The emerging US carbon regime will create a carbon currency that can be manifested in many ways. For one thing, carbon can become an economic indicator for efficiency along the company supply chain. And because no one was collecting carbon emissions data in 1990, the baseline of both the Kyoto Protocol and California’s AB 32, there are many opportunities to create and deploy carbon planning tools. Thus construction of the baseline will be through financial statements such as 10K and 10Q. Therefore tools that measure and quantify the carbon footprint of companies are very useful to track emissions along the supply chain.
Impacts on the manufacturer along the supply chain are paramount. The carbon value in processing and transportation will become fairly transparent. Today, it may appear as a cost but it also represents opportunities to reduce a company’s carbon footprint and also reduce waste so that benefits drops to the bottom line.
While the US has been slow to implement a federal greenhouse gas reduction program, that is about to change with the election of President Obama. He has steadfastly put climate change at the top of his environmental legislative agenda. But it also must be understood, that the US with a carbon footprint of 6 billion metric tonnes is substantially bigger than the EU. Size matters, and what is going to emerge is a North American cap and trade system. The Canadians signed the Kyoto Protocol and have essentially done little to reduce their 1.3 billion tonne carbon footprint. Thus, the emerging of a North American carbon cap and trade market is a huge business opportunity. Elements of this emerging market are already evidenced with the broadening of Climate Registry which involves 41 states, 12 Canadian provinces and 6 Mexican states to report greenhouse gas emissions. Moreover, the Western Climate Initiative is bringing another cross border commitment to reduce greenhouse gas emission 15% from 2005 levels by 2020 which is roughly comparable to the California reduction of 15% from 1990 levels by 2020.
While economists keep promoting carbon taxes as a simple way to apply the carbon cost to US businesses, the reality is that US politicians are not going to promote new taxes. So, while this issue continues to percolate in policy circles, the reality is that the US will follow the route of carbon cap and trade which has become the global template. Moreover, the US created cap and trade. It can be argued that cap and trade is a de facto tax on industry and will show up on the pricing of various goods and services such as airline tickets, automobiles, fuel content of gasoline etc.
The goal of the low carbon economy is decades away. The reality is that greening the supply chain is a necessary first step to reducing the corporate carbon footprint under a mandatory cap and trade program with enforcement and sanctions for noncompliance. This change to more proactive environmental initiatives will incent industry to move aggressively in energy efficiency and deployment of renewable energy technology to reduce carbon footprints. The need to measure a corporate footprint is fertile ground for business since outside of the energy industry which has had to comply with emissions laws since 1993, new US corporations have measured their carbon footprint.
Delaying participation is understandable—the markets are predominantly overseas and are still evolving. But it’s risky to wait until greenhouse gas regulations emerge from the U.S. Congress.
The opportunity cost of ignoring an asset that’s sitting there waiting to be created is significant. And it’s likely that competitors are already learning how to generate carbon credits; once U.S. regulations are finally in place, those companies will be way ahead. Perhaps most important, businesses need to understand how carbon markets will affect the competitive landscape and many investment decisions.