Background
After a long period of inaction on climate change, the US is now pushing ahead with a range of regulatory mechanisms aimed at reducing its greenhouse gas emissions, the centrepiece of which is the Climate Change Bill, also known as the Waxman-Markey Bill. While the Bill is not yet guaranteed to become law, there is increasing certainty that US business will face regulation of its carbon emissions in the near future.
While existing and proposed regulatory mechanisms focus on energy-intensive industry, this is most likely just the beginning for US business given the serious intent expressed by the current political administration to reduce US emissions and to take a lead in the international climate management process. An effective emissions management policy will need to include all sectors of the economy and regulatory requirements can be expected to filter down from energy intensive industries to non-industrial emitters and large corporate entities.
US business has already begun to feel pressure to reduce emissions as a result of existing global, state and regional initiatives, as well as economic and consumer pressures to reduce energy and resource consumption. Businesses making early progress in reducing emissions are realising the significant financial and environmental benefits that reduced energy, resource and regulatory costs can bring.
Existing and Proposed Regulatory Measures
There are a range of existing and draft regulatory mechanisms to reduce US emissions:
- US Climate Change Bill
- Renewable Electricity Standard
- Clean Air Act
- Mandatory Greenhouse Gas Reporting Rule
- State level initiatives (including multi-state cap and trade systems)
The Climate Change Bill proposes a 17% reduction in emissions on energy intensive industries by 2020. A Renewable Electricity Standard has been approved by Congress which would require utilities to generate 15% of their electricity from renewable sources by 2021, with consumer energy efficiency initiatives potentially employed as a means for utility companies to meet that target.
The Clean Air Act (CAA), enforced by the Environmental Protection Agency, has emerged as a potential mechanism by which mandatory emission reductions could be applied in addition or instead of the Climate Change Act should the latter not pass Congress, or have its proposed targets reduced. The CAA could be applied to sectors other than energy-intensive industry, including large service-based corporates.
The Mandatory Greenhouse Gas Reporting Rule (MGGRR) will require emissions to be reported from all entities emitting more than 25,000 tonnes of CO2 per year from any single source. 13,000 facilities and 85-90% of GHG emissions from energy intensive US industry will be covered. Reporting entities will need to begin collecting data on emissions from 1 January 2010. While the MGGRR will not require business to reduce emissions, it marks the start of a widespread requirement for GHG emissions reporting by US business, which will lay effective foundation for subsequent requirements to reduce those reported emissions.
Many individual States already have their own emission reduction targets and mechanisms. Approximately half of all States have also joined to create three large-scale emission trading systems:
- Regional Greenhouse Gas Initiative (RGGI) – requires a 10% reduction in emissions from the power sector by 2018. Already in operation and includes ten participating States.
- Western Climate Initiative (WCI) – due to commence 2012 and will include commercial and domestic use of fossil fuels from 2015. Requires a 15% reduction in emissions on 2005 baseline. Includes seven US states and four Canadian provinces.
- Midwestern Greenhouse Gas Reduction Accord (MGGRA) – due to commence January 2012 and will include energy intensive industry with emissions >25,000 tonnes/yr. Requires a 20% reduction in emissions on 2005 baseline by 2020 and an 80% reduction by 2050. Includes six US states and one Canadian province.
The Obama administration has expressed a preference for comprehensive legislation to tackle GHG emissions, but the existence of alternative mechanisms, particularly the ability to regulate emissions under the CAA, sends a strong message on the seriousness of the political intent and of the inevitability of mandatory emission reduction for US business.
Voluntary Initiatives
1) Chicago Climate Exchange
The Chicago Climate Exchange (CCX) was launched in 2003 as the world’s first cap and trade system for GHG emissions and includes more than 300 participants, including Ford and DuPont. The CCX has an established baseline of 226 million metric tons of CO2e (approximately 4% of annual US emissions) with participants committed to an aggregate emissions reduction of 6% by 2010. Although the CCX constitutes a voluntary system and is not part of any regulatory initiative, participants have agreed to legally binding emission reductions.
The CCX has aimed to facilitate the development of wider GHG allowance trading across North America, and has usefully established the concept and experience in its operation for upcoming regulatory initiatives. In that respect, the future role of the CCX with alongside mandatory emission trading systems is uncertain, although could potentially include the voluntary participation of entities not included within the remit of such mandatory initiatives and the widening of its geographic scope.
2) Climate Registry
The Climate Registry was launched in 2007 as a voluntary reporting standard for the calculation, verification and public reporting of North American GHG emissions. The Registry represents a collaboration of North American states, provinces and territories providing a credible, consistent and transparent platform for the measurement, verification and public reporting of organisational level carbon footprints in a single unified registry.
The Registry requires the reporting of the six internationally-recognised GHGs and for that data to be verified by an independent third party. The Registry has been designed to utilise best practice in GHG reporting, and to enable members to establish an emissions baseline and document early action. Participants include more than 350 leading corporations, Government bodies and academic institutions.
Additional benefits and drivers for US business
Whilst regulatory initiatives constitute an important set of tools to reduce emissions, a number of additional drivers exist for US business that are already demonstrating an impact on corporate policy, decision making and investment:
- Carbon footprint reporting is increasingly demanded by consumers of US products and services
- Latent environmental consciousness and desire for action on emissions stifled under policies of the previous US political administration
- US businesses already exposed to emissions reporting abroad, for example for operations within scope of the EU Emissions Trading System or UK Carbon Reduction Commitment
- New independent standards, guidelines and accreditations for carbon reporting as part of competent business management
- Increasing and volatile energy prices and higher net energy consumption of US based business impacting on competitiveness against overseas competition.
Commencing a programme of emission reductions
While some businesses might be tempted to adopt a “wait and see” approach with regard to forthcoming regulatory requirements, it is far better to commence emission reduction early given that reductions in emissions result directly in financial rewards from reducing energy consumption. Existing carbon markets are already demonstrating that businesses engaging in early action to reduce emissions can turn a perceived regulatory cost into significant long term cost savings and increased margins.
Participation in any of the aforementioned regulatory or voluntary initiatives to report and reduce emissions, and indeed for the implementation of any emissions reduction programme, the single most important requirement is the ability to accurately measure emissions from business activities, enabling an emissions baseline and reduction targets to be set. Greenstone Carbon Management provides consultancy services to help organisations through the necessary data gathering process to build this baseline and, through its Acco2unt software solution, provides the tools for ongoing measurement and management of carbon emissions, thereby helping to minimise risk surrounding regulatory compliance and secure early benefits to the business bottom line. For more information please contact us at info@greenstonecarbon.com
