CCES News For You

June 6, 2010
Last month the USEPA recently issued its long-awaited “tailoring” rule, its attempt to use the Clean Air Act (CAA) to regulate emissions of greenhouse gases (GHGs) from stationary sources (see www.epa.gov/nsr/actions).

The USEPA will use existing Prevention of Significant Deterioration (PSD, found in 40 CFR Part 52.21) and Title V Permitting (40 CFR Part 70) rules to regulate GHG emissions in a phased approach. From Jan. 1, 2011 until June 30, 2011, facilities currently subject to PSD permitting (new large sources or existing ones seeking a significant net increase in emissions of a regulated pollutant other than GHGs) will be subject to PSD if it proposes to raise CO2e emission rates by at least 75,000 tpy. Such sources will need to demonstrate the inclusion of Best Available Control Technology (BACT) to minimize GHG emissions. BACT, determined case-by-case, is the most stringent emission control technology taking economic (cost effectiveness), energy, and environmental impacts into consideration. Title V Operating Permits issued during this period must address any relevant regulatory requirements applied to GHGs. From July 1, 2011 until July 30, 2013, PSD permits will be required for any new facility with the potential to emit at least 100,000 tpy or an existing facility proposing to raise emissions by at least 75,000 tpy of CO2e even if it does not meet the threshold for any current PSD-regulated compounds. Also during this period, Title V Operating Permits must be obtained by any facility with a potential to emit of at least 100,000 tpy of CO2e even if emissions of no other compound exceed its Title V threshold. The USEPA has stated its desire to reduce these thresholds in the future to 50,000 tpy of CO2e beginning in 2016.

Many states are delegated the review and issuance of PSD and Title V Permits. Thus, there was much comment from the states about this ruling. The USEPA notes that even the reduced future threshold is higher than the proposed draft 2009 threshold of 25,000 tpy. The USEPA raised the thresholds in response to these comments.

Implementing CAA rules to address GHG emissions is very controversial. The CAA was written to address emissions of compounds that have direct health or environmental effects and whose ambient concentrations are changeable. Reducing GHG emissions significantly has no impact on local CO2 ambient concentrations. Therefore, many feel that while reducing GHG emissions is a worthy effort, this is a flawed approach; we should wait for legislation specific to the unique characteristics of climate change. Others feel that this is a good stopgap measure that does not tax industry while specific legislation is debated, as it is unknown when and if such legislation will ever pass. Majority Leader Reid has said he wants to press forward with hearings this summer to develop a bill, likely a hybrid of the House Waxman-Markey and Senate Kerry-Lieberman bills. At the same time, there is consideration in the Senate of a bill to prevent the USEPA from applying CAA rules on GHGs from stationary sources.

Climate Change & Environmental Services (www.CCESworld.com) can help you prepare for these changes and help you prepare PSD and Title V permits for GHGs.

May 31, 2010
Many companies think about going green. I have talked about this to managers at several companies. Many nod their heads that the business benefits of growing green are real and can have a positive impact on their firm. (See my blog article below of the 8 purely business reasons to have a robust Climate Change program.) But then most of those either choose not to go green or, if they do, go about it the wrong way, cutting corners – or worse. Am I a bad debater or persuader? Perhaps. But it has been written that only a small percentage of US companies today are going green despite the known advantages. Why? I believe it is mostly the comfort level. Although company leaders agree with the arguments, many really do not fully trust the concepts and worry that a green program will drain green (money) and achieve little financial benefit. What will such a program cost? When will we break even? Will there be added business risk?

Well, besides the direct economic benefits of reducing greenhouse gas (GHG) emissions that I detailed in that earlier blog article (major energy cost savings, pleasing retailers and customers, rebranding your products, revenue from carbon credits, etc.), many additional, indirect economic benefits have also been realized. Though seemingly minor, these effects can add up to significant economic benefits.

