the average highs in Grand Rapids.

So what?

The preponderance of scientists agree that the earth’s climate is getting warmer and that human beings are to blame. According to climate change projections from the Union of Concerned Scientists, by 2095 the summer climate in Michigan will feel much like that of present-day northern Arkansas. On the flip side, the winter climate in Michigan in 2095 is predicted to be 7-13 degrees warmer and feel more like Cincinnati does currently.

The Union of Concerned Scientists’ data shows the last decade, which had nine of the warmest years on record, has been the warmest ever recorded. The UCS reports the planet’s global average temperature has increased more than 1 degree Fahrenheit over the last century and that over the last 25 years, the global average temperature has increased at more than twice the rate of the last century.

Evidence shows the average annual air and soil temperatures are on the rise. Winters are becoming shorter and warmer. By the end of this century, the scientists predict Michigan could see a 5- to 10-fold increase in the number of extreme heat days, those over 97 degrees, which currently average less than five annually.

Climate change involves much more than just temperature. Seasonal precipitation patterns are changing and extreme weather events are becoming more common. Scientists say that means municipalities will have to re-examine whether existing infrastructure can handle more frequent extreme downpours. It means that property owners will be subject to more damaging severe storms and floods, which could raise insurance premiums.

Scientists also predict lower lake levels as more water can evaporate in warmer temperatures and as ice cover declines on the Great Lakes and inland lakes, potentially impacting navigation for commercial shipping and recreational boating and municipal water intake. Officials in towns with tourism-based economies along Lake Michigan would rather forget the low water levels of 2007, which threatened to close harbors to boating because of sand shoaling exacerbated by a lack of federal funds to dredge them.

Climate change will have winners and losers, even within the same industry. For example, the growing season in Michigan could become eight-10 weeks longer, according to the UCS. Already, some change is being felt in West Michigan. Dr. Roy Black, professor of agriculture economics at Michigan State University, said conventional wisdom points to climate change as a driver in the Traverse City wine industry. The region can support new varieties of grapes that may not have been able to survive normal winters from a few decades ago.

“We also are growing varieties of grapes, for example, in the Traverse City area that we wouldn’t have considered 20 or 30 years ago,” Black told TBL. “(A) longer season, (and) milder winter facilitates less hardy varieties.”

But while grapes and peaches might grow better in Traverse City and “what farmers can grow now in Kansas is going to be possible to grow in Michigan,” more frequent droughts predicted under most climate models could certainly have an impact on the state’s agriculture, said Figen Mekik, associate professor of geology at Grand Valley State University. A warmer climate could also lead to the spread of new animals and unfamiliar pests to the region. Already, a 2009 joint study by the University of Michigan, MSU and Ohio’s Miami University have documented a south-to-north movement in Michigan of southern species including the common opossum and eastern chipmunks, while at the same time finding a decrease in the numbers of northern species.

“Invasives and diseases, anything we associate with warmer regions, will move up from the south. All the vegetation zones are moving to higher latitudes. Our spring will come sooner, but our winters will be snowier,” Mekik told TBL. “Overall Michigan will not be a big loser, but there will be winners and losers. The big losers will be those in low-lying areas (near the coasts).

“Climate scientists are not painting a doomsday picture. I hate the phrase ‘save your planet.’ It’s our comfort level and the comfort level of our children and grandchildren — that’s what we’re hurting. The planet has seen worse and it’s seen better. This is the first human change to affect (climate) globally.”

Still a chance to curb greenhouse gases

All those changes are driven by an increase in the prevalence of trace gases in the atmosphere, in particular carbon dioxide. Current levels of atmospheric carbon dioxide are at 388 parts per million. Historical ice core data shows a normal fluctuation of about 100 parts per million between 180 and 280.
“Right now, we’re seeing double the highest it’s ever been in the last 1 million years. We’re off the chart,” Mekik said, noting that the dinosaurs certainly experienced higher concentrations of carbon dioxide millions of years ago, but those species evolved to adapt to that climate. “The planet will not suffer — we’ll suffer. The dinosaurs were used to that. They evolved in that world.

