Business

Emissions Trading and Offsets

Emissions Trading, JI, & CDM Solutions

The following is a brief overview of emissions trading, joint implementation and CDM solutions undertaken by members of C2ES's Business Environmental Leadership Council (BELC).

For more information on each of these companies efforts to address climate change, please see the Businesses Leading The Way section of this Web site.

Air Products and Chemicals

  • Air Products and Chemicals, Inc. is involved in all stages of development of EU regulations, country-based voluntary greenhouse gas reduction schemes within the EU, and energy tax incentive regulations such as the Dutch ‘convenant’ system and UK Climate Change levy.

  • Air Products and Chemicals, Inc. participates in national and international trade associations to ensure progress can be made in addressing climate change and sustaining economic growth by adopting reasonable government policies and programs that do not impede the free market’s ability to develop cost-effective solutions.

  • Air Products has actively followed various emissions trading mechanisms and recently executed its first purchase of CO2 credits for an operation in the UK.

Bank of America

  • Bank of America Merrill Lynch operates an active carbon market services business that provides risk management, market access and liquidity, and strcutured finaces to a variety of corporaye clients looking to offset emissions or manage their carbon exposure. 

  • Bank of America Merrill Lynch, has an option to purchase several million CERs (certified emission reductions) over a 10-year period, all of which will be generated in sub-Saharan Africa. In addition to holding compliance value from their eligibility in the European Union's Emissions Trading System (EU ETS), the carbon credits are “highly charismatic” in that they are earned through the replacement of CO2 producing kerosene lamps with innovative rechargeable light emitting diode (LED) lighting technology - a clean, safe, and environmentally sound solution that is affordable to those without access to the electricity grid. 

  • Bank of America Merrill Lynch facilitated a carbon credit agreement with four Chinese wind farms located in the Shandong, Hebei and the Inner Mongolia provinces of China, owned by Guohua Energy Investment Company, a subsidiary of China Shenhua Energy Company, the largest coal mining enterprise in the country. The wind farms, operational since 2009, have been registered with the United Nations and have the ability to generate more than 1.5 million carbon credits by 2012.

BP

  • BP believes that the use of flexible market mechanisms, such as emissions trading and the CDM, provide a cost-effective means of reducing greenhouse gas emissions.  BP operated an internal emissions trading system between 1999 and 2001 that helped reduce operational GHG emissions by 10%.  The system covered all BP operations across the globe and provided a number of insights and learning.

  • BP’s UK Upstream and Petrochemicals assets are now part of the UK Government ’s emissions trading scheme (ETS). BP carried out the first trades in the UK ETS and has also helped customers trade in the market. BP is currently applying the evolving Clean Development Mechanism (CDM) rules and proced ures to a BP solar project in Brazil, with the intention of registering the project with the CDM Executive Board. BP is currently piloting CDM projects for a range of technologies.

  • BP is currently applying the evolving CDM rules and procedures to a real BP solar project in Brazil, with the intention of registering the project with the CDM Executive Board.  BP is currently piloting CDM projects for a range of technologies and believe clear accounting principles need to be created and internationally agreed, for the use of CER’s and other types of GHG emission reduction credits, to realise value from lower carbon technologies and for compliance use in meeting mandated and voluntary GHG emission caps.  

  • BP will continue to take part in wider industry and stakeholder alliances and to share our experience with flexible mechanisms since 1997 in order to aid the development of national and regional systems.

Delta Air Lines, Inc.

  • In 2012, Delta will begin participating in the European Union’s Emissions Trading Scheme (EU ETS). All airlines flying to, from or within the EU will pay CO2 emission allowances for their flights. Aviation will be the second-largest industry covered by these regulations. Delta is the seventh-largest airline (in terms of emissions) subject to the regulations and will be required to either reduce its CO2 emissions or purchase allowances for those emissions. Delta submitted traffic and CO2 emissions reports for 2010 and intends to fully comply with the regulation.

DTE Energy

  • DTE Energy, along with other partners, is involved in the Rio Bravo Carbon Sequestration Project to protect 65,000 acres of endangered rainforest in Belize.  The project combines land acquisition and sustainable forestry and is expected to sequester approximately 2.4 million metric tons of carbon over 40 years.

DuPont

  • DuPont has been active in working with others to pilot emissions trading systems and has concluded a number of trades through the use of bi-lateral agreements and on the emerging carbon exchanges.  DuPont is a member of the Chicago Climate Exchange and the International Emissions Trading Association.  In the winter of 2002, DuPont donated 120,000 tons of CO2-equivalent emissions credits to the Salt Lake City Organizing Committee. This allowed the Winter Olympics to offset their emissions and be declared "climate neutral." 

