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National - Climate Change and the Case for Sustainability
By Ritchie Priddy, Director, Sustainability Marketing, GDF SUEZ Energy Resources NA
While the recently concluded Copenhagen
climate change talks didn’t produce a consensus global agreement
on climate change, it did serve to remind us all how enormously
complicated and emotional the issue is. Copenhagen reiterated
the world’s commitment to sustainability – something much
broader, and arguably more important, than climate change alone.
Regardless of what one believes, it is clear the idea of
climate change and sustainability are inextricably linked. But a
great deal of confusion surrounds both terms. What is climate
change? That term is actually relatively new in the climate
arena. Up until about a year ago, whenever one referred to a
changing climate it was almost always as “global warming.” For a
number of reasons - not the least of which was the fact that
many times, when the focus was on global warming, the weather
didn’t seem to cooperate – the much broader, more acceptable
term “climate change” began to take the place of the term
“global warming.”
So what is sustainability?
Definitionally speaking, the World Commission on Environment and
Development (WCED) stated in 1987 that sustainability means
“meeting the needs of the present without compromising the
ability of future generations to meet their own needs.” The WCED
definition is important because it is the
recognized definition for sustainability, and accepted by
virtually everyone.
Using the WCED definition,
sustainability includes under its umbrella all actions to help
meet the energy resource needs of future generations. That
includes renewable energy, energy efficiency, demand response
and all other demand side activities. It also includes, by
implication, supply side actions such as building more efficient
and renewable energy generation and a more efficient and
reliable energy delivery infrastructure.
Sustainability
efforts have been around for decades, but the increased
attention focused on climate change has given the idea an
impetus in the past few years. Others would argue that the whole
issue of climate change has hindered the progress of
sustainability.
For the purposes of this article, we’ll
use climate change and sustainability interchangeably, because
that’s how most people view them.
Over the past year or
so GDF SUEZ has received an increasing number of inquiries
related to climate change. Specifically, the questions relate to
three issues: What is happening on the legislative front? What
is happening on the regulatory front? And, how are businesses
generally responding to climate change? None of these questions
are easy to address with any certainty today, because the
landscape involving all three is constantly changing. Further,
there are other “intangible” factors in play. Understandably,
our customers want to know how and when their energy costs be
impacted by any actions related to climate change and
sustainability.
We have put together a brief summary of these
issues to help businesses recognize how complicated and
intertwined they are.
Legislative Actions and
Outlook
There are a number of different energy
bills and proposals currently being floated in Congress. A few
are highlighted below:
● The 1,000-page Waxman-Markey
bill passed the House last year and debate will eventually take
place in the Senate. The cornerstone of this bill is the
cap-and-trade program.
We’ve addressed cap and trade in an earlier edition.
● The Senate version of Waxman-Markey is the Kerry-Boxer Bill,
which requires a 20 percent reduction in emissions from 2005
levels by 2020. It is widely believed to be too stringent to
pass the Senate.
● Senators John Kerry, Joe Lieberman,
and Lindsey Graham are working on a compromise bill that is
designed to attract 60 votes in the Senate. The proposal
currently includes a 17 percent emissions cut by 2020, a
cap-and-trade program and incentives for expanded offshore
drilling and even nuclear power development.
● Another
Senate bill is the 39-page Cantwell-Collins Bill, which requires
fossil fuel producers (oil, natural gas and coal) to buy “carbon
shares” from the federal government in monthly auctions.
Seventy-five percent of the proceeds from these sales would be
returned to U.S. citizens via rebate checks.
● An
alternative approach being discussed by moderate Democrats and
Republicans calls for abandoning current legislation in favor of
an energy-only approach similar to the measure passed last year
by the Senate Energy and Natural Resources Committee. That
measure would require that 15 percent of the nation’s
electricity come from renewable resources by 2021; would speed
up the construction of electric transmission lines; and would
open up millions of acres in the eastern Gulf of Mexico for oil
and gas drilling.
