How to prepare your plant for climate regulation legislation

Peter Garforth says there's no question that U.S. climate regulation legislation could cause you pain if you're not adequately prepared.

By Peter Garforth, contributing editor

Legislation to cap greenhouse gas emissions is looking more likely to become a reality within the next couple of years. The Lieberman-Warner Climate Security Act probably will make it to full senate debate by June. If passed, this will set binding targets for greenhouse gas emissions on electricity producers, industry and fleet operators, managed by a cap and trade scheme similar to that already in place in Europe for greenhouse gases and in the United States for other regulated emissions.

Any industrial facility with annual emissions exceeding 10,000 metric tons by 2011 could fall within the parameters of this act. Electric utilities will be expected to comply with an ever-tightening cap. Major industrial energy consumers are beginning to realize that this kind of regulation will have far-reaching effects on how they procure and manage energy.

There’s understandable concern about the price of emission allowances, with forecasts as high a $250 or more per metric ton by 2030. Plants operating below the limit can sell their excess allowances, and those above the cap must buy allowances or face penalties as great as three times the allowance market price. This is for direct emissions coming from process, natural gas and heating oil usage, and transportation. The need for a better understanding of a plant’s direct carbon footprint and how to manage it suddenly takes on a new meaning.

Lurking in the background is another major concern. On average, every megawatt-hour of electricity used in the United States generates about 600 kilograms of carbon dioxide. Under the Climate Security Act, the responsibility to reduce this will fall on the utility, and produce uncertainty in the cost of electricity. Estimates vary from negligible to about four cents a kilowatt-hour. It becomes important not only to understand the amount of electricity being used, but also its carbon content and how difficult it will be for the supplier to meet new emissions constraints.

As if this weren’t enough, climate scientists and environmentalists are welcoming the act as a “useful first step,” but are clearly indicating that it falls short of their perception of the reductions that are needed for climate stabilization. A few more hurricanes and tornados could well push the public to demand even tougher regulation.

The depth of the changing management conversation was underlined for me with two recent activities, both with major global corporations. One was a two-day workshop at a manufacturing plant, one of many the corporation owns around the world, which was being challenged to be the prototype for the entire corporation to manage their activities for greenhouse gas neutrality. Multiple teams already were identifying and implementing many carbon-reduction actions. Even more impressive was the willingness to learn from others’ experiences in academia, real-estate and other manufacturing industries.

The group gathered for the workshop included, in addition to the predictable inside manufacturing and environment team, the Chief Sustainability Officer from headquarters. The plant also invited vendors, potential suppliers and the mayor of the local community to take part in the discussion about making the plant’s carbon footprint as small as possible. The message was clear: Suppliers able to engage in this would be viewed positively, and sustainability is a prerequisite for competitiveness, employment and a thriving local tax base.

A second major corporation started reassessing its worldwide energy management approach in the light of the pending Lieberman-Warner bill. Initial reactions probably saw more risks than opportunities. However, the assessment already was well underway with resources and committed support, even from the highest level. The awareness grew that the opportunities to build competitive edges were greater than they had first appeared, once the linkage between holistic energy management approaches and greenhouse gas mitigation was clarified.

Any legislation that tackles energy-related climate change in the $1.5 trillion U.S. energy market inevitably causes structural shifts. These, in turn, generate market opportunities for suppliers of equipment and services. The messages that management is beginning to hear are louder and clearer in the United States than they’ve ever been. Regulation of greenhouse gas emissions is almost inevitable and might be deeper than many had expected. Companies that already have sound energy plans are well equipped to adjust and respond. Those who haven’t might fall behind. The market changes climate regulation causes will be measured in billions of dollars for those with the willingness to explore and pursue new opportunities. There’s no question that climate regulation will cause pain and there will be some losers, but as with every major market shift, there also will be big winners. Where will you choose to stand?

Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at garforthp@cs.com.

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