Entergy

  • Entergy and Elsam, the largest Danish electricity supplier, executed an international trade in CO2 allowances under the Danish climate change program.  Under the transaction, Entergy purchased 10,000 Danish allowances from Elsam and will remove the allowances from the market, eliminating 10,000 metric tons of CO2 emissions. 

Royal Dutch/Shell

  • Royal Dutch/Shell Group developed and used a pilot internal emissions trading system (STEPS) to gain experience and understanding in the use of and structure for emissions trading. The system, which ran from 2000 to 2002, allowed trading between a number of Group entities located in Annex 1 countries. The system covered over 33 million metric tons of CO2e from over 22 separate sites, accounting for almost two-thirds of Shell's developed country emissions or over one-third of its global emissions.

  • Shell has shifted emphasis from internal mechanisms to real external instruments and has established an Environmental Products Trading Business (EPTB). The Shell Group has entered the UK Emissions Trading System, and as a result, key Shell UK upstream production facilities now have a GHG emissions cap. Shell Trading, with Nuon, executed the first trade in EU CO2 allowances in February 2003.

  • The EPTB is also actively developing a CDM business for the Group.

TransAlta

  • In August of 2004, TransAlta announced the purchase of 1.75 million tonnes of GHG candidate Certified Emission Reductions (CERs) from the Chilean agricultural company Agrosuper.  The purchase requires the registration of the project with the Clean Development Mechanism Executive Board.  Once completed, this agreement will represent the first Canadian purchase of CERs under the Kyoto Protocol. 

  • TransAlta develops and trades for approximately 4 million tons of CO2 equivalent per year in offset projects, with 80 million tons currently under contract.  Offset projects include gas recovery, energy efficiency, ruminant methane, landfill and coal mine gas to electricity, forestry, and soil sequestration, among others.  In a recent upgrade of its U.S. operations, TransAlta reduced its CO2 emissions by an amount equal to the annual emissions of 27,800 cars, and sold the resulting credits to a U.S. integrated oil company.

  • TransAlta contributes to the development of a greenhouse gas emissions reduction market by engaging in selling fractions of its portfolio. 

Politics and Business: Climate Change Policy Approaches a Turning Point

POLITICS AND BUSINESS: CLIMATE CHANGE POLICY APPROACHES A TURNING POINT 

SPEECH BY EILEEN CLAUSSEN
PRESIDENT, PEW CENTER ON GLOBAL CLIMATE CHANGE

DAVID BRADFORD SEMINARS ON SCIENCE, TECHNOLOGY, AND ENVIRONMENTAL POLICY
WOODROW WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS
PRINCETON UNIVERSITY

November 7, 2005

Thank you very much.   It is a pleasure to be here at the Woodrow Wilson School and an honor to be delivering the David Bradford Seminar this week.   I knew David when he was at the Council of Economic Advisors, and found him to be honest, thoughtful and engaged, so it is a double honor for me to be giving this seminar. 

I am here today to talk about climate change policy.  And I must admit that in the current political environment, with White House investigations and Supreme Court nominations dominating the agenda, it is a challenge to break through the noise and get people to pay attention to this issue.  But never fear.  In preparing my remarks, I had a couple of ideas for how to get action on climate change in the current political environment:

One is to start naming hurricanes after members of Congress who still say we don’t know enough about this issue to act.   Or telling   the White House that if they think they’re in hot water now, just wait.  It’s only going to get hotter. 

In all seriousness, the title of my remarks today is Politics and Business: Climate Change Policy Approaches a Turning Point.   And I want to revise that, given the attention that’s gone to the recent bestselling book by the New Yorker writer Malcolm Gladwell.  Rather than saying climate change policy is approaching a turning point, I want to say it is approaching a tipping point. 

Gladwell defines a tipping point as “that one dramatic moment when everything can change all at once.” Granted, we are not there yet on climate policy, but we are certainly getting close. And I think there are two reasons for that: One is that the science of climate change has reached a point where it simply cannot be ignored or pushed aside. And the second reason is the growing number of financial and business leaders that are saying it is time to take this issue seriously – indeed, many are saying that it would be irresponsible not to take it seriously. As the private sector becomes increasingly vocal and active on this issue, particularly here in the United States, there is no doubt in my mind that our nation’s elected leaders will finally reach their tipping point – and step up and act.

Why are corporate leaders putting climate change on the agenda? The answer is simple: this is an issue that poses very real risks for business – and opportunities as well. And to ignore it is like ignoring those radar pictures we became so accustomed to this fall – those images of huge storms barreling toward our coastline. You can turn off the TV if you want, but that will not change the fact that we are all in the projected storm track for climate change. A business or an investor who is not thinking long and hard about how to respond is going to be like all those wrecked homes and boats we saw in the after-storm coverage. The boats all beaten and washed up on shore, the homes a shell of their former selves.

It is a tribute to the foresight of many in the private sector that they understand this and are beginning to plan for doing business in a world where climate change is a dominant concern. And today I want to talk about what investors and companies around the world are saying and doing about this issue.

Climate Change Science: An Open-and-Shut Case

But first I want to talk very briefly about the hurricanes we have seen this fall – and I will remind you the season’s not over yet. The U.S. Gulf Coast, as all of you know, was hit hard by hurricanes this year. Katrina alone killed more than 1,200 people, and we all know about the enormous destruction it left behind – an entire city decimated; 1 million displaced from their homes in coastal areas of Louisiana and Mississippi alone.

At the Pew Center, we have been quite busy answering questions about whether Katrina and these other storms were the product of global warming. And the honest answer is we don’t know for sure – no one does. But what we do know is that hurricanes draw their strength from the heat of the surface waters in the ocean. And as those waters get warmer, they are more likely to produce stronger storms. While Katrina was moving across the Gulf, the surface waters were unusually warm, about 2 degrees above normal for that time of year. Around the world, sea surface temperatures are more than 1 degree warmer on average than they were a century ago. So, whether or not Katrina and company were directly influenced by climate change, and there is certainly a case to be made that they were, they nevertheless are a sign of things to come.

Scientists have established beyond any reasonable doubt that the climate is changing, that these changes are the result of human activities, and that these changes are likely to become more pronounced – and more dangerous – in the decades to come. Instead of detailing all the various studies, I will refer you to the Pew Center website, www.c2es.org, for an overview of what we know.

An Economic Toll As Well

But it is not only the science of climate change that should cause us to stand up and take notice; it is also the economics of climate change. Katrina alone is projected to cost U.S. taxpayers as much as $200 billion. We saw disruption in our energy supplies, higher fuel prices, losses of farmland and crops, destruction of countless businesses large and small, effects on ports and shipping, and much more.

Consider the economic impact on the energy sector alone. Because of Katrina and Rita, 90 percent of crude oil production in the Gulf of Mexico was still “shut in” as of mid-October, meaning companies had made little progress in restoring output. Seventy-two percent of offshore natural gas production was still offline. And we’ve all heard what that is going to do to home heating bills this winter.

This is happening, I remind you, in an area that is responsible for 30 percent of U.S. oil production and about a quarter of our natural gas output. And that’s not even the whole story of how these storms damaged our energy infrastructure – because they also hit a region that boasts nearly half of the nation’s refining capacity. At its peak, Rita closed 16 refineries in Texas and Louisiana that together account for more than 5 percent of refining capacity. Some of these suffered significant damage and are likely to remain closed for months.

And the energy industry wasn’t alone in suffering these direct economic losses. Insurers took a big hit as well. Overall insured losses from Katrina and Rita are estimated at between fifty and seventy-five billion dollars. That’s not even counting the losses Wilma incurred in Florida, at this point estimated at between 8 and 12 Billion.

It is no wonder that the insurance industry has been out in front on the climate issue and making the case for action. Here is a statement from Munich Re Group, one of the world’s largest reinsurers. “The increasing weather extremes linked to impending climate change are already causing weather catastrophes of a new dimension.” End quote. According to another insurance giant, Allianz, climate change is increasing the potential for property damage at a rate of between 2 and 4 percent every year.

Allianz and Munich Re are not the only insurance companies that believe climate change is a risk. In the United States, AIG had this to say: “On the risk side, especially in the longer term of several decades and more, the potential impacts of climate change such as temperature rise, increased weather disturbance activity and sea level rise pose risks of widespread and possibly devastating damage to infrastructure in low-lying coastal areas, to forests and other ecosystems, to food production, to water resources and to human health. In turn, these potential consequences could result in far-reaching negative impacts on economies and societies worldwide.” End quote.

I believe the leadership of these insurance companies and their industry is emblematic of a broader shift in the private sector. You could say that insurers are the tip of the iceberg – and this one’s not melting.

The Investment Community Takes Note

Another segment of the private sector that is increasingly willing to raise this issue as a real concern is the investment community. Last May, there was a gathering at the United Nations titled the 2005 Investor Summit on Climate Risk. Participants included representatives of U.S. and international pension funds with collective assets of $5 trillion. CalPERS and CalSTERS, the pension funds for the state of California, were there, as were many other institutional investors from around the world. And the reason they were there was to talk about both the risks and the opportunities that climate change poses for investors.

Risks and opportunities. When you are entrusted with investing billions or trillions of dollars, you had better know a fair amount about both of these eventualities. What risks does climate change pose for investors? How can they know that the companies they invest in are positioned to manage those risks? And, in a similar sense, how can they gauge whether companies are prepared to take advantage of new opportunities presented by the growing movement toward regulation and carbon constraints?

The risks of climate change for the business sector can be broken out in three key ways. First, there is litigation risk – companies could face lawsuits. Some of these may be frivolous, while others may have merit. Either way, business needs to factor the risk of litigation into their planning.

The second category of risk facing the business sector is physical risk. Some sectors and businesses will face direct consequences from the physical impacts of climate change, including not just hurricanes, but also drought, sea level rise and flooding. I already talked about insurance companies. But what about agriculture, forestry, real estate and other industries that hinge on the physical environment?

In addition to litigation risk and physical risk, there is also regulatory risk – the risk of government taking action on this issue in a way that affects corporate profits. And this is the risk area that is likely to have the most immediate and substantial impact on businesses and investors.

I know what you are probably thinking. You are thinking that the chance of any meaningful regulation coming out of Washington on this issue any time in the near future is pretty dim. Of course it all depends on your definition of how near “near” is. And you are probably right. But the fact is that many companies, including U.S.-based multinationals, already are experiencing climate-related regulation in their operations in the EU, Canada and other countries working to implement the Kyoto Protocol. And, even here in the United States, most of the CEOs I talk to tell me they view regulation as an inevitability. Maybe not tomorrow or the next day, but sometime soon.

In fact, some of these CEO’s seem to prefer the certainty that comes with regulation to the no-man’s land they are operating in today. Consider what Jeff Immelt, CEO of GE had to say: “Long-term certainty would help us all make smart decisions,” he said. He continued: “We believe that the government can provide leadership by clarifying policy, by committing to market mechanisms [and] by promoting diverse energy sources.”

Jim Rogers, the CEO of Cinergy Corp., said it a little more succinctly: “One day, we will live in a carbon-constrained world.” End quote.

These are the CEO’s of major, major industry, and in the case of Cinergy, a major coal-burning energy company. And the air of inevitability in Jim Rogers’ statement should certainly be a wake-up call for investors that regulatory risk is real.

But of course, it is not just the risks associated with climate change that are attracting the attention of the investment community. It is also, as I said, the opportunities. Those companies that lead the way in low-emission vehicles, clean coal technologies, clean energy, and technologies for slashing emissions are going to be the winners in the 21st-century economy.

Right now, California’s massiveenvironmental risk management into the due diligence process of its private equity divisions.

What’s more, as part of the policy, JP Morgan Chase said it supports reductions in greenhouse gas emissions through market-based, national policies. This is a leading global financial services firm – $1.1 trillion in assets. And now it is leading in another way as well.

The actions of JP Morgan Chase and together with the United Nations Investor Summit on Climate Risk, are clear signs that investors are beginning to take this issue seriously.

And they are not the only signs. A couple of years ago, we saw the launch of The Ca state pension system is investing significant amounts in alternative energy businesses. GE plans to spend an additional $1.5 billion on research on clean technology. And every month, it seems there is another story of a major venture capital or private equity firm – I am talking about the big names like the Carlyle Group – investing in clean energy deals. So while there are many risks, there are also many opportunities out there because of climate change, and savvy investors know it.

Is everyone seeing this as an investment opportunity? Of course not. Just last month, Exxon Mobil announced nearly $10 billion in third-quarter profits but said it has no plans to put any of those earnings toward the development of alternative energy sources. “We’d rather re-invest in what we know,” said the company’s spokesman.

So it may not be for everyone. But you can’t deny that the investment community is beginning to factor climate change into their strategies and research. Last April, for example, JP Morgan Chase announced a set of environmental principles to guide the firm’s global investments and business efforts. Among the highlights: JP Morgan Chase will incorporate rbon Disclosure Project, or CDP. This is an initiative that enables a large number of institutional investors to collectively sign a request to companies for disclosure of their greenhouse gas emissions and climate strategies. When this project was launched in 2003, 35 investors totaling $4.5 trillion in assets signed on. Then in 2004, 95 investors accounting for $10 trillion became signatories. This year, the request to companies went out under the signatures of 155 institutional investors with combined assets of $21 trillion.