● A power plant-only approach is also
being discussed. Under this scenario, greenhouse gas emissions
(GHGs) would be capped only on power plants rather than across
all sectors of the economy.
With the upset election of
Republican Scott Brown to replace the late Senator Edward
Kennedy in Massachusetts, however, cap and trade may face a
decidedly uphill fight. “A large cap-and-trade bill isn’t going
to go ahead at this time,” Senator Dianne Feinstein, a
California Democrat, told reporters Jan. 21.
Regardless
of what the Senate passes, a compromise bill must still be
worked out between the two chambers. Most insiders agree that no
legislation is likely to be discussed before the 2010 mid-term
elections. The country is already deeply divided over health
care, and the White House has already moved on tougher bank
regulations and signaled it will shift its focus to jobs in the
wake of Brown’s victory. Bringing up another contentious issue
that everyone agrees will increase energy costs before the
elections is probably not the wisest course of action.
Remember, the only way for climate change legislation and the
subsequent alternative energy scenario to be viable over the
long run is for power prices to be high, and remain there. This
fact is irrefutable – simple economics. Indeed, most
politicians, including President Obama, have already publicly
stated that this is so.
One of the most problematic
issues for Congress is the strong possibility that any
acceptable bill will have to include some protective language.
Indeed, the path to 60 Senate votes is arduous at best, and lots
of compromises and special favors will necessarily be included.
An example is the letter that 10 moderate Senate democrats from
states dependent upon coal and manufacturing sent the President
last August opposing any legislation that does not protect
American industries from competition from countries that do not
impose similar restraints on carbon reductions. This action was
in response to the fact that under every climate change
legislative scenario, emerging economies are exempt from taking
binding actions.
It should be noted that similar border
adjustments are being made by virtually every country involved
in climate change talks. Everyone with an interest in CC
negotiations should recognize the very real possibility of trade
wars. Obviously, such trade concerns will impact industries
differently.
Regulatory Actions and Outlook
The Administration’s strategy involving climate
change has become clear in the past few months. If legislation
cannot be passed, it will rely on the various regulatory
agencies to adopt and enforce action.
Last year the
Environmental Protection Agency (EPA) signaled its intent to
force action necessary to address CC in two key ways. The first
and most important was the endangerment finding for Green House
Gases (GHG); this officially recognized that carbon dioxide is a
hazard to the public health and the environment. Earlier, the
Supreme Court ruled that the EPA had jurisdiction under the
Clean Air Act (CAA) to make the endangerment finding. To read
the endangerment finding, go to
http://www.epa.gov/climatechange/endangerment.html.
While the first target of new EPA regulations will be
transportation and other large emitters, any source that
releases GHG could be subject to the rules – including
buildings, which account for almost 40 percent of all carbon
dioxide emissions and energy consumption. More on that later.
Many industry groups, including the U.S. Chamber of
Commerce, have already signaled a court challenge to the ruling,
specifically stating that the rules designed under the guise of
the CAA will be more costly than alternative legislation being
discussed in Congress now. Others point out that the finding
specifically states it need not be based on actual harm. Rather,
the agency’s definition of “endanger” means “harm is threatened;
no actual injury need ever occur.”
The second
significant action the EPA took was the implementation of its
GHG reporting rule. The rule, which took effect January 1, 2010,
requires large emitters to collect and report GHG emissions
data. The rule covers approximately 85 percent of the nation’s
GHG emissions and applies to roughly 10,000 facilities. The EPA
stated that the reporting system would allow the government to
pinpoint where the emissions are coming from and will help
determine the best way to reduce emissions.
Fossil fuel
and industrial GHG suppliers, motor vehicle and engine
manufacturers, and facilities that emit 25,000 metric tons or
more of CO2 equivalent per year will be required to report GHG
emissions data to EPA annually.
