Recently, lines between mandatory and voluntary energy and carbon management initiatives have been blurred as businesses in nearly every sector face increased pressure from consumers, customers, investors, and regulators to implement sustainability initiatives. Over the last few months this point was reinforced by several new requirements on businesses to develop and disclose sustainability efforts:
These new requirements provide confirmation that businesses must remain focused on energy, carbon, and environmental performance. External pressures aside, sustainability is proving good for business performance.
A Recent MIT Sloan Management Review (Sustainability and Competitive Advantage) survey of executives demonstrated that companies have identified multiple tangible and intangible benefits from sustainability initiatives. These benefits frequently include enhanced profits from improved brand and customer loyalty, reduced costs tied to better energy management and increased operational efficiencies, and strengthened employee recruitment and retention.
Aberdeen Group, in their recent research (Sustainable Production: Good for the Plant, Good for the Planet), determined that 85% of surveyed companies responded to the current economic downturn by either sustaining or increasing investments in their sustainability programs. Significant reductions or improvements across energy efficiency, waste reduction, environmental impact, and reuse and recycling amounted to enhanced financial performance directly attributable to sustainability program investments. Common amongst Best-in-Class manufacturers was a corporate-wide energy and emissions data program.
Pace Globals’s integrated energy and carbon data management solution, ECM HubSM, provides businesses with a foundation for their sustainability programs. These tools centralize enterprise energy, carbon, and sustainability data in a web-enabled environment that provides management with line of sight to key performance indicators at enterprise, business unit, facility, and unit-level resolution – and at a price point 50% to 70% below the cost of internally developed efforts. For more information, please contact us or click here to learn more.
The days of simple corporate roll-ups of greenhouse gas (GHG) emissions are fading into the past. Historically, a company could be viewed as proactive by tracking and disclosing aggregate, enterprise-wide GHG emissions. Today, competitive advantages are going to those organizations that can provide transparent carbon accounting details at product, activity and process levels.
Wal-Mart made headlines in 2009 by requiring 100,000 vendors to disclose energy, carbon, and sustainability metrics for products sold by the global retailer. However, this concept of pushing a company’s climate and sustainability initiatives onto its upstream supply chain extends far beyond Wal-Mart. Businesses are now beginning to view carbon as a proxy for efficiency and have integrated carbon management strategies into their supply chains.
New standards have emerged to help businesses understand the environmental impact of their supply chains. Initiatives from the Carbon Disclosure Project (CDP) and the World Resources Institute/World Business Council for Sustainable Development (WRI/WBCSD) are currently in pilot phases with over 100 participating companies representing more the 20 industry sectors.
Participants in these programs are asking for details that cannot be addressed using a corporate summary of energy usage:
- Allocations of GHG emissions by customer according to the goods or services sold
- Efforts to verify GHG inventory records and reduce uncertainty
- Forecasts of how GHG emissions will change over the next 5 years
- Future plans to improve capabilities for allocating emissions based on specific products and services
- Measures to reduce GHG emissions in the lifecycle of products
- Climate change related business strategies to take actions on risks and opportunities; including emissions reduction targets, public policy engagement, and external communications.
- Strategies for engaging suppliers on their GHG emissions
It’s clear that this issue has tremendous momentum when a Google search for “green supply chain” yields over 15 million results. A February 2010 Fast Company Magazine article effectively articulated the completive side of this issue – “When every package is awash in claims of using less plastic and water, a standardized measure would separate sustainability lightweights from products that truly deserve their green halo”.
Just one day after Senators John Kerry and Joe Lieberman released the details of the American Power Act, the U.S. EPA made headlines related to greenhouse gas regulation. On May 13, 2010, EPA finalized its plan to regulate 70% of all U.S. greenhouse gas (GHG) output through the implementation of Clean Air Act permitting programs for stationary sources. These efforts stem from the Supreme Court's 2007 decision in Massachusetts v. EPA where the Court concluded that GHGs are "pollutants" under the Clean Air Act, and ordered EPA make a determination as to whether GHG emissions contribute to an endangerment of public health and welfare. EPA issued such an endangerment finding in December 2009 and triggered an obligation for to regulate GHG emissions.
