7.6.2 Industry

The extent to which potential vulnerabilities of industry are likely to motivate adaptation will depend to a large extent on the flexibility of business and on its capacity to adapt. In general, those industries with longer-lived capital assets (e.g., energy), fixed or weather-dependent resources (mining, food and agriculture), and extended supply chains (e.g., the retail-distribution industry) are likely to be more vulnerable to climate-change impacts. But many of these industries, especially in the industrialised world, are likely to have the technological and economic resources necessary both to recover from the impacts of extreme events (partly by sharing and spreading risk or by moving to safer locations), and to adapt over the longer term to more gradual changes. It is also clear that many other economic and social factors are likely to play a more important role in influencing innovation and change in industry than climate change. For many businesses, climate risk management can be integrated into overall business strategy and operations where it will be regarded as one among many issues that demand attention, to the degree that such adaptation is supported by investors and shareholders.

There is now considerable evidence emerging in Europe, North America and Japan that the construction and transportation sectors are paying attention to climate-change impacts and the need for adaptation (Lisø et al., 2003; Shimoda, 2003; Salagnac, 2004; Chapter 17, Section 17.2.2). As one example, the US$1 billion 12.9 km Confederation Bridge between New Brunswick and Prince Edward Island in Canada, which opened in 1997, was built one metre higher to accommodate anticipated sea-level rise over its 100-year lifespan (McKenzie and Parlee, 2003). A range of technical advice is now available to planners, architects and engineers on climate impacts risk assessment (Willows and Connell, 2003), including specialised advice on options for responding to these risks (Lancaster et al., 2004). A few early estimates of possible costs of adaptation measures are beginning to be available; for instance, O’Connell and Hargreaves (2004) show that measures to reduce wind damage, flood risk and indoor heat would add about 5% to the cost of a typical new house in New Zealand.

Business adaptations will be in response to both direct impacts (involving direct observations of risks and opportunities as a result of changing climatic conditions) and indirect impacts (including changing regulatory pressures and consumer demand) as illustrated in Table 7.2. Adaptations can also take a wide variety of forms. They may include changes in business processes, technologies or business models (Hertin et al., 2003), or changes in the location of activities. Many of these adaptations represent incremental adjustments to current business activities (Berkhout et al., 2006). For instance, techniques already exist for adapting buildings in response to greater risks of ground movement (deeper foundations), higher temperatures (passive and active cooling) and driving rain (building techniques and cladding technologies). Frequently these adaptations are relatively low-cost and represent best practice (ACIA, 2004). For more structural adaptations – such as choice of location for industrial facilities – planning guidance, government policy and risk management by insurers will play major roles.

Awareness, capabilities and access to resources that facilitate adaptation are likely to be much less widely available in less developed contexts, where industrial production often takes place in areas vulnerable to flooding, coastal erosion and land slips. Production is also more likely to be tied to natural resources affected by changing climates. Potentials for adaptation to climate change in informal sectors in developing countries depend largely on the context: e.g., the impacts involved, the sensitivity of the industrial activity to those impacts, and the resources available for coping. Examples of adaptive strategies could include relocating away from risk-prone locations, diversifying production activities, and reducing stresses associated with other operating conditions to add general resiliency. Informal industry employs minimal capital and few fixed assets, so that it usually adapts relatively quickly to gradual changes. But adaptations that are substantial may call for an awareness of threats and responses to them that go beyond historical experience, a willingness to depart from traditional activity patterns, and access to financial resources not normally available to some small producers.

The energy sector can adapt to climate-change vulnerabilities and impacts by anticipating possible impacts and taking steps to increase its resilience, e.g., by diversifying energy supply sources, expanding its linkages with other regions, and investing in technological change to further expand its portfolio of options (Hewer, 2006; Chapter 12, Section 12.5.8). This sector has impressive investment resources and experience with risk management, and it has the potential to be a leader in industrial adaptation initiatives, whether related to reducing risks associated with extreme events or coping with more gradual changes such as in water availability. On the other hand, many energy sector strategies involve high capital costs, and social acceptance of climate-change response alternatives that might imply higher energy prices could be limited. Adaptation prospects are likely to depend considerably on the availability of information about possible climate-change effects to inform decisions about adaptive management.