Many industries are
concerned that the data collection and reporting requirements
will drive up costs at a time when cash-strapped industries are
still struggling with a poor economy. It should be noted that if
the regulatory burden is considered too onerous, Congress could
take actions to rein in the agency, including withholding funds
that would be used to implement its decisions; or it could enact
legislation of its own that would limit the EPA’s efforts.
We’ve largely focused on the EPA regulation. But there are
other regulations being considered:
Securities and
Exchange Commission I. There is an important Securities and
Exchange (SEC) investigation ongoing that some believe will be
the catalyst that finally makes sustainability take off. Last
year the SEC announced that it is taking “a very serious look”
at requiring publically traded companies to assess and reveal
the effects of climate change on their financial health.
In late January the SEC took one step closer to financial
disclosure when it voted to publish an “interpretive” release
that provides guidance for companies to use when preparing
climate risk disclosure documents.
There seems to be
some confusion surrounding the SEC’s action. For instance, some
folks believe that the SEC has issued a ruling that requires
disclosure. This is not true. The SEC interpretive release “does
not create new legal requirements nor modify existing ones, but
are intended to provide clarity and enhance consistency for
public companies and their investors,” the SEC’s press release
stated. (www.sec.gov)
While SEC Chairman Mary Schapiro insisted that the
Commission did not consider the science behind climate change,
it does appear to fit well within the Administration’s strategy
of moving climate change regulation along. It has been clear for
some time that the Administration has taken a three-pronged
approach to the climate change: legislation, EPA regulation, and
SEC regulation.
The SEC press release and subsequent news
reports have not made it clear that an actual disclosure
requirement is imminent. However, such guidance documents
typically signal that regulation is coming.
If so, such
a requirement will likely fall under Sarbanes-Oxley, which means
senior executives would be held responsible for any mistake in
their company’s climate exposure. That could mean jail time, so
the investment required and the subsequent technologies –
including measurement and verification methodologies – must be
extremely accurate. Every company, whether public or private,
will be impacted by any public disclosure requirement. How would
private companies be impacted?
The answer is peer pressure.
Such financial disclosure requirements would cause a new wave of
investment in technologies necessary to record, interpret and
acceptably report emissions data by companies who fear
regulations that would impose strict financial and legal
penalties.
One would logically think that international
(i.e., United Nations) legislation followed by U.S. federal
legislation has to be written, debated and approved before any
SEC financial disclosure requirements could be imposed. Not so.
This is a complex, far-reaching issue considering that companies
with an international presence – or in fear of a competitive
disadvantage resulting from the requirement – could be immensely
impacted. This is one of the reasons why international companies
not subject to Sarbanes-Oxley essentially comply with it.
Securities and Exchange Commission II. Last October
the SEC issued a decision that will make it easier for
shareholders to request climate change disclosure information
from public companies. This decision is expected to lead to a
noticeable increase in shareholder resolutions. Until now,
shareholders were allowed to request the information, but
companies could reject the vote through “no-action” requests.
In mid-January, technology corporation Apple Inc. opposed
two shareholder proposals asking the company to introduce new
sustainability governance measures. The proposals call for the
company to prepare a sustainability report that describes
corporate strategies regarding climate change, reducing GHG, and
other key metrics. The second measure called for the
establishment of a board-level committee to address
sustainability.
The measures come up for a vote at
Apple’s annual shareholders meeting in late February. Apple
contends that it already takes “adequate measures to report on
its environmental performance, including the most comprehensive
accounting of any electronics company’s carbon footprint.”
What makes this so interesting is that Apple is already
considered to be one of the world’s leading sustainable
companies; former vice president and Nobel laureate Al Gore sits
on its board. The outcome of the shareholders meeting could shed
light on just how effective environmentally minded shareholders
are in forcing companies to respond to their tactics to force
more concrete and transparent sustainability actions, and adding
additional costs to doing business.
Next time we’ll
address other governmental actions (including what is going on
in the states and internationally, as well as geopolitical
realities); actions many industries have undertaken;
intangibles; and a look at viable alternatives.
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