“We have a decade to ensure the damage isn’t permanent. We’ve already committed to a 2-meter sea level rise even if we stop emitting right now. If the concentration goes to 480 parts per million, that will be a tipping point. We’re at 388 now and we still have a chance to lower it. It’s a global problem. Incentives need to come to industries to encourage people to drive a hybrid or get better energy sources somehow.”

Atmospheric gases and their increase have been linked to many human activities, ranging from the cars we drive and the source of the electricity that powers our homes and businesses to the food we consume. If countries around the world want to slow the process of global warming — scenarios for carbon caps, for example, don’t stop the warming from continuing, but instead slow the rate at which the warming occurs, as Mekik noted — leaders will have to make tough decisions on air emissions, in particular, which puts the spotlight squarely on energy. Businesses in energy intensive industries have begun to take note, especially considering the potential for the federal government to step in with increased regulations.

Mark Bennett, senior counsel at Miller, Canfield, Paddock and Stone PLC, said many of his clients have begun to think about energy as a raw material. The cost of electricity can vary depending on its source, which can also vary depending on location, and Bennett said some companies are starting to locate in places with a favorable energy mix of traditional and renewable sources. If the company expects it will have to count the emissions from its energy consumption as part of a carbon tax or carbon cap scheme, it may choose to locate in a place that uses more renewables as a potential cost-saving move, he said. Other clients are hedging on future carbon regulations when looking to acquire existing businesses.

“When one company is looking at buying another company in an energy intensive industry, the buyer may look at energy as a way to beat down a seller on price,” Bennett told TBL.
Bennett said multinational companies are often more advanced in their energy analysis since other parts of the globe, especially Europe, have a much more focused energy and greenhouse gas policy than the U.S.

Business takes energy to the bottom line

Global climate change is shaping decisions being made in the boardrooms across the country, including at companies in West Michigan. Some companies see these choices as a way to stave off federal regulation, to make a profit and/or to attract new customers.

Bennett said companies should look at climate change as an opportunity, “a driver in terms of economic development” through such policies as a renewable energy portfolio standard.
“I’m working with several clients in West Michigan that are traditional manufacturers responding to activities and transitioning labor skills,” Miller Canfield’s Bennett said.

Companies like Cascade Engineering Inc., Johnson Controls and Energetx Composites have ramped up diversification efforts to get into alternative energy technology. New companies like LG Chem are moving into the region, taking advantage of the labor and state incentives to produce alternative vehicle technologies for hybrid and battery vehicles.

Not all manufacturers can make a play in the alternative energy supply chain. Concern over energy and its impact on greenhouse gas emissions has driven Grand Rapids-based global office furniture manufacturer Steelcase Inc. to react over the past decade. As a major manufacturer and consumer of energy, the company that prides itself on its sustainability commitment couldn’t ignore the triple bottom line implications energy had on its business.

David Rinard, director of global environmental performance at Steelcase, said in the absence of national energy policy regulations, the company’s motivation for such a careful probe of its energy usage had clear economic ties.

“When you start to look at the big picture climate change gets into difficult philosophical territory and you get believers and deniers. It’s emotional territory,” Rinard told TBL. “But what’s the underlying business driver for this, what’s driving the conversation is largely tied to greenhouse gases or its equivalence. The bulk of that is all tied to energy consumption. The underlying goal we’re using to drive the business is let’s use less energy.”

Steelcase tracks and reports its greenhouse gas emissions as regulated, but Rinard said the company has sidestepped the emotional issues around climate change within the organization by looking at Steelcase’s energy performance. By defining the issue as one of performance, Rinard said the discussion moves to finding ways for the company to save money by improving its energy efficiency.

The company created a global metric it uses to track energy consumption and greenhouse gas emissions at each of its locations on a monthly basis. The system is calibrated to accommodate various regional differences in energy production sources and turn each location’s consumption into an equivalence score.

Steelcase has chosen thus far to track the scope 1 and 2 carbon emissions, those within the company’s direct control plus the indirect emissions resulting from its energy consumption. The company is also considering asking its Tier I suppliers to report their emissions. While those numbers likely won’t be counted as part of Steelcase’s emissions, the company could track supplier emissions and set goals for reductions, Rinard said.

“We have all the challenges and opportunities we can handle by looking at scopes 1 and 2, but we can look at our supply chain and make them responsible for their scope 1 and 2,” he said, which creates a type of built-in accountability system. “It puts the control where (the emissions) are.”

Importantly, Rinard said much of Steelcase’s current reporting and tracking are done on a voluntary basis. It has a corporate goal of reducing its global environmental footprint by 25 percent by 2012, using 2006 levels as a baseline. The company also joined the EPA’s Climate Leaders program after it committed to reducing corporate-wide GHG emissions by 40 percent per dollar sales by 2009, a goal the company is expected to announce it met as part of an announcement later this year.

That’s a goal the company met by paying attention to energy efficiency and by driving behavioral change within the operations, Rinard said. And while leaning and removing waste from the manufacturing process certainly accounts for its share of the company’s progress, it’s also finding opportunities in unexpected areas of its operation.

“We’ve worked in manufacturing, and the processes use big motors and require a lot of ventilation. There’s a fair amount of consumption that can go on there,” Rinard said. “As manufacturing looks to be more efficient, we see large office space rival what a manufacturing space consumes.”

Responsibility heads upstream

The current EPA threshold for reporting GHG emissions is an annual emission of 25,000 metric tons of carbon dioxide, which encompasses about 10,000 facilities across the country. It’s a requirement that targets utilities as well as large-scale energy users on a per facility basis.

Three Kentwood Steelcase plants and an energy center — counted as one facility under the EPA definition — will have to report emissions under the new regulations, Rinard said.

But most companies in West Michigan, especially most manufacturers, fall well below that threshold. Bill Stough, CEO of Sustainable Research Group LLC, said most companies he works with have fewer than 250 employees and annual emissions of less than 5,000 metric tons of CO2.

“The big hope is that larger companies will start educating their supply chain and saying (GHG emissions) are not just critical to us, but to all our suppliers,” Stough told TBL. “It’s a good time for manufacturers to start looking at how to (reduce emissions) in a cost-effective manner so they’re not in the squeeze (of tightening regulations). That spurs innovation. Most small business owners get really innovative when there’s a potential for cost savings, a threat of regulation and a potential for sales. Companies in West Michigan are on the cutting edge of what manufacturers can do.”

In good times, companies can complain there’s no time to make the necessary investments in new clean energy technology. In bad times, the scapegoat shifts to the lack of funds. But regardless, in advocating for a “triage of sustainability,” Stough said businesses can find strategic advantages and opportunities by becoming more sustainable. Their motivations aside, executives’ actions in creating more sustainable and efficient companies serve to mitigate their companies’ impact on climate change, not to mention help their bottom line and their employees.

“The first step is to stop the bleeding and look at the wasteful practices…you can stop and save you money,” he said. “There’s quite a bit of low-hanging fruit. If you reduce your operating cost, you can make more money.”
He counsels companies to invest those savings in revisiting product designs to remove built-in environmental impacts, which further reduces waste, cost and potential long-term exposure to harmful chemicals, for example. Those savings can then be applied to strategically developing new products to attract more “greener consumers.”

“More consumers are demanding that products be greener, and you can cut your costs and improve sales at the same time. (The process) spurs innovation,” he said. “The vast number of manufacturers don’t see the environment as a strategic issue. They see it as a political issue. A lot of small manufacturers don’t have lobbyists and in-house experts, so they can get pulled in one direction or the other. But some forward-thinking companies are looking at greenhouse gas regulation as an opportunity to improve energy efficiency and even invest in alternative energy sources.”

Rinard likes to use the analogy that becoming more sustainable as a company is akin to being a sound technician at a concert. “You have a mixer panel and all these dials and levers you can use to optimize the sound. With sustainability or business strategy, you have all these dials and levers and what you’re trying to do is create the optimum mix of properties, so you add in the sustainable attributes you’re after. You can’t walk in, pull on one lever, and make a symphony. We have a powerful tool in an innovative world marketplace. It’s a very powerful tool that we’re working to achieve the best mix of properties…and processes…available today.” tbl

Source documents
UCS Michigan: http://www.ucsusa.org/greatlakes/pdf/michigan.pdf
UCS Great Lakes: http://www.ucsusa.org/assets/documents/global_warming/gl-exec-summary-update-05-doc.pdf
U of M mammal study: http://www.ns.umich.edu/htdocs/releases/story.php?id=7148