Global warming is becoming a salient issue that has a great impact on the socio-economics of a nation (Brewer, 2005). Firms, governments, scholars of international business will be focusing on global warming for the next few decades. Developing countries report 160000 deaths every year from malnutrition, malaria and disease all purportedly due to global warming by a study at the London School of Tropical Medicine. European storms and floods in Austria, Germany and the Czech Republic caused damages to the tune of more than 18 million euros. The Munich Reinsurance predicts that the global costs of climate change would amount to $150 billion per year in 2009. Specialists in science and economics are united in their predictions that the costs would keep increasing for many decades in the future (Brewer, 2005). An innovative understanding of global warming has included it in the agenda of firms and governments. It is expected to be a problem that cannot be solved very fast.
Issues on the agendas
Climate change has been indicated as a critical issue by 50% of the FT Global 500 firms and strategies are being developed to reduce greenhouse emissions (Carbon Disclosure Project, 2003, p.10). Firms are expecting climate-driven risks to continue. Some trends may magnify the financial impacts of climate change. Evidence of the causes of climate change, reality and gravity is being strengthened each day. Extreme weather features are being seen more. Regulatory action at local, national, regional and international levels is required to be taken. There would be a tendency for renewable energy and clean technology markets to grow (Brewer, 2005). The variability of company-specific impacts would be better understood with time. The potential financial impacts of inaction may be better quantified. Regulatory regimes of overseas countries may increase the exposure of investors. Institutional shareholders are more aware of the problem of carbon risks. A global movement for improving the disclosure of corporate risks is underway.
Multinational firms are already addressing global warming as an issue. They have responded in diverse manners to it (Brewer, 2005). Participating in carbon markets and shareholders submitting resolutions in meetings are just some of the evidence of addressing this global issue. Firms and environmental Non-Governmental Organizations are having partnerships to chalk out plans. Private firms and the government have got together to thrash out this problem. The stand that private firms and industry associations take on government policies is another feature now evident (Brewer, 2005).
Carbon markets
Burning fossil fuels is the main cause of global warming from the carbon dioxide emissions. Business houses, therefore, have made the trading of carbon dioxide credits and other greenhouse gas emission credits and participating in carbon offset projects a significant part of their activities. The International Emissions Trading Association (ETA) and the Emissions Market Association (EMA) are both focused on emissions trading (Brewer, 2005). A privately organized association Chicago Climate Exchange has included the city of Chicago and Mexico City. The electric power sector in Denmark has a mandatory emission trading scheme while UK has a voluntary emissions trading scheme. The European Union has had a mandatory emissions trading scheme since 2005 which covers many facilities like electric power, energy, chemical, cement and other industries. The Prototype Carbon Fund is one of the projects by the World Bank which promotes the development of carbon markets and the transactions which involve credit allocations and offset projects (Brewer, 2005).
Shareholder Resolutions
Shareholders are now interested in knowing how firms respond to the issues caused by global warming. Investors from 32 institutions with assets of 4.5 trillion dollars are shouldering the responsibility of collecting and distributing information on the firms’ exposure to carbon emission-related issues which worsen global warming (Brewer, 2005). Annual meetings now have presentations of the firms’ responses on behalf of investors who are participants of the Interfaith Center for Corporate Responsibility. This association which has assets worth many hundreds of billions of dollars represents the pension funds of the many religious groups (Brewer, 2005). Many other similar groups also perform a similar function.
Partnerships with Non-Governmental Organizations
Selected types of mitigation of global warming have been opted for by different Non-Governmental Organizations. Multinational firms from all parts of the world have partnerships with them. The NGOs are the Environmental Defense, the Pew Center on global warming, the World Resources Institute and the World Wildlife Fund.
Government Policies
Firms are also voicing their opinions on governmental policies. Government policies include emissions trading schemes such as those above; “voluntary programs of diverse types such as emissions reporting; potential policy changes such as participation in the Kyoto Protocol; new domestic subsidy programs, or taxes, or other regulatory changes; or international technology transfer, investment and trade policies concerning energy, transportation, and other sectors” (Brewer, 2005). In the US, these issues are faced by firms at various levels. The firms are allowed to give their opinion on whether the Kyoto US government should participate in the Kyoto protocol. Another policy talks about whether a NAFTA-based international regional emissions trading center is necessary. Opinions are asked for whether a long-lasting agreement with other governments would promote or inhibit cooperation. The question of whether firms in other countries may impose restrictions on the US firms from entering their regions of the low-cost fossil-fuel economy as US has still not adopted measures to reduce carbon dioxide emissions (Brewer, 2005). A large number of similar questions are put to the public for their opinions.
Carbon dioxide emissions and consequences of global warming
The percentage of carbon equivalent from electricity production is 29 while it is 23 from either industry and agriculture or transportation. Residential and commercial sources give rise to 25 percent carbon equivalent. The sea-level rise, severe storms, floods and droughts are all related to global warming (Brewer, 2005). Economic consequences cannot be measured. Floods in Europe, heatwaves in France, Spain and Portugal, the increasing severity of hurricanes and forest fires in the US are some of nature’s responses to global warming. Changing the temperatures of the Atlantic Ocean is another consequence.
