The New Carbon Cycle

Forbes Article Concludes 93% of Public Companies Facing Climate Risk, Only 12% Disclosing Risk

A new Forbes article concludes that 93 percent of public companies face risk from climate change, but only 12 percent are actually disclosing that risk to the public and their shareholders.  The Securities and Exchange Commission (SEC) issued guidance on climate risk disclosure several years ago. Thus, there is at least a basis for arguing that all affected companies are on notice of the need to disclose climate risk in their public filings such as 10-Ks.  Having advised clients on climate risk disclosure in SEC documents, this is an important aspect of financial disclosure that should review and determine the nature of disclosure that may be advisable.  As the Paris Agreement has been negotiated, with many countries including China developing greenhouse gas regulations and cap and trade programs, the writing is on the wall that international, national, and in some instances sub-national state and provincial limits on greenhouse gas emissions are a reality that appears to only be growing.  Reviewing the supply chain and potential impact of climate change on the business may be an issue that investors may find material, or a court may judge as material. 

Companies should also consider developing approaches that reduce their carbon footprint, such as considering new energy efficiency investment, the installation of renewable generation on-site and purchase of renewable electricity from the grid.  Supply chain review and de-carbonizing it  are steps that should be considered as well.  in other words, having a good story to tell in any disclosure may provide an edge on competitors.  Key is finding carbon reducing steps that save money for the company.  Energy efficiency is the low hanging fruit typically, but renewable energy in some locations can provide cost savings as well. 

McKinsey Article Concludes Good News for Emissions: US and EU Emissions Down, Economies UP

McKinsey and Company director Scott Nyquist authored on article entitled Great News on Emissions. Really.  He concludes that the US and EU have cut emissions while growing their economies. 

His article provides an upbeat view.

So it’s very important that in both 2014 and 2015 the global economy grew—and energy-related emissions didn’t.  In the 40 years that the International Energy Agency has been tracking emissions, this is the first two times that year-on-year energy-related emissions have been flat or less, without an economic downturn.  And in 2013, emissions grew less than the global economy.  For perspective, energy accounts for more than two-thirds (68 percent) of global GHG emissions, and energy use increased more than 150 percent from 1971 to 2013.

So all that sounds pretty wonky.  Why does it matter?  Because it means that it is not only possible, but a reality that the link between emissions and growth can, in fact, be cut.  Indeed, in a number of developed countries, that is already happening.  In 2014, for example, the EU grew modestly—and cut emissions by more than 5 percent.  The United States saw power-related carbon emissions decline 10 percent from 2005 to 2014, due to greater efficiency—in effect, like Europe, it is creating more wealth using less energy—and  the displacement of coal with cleaner natural gas.

China and India have room to approve as most of us know.

But here, too, there are encouraging trends.  The rate of growth of emissions in China is slowing, as its economy becomes less energy intensive—services now account for more than half of GDP, the highest ever.  China has also begun to get serious about growing less filthily. In part because of pressure from a public literally sick of living in smog-choked cities, the country is investing in more efficient and cleaner energy use.  In 2014, Chinese emissions increased less than 1 percent compared to the previous year, even as it grew 7.3 percent.  In the previous decade, China’s emissions had grown an average of 6.7 percent a year.  So that’s a big change.  The big reason: China is depending less on coal, which accounts for more than 80 percent of its energy-related emissions.

 

The author concludes, and I agree, that technological innovation is the key to solving greenhouse gas emissions issues. While the emissions issues are far from solved, great steps have been made.  The investment in new technology, renewables, innovations in business models and financing approaches present one of the great business opportunities the world has ever seen.  Trillions of dollars will be invested over the next 10 years and beyond to address these issues as more energy is demanded, but more efficient use and alternative ways of generation energy and controlling emissions from traditional sources opens up an economic boom.

Related articles

California, the clean energy leader

Tax Credits Expire for Waste to Energy and Several Other Project Types Unless Construction Begins

Last year on December 18, 2015 Congressional approval of H.R. 2029, The Consolidated Appropriations Act, 2016, which President Obama promptly signed into law (P.L. No. 114-113, 114th Cong. 1st Session). This legislation extended tax incentives in the form of a production tax credit or the option to receive an investment tax credit (30 percent) for various renewable energy projects.  For those other than wind and solar, the incentives were only extended through December 31, 2016.  The only way to gain more time is to start construction as outlined in IRS memoranda and continue that construction, again as outlined in the IRS documents.  Waste to energy was one of the renewable energy types that was allowed under the new legislation.  Thus, WTE projects, and other non-wind and non-solar projects, must pay close attention to the deadline and how to extend it under IRS guidance.