strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
 / Summer 2008 / Issue 51(originally published by Booz & Company)


The Next Industrial Imperative

Costs of Industrialization
Global climate change is only one of many side effects of industrial growth, but it has two unique aspects. First, the current and prospective costs are enormous. Second, it provides simple, numerical indicators of just how far out of balance humanity is with nature — and how rapid and strong the adjustments must be if we are to avert disaster. Looked at this way, climate change can be considered a gift: an alarm clock telling us how rapidly the industrial age is ending.

The alarm clock consists of a wide range of research and computer models, but it can be summed up with a few basic facts. Levels of human-caused carbon dioxide (CO2) emissions — the primary component of greenhouse gases — have grown exponentially throughout the industrial age. Today the level of CO2 in the atmosphere is 35 percent higher than at any time in the past half million years, leading to a consensus among scientists that human actions are the primary causal factor of a very dangerous trajectory in the global climate.

The critical distinction is between the “stock” of CO2 (the amount present in the atmosphere) and the “flow” of new emissions each year. This simple distinction has confused many people, including many in leadership positions who believe that stabilizing the flow of emissions, as mandated by the Kyoto Protocol in 1997, would be enough to solve the problem. The current flow of global CO2 emissions is about 8 billion tons of carbon per year worldwide (the scientific convention is to measure emissions in tons of equivalent carbon). This is more than 2.5 times the amount — about 3 billion tons — that is removed per year from the atmosphere, either absorbed by natural biomass like trees, plants, and plankton, or dissolved in oceans.

The difference between “inflows” and “outflows” of CO2 in the atmosphere works like water in a bathtub: So long as the inflow exceeds the outflow, the bathtub continues to fill. At some point, the tub will overflow. In other words, CO2 levels will cross a threshold at which the effects of climate change are irreversible and are devastating to humans and other species. (See Ex­hibit 1.) No one knows exactly when the bathtub will overflow, but the pace of climate changes happening already (such as melting glaciers and ice caps, and increased weather instability) is leading to a consensus among scientists and some business leaders that catastrophic overflow can be avoided only by rap­idly reducing emissions to equal or fall below the rate at which CO2 is removed from the atmosphere in the next two to three decades. To achieve this will require a 60 to 80 percent reduction of worldwide emissions in 20 years. This is the “80-20 challenge” facing indus­trial society.   

How successful have efforts to address this crisis been? In 2000, the fossil fuels burned in the United States produced about five tons of CO2 emissions per person — more than 1.5 billion tons altogether. Other countries are doing just as poorly; China has already exceeded U.S. levels. Meanwhile, the costs of climate change are significant, and rising. In 2007, Oxfam International, one of the world’s largest and most respected nongovernmental organizations, published the first study on the financial impact of climate change on poor nations through drought, crop damage, water shortages, species extinction, and disease. The aggregate damages have reached US$50 billion per year. In the developed world, insurance premiums are increasing dramatically, reflecting the risks of climate instability: They’ve gone up by as much as 40 percent in Florida, 20 percent in coastal Massachusetts, and 400 percent for some offshore oil rigs. These rates make so-called self-insurance (establishing reserves for future losses instead of purchasing insurance) economical for many busi­ness­es and homeowners in high-risk areas. The influential review The Economics of Climate Change, commissioned by the U.K. government in 2006 and led by former World Bank Chief Economist Nicholas Stern (currently a professor at the London School of Economics), concluded that, if dramatic changes are not made soon, the impact on world economics in the next few decades will be comparable to “those associated with the great wars and the economic depression of the first half of the 20th century.”

Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store



  1. Mark Borden, Jeff Chu, Charles Fishman, Michael A. Prospero, and Danielle Sacks, “50 Ways to Green Your Business,” Fast Company, November 2007: Discusses the use of oat hulls as fuel.
  2. Lars Christensen, Formation for Collective Action: The Development of BioFuel Region,” Visanu (Swedish National Programme for Development of Innovation Systems and Clusters), October 2005: Case study of Sweden’s BioFuel Region.
  3. Jared Diamond, Collapse: How Societies Choose to Fail or Succeed (Viking, 2004): The sweeping history of human impact on the environment, and its evolution into today’s bubble — and potential crisis.
  4. Viren Doshi, Gary Schulman, and Daniel Gabaldon, “Lights! Water! Motion!s+b, Spring 2007: Complementary challenge in urban infrastructure.
  5. General Electric, Delivering on Ecomagination” 2006, Statement of aspiration, profit, and impact of this high-profile endeavor.
  6. Intergovernmental Panel on Climate Change, Climate Change 2007 — The Physical Science Basis (Cambridge University Press, 2007): Definitive, comprehensive source on the atmospheric science of climate change.
  7. Kate Raworth et al., “Adapting to Climate Change: What’s Needed in Poor Countries, and Who Should Pay,” Oxfam Briefing Paper No. 104, May 29, 2007: Covers the $50 billion per year current costs, the greater potential costs, and the responsibility of rich countries.
  8. Peter Senge, The Fifth Discipline: The Art and Practice of the Learning Organization (1990; 2nd ed., Doubleday, 2006): Conceptual and practical guide to “learning disciplines” that transform collective capabilities, including the capability of moving beyond the bubble.
  9. Peter Senge, Bryan Smith, Nina Kruschwitz, Joe Laur, and Sara Schley, The Necessary Revolution: How Individuals and Organizations Are Working Together to Create a Sustainable World (Doubleday, 2008): Describes the shift in thinking and action needed to meet the 80-20 challenge.
  10. Nicholas Stern, The Economics of Climate Change: The Stern Review (Cambridge University Press, 2007): Impact and benefits of early action.
  11. Linda Booth Sweeney and John Sterman, “Understanding Public Complacency about Climate Change: Adults’ Mental Models of Climate Change Violate Conservation of Matter,” Climatic Change, vol. 80, no. 3–4, February 2007: Explains the stocks and flows of climate change.
  12. Edward O. Wilson, “The Ecological Footprint,” 2000 Kistler Prize Acceptance Speech, Carnegie Foundation, 2001: “In the real real world governed by both the market and natural economies, all of life together is locked in a Cadmean struggle. Left unabated, the struggle will be lost, first by the biosphere, and then by us.”
  13. For more on global perspectives, sign up for s+b’s RSS feeds.
Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.