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Firms pull heads from sand but still unready for carbon laws

<p>A study shows energy professionals see the regulatory environment shifting but few have planned for the financial risks.</p>

When President Barack Obama gave his inaugural address on Jan. 21, he gave a strong signal that climate change would be a priority of his second administration.

"We will respond to the threat of climate change, knowing that failure to do so would betray our children and future generations," he said.

How this will be carried out is unclear, but American energy and utility companies seem to have received the message. That's the conclusion from a survey conducted by environmental tracking and reporting software company Enviance at the recent Energy, Utility and Environment Conference (EUEC 2013) in Arizona.

The conference, which began in 1995, is the largest energy, utility and environment gathering in the U.S. This year it brought together more than 2,000 delegates, including company executives from the energy and utility industry, environmental professionals, government policymakers and representatives from NGOs and advocacy organizations. Conference topics included air policy and regulations, biofuels and biomass, sustainability and water, energy efficiency and renewable energy, among others.

Enviance has been surveying participants over the past four years about the impact of regulation and sustainability issues on their companies or organizations, in the case of government agencies or NGOs.

"We talked to about 200 attendees representing a wide range of companies and organizations, from business leaders who manage compliance of environmental regulations to policymakers that help design those regulations, and the energy executives who play a big role in meeting our energy goals and mandates," Darryl Gordon, Enviance's marketing vice president, told CSRwire.

The results are striking. They show that while the respondents are aware that the regulatory environment is changing around energy and climate issues, most are unprepared for it.

Companies fail to plan for a cost on carbon

Two-thirds of survey participants admitted they "do not have a plan in place to manage the financial risk associated with the imposition of a cost on carbon, either through cap and trade or a tax." This is in spite of the fact that in Enviance's 2012 survey, 60 percent of respondents acknowledged that pricing or taxing carbon emissions would have an impact on their company.

"The fact that two-thirds of respondents haven't planned for the financial risks associated with the imposition of the cost of carbon was surprising," Gordon said. "A cost on carbon can drive revenue and help environmental efforts, but can also increase costs on businesses if they aren't properly prepared."

Carbon pricing under way despite challenges 

When it comes to the particulars of pricing carbon, survey respondents were less clear about the impact to them, at least as far as California's carbon cap and trade act, AB 32, is concerned.

California ranks 15th in global greenhouse gas production, responsible for about 2 percent of total emissions. AB 32 aims to lower emissions to 1990 levels by 2020 — a 17 percent cut over current levels — and to slash emissions 80 percent by 2050. It follows the Regional Greenhouse Gas Initiative in the Northeast and is widely seen as a model for other U.S. initiatives to come, whether on the state, regional or even federal levels.

But when asked whether AB 32 would have an impact on their organization, 72 percent of those surveyed by Enviance answered in the negative.

I asked Gordon how he interpreted this result. Did it mean that AB 32 was seen as ineffective?

"Because 72 percent of the respondents believe it won't have any impact on their organization doesn't necessarily mean that the program is ineffective or a paper tiger, but possibly that these people don't represent companies or organizations that need to comply with the program due to emissions levels, geographic scope or that it just might not affect them in the short term," he replied.

AB 32 has been the subject of legal challenges from both industry groups, such as the Chamber of Commerce, and some environmental organizations seeking tougher standards for allowing carbon offsets. So far, courts have decided in the act's favor.

And in a political climate that shows widespread support for a tax on carbon and even whispers of praise from some in Congress (if not the Obama administration), carbon pricing is likely to have a much broader impact than on just the companies included in the early stages of implementation. Regulated "entities" under AB 32 include the expected production facilities, mining operations, power plants and electricity importers, but also colleges and universities, food and beverage manufacturers and sewage treatment facilities.

As one writer put it on Sustainable Business Forum:

California's program doesn't directly impact many businesses throughout the country. However, what it does do, is mark a signal about the role and value of offsetting programs in delivering efficient and effective emission reduction programs: programs that will deliver strategic value to business.

Apart from the obvious benefits of getting ahead of the competitive curve by putting good carbon management policies into place, companies that fail to do so risk incurring serious costs, from fees for not complying with environmental regulations to volatility in energy prices, Gordon said.

Water key concern for energy companies, utilities

Another area of concern for many survey respondents was water management. Two-thirds ranked it as "of equal or greater value to them as managing carbon emissions." This represented a big turnaround from last year's conference survey, where a majority responded that "water management was either of no importance, or less important than carbon emission reporting."

Gordon thinks the results show a growing concern for water conservation and scarcity, as well as stricter regulations for water quality.

He added that by referencing the costs of ignoring the problem, "water management affects many industries' bottom lines and more and more consumers, regulators and investors (will) scrutinize an organization's engagement with this issue."

Embrace regulation or fall behind, says CEO

"The re-election of President Obama, followed by his highlighting of climate in his inauguration speech, and a resurgent economy, assure that the drum beat of federal regulatory pressure on greenhouse gas emitters will continue and probably intensify," Enviance CEO Larry Goldenhersh told CSRwire. "In light of this momentum, companies without a compliance management system should consider implementing one to avoid an otherwise inevitable escalating spiral of risk and cost."

Whether tackling environmental issues head-on or being dragged kicking and screaming into the future, executives and managers better heed the winds of change. Talking about it is no longer enough.

Heads in sand photo by James Steidl via Shutterstock.

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