A good way to reduce GHG emissions is to study and implement process changes to increase efficiency: make the same product with less energy, water, solvent, etc. Not only are you saving growing energy costs, but water and raw materials, too. Purchasing fewer raw materials, say solvents, means lower VOC emissions from the facility, which means greater assurance of meeting air regulatory and permit limits. Perhaps a lower annual VOC emission rate can move your facility out of a major Title V Permit to a less costly minor permit. Perhaps a significant emissions reduction can enable you to opt out of expensive air pollution control equipment (check with an experienced Air Engineer to ensure this is allowed). In addition, lower raw material usage could mean less labor and equipment for storage and handling. Together, a green program that can reduce your need for raw materials can result in lower capital and regulatory costs, less red tape, better relations with stakeholders, and less labor to maintain your production system.

Here’s another example. A good lighting evaluation will not only result in more compact fluorescents and LED lights, but better positioning of fixtures, resulting in improved worker productivity, fewer accidents, less maintenance labor (these bulbs last much longer than incandescents, meaning many fewer trips up and down the ladders by maintenance crews to change bulbs), not to mention the energy cost savings.

So on top of the direct benefits discussed in the other blog article, think about the many indirect benefits mentioned above. Imagine other benefits not mentioned. The bottom line is that such a green effort will also help you improve the quality of your product and provide a more satisfied staff, both having tremendous financial value, and both giving you an edge in a highly competitive world of business. Climate Change & Environmental Services (www.CCESworld.com) can help you maximize these gains.

May 23 2010
Special thanks to Dennis Shelly of Apex Companies (www.apexcos.com), leader in due diligence assessments for his contributions to this article.

As I’ve written a number of times, climate change has moved in the last year from being a voluntary program for companies that’s good for the bottom line and the Earth to a program tied to regulation. There will likely be federal legislation in the next few years as Sens. Kerry and Lieberman released draft climate/energy legislation that they believe can win bipartisan support. In the meantime, a number of states and even cities and counties have or are seriously planning climate change or greenhouse gas (GHG) emission reduction rules, some written as changes to energy and building codes. They will impact how facilities operate and can result in penalties for noncompliance.

Therefore, when you are performing an environmental compliance audit or a compliance assessment as part of due diligence for a proposed merger or acquisition, an understanding of the potential obligations associated with climate change rules may be a material consideration. Certainly an assessment is vital to understanding whether significant actions will be required on the part of the operation to respond to this growing issue. In addition, the SEC has recently required companies to disclose the potential impacts of climate change on their business as part of the annual reporting process.

Here are some questions to consider involving GHGs and energy that can be incorporated into the data collection stage of an audit or due diligence exercise:
• Has a facility carbon footprint been performed? Is it subject to 40CFR Pt 98? What contributes to GHG emissions (fuel usage, electricity, mobile sources)?
• What state and/or local climate change and energy conservation rules exist? Do any potentially apply to the facility?
• For the previous three years, what were the facility’s electrical, gas and water usage and costs? Are there usage trends? What rates does the facility pay? Are they discounted compared to other similar local industries or buildings?
• Does the facility operate within any voluntary climate change or energy goals, such as USEPA Climate Leaders, Energy Star, or LEED? If so, under what operating and monitoring requirements must the facility continue to operate?
• Has an audit to identify potential reductions in energy, water consumption, and waste generation been performed at the facility? What were the results? Were actions taken on audit recommendations and if so, what gains were made?
• What are the sources of the facility’s electricity, fuel, and water? Are there options (i.e., renewable sources)? What fuel do the facility’s boilers and other equipment use? Is a cheaper or “cleaner” fuel available (e.g., are there natural gas lines that can reach the facility)? Does the region have abundant or limited fresh water sources? Does the facility own Renewable Energy Credits (RECs)?

Answers to these questions provide valuable information regarding energy, sustainability, and climate change issues affecting facilities and their monetary impacts. With more climate change rules on the way, this is important information to consider.

People who have read Environmental News for You over the last year plus know that I have been providing more solid financial and business reasons to develop a robust program, regardless of whether you call it a “Green”, Climate Change, or Sustainability. There are now many examples of companies that have directly improved their bottom line by implementing such a program. With the recession ending and companies looking for wise investments, why would any company still resist?