What does the EPA "Tailoring Rule" mean for the energy, industrial, and manufacturing sectors?
- Generally, the rule requires large GHG emitting facilities to obtain permits that demonstrate they are using best available technologies (BACT) to reduce emissions.
- Phase 1 (January 2, 2011 to June 30, 2011) - permitting rules apply to facilities with existing permit requirements for non-GHG emissions and where modifications will increase GHG emissions by 75,000 tons carbon dioxide-equivalent (CO2e) per year or more.
- Phase 2 (July 1, 2011 to June 30, 2013) - permitting requirements apply to new sources emitting at least 100,000 tons CO2e per year.
- Phase 3 (2013) - Beginning in 2011, EPA will develop additional rules to phase in permitting requirements for sources below the 75,000 and 100,000 ton thresholds.
Challenges are present. The definition of what constitutes BACT for GHGs at various facilities has not been resolved. Currently, such technologies generally are not available for controlling GHG emissions. Furthermore, it is anticipated that legal hurdles will evolve from petitions to challenge EPA's endangerment finding. And, initiatives in Congress may be employed in an attempt block or suspend EPA's authority to regulate GHG emissions from stationary sources.
While EPA is obligated to regulate GHG emissions, clearly passage of legislation through Congress is viewed as the preferable approach. The American Power Act, which would preempt EPA's efforts, may represent a more appealing option as Senators consider their positions on the newest cap-and-trade bill.
Senators John Kerry and Joe Lieberman have released the much anticipated American Power Act in the midst of a challenging political environment. This comprehensive energy and climate change legislation establishes an economy-wide greenhouse gas (GHG) cap-and-trade program designed to cut U.S. emissions to 17% below 2005 levels by 2020 and 83% by 2050. Under the draft bill, electric utilities would fall under regulation starting 2013 and the program would expand to include manufacturers in 2016.
In an effort to facilitate passage of the bill, several cost control measure were included:
- Manufacturers avoid restrictions of the GHG emissions cap until 2016 and will receive allowances to cover compliance obligations until 2026.
- From 2013 to 2016, manufacturers receive free allowances to cover increases in energy prices resulting from pass-through costs due to the cap on electricity sector emissions.
- Oil refiners receive enough allowances to cover compliance obligation through 2026.
- Utility companies receive enough free allowances in 2013 to cover compliance obligations.
- Allowance prices are controlled by a floor ($12/MT CO2e) and ceiling ($25/MT CO2e).
- Monthly refunds and tax credits will be provided by the federal government for eligible, low income households to cover increased energy prices.
The debate surrounding this bill will play out very publicly during midterm election season. Not surprisingly, initial comments associated with the release of this bill have been strong and mixed.
The American Materials Manufacturing Alliance (AMMA), a group of energy-intensive, trade-exposed industries representing the aluminum, chemical, forest and paper, iron and steel, fertilizer, and cement sectors released a statement recognizing that the bill invests in U.S. manufacturing competitiveness, but outlined several objections. Concerns highlight the emission allowance distribution system, the lack of funding for energy efficiency and clean energy technologies, and inadequate protection against increased energy costs.
The National Association of Manufacturers (NAM) also expressed concerns related to potential impacts to global competitiveness resulting from additional burdens on manufacturers that will raise energy prices.
Over 170 U.S. businesses organized by the We Can Lead coalition issued a letter to Senate Majority Leader Reid urging the Senate to enact comprehensive climate and energy legislation this year. Signatories of this letter included companies from the electric power, manufacturing, clean tech, technology and consumer products sectors.
While vigorous debates will continue and this current bill may fail to garner the political support required for passage, the Democrat-led Congress and Obama administration remain committed to enacting comprehensive climate change regulations. Now is the time for business of all sizes and industry sectors to develop a clear understanding of their assets and liabilities in carbon terms.
Now that the EPA has finalized the first-ever mandatory greenhouse gas (GHG) reporting rules (see Pace's Summary of the EPA Rule) within the U.S., it is clear that organizations must re-think their carbon accounting programs by looking to the future today. The complex GHG data and calculation requirements established by this GHG reporting regulation commence in January 2010 and current approaches implemented by most organizations are out of alignment with this rule. Here, I discuss two specific reasons to modify your current GHG accounting and energy management practices.