Regulatory systems
Numerous regulatory systems for mitigating global warming have come into force. Strategic and operational responses to the regulations have been adopted by firms in all countries and industries (Brewer, 2005). The Kyoto Protocol came into force in 2005. The emerging climate regulatory systems vary in their dimensions. The government policies are found at the multilateral, regional, bilateral, national and sub-national levels. They can vary across countries being different in cultures, coverage ideologies and other features. Those that vary across industries too are available.
The Kyoto Protocol
The United Nations Framework Convention on Climate Change is linked to this international agreement of the Kyoto protocol. The European Community and 37 industrialized nations were bound by this agreement which set targets for reducing the collective emissions of six key greenhouse gas emissions by 5% (The Kyoto Protocol, Environment). This protocol allows 5% reduction of GHG emissions seen in 1990 from 2008-2012. The Convention encouraged the nations to reduce or stabilize GHG emissions while the Protocol committed them to it. The high levels of GHG emissions are mostly attributed to the industrialized and developed nations which have been in this advanced industrialized state for the past 150 years. A heavier burden is placed on them through the “common but differentiated responsibilities”. Kyoto in Japan saw the adoption of this protocol in1997. It came into force on 16th February, 2005 (The Kyoto Protocol, UNFCC). The rules are called Marrakesh Accords.
This protocol allows the participant nations to adopt national measures to meet the targets. Three market-based mechanisms are advocated. They are the emissions trading or the carbon market, the clean development mechanism and the joint implementation. Green investment is stimulated and the participants are able to meet their targets in a cost-effective manner (The Kyoto Protocol, UNFCC). The emission targets are to be monitored and correct records maintained. Registry systems help to track and record transactions made. The UN Climate Change Secretariat is in Bonn, Germany and it keeps the international transaction log. Transactions are verified against the rules of the protocol. Annual reporting is done by submitting annual inventory reports. There is a compliance system that helps the participants share their difficulties in maintaining the
commitments. Nations are assisted in adaptation to climate changes. Techniques to increase resilience are imparted The Adaptation Fund is used to help the participant countries for developing their nations. The Kyoto protocol is considered an important step “towards a truly global emission reduction regime that will stabilize GHG emissions, and provides the essential architecture for any future international agreement on climate change” (The Kyoto Protocol, UNFCC). In 2012, a new International framework would be made as decided at the 3rd meeting of the parties to the Kyoto protocol at the UN Climate Change Conference in 2007.
Regulations in the US
Regimes have developed at different levels. 5 northeastern states of US and 4 Atlantic provinces of Canada have together made a goal of reducing Green House Gas (GHG) emissions to the 1990 levels by 2010 and then by another 10% reduction by 2020 (Brewer, 2005). Though this is voluntary, political significance has been attributed to the effort and this has resulted in a successful move. California has attempted to restrict automobile GHG emissions by 20% minimum by 2017 and this is notable as California purchases maximum new vehicles (10%). New York has also taken such a move and intends to have a 20% minimum by 2013. Thirteen states have decided that electric utilities must use a minimum percentage of electricity from renewable sources and instituted the renewable portfolio standards (Brewer, 2005).
The Cities for Climate Protection campaign has brought 67 cities under its program. Multiple mitigation methods have been selected. Oakland in California and Boulder in Colorado have united with NGOs to fight against two federal agencies for using fossil fuels. They had not assessed the damage possible from the global warming.
Oakland quoted the possibility of saltwater contamination of the aquifers, flooding of the airport and sewerage and the rise of the sea level (Brewer, 2005). Boulder used the forest fires and problem of water supply due to reduced snow for arguments. The previous administration of the US refused to participate in the Kyoto protocol. Later a “Climate Vision” program was initiated. The target is 18% reduction of GHG emissions by 2012 when compared to 2002 but the participation is voluntary. More than a hundred firms have joined but some belief in partial reduction and some in absolute reduction.
Markets for GHG emissions trading
These markets are new having been established in 2002 or 2003. Denmark and UK had governmental support. However the transactions have been increasing multiple times over the previous years’. The European Union’s ETS was launched on January 1st 2005. Trading has increased significantly (Brewer, 2005).
Research
The scientific, economic and political macrolevel models are different from those in business. Research may require the public choice model or the pluralistic model or the regulatory capture model. There are also micro models of firm behavior: the shareholder, stakeholder or the organizational behavior. Among these the regulatory capture model is the most applicable (Brewer, 2005).
Conclusion
Global warming affects markets and trading. The government policies help to create the markets. Market failures would again require the government to step in to help. The firms’ transactions involving international emission allocation trades are a point to watch. Transnational coalitions could be forming their own regulations. Further regulations at other levels could be followed. A business depends very much on what regulations it follows (Brewer, 2005). Global warming has become a source of interest to scientists and economists alike. Politics influences the issue by the introduction of new policy instruments which help to achieve greater efficiency. Regulations from local level to international level control the market for the trading (Brewer, 2005).
References
The Kyoto Protocol, 2009. Web.
Thomas Brewer. “Global Warming/Climate Change in the 21st Century: New issues for Firms, Governments and Research on Business-Government Relations.” Chapter 6 in “ International Business-Government Relations”. Ed. Robert Grosse. Cambridge: Cambridge University Press, 2005.