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Hottest year in recorded history a mixed blessing for business

by Reuters
Friday, 16 January 2015 23:59 GMT

Vehicles are seen after floodwaters receded at the Honda factory in Ayutthaya province November 26, 2011. REUTERS/Athit Perawongmetha

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Companies will need to factor more climate-change-fueled extreme weather into their operations and supply chains

By Sharon Begley

NEW YORK, Jan 16 (Reuters) - Electric utilities in the United States can expect an extra $12 billion a year in annual revenue by 2030 as heat waves increase the demand for air conditioning. Oil and gas companies may find it easier to drill in the Arctic, where sea ice is melting.

But grocery manufacturers are shouldering hundreds of millions of dollars in unexpected costs as extreme weather disrupts their supply chains.

As world temperatures continue to tick up - 2014 was the warmest on record, two U.S. government agencies reported on Friday - companies are scrambling to assess how a greenhouse Earth will affect their bottom line.

While the agencies' reports did not show that global warming is accelerating, they underscore how companies will need to factor more climate-change-fueled extreme weather events into their operations.

"Companies are increasingly disclosing the risk that climate change poses for their business, including risk to the bottom line, and are increasingly concerned about it," said Heather Coleman, climate change policy manager at Oxfam America.

It has long been clear to climate scientists that greenhouse warming will affect business. That realization has become so much a part of mainstream economics that in 2010 the Securities and Exchange Commission began requiring publicly traded companies to report the risk that climate change poses to their business.

Although environmental groups say the SEC has not enforced that requirement rigorously enough, many companies' regulatory filings describe how climate change threatens their operations, such as the water shortages that Coca Cola and PepsiCo have cited, said Oxfam's Coleman.

Other companies are taking multi-million-dollar hits from climate change's impact on agriculture and extreme weather, according to their SEC and other disclosures.

Last summer General Mills announced that it lost 62 days of production in the first quarter of 2014 alone, largely due to the effect of extreme weather on its supply chain and transportation.

Consumer-goods giant Unilever said climate change costs it 300 million euros per year, in large part because it has to change its supply-chain sourcing when extreme weather strikes.

RISKY BUSINESS

Adding up such effects, a 2014 bipartisan report called Risky Business estimated that climate change will cost the U.S. economy hundreds of billions of dollars a year by the end of the century. The Risky Business Project was chaired by former New York City Mayor Michael Bloomberg, former Treasury Secretary Henry Paulson, and billionaire climate-change activist Tom Steyer,

Heat stress, which can kill cattle, already costs the U.S. livestock industry $2 billion a year.

High temperatures also increase the amount of electricity that is lost during transmission and distribution: the electrical losses total some $26 billion a year, according to government data, and will increase as heat waves do, said Kate Gordon, director of the climate program at Next Generation, Steyer's research and advocacy group.

Just as climate change will bring benefits to some countries - Siberia could see a boom in agriculture and the Canadian arctic a minerals rush - so it could be a plus for some industries.

Someone will have to build the additional 95 gigawatts of electricity-generating capacity that the Risky Business report projected the United States will need over the next five to 25 years to meet demand for air conditioning. That could bring more customers to Bechtel and other large engineering firms, as well as to those that make steam and wind turbines, including General Electric.

And pharmaceutical companies could start making serious money by selling malaria and yellow-fever drugs to people in the wealthy northern hemisphere as the insects that carry those diseases spread out of the tropics. There could also be greater demand for allergy medications as a warmer world increases plants' production of pollen and other allergens, subjecting more people to more sneezing, eye-watering misery. (Reporting by Sharon Begley, editing by Ross Colvin)

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