Companies, directed by people and acting like people, have cultures; really, personalities. And most are cautious, conservative. They do not want to risk spending resources on anything that they are not completely familiar with, knowledgeable about, or feel that they are in control of. This is particularly true of something that may be identified in the general culture as “liberal” or “progressive”.

How can an individual in a company break these barriers to implement and get buy-in to develop such a new program and reap the benefits? Such a program leader must demonstrate personal commitment, ability to plan, focus on emphasizing what’s good for the company as a whole, have strong communication skills for (particularly) upper management, and perhaps most of all, show enthusiasm. The green programs that succeed do so because a leader or team exhibits these traits.

1. Personal Commitment. To build a green program, a leader must possess knowledge of the science of and show commitment to climate change and sustainability. It is virtually inevitable that someone or several in the organization will voice a strong antipathy toward climate change (as a skeptic), based on something read on the Internet or seen from a talking head on TV. The leader should steer the conversation away from the emotional, away from the politics and toward the benefits for all at the company. As a consultant, most of my clients have had at least one prominent person who thought climate change was a fraud, a waste, or worse. What I tell them is that I will not make any finding for a potential climate change action just for the sake of pleasing certain constituencies or to be “cool”. I will only present recommendations if they could result in potential bottom line gains for the company. That has usually succeeded in mollifying the people who want to defeat such a program. Of course, you have to back up what you say.

2. Planning. Company leaders are often afraid of green initiatives because they don’t have a comfort level with green ideas. They may perceive of “green” as “pie in the sky”, rather than what it really is: grounded in science and economics. Spend time evaluating the steps needed to grow a green program (i.e., doing a GHG inventory, investing funds for energy upgrades, employee buy-in, etc.) and which may be the most difficult to succeed. Organized diagnostics exist to quantify relative difficulty. Then create a plan, budget, and timeline for the elements of your program. Share this with the upper management and meet and explain in person the steps, risks, and overall benefits. They will be more comfortable seeing such a well-organized plan and concrete path to reaching goals.

3. Focus on What’s Good for the Company. As discussed above, a green program will fail if company leaders believe that the program is meant mainly for aesthetic effects. All steps taken and progress shown should be focused on bottom line benefits for the company. What I have told some companies is that no one company’s GHG emission reductions (even if a “magic wand” could remove them totally) can stem the tide of the global problem of climate change. So, of course, the focus should be steps that result in direct benefits to the company, while reducing GHG emissions. Although a systematic approach with sequential steps is usually best, there may be benefits by going out of sequence and implementing some small GHG reduction projects with a quick turn-around, so company leaders can see quick, tangible progress. In my blog (www.CCESworld.com/blog), I have posted 5 simple GHG emission reduction projects that fit this bill and can show company leaders relatively quickly how “green” progress can have a beneficial effect on the company.

4. Communication. The green program leader must share the program with people throughout the company. Of course, the CEO, CFO, and other upper management are most important. If the CEO does not feel a green program is important or his/her enthusiasm wanes, then the program will fail. But most organizations also have other spheres of influence who must be convinced this is good for them, too: plant workers, maintenance, engineers, etc. As progress is made, inform each interest group in the terms of their interest to gain wider buy-in of the program. While bottom line gains are the best (“We reduced our energy bills by X% this month compared to one year ago”), secondary gains often are also well received and reinforce the program’s value (“By switching to CFLs, we also reduced our O&M labor costs by Y% because fewer workers have to climb up to the ceiling and …”).

5. Enthusiasm. Ultimately, enthusiasm and energy convince the most people that a program is here to stay and has the most benefits. Related to these two is inevitability. If you are seen as enthusiastic about your green program, people will get enthusiastic too or, at worst, will accept the fact that such a program at their company is inevitable, and they’ll “get with the program.”

Another unifying approach is to put your company’s program in terms of a win-win-win spirit. By having a robust green program, your company is reducing energy use, reducing expenditures, reducing GHG emissions, reducing the enrichment of bad regimes overseas, strengthening the dollar, making the air cleaner, creating more jobs in the U.S., and bringing down the price of oil, the trade imbalance, and the budget deficit. Every person at your company has to feel positive about at least one aspect of this list of positives!

