Risky business

Having read the raw material from the UN's IPCC 5th assessment report I also had a look at some of the comments that various people have been made following its publication. Generally, the majority of the comments were supportive.  A good example would be the Scotsman's editorial which in a lengthy and thoughtful piece said "Even if not totally convinced by the scientific evidence, surely the prudent course of action for us all is to act to counter global warming because it is just to big a gamble. Living on our planet in a sustainable way is the only path that makes any sense." On a similar theme I also liked this one from Professor John Shepherd of Southampton University. He said "Uncertainty is a reason to be cautious, but not a reason to do nothing. On the contrary, uncertainty is a reason for taking action to avoid possible serious risks."

Taking a business perspective has always led me to the same conclusion. The risks of doing nothing are just too high because both the evidence that climate change will continue is strong and because the consequences of that change are so serious. If you were plotting a heat map of global risks then climate change has to be near the top right corner given its likelihood and impact. Boards rightly focus on these top right risks and so should Governments.

Simple science sound bites

At the end of last week the UN's IPCC fifth assessment report on climate change started to see the light of day with the publication of the Summary for policy makers. During an idle hour or two I decided to try and read it. I'm afraid I struggled with some of the science. One issue that strikes you, however, is that even the scientists have struggled to get across the concepts of levels of certainty and uncertainty. I guess events around the War in Iraq and then the debates around the Syrian crisis have shown us all that we need to better understand the basis on which claims are made.

This means that each statement is accompanied by caveats around the degree of certainty. Here are some examples.

1. "Warming of the climate system is unequivocal". This is about the most definitive statement in the whole report.

2. "Each of the last three decades has been successively warmer at the Earth's surface than any preceding decade since 1850". This statement has 'medium confidence" attached to it.

3. A bit later the report states, this time with high confidence that "Over the last two decades, the Greenland and Antarctic ice sheets have been losing mass, glaciers have continued to shrink almost world wide, and Arctic sea ice and Northern Hemisphere spring snow cover have continued to decrease in extent". 

The report then goes on to look at some of the 'whys'. It says "human influence on the climate system is clear" and that "human influence has been detected in warming of the atmosphere and the ocean, in changes in the global water cycle, in reductions in snow and ice, in global mean sea level rise, and in changes in some climate extremes". This seems a pretty long charge sheet and the IPCC say that the evidence has increased since their last report. The key sentence is therefore "IT IS EXTREMELY LIKELY THAT HUMAN INFLUENCE HAS BEEN THE DOMINANT CAUSE OF THE OBSERVED WARMING SINCE THE MID 20th CENTURY". I understand that in the last report a few years ago it was just 'highly likely' so extremely is an attempt to show an increase in confidence.

That seems pretty clear to me. The report then tackles forecasts and as with any forecast the range of uncertainty is obviously much greater than that around explaining past behaviour. I decided to focus on the global mean temperature forecasts, over the last 120 years or so it has gone up around 0.6 degrees. The report details four scenarios for the next 60 years and they all have ranges of temperature increases as follows:

Scenario 2.6.    0.4 to 1.6

Scenario 4.5.    0.9 to 2.0

Scenario 6.0.    0.8 to 1.8 

Scenario 8.5.    1.4 to 2.6

By my reckoning even the lowest estimate of the lowest range shows warming quicker than we have experienced in modern times  (my maths says about about 30% quicker) and a sort of completely unscientific range in the middle of the four scenarios would suggest it could be around three to four times faster. Given the changes in the various ecosystems we have already seen that ranges from the extremely worrying to the postively frightening. 

And finally one more quote which neatly summarises what has to be done. "Continued emissions of greenhouse gases will cause further warming and changes in all components of the climate system. Limiting climate change will require substantial and sustained reductions of greenhouse gas emissions. ". My sentiments entirely although I would add one more S. Soon. 

Bombshells, vandalism and stand by generation

Last week was certainly an eventful one in the world of UK energy policy and given the last few years that we have had that is certainly saying something. After a quiet start Ed Milliband dropped his bombshell of a twenty month retail energy price cap. This strikes me as policy making at its worst. There are three problems with it.

 Firstly, it seeks control of the end user price of a commodity without doing anything about the underlying costs and leaving retailers at the mercy of trends outside their control. We are obviously all concerned about high energy prices but attacking retailers fairly low profit margins is missing the target by a long way. By my reckoning over the last few years retail margins have been, at the most, the fifth biggest contribution to rising energy prices, if that. They certainly rank well behind 1) the global and well documented rise in wholesale energy prices; 2) increases in network charges which are the subject of independent price control regulation; 3) the relentless rise in government imposed costs on clean generation and energy efficiency; and 4) upward pressure on overheads as suppliers prepare for smart metering and the green deal. Government directly controls one of these (number 3) and heavily influences another (number 4) but Miliband decided to target all his guns on the margins.

Secondly, Governement mandated price freezes don't work as all the evidence from the 1970s suggests. How soon we forget. They produce distortions in the market, create sub optimal behavior on the part of both customers and suppliers and only delay the inevitable. King Canute springs to mind. They are notoriously difficult to implement. Let me illustrate with a simple example. Industrial customers typically sign multi year energy contracts which frequently have price variation clauses in them to deal with the uncertainties facing both sides. Is Government simply going to tell willing buyers and sellers that they can't trade the ways they want to.