- Spreadsheet-based reporting will no longer be adequate: Many organizations currently track carbon and sustainability data within Excel-based spreadsheets managed by internal resources. EPA will not accept these files for annual GHG inventory reports. Rather, reporters will need to transmit GHG inventory reports, supporting data, and unit and facility information electronically via an XML format. Alternatively, reporters can manually enter completed inventory records into the EPA system, but this approach will result in duplicative efforts and is prone to error. Pace's ecolink® solution (click here: ecolink), provides the data management, GHG emission calculation, and electronic submittal capabilities organizations require to comply with the EPA GHG reporting rule.
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EPA builds an exit ramp: Facilities that reduce GHG emission through operational or energy efficiency improvements or organizational changes can avoid future reporting obligations. If a facility can prove it has reduced emissions below the 25,000 metric tonne threshold for five consecutive years or below 15,000 tonnes for three years, the owner/operator can apply to remove that facility from the program. Successful organizations will have the ability to identify, implement, and track efficiency opportunities at the rapid pace dictated by modern business conditions. Pace's ecolink® solution puts these capabilities at your fingertips in a web-enabled environment, that allows for sharing of best practices across all your facilities.
The age of regulated greenhouse gas emissions and scrutinized environmental performance is here, creating a wide range of challenges for businesses today. As organizations begin to prepare for compliance, top decision makers will quickly need to decide how best to manage these direct compliance risks along with much broader business requirements. While compliance regulation may get management's immediate attention with the advent of the EPA rule, there are strong business requirements at play from customers, investors and supply chain partners that impact every aspect of business operations. The answer: Be proactive and get a handle on your GHG emissions performance by developing an integrated carbon and energy management program that allows your organization to tie energy and carbon liabilities and opportunities to strategic business initiatives - the evolving market dynamics will demand it.
Enterprise carbon accounting (ECA) software solutions have received a significant amount of media attention during the first half of 2009. The confluence of emerging Federal, GHG regulations with announcements of new market entrants, has spurred this heightened attention.
Much of the recent media attention has focused on software vendors that are new to this space and offer pure turnkey software solutions. Carbon management is primarily an energy data issue and it occurs to me that ECA software solutions integrated with established energy consulting services are not receiving appropriate attention. Integrated carbon and energy solutions of this nature tend to be better equipped to solve complex data management issues and at a price that is more economical than traditional enterprise-scale software solutions. Vendors with extensive experience providing energy and carbon data management and advisory services to proactive businesses fully appreciate the fact that carbon and energy are inextricably linked. Further, the most complex and labor intensive aspect of developing a carbon footprint is the establishment of data collection processes. Vendors with comprehensive data management solutions are better prepared to address these market challenges.
I also observed that much of this media attention around ECA solutions, and many of the vendors themselves, tend to focus exclusively on voluntary, sustainability drivers for implementing enterprise carbon accounting initiatives. These initiatives are both commendable and decidedly more vital as energy costs rise under a carbon constrained economy and stakeholders increasingly expect clear carbon risk disclosure from businesses. However, the first half of 2009 was also marked by unprecedented speed and urgency around newly proposed, Federal GHG regulations. Specifically, the U.S. EPA's Proposed Mandatory Greenhouse Gas Reporting Rule is arguably the most rigorous GHG inventory protocols designed to date. Those organizations with compliance obligations will benefit from compelling ECA software solutions that integrate regulatory carbon reporting requirements with energy data management and carbon advisory services.
While the calculation and data quality requirements of the EPA rule exceed those of voluntary reporting protocols, organizations without compliance obligations also benefit from partnering with a firm that has the ability to provide compliance solutions. It is conceivable that, as the EPA reporting requirements are established as the industry best practices for carbon accounting, other stakeholders will adopt aspects of the Federal GHG reporting rule. The U.S. Securities and Exchange Commission (SEC), for example, is under significant pressure from investors to require corporations to disclose climate risks with financial reporting. Will the SEC look to the EPA guidance related to carbon accounting standards?
Whether your organization's drivers for establishing carbon management practices are tied to voluntary or regulatory needs, it is important to partner with a service provider that competently addresses the data management challenges and is capable of delivering a true, regulatory-quality solution.