Get more useful information in our blog: www.CCESworld.com/blog
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This Environmental News for You is meant to provide general ideas on how to gain traction to implement a new or optimize and grow an existing climate change program in your company. CCES experts can assist you in helping to organize, perform diagnostics, and to plan for, evaluate costs and risks, obtain maximum buy-in, and assist with designing and implementing all of the elements of a green program.

April 25, 2010

Well, another Earth Day has come and gone. Politicians talked about how important the environment is. Companies have shown off, in some cases abstractly, how “green” they are. But I’d like to introduce a new concept for Earth Day and every day for that matter. I’m going to call it “Pointilism”. If the name sounds familiar, you may have learned about it in elementary school art – the movement of artists who formed images by the application of many small dots. (Does the name Seurot sound familiar?) Well, I’m not referring to this art movement when I refer to Pointilism at all. In fact, I’m not referring to art at all, as we have the expression “greenwashing”. In fact, my idea of Pointilism is the opposite of greenwashing. By Pointilism, I ask the question: can you point with your finger to a distinct project done resulting in positive environmental, economic, energy, and/or social benefits? That to me is what we have to do more of on Earth Day. After all, it’s been around for over 40 years now. Instead of being utopian in describing the kind of world we would like to have and rage against the ones we think are blocking this, why don’t we look at the progress we’ve made and how we can apply these successes as a model for the future? A lot of people have worked hard and made progress. Let’s point at them to give them their due and thanks and to see if it can be applied by others.

Here are a couple of examples. I do not write this to promote this company and I have no ties to it, but Shaklee Corporation became the USEPA’s first certified Climate Neutral Company. It spent much resources it did not have to spend, but successfully offsetted its GHG emissions by reducing an equal amount elsewhere. And they achieved this nearly a decade ago before most people knew what climate neutral meant. Not only is their carbon impact zero, but the effort has resulted in other benefits, as well. In a well known example, Shaklee subsidized the purchase of modern, gas-fired boilers to replace older, coal-fired units at several Portland, OR schools, helping to meet the climate neutral goal, but also improving the air that children breathe in their schools or during recess. These are actions that Shaklee can point to as real environmental accomplishments!

Environmental achievements can be done on the grass roots level. An old colleague of mine, Scott Tudman, has co-founded a non-profit organization called Energy In Common (www.energyincommon.org). Participants can lend money to local entrepreneurs which use it for specific energy projects in poverty stricken and energy deprived portions of developing countries (i.e., LED lighting, fuel efficient equipment, solar panels). When the entrepreneur pays back the money, the lender can take back the funds, loan it for the next project, or use it to buy personal carbon credits the project has created. While this non-profit is relatively new, it once again, can “point” to specific projects and communities it has sustainably raised from poverty.

These are two examples of actual achievements in the environmental area that can be pointed to as concrete successes. If you have others, please send them to me and I’ll include. Let hope that Earth Day in the future will work not toward giving the impression of environmental concern, but point to actual achievements for our good and to use as good models.

As has been written in several previous Environmental News for You the new Mandatory GHG Emission Reporting Rule (40 CFR Part 98) is in effect. There has probably never been a rule in the history of the USEPA with such stringent requirements for monitoring, emission estimation, and reporting. In addition, the USEPA released a draft revision of Part 98 on March 22 covering several industrial categories not covered by the initial rule because estimating emissions from those types of facilities was considered too complex to begin by the preferred start date of Jan. 1, 2010. But those categories will have to meet even more stringent technical requirements beginning on Jan. 1, 2011.

