First came the news that a majority of the American public and many big investors are increasingly open to curbing the effect of global warming and supportive of mitigating carbon emissions by government action. Now comes a new report from the CDP revealing that many of the largest U.S. and global companies are ready for it too.
The CDP, which released its report last week, analyzed data from many of the biggest companies in the U.S. or doing business here. They included oil giants like
This is a huge deal both politically and from a business standpoint. The CDP (formerly the Carbon Disclosure Project) is an international, not-for-profit organization that provides the only global system for companies and cities to measure, disclose, manage, and share vital environmental information. The group works with over 700 institutional investors with assets of $87 trillion. The CDP study is based on the group’s annual voluntary disclosure process. Its analysts concluded that a broad, diverse group of American and global companies have accepted a price for carbon and incorporated it into their normal business planning.
Here’s an excerpt from their report:
[M]any major publicly traded companies operating or based in the United States have integrated an “internal carbon price” as a core element in their ongoing business strategies. Such carbon pricing has become standard operating practice in business planning, in that the companies acknowledge the process of ongoing climate change—including extreme and unpredictable weather events—as a key relevant business factor for which they wish to be prepared.
And another:
Preparedness includes use of an internal carbon price, based on the business assumption that addressing climate change will be both a business cost and possible business opportunity, regardless of the regulatory environment.
CDP reports that most companies covered in its report fully expect an eventual regulatory approach in some form that addresses climate change. Accordingly, companies are using a price for carbon to plan for identifying revenue opportunities, risks, and to incentivize the achievement of maximum energy efficiencies to reduce costs and guide capital investment decision.
What happened to the claim that business opposes a price on carbon or a carbon tax? Pundits and some politicians call any effort to control carbon a “job killer,” but, apparently, lots of big companies are saying “get over it.” The New York Times published an article last week analyzing some of the political ramifications. Their take was that coalitions are shifting and a lot of business leaders, even those who count themselves as conservative Republicans, have sensed the direction of climate-change policy in America and have decided to prepare to profit from it. Essentially, they’re voting with their business plans.
The kicker is that no company in the CDP report thought that any business disruption would result from achieving GHG reductions or from carbon regulatory regimes. That may come as an inconvenient truth—so to speak—to politicians and pundits who’ve labeled efforts to control carbon job killers. It’s becoming increasingly clear that big business is not afraid of a regulatory regime for carbon. In fact, most companies are planning for it and even see in it opportunities for growth.
The politics are shifting at an interesting time. For example, this CDP report hit just as the Environmental Protection Agency is considering its approach on how to ask states to craft their programs under the Clean Air Act to reduce carbon emissions from existing power plants. New draft regulations are expected in the summer of 2014. They’ll take final shape in 2015 and go into effect in 2016. In short, the EPA rule will give each state the individual flexibility to devise, on their own, the “best system of emissions reduction.”
Indeed, just last week the nine densely populated Northeast and Mid-Atlantic states that make up the Regional Greenhouse Gas Initiative (“RGGI”) submitted comments to EPA regarding its guidelines for state programs to reduce power-plant carbon emissions. They said that RGGI, which takes a cap-and-trade approach to reducing carbon emissions, had five key advantages, they said: (1) a proven model which has resulted in significant reductions; (2) extremely cost-effective as it enables compliance through a market-based approach; (3) providing economic benefits including revenue for states through auctions, creating thousands of new jobs as reported in an independent analysis, reducing citizens’ energy bills by more than $1 billion, and adding a net $1.6 billion to the economies of the RGGI states; (4) aligning with the regional nature of the electricity grid thus fostering regional cooperation; and (5) providing a transparent, verifiable compliance system. The bottom line, according to one RGGI state director, speaking for the group, is that RGGI, or a system like it, can squarely fit the bill of being the “best system of emissions reduction.”
As we already know from the Stanford Woods Report and other recent publications like the Ceres investors’ letter on carbon risk, it’s becoming apparent that investors and a large majority of Americans are more than ready for states to choose RGGI or some other form of a price on carbon to fight climate change. As the CDP Report shows, businesses are already prepared.
Michael L. Krancer is Partner & Energy, Petrochemical and Natural Resources Practice Group Leader at Blank Rome LLP and former Secretary of the Pennsylvania Department of Environmental Protection. His blog, Energy Trends Watch, follows developments in energy, petrochemical and natural resources.
