Cap and Trade Session – hosted by Nicola Peill - Moelter
Many companies are wondering how cap and trade legislation will impact their businesses financially. Most of the existing and imminent cap and trade leglislation (EU-ETS, REGGI, WCI, America Clean Energy Security Act) are focusing on regulating the primary CO2 emitters such as utilities and industrial manufacturing facilities. What this means for most companies is that the cost of cap and trade will be inherent in goods and services purchased including electricity prices. REGGI estimates that electricity prices will only rise a few percent as a result of its cap and trade program. Ultimately the financial impact will depend on how the trading schemes are architected, e.g., whehter allowances are auctioned or given away, the extent of the annual CO2 emission reduction targets and the cost and effectiveness of abatement technology.

Congress is currently debating a bill to implement a federal cap and trade program. It is hoped that something will be passed in time for the global climate change talks in Copenhagen in December. It's very likely that the final legislation will be a much water-down version of that originally proposed by Waxman/Markey in March in an attempt to get something passed by December.

Current prices for carbon emissions credits in the U.S. (Chicago Climate Exchange) and Europe as well as carbon offsets range from a few dollars to ~$20/ton CO2. It is believed to have any substantial impact in sending a price signal that will spur adoption and innovation of renewable energy and other low carbon technologies a price of $100 - $200/ton CO2 is needed.

Long term predictability of carbon credit pricing is also necessary so businesses can assess risks and plan ahead.

Companies can reduce their effect emissions by investin in carbon reduction projects elsewhere by purchasing carbon offsets. However, the verification quality of these projects is inconsistent across verification agencies. Carbon reduction must be "additional" to be truly effective, meaning the projects and associated reductions would not have happened without the offset funding.


o Energy Efficiency
§ Copenhagen is deciding on voluntary or mandatory standards
§ globally standardized or locally adaptive standards
§ US is a leader in some areas and behind in others
· How do international organizations stay on top of reporting requirements?
· Trend – (Deloitte study) companies that have aggressive carbon output strategies are performing better economically than companies that are not addressing carbon emissions.
o Potentially due to focus on operational efficiency as a means to reduce carbon emissions
o Some companies not willing to undertake projects that have even a 3+ year payback period. Not looking at long term gains, expecting short term ROI. Why is this?
§ Metrus Group – start up that helps subsidize start-up capital needed to adopt energy efficienct projects. Commercial and residential applications (40% of energy consumption)
· Facilities management – companies get managed on their ability to reduce the energy use by of processes over which they can control
o Server energy use is fairly constant, building energy use peaks with increased activity by employees and processes during the day
o Sun Microsystems has case studies that they are willing to share for best practice
· Cap and Trade is not needed at the consumer level because carbon footprinting should be captured at the manufacturing level
o Would consumer/demand-driven controls be effective? Would you consume less if you paid the true cost of your flat screen TV? how do you prevent massive inflation that would result from incorporating the true cost of goods into the price? Either we start paying the true costs now or we are pushing this off into the future. But we will have to pay at some point. The longer we wait the higher the cost will be.
§ Inflation in the short term versus long term inflation when we will be faced with resource shortages and true cost of those inputs.
o Counterpoint is passing true cost to consumer reduces consumption and overall demand for carbon producing activities.
§ Consumers don’t seem to respond to education on carbon footprint as much as they react to economic incentives i.e. if energy costs more, they use less
· Price of carbon credits – if carbon credit offset programs are effective, increased supply of carbon credits could reduce price of CERs.Cap and trade programs typically limit the purchase of offsets to a small fraction of emissions to avoid this problem.
o Reduction projects have better ROIs than offset projects; by definition offset project cannot have a positive ROI otherwise they would have been done anyway and thus not eligible as an offset project.
· UN Climate Change report proposes that animal agriculture causes more greenhouse gas emissions than transportation
· Developed world is cautious of using Carbon Development Mechanism created offset credits as a means of reducing carbon footprint
o Even though there are economic development benefits to the developing world projects, the perception of the US based company can be one of green washing
· Ecoprotection.blogspot.com – "Tapped" documentary