USEPA’s New Attitude

The main reason this rule has been so complex for so many facilities so far is that the USEPA wants to evaluate GHG emission values that are “accurate”. Traditionally, air emissions inventories or requests for permit limits tend to be conservative, submitted rates slightly higher than the probable actual emission rate. It is better to err high than err low. If one is wrong low, then actual emissions may exceed its permitted or submitted emission rate, a non-compliance situation. It is better to submit an emission rate for a permit slightly higher and unlikely to be exceeded. Generally, most agencies understand this. Developing “accurate” emissions takes greater precision and effort.
The USEPA does not want to see conservative values as it compiles a national GHG emissions inventory for two reasons. First, it will use the inventory findings to shape future GHG emission reduction regulations, such as which industries to focus on and how to regulate them. Accurate emission rates are needed to properly evaluate potential reduction policies. Second, although there is debate in Congress, the USEPA is working on the assumption that there will be a future GHG cap and trade system. Affected facilities will have to meet GHG emission reduction goals (caps) from a baseline. If they do better, they can earn credits (to trade and make revenue). If emission rates being submitted now become the baseline and a company begins with a high baseline due to submittal of conservative emission rates, it can earn more credit revenues without having to do as much (its “real” emissions are already lower) compared to a company that submitted “accurate” GHG emissions data.

Therefore, Part 98 has many requirements for facilities to use monitoring, if possible, or exacting emission calculations otherwise. Even for something relatively simple like estimating GHG emissions from stationary combustion sources, Part 98 Subpart C requires a facility to use their own fuel-specific high heating values (HHVs) if they are provided by the vendor or if the facility performs its own evaluation – even though the HHV of most fuels do not differ much from lot to lot or over time. For many processes, Part 98 requires complex data collection of many sources to determine GHG emissions. For example, if one cannot monitor directly for CO2, Subpart X (petrochemical production) requires data collection to determine a carbon material balance around the petrochemical reaction to determine difference which is presumed to be GHG emissions. Flow rate and carbon content data with accurate equipment and specific laboratory protocols must be performed for every feedstock and waste stream of the production process. Many firms do not routinely measure the flow or composition of every stream; they must scramble to do so and ensure each measurement meets QA/QC criteria.

Key Additions to 2010 Revisions of Part 98

On March 22, USEPA Administrator Lisa Jackson signed new draft sections of Part 98, adding seven (7) industrial categories that were included in the original draft Part 98 rule of about a year ago, but taken out of the final rule published on Oct. 29, 2009. The industrial categories now included are:
– Petroleum & Natural Gas Systems (Subpart W) – CO2 Injection, Geologic Sequestration (Subp. RR)
– Electronics Manufacturing (Subp. I) - Fluorinated Gas Production (Subp. L)
– Imports and Exports of Equipment Pre-charged with Fluorinated GHGs or Containing Fluorinated GHGs in Closed-cell Foams (Subp. DD)
– Use of Electric Transmission and Distribution Equipment (Subp. OOa), and
– Manufacture of Electric Transmission and Distribution Equipment (Subp. SS)

These proposed subparts also have extensive data gathering requirements in order to develop an “accurate” estimate of GHG emissions. For example, in Subpart W, natural gas transmitters will be required to measure and quantify leaks at compressor stations by counting components (valves, flanges, pumps, etc.) and by measurement. Not an estimated count or assumption of leak rate, but actual measurements. The draft rule does encourage the use of an optical camera to quickly detect CH4 leaks for loss estimation rather than monitor every component. Note that the rule does not require a facility to repair leaks to reduce GHG emissions, just find them to compute emissions.

As this is issued, we are in the public comment period for these draft subparts, so feel free to review and comment. However, the USEPA is serious about finalizing these changes promptly so that such affected facilities are fully aware and can establish their systems to collect necessary data according to the complex technical requirements and be “up and running” by January 1, 2011.

In summary, the existing and proposed new subparts are very complex technically and require a comprehensive effort to fully prepare to meet all requirements now or by the beginning of next year. Read the new draft subparts and begin to prepare right away! And if you have processes already affected by the rule, double check to ensure you are developing “accurate” emission rates required.

Get more useful information in our blog: www.CCESworld.com/blog
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This Environmental News for You is not meant to be a complete discussion about Part 98 and its proposed changes. Work with professional technical and legal experts to prepare. CCES experts can assist you in preparing for GHG emission calculations and helping you comply fully with its complex requirements.

Environmental News for You – March 2010

Discussions about climate change policy focus on how we can reach the goal that a large majority of the world’s scientists believe is necessary: to reduce global greenhouse gas (GHG) emissions by 70-80% from a 1990 baseline by 2050. One suggested system to achieve this is called “Cap and Trade”.

