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Tuesday, August 4, 2009

Climate Change and its impact on Industrial Production

Climate change is a new challenge and a major discussion point between the developed and the developing countries. Some sort of emission limits will be placed as we move forward. There is lot of posturing and both sides are making point and counterpoint.

Developed countries did not have emission restrictions during their growth. With the current demand to curb emissions, some curbs will be negotiated. Developed and developing countries are afraid of the curtailment of their industrial machine. In order to retain their industrial complex developed countries will exert pressure. However, the developing countries especially India and China are not going to readily agree to any curbs. In Secretary Clinton’s recent trip
India Rejected U.S. Proposal of Carbon Limits.

A recent article India and Climate Change takes India as example and excludes China, though both present similar challenges for the developed countries.

This article states “If (the) developed nations are held responsible for emissions that they historically contributed, oblivious to their impact on climate change, why shouldn't (the) developing nations take responsibility for producing generations of people who will generate emissions into the future?” Is it an indirect admission that the developed countries are afraid of the curbing their economic growth and are afraid of the growth of the developing countries? It seems to suggest that since the developed countries control their population, they can keep emitting at the current per capita rate. Is it also suggesting that the living standards of the developed countries should stay high and of the developing countries should not? If this is the latent intent, it is not going to sit well with the developing countries.

Are we saying “Maslow’s hierarchy of needs” only applicable to the developed countries? Developed countries have had the developing countries as their market, but now they challenging us on our turf, we are not willing to accept the challenge. The game has changed and we will have to play with the new rules. Their development and negotiation is going to be a challenge.

Recently International Council of Chemical Associations engaged McKinsey & Co. to suggest steps the chemical industry needs to take to curb emissions and still innovate. This study excludes chemicals that improve the living standards (including pharmaceuticals) and assumes gross savings from such chemicals to be zero.

I have concerns about this exclusion as we are excluding an important segment (pharmaceuticals about $800 billion revenue out of $3 trillion dollars per year) that has a large carbon imprint. Pharmaceuticals (API and formulated products) present an opportunity to reduce their imprint. There is an opportunity to improve their manufacturing inefficiencies (low yield) and reduce their solvent use, there by achieving an offsetting positive impact. Technology improvement will also reduce healthcare costs. An effort is needed in earnest.

Development and global sharing of the low carbon emission technologies might be the answer. Other choice for the companies in the developed countries is to move their factories to the developing countries. Thus they would not have to implement tougher emission standards. This is not a viable option.

In the last 15-20 years countries have become dependent on each other. What was environmentally acceptable yesterday will not be acceptable tomorrow. Since the global warming will affect us all, we will have to compromise and live with the new rules whatever they might be.

Girish Malhotra, PE

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