Thirdly, whatever politicians may think and assert, there is, and always has been, a link between levels of investment and levels of profitability. If Mr Miliband thinks that he will get the investment needed to largely decarbonise the UKs electricity industry by 2030 (I happen to believe this is a good goal by the way) and at the same time drive a substantial segment of the industry into artificial losses then he is living on a different planet than the one I occupy. The businesses of the production and supply of energy are largely owned by the same companies and are certainly financed by similar investors. What affects one part of the energy industry naturally affects the other bits. Politicians seem incapable of understanding that the investment climate is a fragile thing and the ructions of last week will have undermined confidence throughout Board rooms of Europe.

I don't know how it will all play out but the energy supply business will become even more dysfunctional and  the UK's generation capacity crunch will be deeper and longer than we thought a week ago. If Mr Miliband gets his heart's desire and is given the keys to Number 10 Downing Street in 2015 his first task should not be to hold a press conference or appoint a cabinet but check the stand by generators work. 

Kings, film stars, pop songs and scientists

I have been reading the latest edition of 'Science Scotland' published by the Royal Society of Edinburgh. Its focus is on earth sciences which in many respects were born in Scotland with the publication of James Hutton's 'Theory of the Earth' in 1785.  This tradition is carried on by the Scottish Universities Environmental Research Centre (SUERC) who do an astonishing range of work. One page of the magazine gives a summary of some of the more popular work.

1. Dating Kings. The SUERC used it accelerator mass spectrometer to carbon date the bones found in Leicester which indicated that the individual died between 1475 and 1480 confirming that the remains were indeed those of Richard III. I find it amazing that we can be that accurate after over 600 years and I can't even remember what I did last month.

2. What killed the dinosaurs. SUERC was part of an international team that confirmed the extinction was precisely 66,038,000 years ago, exactly the same time as an asteroid or comet hit the earth. Where was Bruce Willis when he was needed. (A reference to the film Armageddon if you were wondering).

3. Space invaders. A team are about to try and answer David Bowie's question by examining a fragment of a Martian meteorite. 

4.  More than just a granite chin. Scientists from Aberdeen and SUERC have recently discovered that 1.5 billion years ago, granite played a key role in creating life as we know it, prompting the shift from simple to more complex organisms. We all know why Aberdeen University played the leading role!

The frontiers of science are incredible. 

Cancer centres and clean shoes

I have been involved with the Maggies Cancer Centres charity for a number of years, more recently as a Board member. The charity is mainly involved in building drop in centres that are next to oncology facilities to help more people affected by cancer live better lives. My involvement has shown me the role that architecture and design can have on well being and Maggies Centres are all well designed and visually distinctive. Each one is different but they are all, fundamentally, based around the kitchen table. 

The charity started 17 years ago in Edinburgh and this week I attended the opening of the 17th centre which is in Aberdeen. It has been designed by a Norwegian firm of Architects and so was formally opened by the Queen of Norway (hence the need to polish my shoes) along with the Duchess of Rothesay (as the Duchess of Cornwall is known in Scotland).  It is another striking building and I was very taken with the use of natural light and local materials. The centre also celebrates the links between Scotland and Norway and the oil and gas community were out in force as they had played, together with the golfer Colin Montgomerie, a major role in the fund raising. 

I have visited a number of centres over the last few months and know that the latest addition will make a real difference to people's lives in the North East of Scotland.

Beyond the numbers

Many years ago I qualified as a Chartered Accountant and have maintained my membership of the relevant institute, the ICAEW. In my new more relaxed existence I have started to pay more attention to it and even visited their premises in London earlier in the month. I came across one of their recent publications 'What Should Companies be responsible for?'. It is meant as a discussion piece to stimulate debate. The old school answer would be 'to make money for shareholders' but, I believe, as apparently does the ICAEW, that life isn't that simple any more. It proposes four responsibillties.

1. Achieving a business purpose. I agree that this is fundamental and in my old life that purpose was 'to provide the energy people need in a reliable and sustainable way'. The article puts it this way

" A company needs to achieve a business purpose which stakeholders can understand. It may be, in the case of a retail bank, to offer financial services suitable for its customers or, in the case of an energy company, to supply energy on a reliable and sustainable basis. Stakeholders including employees, customers, suppliers and lenders, as well as shareholders, all expect companies to achieve their business purpose. Serving its purpose effectively generally enables a company to generate continuing profits and value for shareholders. However, generating profits and shareholder value is not in itself a sufficient business purpose for a company."

2. Behaving in a socially acceptable way. Of course the definition of what is socially acceptable changes but businesses have to have regard to accepted norms and standards but business also has to take a longer term view than the media or politicians might.

3. Meeting legal and regulatory requirements. Enough said.

4. Stating how responsibilities are met. I would prefer being transparent and being prepared to be held to account but the sentiment is the same.

It is good to see accountants going beyond the numbers and tackling some difficult philosophical issues and their list is a good starter for four.

Science and soda.

We had the second 2020 Climate Group lecture last week. This one was on the science around climate change. We had two boffins, Stephen Belcher from the Met Office and James Curran from SEPA, who did an excellent job in explaining the current scientific views and evidence on climate change. For example a lot of work is now being done to understand what climate change means for the occurrence of extreme weather events. The one event illustrated was the heat wave of 2003 where the statistical analysis suggests it was twice as likely to happen now than it was before the industrial era. The general consensus was that we can expect extreme weather events, like heat waves and floods to happen more regularly. This seems to be true anecdotally but it was good to hear it being backed up by experts.

I'm afraid that I brought the evening to a close with a slightly more mundane illustration. The increasing layer of greenhouse gases means we are trapping more energy in the atmosphere. And if you want to know what happens when you put more energy into a volatile system, try giving a toddler some Irn Bru!