Cap and trade has been bashed in many U.S. news talk shows (particularly among conservative commentators) so thoroughly that it has become tainted and even politicians who support aggressive GHG emission reductions are afraid to discuss cap and trade as a means to achieve this, lest they be associated with an unpopular approach. Let’s step back and learn what cap and trade is to determine whether it might afford a way to reduce GHG emissions with the least amount of agony to businesses.

What is the history of cap and trade, at least applied to environmental concerns? People will be surprised to learn that the first cap and trade program occurred in the U.S. and has been widely applauded across the political spectrum as a success in terms of meeting environmental goals in a way to minimize economic hardship. Another irony: this program was implemented by a conservative president (George H.W. Bush) against the fiery complaints of environmental groups. This cap and trade program was for the Acid Rain Program, Title IV of the Clean Air Act Amendments of 1990.

It was understood that several major parks and forests in the eastern part of the U.S. were being damaged (fish kills, trees dying, etc.) by “acid rain” caused by large emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx) from large coal-fired power plants in the U.S. Midwest and south traveling hundreds of miles, converted in the atmosphere to sulfuric and nitric acids, and falling with rain. Scientists predicted that forests could recover if acid emission rates would decrease significantly.

President Bush’s USEPA implemented cap and trade into the Acid Rain Program, mandating a group of strategically located coal-fired power plants to cumulatively reduce SO2 and NOx emissions by 50% from a worst-case baseline of the 1980’s. Instead of the traditional “command and control” mandating each facility reduce emissions by at least 50% no matter how difficult it would be, cap and trade gave facilities the option of reducing emissions by less than 50% or even not at all as long as they can buy credits on an open market from other facilities that controlled their emissions by more than 50%. While environmentalists complained that this represented “buying one’s way out of reducing emissions”, for the power companies buying credits represented an extra option to consider. In addition, cap and trade also represented an economic incentive to overcontrol emissions as facilities could earn credits and turn them into revenue. From the government and public’s point of view, the approach represented a guarantee that acid emissions would be halved. Since effects are regional, the exact degree of reductions at each plant was less important than the overall decrease being met.

The program was a success. The group of power plants met the 50% reduction criteria for both pollutants and surveys showed they were pleased to have these flexible compliance options and the entrepreneurial opportunity to make money. A few years later, the USEPA successfully lowered the reduction criteria to 70%. Perhaps, most important, the Adirondacks of NY, the Shenandoah Valley of VA, and other areas “came back”. Damage to trees and lakes were reversed and they fully recovered.
So critics cannot say it has not been tried successfully. Can cap and trade work on a global level for GHG emissions? There are differences which can affect success. Meeting the reduction criteria was fairly easy for SO2 and NOx; for CO2 emissions from a power plant, it is more complex. More complex strategies must be developed and implemented to reduce GHGs, such as improving energy efficiency and using renewable sources of energy. It is likely that a large reduction in GHG emissions, if applied to a company, would be more expensive to achieve. However, as a result, carbon credits would be more valuable, as we see in the Kyoto and voluntary markets. Applied to climate change, we are looking at a worldwide program applied to more industries than certain power plants. Can we scale up a regional system covering only one industry to a worldwide system covering economy-wide sources?
Results appear to be mixed. The European Trading Scheme (ETS) was considered by many a failure in that the price of carbon credits fluctuated wildly in short times. Some companies made a lot of money by overcontrolling GHG emissions and selling at the right time; others spent a lot of money to comply.

There is currently a mandatory climate change cap and trade program in the U.S., called the Regional Greenhouse Gas Initiative (RGGI) applying to power plants in 10 northeastern states. Beginning in 2009, they had to meet a baseline GHG emissions level based on actual emissions in the early 2000’s. Eventually a net decrease of absolute GHG emissions must be achieved. Cap and trade allows a plant to address unexpected electricity demand and still purchase credits to cover emissions. Virtually all credits are auctioned by the states, so one must pay to emit GHGs. In 2009, the price of credits remained fairly low for the entire year, alleviating concern that some power plants would stop generating electricity in fear that credits may be unavailable. It did help that a cooler than normal summer and a recession in 2009 helped reduce electricity demand compared to previous years.

Whether it is called “cap and trade” or whether the name is changed, a system of mandatory GHG emission reductions with incentives and credits is likely to emerge from an eventual federal climate change bill. The public, which favors addressing climate change, sees this as a way to guarantee a net reduction, while affected companies see this as a method to give them some needed flexibility. No matter what type of bill is passed, now is the time to prepare by doing the basics, such as preparing a baseline GHG emissions inventory and researching good payback strategies to reduce emissions.

Read more material in the blog: www.CCESworld.com/blog
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This Environmental News for You is not meant to be a complete discussion about cap and trade. Work with professional technical, financial, and legal experts to prepare. CCES experts can assist you in developing a program to address cap and trade and gain from of potential opportunities to gain market share and revenues.

Feb. 28, 2010
A recent survey by National Real Estate Investor shows that green building in commercial real estate is growing significantly. Over 88% of developers and 86% of corporate executive stated that green design is as or more important than it was before the current economic slump. According to the US Green Business Council, LEED certified projects in terms of number of projects and total square feet rose over 90% in 2008 compared to 2007, despite the onset of a serious recession.

The reason for this increase despite the need to invest extra funds up front during a recession is purely economic. A green building is a major driver for buyers and for tenants. It is recognized that “green” buildings will result in significant savings in energy usage for the prolonged life of the building. A 2009 McKinsey study stated that cumulatively energy efficiency upgrades to buildings on a national level will return more than double the upfront cost by 2020. Buyers and tenants also recognize that healthier surroundings contribute to greater productivity and fewer sick days.
While green is the way to go for these and other reasons, it is also important for a company to properly communicate green achievements. A recent study published by Maddock Douglas called “Map Change 2010” takes a recent survey by Climate Counts of several hundred companies in diverse industries using a rating system based on 22 criteria and compared them to a poll by Angus Reid Public Opinion of perceived environmental achievements. The report showed a number of companies had environmental images that were very different from what they had achieved. For example, the shipping company DHL had an actual achievement rating of 68, but a perception rating of only 16. And a number of companies had positive perception that was much greater than achievement. For example, the Hyatt Hotel chain had a perception rating of 72, but an achievement rating of 12. Wendy’s food chain had a perception rating of 64 and an achievement rating of 2.

What explains these discrepancies (besides the fact that Wendy’s offers a salad bar)? Of course, opinion polls and other yardsticks for green achievements may be flawed given the complexity of what is truly green. But also a key is the message the companies are putting out. Given the recent backlash in the U.S. media questioning the validity (by some) and the cost of addressing climate change during a recession, it is critical that the message getting across to the public be less the gains for the planet, but how green will improve the actual product (i.e., those building benefits listed above). I’m no communications expert, but perhaps DHL should get the message across that their green initiative results in reduced energy use, which gets packages to people quicker (just a suggestion). Like many things, one’s green program has to be presented as a value-adding proposition. How has being green affected the reliability of the company? You should use your green program to show increased vitality, passion, and efficiency of your company.

Feb. 21, 2010
2010 has begun with many questions about climate change and future actions. Will there be a binding post-Copenhagen accord with specific goals and enforceable rules? Will there be a federal bill limiting greenhouse gas (GHG) emissions? Will it use cap-and-trade or other mechanisms? What will U.S. and world public opinion be on climate change as doubters get more publicity, even if they differ with strong scientific evidence?

Business does not like to move forward in an era of uncertainty. However, here are some trends that may be arguments to study and address climate change issues.

Enhanced Attention to Products. There is growing interest in product footprinting, not just for GHG emissions, but even for water and other material use. People want to understand impacts of even common products they buy. This has been led by Walmart, which has been collecting such data from many of their vendors. ISO has new standards on how to conduct a life cycle analysis. Later this year the World Resources Institute is expected to issue a guidance on supply chain footprinting as part of an amended Green-house Gas Protocol. Also, some companies have demanded that their suppliers meet certain energy, carbon, or water efficiency standards, such as Ikea, Intel, and others.

Improved Communication About Climate Change Impacts on Business. While some business leaders may shy away from addressing climate change because they don’t “believe in it” or are worried about the reaction of some doubters, they need to realize that steps to address climate change result in other business benefits, such as cost reduction, minimization of risk (energy, water shortages), and new product development. Climate change happens to have a convenient metric, reduction of GHG emissions. If a company performs actions to reduce these items, it can give other nomenclature to the benefits while also calculating GHG emission reductions, as well.

Greater Stakeholder Expectations. Many stakeholders still take climate change seriously and expect companies to address it. Watchdogs are out there. Climate change shareholder resolutions have increased recently. The best way to preclude such problems is to have a program with concrete funding, goals, and communications.

More Focus on Adaptation. More companies are beginning to think about climate adaptation, examining real business risks if climate change physical effects occur and rules go into effect. What are the risks of product not being able to be made or brought to market? How will consumer demand, markets be affected by climate effects? Many firms already acknowledge these risks based on answers found in the Carbon Disclosure Project. Some insurance companies are beginning to add climate risk to their portfolio.

As mentioned in another blog here, there are 8 pure business reasons for a company to address climate change. So whether public opinion and politicians sway in one direction or another, a robust climate change program is bottomline beneficial for nearly any company. And if climate change legislation does pass (and the majority of the American public does still believe in its validity), then you’ll be in a better position to prosper.

On Feb. 2, 2010, the Securities and Exchange Commission (SEC) published an interpretive guidance (http://www.sec.gov./rules/interp/2010/33-9106.pdf) for public companies listing disclosure requirements to investors applied to business/legal developments related to climate change. Risk related to climate change has been discussed in Europe for some time, but has not been addressed in the U.S. yet.

SEC regulations require certain disclosures of facts and risks by public companies so that investors have fair, up-to-date information to guide their investment decisions (“level playing field”). The new SEC interpretive guidance does not provide an opinion about climate change’s validity or causes, but provides guidance pertaining to disclosing potential impacts of climate change-related matters on its business. For example, climate change regulations can impact a business even if climate change is eventually “proven” false, necessitating disclosure of future expenditures to potential investors.

What is climate change risk and how may it affect your company, even if not public? Climate change can impact a company’s operations, product manufacturing and sales, and general corporate strategy.
Business Operations: The prevailing view of scientists in the field is that climate change will raise the frequency and impacts of extreme weather events. If your business contracts to manufacture your product in a vulnerable area, there is a greater risk of more frequent, powerful storms affecting operations or transportation. What is the effect on your bottom line if a storm affects production or transportation of your product such that it can’t be brought to market for some time? What if it’s not a product, but a key raw material? Example: a European firm completed a climate change risk analysis and concluded that they will need to gradually shift farming of a key ingredient to areas further north because current farms may no longer be able to grow the product because of warming trends. The firm is currently changing contract language to allow shifting of farming locations.
Regulatory/Policy Changes: It is important to understand potential future climate change rules and capitalize on your unique needs to lessen its blow or even profit by them (example, understand cap and trade). New climate change rules will impact business decisions. Example: a number of firms that participate in the Chicago Climate Exchange state they do so for low-cost “practice” in terms of how to run a greenhouse gas (GHG) emission reduction program and to strategize on how to reduce emissions and buy or sell credits.
Market Risks: Physical climate change risk and the growing climate change movement will likely impact broader business areas, such as customer demand, supplier costs, and product development. Example: If the predicted increases in temperatures, drought, and public health issues occur, how may that change consumer tastes in your product? May cosmetics undergo a long-term decrease in demand? May there be an increase in demand for items such as medicines and bottled water?
Corporate Strategy: Manage risks (and opportunities) in GHG reductions, prioritize initiatives, and communicate concern and progress to gain the greatest possible benefits of stakeholders, such as the public and governments. Example: Toyota and IBM have taken advantage of the global concern about climate change to sell new or repackaged products centered around environmental concerns.