Posted by Stacy Richter on April 30 at 10:15 PM
Like most, I found myself increasingly interested in how the “Cap and Trade” system actually works and what effect it would have on overall business. To provide a little perspective, the EPA issued a memo on Apr 23 on how the Agency will meet its “heightened commitment to transparency.” (EPA, 2009
The theme was protecting the environment and supporting economic recovery. The first two priorities of the published EPA guidelines should be of particular interest to the energy industry.
Priority 1: Reducing Greenhouse Gas Emissions
“Transitioning to a lower-carbon economy will protect public health, create jobs and open up opportunities for investment in existing and cutting-edge technologies, creating a foundation for future growth.” (EPA, 2009
Priority Number 2: Improving Air Quality
“Improving air quality is a critical national goal. The US continues to face serious air pollution challenges, with large areas of the country that still cannot meet federal air quality standards and many communities still facing health threat from exposure to toxics..” (EPA, 2009
Enter the “Cap and Trade” system. In short, the goal is to reduce GHG emissions economy wide. According to the Center for American Progress
(2008), the ‘Cap’ is administered by the federal government and will issue a specific number of permits for every ton of CO2 a firm releases into the atmosphere.
The ‘Trade’ assumes that some companies will be better positioned to make reductions and emit less than their permits. The credits can be sold to firms unable to adequately reduce emissions. The overall system ensures a specific level of emissions which can be reduced to meet federally committed targets.
The “Cap and Trade” system should be a large blip on the radar of resource companies in the U.S. and Canada as well as the service companies who supply them. GHG’s are a large by-product from producing and burning hydrocarbons. The permits issued through this system will require these companies to innovate in order to reduce emissions or to buy the necessary credits to meet the regulations.
The benefit of such a system is that it will create a tangible economic benefit that directly affects the bottom line; either through financial penalties or incremental revenue. The innovative firms will flourish while stagnant firms will suffer. Environmental organizational policies are no longer a budget line for stakeholders to feel good about and for executives to cut to improve the financial statements.
Topics: energy, strategy, sustainability SHARE: