The New Carbon Cycle

Can You Reduce Carbon and Save on Taxes?

Ernst & Young has conducted a study on the issue of reducing taxes through environmental and sustainability programs--cutting carbon can lead to lower taxes in some instances.  The study results were published in an article in Environmental Finance, which asked company represenataives if they were aware of incentives for "green" investment.

Federal, state, and local tax credits, deductions, and grants may be available for energy efficiency and other investmetns.  For example, Section 179D of the US Tax Code provides for up to $1.80 per square foot for energy efficiency installations in existing or new buildings.  Tax credits are available for some renewable and alternative energy installations at company properties.

Utilitity incentives may also be available.

Don't forget to check on these incentives when engaging in or planning sustainability programs for your company.

Atlantic Article Delves into Complexities and Interrelationships of Energy and Climate

A very good article from The Atlantic was shared with me by Mike Titens, one of Thompson & Knight's corporate partners and a member of our Climate Change and Renewable Energy Practice Group.  The article is entitled The Elusive Green Economy and delves into the complexities of and interrelationships between climate change, renewable energy, energy independence and security, as well as how entrepreneurship and government can have a positive impact or a negative one depending on the policies adopted. 

 

It's rare that any insight is shown on these issues by the press (or politicians for that matter).  While I may not agree with every conclusion, I was pleased to see a more in-depth discussion of these complex issues and recommend it for your reading.

Energy Efficiency and the Competitive Advantage of Our Nation

Management guru and professor Michael Porter's concludes in The Competitive Advantage of Nations that one of government's roles involves "acting as a catalyst and challenger, . . to encourage--or even push--companies to raise their aspirations and move to higher levels of competitive performance. . .."  In the Senate debate over the American Clean Energy and Security Act, H.R. 2454, the "Waxman-Markey Bill", the Senators should consider the extent to which energy efficiency contributes to both domestic firm competitive performance and to the competitive advantage of the nation as a whole.

No doubt companies that can substantially reduce their energy consumption can reduce costs and,therefore, increase profits.  As an example, Walmart is working with numerous potential vendors to reduce its energy consumption as its energy costs are significant.  Walmart's Sustainable Building Plans among other efficiency plans would reduce energy usage dramatically.  Other companies such as Dow cite substantial reductions in electrical use and concomitant reductions in greenhouse gas emissions.  Dow's energy savings program  has resulted in energy savings of $8.6 billion and has prevented 86 million metric tons of CO2 from entering the atmosphere. With the ability to monetize these greenhouse gas reductions in the form of carbon credits, these firms will have an additional incentive to reduce electrical and transportation fuel consumption.

In addition, these firms will be incentivized to switch transportation fuels for their fleets of trucks.  Natural gas is now abundant in the United States with the discovery of the means to extract natural gas from the various shales from across the United States that contain huge stores of natural gas.  Not only does the use of natural gas allow the potential savings in fuel costs over the long term, but the monetization of the greenhouse gas reductions by switching from diesel to natural gas permits yet another revenue stream to assist in financing a more sustainable and more efficient company.

As a nation, these changes make the firms in the country more competitive as costs of production decrease and allow the use of domestic fuels.  To the extent, new regulations promote not only energy efficiency and fuel switching, but the invention and domestic manufacture of new technologies and products for export, then the nation become even more competitive.

Nations that reduce their dependence on foreign oil will undoubtedly increase their domestic and international competitiveness.  Those that can design new, more distributed energy sources for their troops to produce water, drive electronic-based weapons and communications, and alternative ways of fueling mechanized aspects of their sea, ground, and air-based forces will have a stronger military.  The United States armed forces are spending significant money to develop these technologies.

McKinsey & Company recently issued a report entitled Unlocking Energy Efficiency in the U.S. Economy.  In this report, the leading business consulting firm states its central conclusion as follows:

Energy efficiency offers a vast, low-cost energy resource for the U.S. economy--but only if the nation can craft a comprehensive and innovative approach to unlock it.  Significant and persistent barriers will need to be addressed at multiple levels to stimulate demand for energy efficiency and manage its delivery across more than 100 million buildings and literally billions of devices.  If executed at scale, a holistic approach would yield gross energy savings worth more than $1.2 trillion, well above the $520 billion needed through 2020 for upfront investment in efficiency measures (not including program costs).  Such a program is estimated to reduce end-use energy consumption in 2020 by 9.1 quadrillion BTUs, roughly 23 percent of projected demand, potentially abating up to 1.1 gigatons fo greenhouse gases annually.

The McKinsey Report demonstrates that a more energy efficient country is a more competitive country.

To put this in competitive context, Europe and China are pushing for more energy efficiency and the building of domestic sources of energy and fuel and the development of renewable energy technology firms, energy efficiency technology firms, and the domestic manufacturing of new 21st-century products.  Technologies like LED lighting that will reduce the consumption of electricity dramatically are the race to the future by companies around the world.  The countries that achieve development of firms with lower energy consumption and energy efficient technologies and alternative fuels will likely be the more dominant economic powers in this century.

Thus, a look back at Michael Porter's book and the application of its model to the current debate about the Senate version of the American Clean Energy and Security Act is warranted.  Putting politics and ideology aside, the empirically demonstrated need to move toward a 21st-century energy policy is critical to the future competitiveness of the nation.  This should be at least one of the critical strategies underlying the debate in the Senate over the next few months.

Bi-Partisan Western Governors Call for Energy and Climate Legislation

The Western Governors Association (WGA) sent a letter to President-elect Barack Obama, urging swift action in adopting and implementing a national energy plan that would transform the country's energy infrastructure and economy while reducing greenhouse gas emissions. The group of 19 Western governors from both political parties call for near-zero greenhouse gas emissions from new coal-fired electricity generation in 10 years and from existing generation no later than 2030. The bi-partisan group of governors called on President-Elect Obama to act within the first 100 days of his administration.

The organization is led by Utah Governor Jon M. Huntsman, Jr., Chairman, a Republican, and Montana Governor Brian Schweitzer, Vice Chairman, a Democrat. On Nov. 21, Huntsman and Schweitzer met with John Podesta, co-chairman of Obama's transition team, to promote the WGA proposal.

"The transformation we are talking about is broad based and will require new policies, incentives, market mechanisms and private-public partnerships to be in place by the end of next year," Huntsman said. "We plan to work with the new administration and Congress in addressing the multitude of energy challenges ahead."

"Western states are the country's energy breadbasket, but energy efficiency has also got to play a much bigger role," said Schweitzer. "That includes everything from manufacturing more fuel-efficient vehicles to changing regulatory structures so they reward utilities for achieving reduced energy usage among their customers."

The governors stated that a national energy policy must promote energy efficiency and reduce greenhouse gas emissions on a scale necessary to contribute to climate stabilization. They state the position that the Obama administration's energy/climate policy must maximize the economic development opportunities offered by clean energy; ensure energy costs are affordable and support a sustainable, growing economy. They urge the incoming administration to increase the proportion of energy supplies that come from domestic resources and friendly trading partners; and minimize adverse environmental impacts.

Within the first 100 days, the governors are calling on the Obama administration to:

--Establish an aggressive and achievable national greenhouse gas emissions reduction goal that will put the United States on a path to contribute to global climate stabilization.

--Propose a mandatory national system for reducing greenhouse gas emissions that makes maximum use of market-based mechanisms. Revenue raised should not be used as a means of sustaining or expanding general governmental operations.

--Pursue a national energy efficiency program to reduce existing and future energy demand and thereby reduce greenhouse gas emissions.

--Establish an oil import reduction goal that strengthens energy security and independence. Since nearly 90 percent of oil is used for transportation, an energy plan must bring more fuel-efficient and near-zero emission vehicles into the market; increase the supply of domestically produced, low-carbon fuels; minimize the economic and technological uncertainties inherent in deploying high efficiency vehicles and developing and using non-petroleum transportation fuels; and reduce vehicle miles traveled and increase mass movement of people and goods.

--Create a substantial, long-term national public investment on the scale of tens of billions of dollars annually, along with a similar investment from the private sector, to support the kind of basic and applied research and deployment of clean energy technology and infrastructure that will result in:

--Near-zero greenhouse gas emissions from new coal-fired electricity generation in 10 years and from existing generation no later than 2030.

--Dramatically increased energy from wind, solar, geothermal, hydro and biomass resources.

--Expansion and upgrade of the electricity transmission grid and storage capabilities.

--Advanced vehicle and battery technologies and alternative transportation fuels.

--Next generation energy efficiency technologies and practices.

The governors also urge affordability for lower income energy consumers through energy efficiency and cost assistance programs. They support workforce development and clean energy jobs, adaptation to climate change impacts, reduced consumer impacts - particularly for low-income consumers - and transition assistance to industries.

"While the first 100 days are critical, these actions only represent the first steps," the governors say in their letter. "Within the next year, a comprehensive energy plan must be enacted that will set the direction of this nation for the next 50 years. This plan, though adjustable over time, must establish measurable goals, strategies, milestones and funding to ensure that we are moving towards affordable and environmentally responsible energy security and independence."

"We must not repeat the mistakes of the past," the governors declared in their letter. "We must have the collective political will and resolve to create and implement a long-term comprehensive energy policy despite short-term political and market fluctuations. The future of our nation depends upon it."

The environment really isn't a red or a blue issue. It's an American issue. I'm trying my very best as just one Republican, and I know there are others, to remind people of that fact — and that it will take a bipartisan effort," the Utah governor said.

The governors are calling in a bi-partisan way for action on energy policy. The biggest question is whether US senators can find a bi-partisan solution that reflects the governors’ proposal. Huntsman has been criticized by some Republicans for supporting climate change legislation and cap and trade.

"The Republican values I'm speaking to are right out of ... Teddy Roosevelt's playbook. He taught us all to revere our land, to leave a legacy ... to the next generation," Huntsman responded to criticism from some Republicans. "I'm also doing a very Republican thing to incentivize and develop technologies that are going to fuel our economy."

As 2009 approaches and the new administration prepares to work on climate legislation in the new Congress, this call by governors of both parties for climate and energy legislation suggests growing pressure on Congress to pass a climate bill. It appears only a possible filibuster in the Senate stands in the way of climate legislation. How the votes will come out on a climate filibuster remains to be seen.

Article Published in Fuel Magazine Discusses How Carbon Credits Can Finance Use of Flared Gas

In the July 2008 edition of FUEL magazine I published an article discussing how carbon credits can serve to help finance local uses of natural gas that is otherwise flared or vented.  The article is entitled “Carbon Credits: New Uses for Financing Natural Gas.” 

In the article, it is explained that “The World Bank has formed a group that is working to reduce natural gas venting or flaring, based in part on its recent report estimating global vented or flared natural gas reaches about 14 billion cubic feet per day (Bcf/d). The burning of the natural gas reportedly produces 400 million tons a year of carbon dioxide, which GHG [greenhouse gases] scientists blame for contributing to climate change.”

The article also discusses the fact that  “one of the means by which natural gas is captured and moved to markets such as the United States is through liquid natural gas (LNG) projects.”  However, “often there is no perceived market for this gas, and no known way of financing the transport of it to market if identified.” The article explains how GHG emission reductions can produce carbon credits, which can then be sold and serve as a basis for helping finance more local markets for flared natural gas.  Deatherage discusses carbon trading, “pollution rights,” cap-and-trade systems, and other market aspects of climate change. I conclude that “emission markets encourage capital to reduce GHGs and provide economic benefit to developing countries to be invested in these projects as they find substantial return on their investments.  Carbon trading may prove to be a key element to many of these projects, including those to reduce the venting and flaring of natural gas.”

To view the full article, please visit www.hartfuel.com.

After Lierberman-Warner Defeat, Business Leaders Call for Action on Climate Change

The Lieberman-Warner Bill was blocked by a Republican fillibuster in the Senate a few weeks ago.    While it was not expected to get through the Senate and then the House this year, most of the potentially regulated industries expect something to be passed in the next two years.  The international negotiation and discussion of a post-Kyoto treaty continues.  As part of this public discussion, a series of CEOs from large, multi-national companies have called for action on climate change.  These leaders are part of the World Economic Forum.

A Steering Board consisting of the following World Economic Forum Industry Partner companies guided development of this CEO statement for the G8: Alcoa (USA), AIG (USA), Applied Materials (USA), Basic Element (Russian Federation), British Airways (UK), Deutsche Bank (Germany), Duke Energy (USA), Electricité de France (EdF) (France), Eskom (South Africa), Petrobras (Brazil), RusHydro (Russian Federation), Royal Dutch Shell (Netherlands), Telstra (Australia), Tokyo Electric Power (Japan), TNT (Netherlands), Vattenfall (Sweden).

The comprehensive statement can be found at CEO Climate Policy Recommendations to G8 Leaders. 

One of the leaders of this group, Alain Belda, CEO of Alcoa, stated, "We know we must address climate change. We may not have sorted out every detail, but we are willing to take a leadership position and embrace open dialogue... that will get us all to our common goals of protecting our world for future generations. The changes that are needed can't be incremental; we need major breakthroughs."

"Energy and the environment are the two great social and engineering challenges of our time and will only increase in importance as world economies continue to grow. As businesses and government prepare for post-Kyoto, these proposed climate change policy recommendations serve as a useful guide," advised Mike Splinter, President and CEO of Applied Materials."

One of the reccommendations of the CEOs is that the system be "market-oriented."

• Comprehensive. For environmental effectiveness and economic efficiency, the

framework should encompass all major economies, in particular the G20

economies,11 all major greenhouse gases (not just carbon dioxide) and the

principal greenhouse house gas-emitting sectors, including energy,

transportation, buildings and deforestation/land use change.

• Commitments-based. The framework should establish clear international

commitments that are “nationally appropriate”; “measurable, reportable and

verifiable”; and, in the case of developing countries, “enabled by technology,

financing and capacity-building”.

• Flexible. The international framework should respect and preserve the

prerogative of national governments to choose their own domestic policy

options to address climate change. The new framework should accommodate

this diversity by allowing variation in the magnitude and timing of countries’

commitments, providing that the overall framework is capable of meeting the

agreed intermediate and long-term environmental goals.

• Equitable. To achieve broad participation, the framework must reflect the

fundamental principle of “common but differentiated responsibilities”13. In light of

their greater historic contribution to climate change, and their stronger

capacities, G8 and other developed country governments should show

leadership in sharing the burden of addressing climate change. We would

support such an outcome. We also note that in moving forward, future equity

and future responsibilities will require developing countries to also take on clear

emission reduction commitments.

• Framed within the context of sustainable development. The new

framework must view climate change within the context of the wider

development challenge faced by many of the poorer countries in the world. The

new framework must be designed to allow for economic growth in developing

countries, while meeting its overall international environmental objectives.14 As

agreed in the Bali Action Plan, the framework should provide incentives and

support for mitigation efforts in developing countries, including finance for

technology deployment and institutional/policy development and by providing

adaptation assistance to those countries most vulnerable to climate impacts. In

combination, these elements could provide tangible support to the sustainable

development and economic growth aspirations of developing countries.

• Technology-enabling. The framework should promote an international level

playing field to support the rapid RD&D of all clean energy and fuel technologies

that can lower GHG emissions and technologies that can help adapt to climate

change. In the near term it should encourage the wide-scale deployment of all

best available technologies that improve energy efficiency to achieve emission

reductions. It must enable research, development, demonstration and

deployment (RDD&D) of the next generation clean energy technologies, in

particular those needed to de-carbonize coal powered energy emissions. It

must also contain mechanisms to protect the rights of technology owners.

• Predictable. The long-term business strategies and investments necessary to

achieve such a paradigm shift are feasible only in the context of a stable,

predictable international policy framework, based on the principles set out

above. As this framework evolves, business must be confident that the

UNFCCC will remain the principal venue for it; that nations will honour their

commitments regardless of changes in government, and that successive

agreements will be negotiated, accepted and implemented in a timely manner.

Carbon trading or a cap-and-trade emissions market for greenhouse gas reductions is therefore a fundamental aspect of their recommendations--showing a clear preference by industry and business for a cap-and-trade system in any treaty that will be negotiated to follow Kyoto.

Global Food Transportation May Be Pulled Into EU Emissions Trading System

In a New York Times article entitled The Environmenta Costs of Shipping Groceries Around the World, the issue of the greenhouse gas emissions from shipping fruit, vegetables, fish, and other food products is discussed.  The article describes the move by the European Union to add air transportation to the EU Emissions Trading System (ETS) would put a cost on air transportation of food and manufactured items.  The EU is reviewing the addition of shipping emissions to the ETS as well.  Many of the countries that produce these food items complain that the charging of a carbon tariff or requiring the purchase of offsets or allowances for these food items is a form of trade protectionism.  As the debate over the transportation in this article, and production (including use of electricity from coal-fired power plants) continues, countries will find themselves debating over the emissions and costs to compensate for the potential impact on climate change and global warming. 

Could Thin Film Solar Make Solar Electricity Cheaper Than Coal Produced Power?

New technology breakthroughs have been the hope of governments and the public for everything from climate change and global warming, energy security, domestic versus foreign production and jobs, to distributed power production that need not be purchased from large utilities.  Solar energy one of the hoped for solutions has been hampered by manufacturing costs.  The solar panels we have all seen are large and costly to produce because they rely on silicon that is also used for computer chips.

With the development of thin film solar, the ability to reduce the cost may be solved.  A story from Celsias describes how a company called Nanosolar is producing a solar film that is printed much like documents on your inkjet printer at home.  The new technology may reduce solar electricity costs from $3 a wat to 33  cents a watt--competitive with electricity from coal-fired power plants. The Nanosolar plant in San Jose, once in full production in 2008, will be capable of producing 430 megawatts per year. This is more than the combined total of every other solar manufacturer in the U.S.

This breakthrough technology has the ability to revolutionize power production. Keep an eye on Nanosolar and other companies in the thin film space.

An Economist with CIBC in Canada Predicts Carbon Tariffs Will Bring Jobs Back to North America from China and Other Developing Countries

An economist with CIBC World Markets Jeff Rubin has issued a report predicting that Canada will impose carbon taxes or carbon tariffs on imported goods from China and other developing countries that do not have restrictions on greenhouse gas emissions. He also predicts that this will cause jobs and manufacturing to come back to North America, because emissions and energy efficiency will be more important than labor costs. He states that non-metallic mineral products - cement, glass and lime - with energy intensity 130 per cent higher than the Chinese industrial average, are likely to return to North America, as well as the printing, primary metal manufacturing, and machinery industries.

Rubin believes the tariff, based on $45 per tonne of carbon dioxide or equivalent, would raise roughly $55 billion a year from Chinese exports to the United States, and raise U.S. consumer price inflation by more than 0.6 percentage points.

“What I'm suggesting is that the minute that we start putting a price on our own domestic emissions, then our tolerance of those who do not is going to fade very quickly," Rubin said. "What we're going to say is that if you don't play by the same carbon rules, that's an unfair trade subsidy that we're gong to countervail against."

This is an interesting prediction that may ignore the post-Kyoto treaty negotiations and the potential challenges that such carbon taxes or carbon tariffs may face in the World Trade Organization.  It is a continuing issue that I have posted on several times on this blog, and not one that will go away if China, India, and other developing countries with significant greenhouse gas emissions do not agree to some form of cap and then reductions in their emissions.

Utility Chairman, CEO, and President Testifies for Climate Change Legislation

As climate change legislation begins to take on more debate on both sides of the isle and the provisions of potential legislation that may be passed takes form, it is interesting to note how many US companies are taking a leadership role in promoting passage of legislation, but also commenting on the specific parameters of this legislation.

The testimony on November 8, 2007 on the Lieberman-Warner climate change bill by Peter A Darbee, Chairman, CEO, and President of PG&E Corporation, a utility holding company, is particularly interesting as he sets out the criteria he believes to be important in climate change legislation.

• Mandatory greenhouse gas reductions are necessary;
• Market-based programs minimize cost and maximize innovation;
• Long-term greenhouse gas targets provide a rational basis for action;
• Broad-based participation leads to better, more cost-effective results;
• Energy efficiency must be a top priority;
• Investment in low- and zero-emission electric generation and other technologies is critical;
• Early action deserves to be rewarded--not penalized;
• Any climate change program must be economically sustainable, achieve the ultimate environmental objectives of the program, and begin to address physical impact and adaptation issues;
• Near-term opportunities for cost-effective, verifiable greenhouse gas reductions should be pursued;
• Standardized emissions reporting is an essential first step and must form the basis of any mandatory program.

Mr. Darbee's testimony provides one business approach to addressing climate change and developing an effective, economically sustainable program to reduce greenhouse gases.  I recommend reading the entire testimony.