President Obama this week unveiled his plan to cut nationwide carbon dioxide emissions 32 percent by 2030 from 2005 levels. The plan, an attempt to galvanize other countries to achieve a global climate treaty in the short term and to establish the President’s legacy for the long term, has been lauded by some and criticized by others. Despite the President's firm goals, given the opposing applause and uproar, the success of his plan and the impact to the nation's business environment remain hazy.
For business executives regardless of industry the fervor around winners and losers, lawsuits and legislation, clouds our ability to assess the most important point surrounding the President’s statements – the uncertain future facing businesses as our energy industry responds to carbon emissions reduction plans. Those who prepare for the unknowns, whether the unknowns be Presidential mandates, a changing climate, dwindling natural resources, or new sources of energy will be the winners in coming years and decades.
Scenario planning reveals critical inputs
How that preparation is done is the art of scenario-based planning. As executives, we are charged with leading our companies into the future, and succeeding regardless of what that future may bring. The identification of early warning signals helps us to picture critical components that we can and should fold into our strategic actions. A more robust activity that carries benefits for the long term is to plan across several future scenarios, thereby helping your organization to envision an array of factors that could impact your company and to develop strategic plans that consider a variety of inputs from the external environment.
For example, given the immediate response to President Obama’s plan we can anticipate legislative debates, state versus federal arguments and lawsuits over EPA requirements, and lawsuits filed by those engaged in fossil fuel, primarily coal, production and electric generation activity. In the longer term, however, without taking explicit action to explore various scenarios, executives across the economy are hard-pressed to understand the impact to their companies. Without scenario analysis today, executives can’t even identify the indicators that hint at possible future environments. Managing without this insight is like driving blind.
Early adopters in the energy industry
Some of the country’s utilities, including MidAmerican, Southern Company and Exelon, having gained clarity by analyzing likely future circumstances, have invested in low carbon sources like wind, solar or nuclear power. Power supply companies such as General Electric, Siemens, and Honeywell; oil giants including ExxonMobil, British Petroleum, and Royal Dutch Shell; and coal producers such as Peabody Energy, Arch Coal, and Cloud Peak are directly and immediately impacted by the carbon emissions issue and are already undoubtedly undertaking this type of scenario planning. Companies that rely on energy, meaning every corporation across the world’s entire economic spectrum, should be close behind.