CDP then sends this request to the 500 largest companies in the world. Currently, more than 350 of these companies currently report their emissions and climate strategies through the CDP website.

What is happening here, I believe, is a reflection of the post-Enron, post-World Com environment. Investors are asking companies for an even higher level of transparency and information, not just in their accounting but in other risk areas as well. California’s massive pension funds and many others are actually pressuring the SEC to enact separate disclosure rules specific to greenhouse gas emissions.

A related factor in the movement toward greater disclosure is Sarbanes-Oxley. Because of this law, growing numbers of U.S. companies are weighing whether climate change may create a material impact on future earnings. And, as the number of companies disclosing emissions and exposure to climate-related risk increases, Sarbanes-Oxley actually strengthens the hand of activist shareholders who are pressing companies that have not yet addressed the issue.

A study by CERES last year found that oil and gas companies faced a record total of 31 shareholder resolutions on the climate issue in 2004. The filers of these resolutions included state and city pension funds, a foundation, socially responsible investment firms, and religious pension funds. And an important focus of the resolutions was risk disclosure – in other words, to what extent are these companies preparing for looming constraints on their carbon emissions?

So the bottom line, if you will excuse the pun, is that investors are flexing their muscle on this issue – these investors do not want to see corporate boards and CEOs with their heads buried in the sand. They want to see an acknowledgment of the problem, an understanding of its potential impact on business performance, and concrete strategies for staying ahead of the problem and even turning it into a platform for new products and increased profitability.

Business Steps Up to the Plate

And the good news is that those investors who are concerned about this issue are beginning to get what they want from the companies they invest in. At the Pew Center, we work with 41 leading companies to promote action on climate change. These are mostly Fortune 500 companies with a combined market capitalization of over $2 trillion and 3 million employees. They represent most industrial sectors and many of the largest emitters of greenhouse gases, including coal-burning utilities, mining companies, aluminum producers, automobile manufacturers, pulp and paper manufacturers, chemical companies, oil and gas businesses, and the cement industry. Council members include BP, Shell, General Electric, American Electric Power, DuPont, Toyota, Whirlpool, Intel, and more.

In joining the Council, these companies are united with the Pew Center in several beliefs, including this one – and I quote:

“We accept the views of most scientists that enough is known about the science and environmental impacts of climate change for us to take actions to address its consequences.”

To date, 30 of the 41 companies that work with the Pew Center have set targets to reduce their emissions, many of them more stringent than those in the Kyoto Protocol. And 13 of these companies already have met or exceeded at least one of their targets. And not a single one of these companies has found that it cost them money or market share. Of course, no one is under the impression that long-term efforts to address climate change will be cost-free. But the sooner we begin and the more we do to help companies manage these costs through market-based and flexible strategies, the more we will realize that we can reduce emissions without causing real and lasting damage to the economy or our competitiveness.

Let me talk briefly about what three of the companies we work with are doing – and I will start with one of the world’s largest companies, GE. GE just joined the Pew Center in July. It has committed to reduce its greenhouse gas emissions by 1 percent by 2012, relative to 2004 levels, and it will increase energy efficiency by 30 percent. Based on the company’s projected growth, GE’s emissions would have risen 40 percent by 2012 without further action.

But this is really not what is significant about GE. Much more important is that GE is committed to doubling its investment in environmental technologies to $1.5 billion by 2010. Think about that for a moment: $1.5 BILLION by 2010 – that is basically the equivalent of starting a new Fortune 250 company – focused exclusively on clean technology. These efforts are part of GE’s “Ecomagination” initiative to aggressively bring to market new technologies that will help customers meet pressing environmental challenges. In one instance here, you have a company addressing both the risks and the opportunities of climate change.

I also want to tell you about the work of Cinergy. I quoted Cinergy’s CEO, Jim Rogers, at the start of my remarks. This is a company that burns more than 30 million tons of coal each year, and it devoted its entire 2004 annual report to climate change – not to debunk the issue or attack the science, but to acknowledge that climate change is a problem, and that Cinergy should be a part of the solution. Cinergy’s goal is to reduce greenhouse gas emissions to an average of 5 percent below 2000 levels during the period from 2010-2012.

Cinergy recently announced plans to merge with Duke Energy, and Jim Rogers said that one rationale for the merger is the imminent arrival of carbon constraints. Duke Energy, he says, has a significant number of clean-burning natural gas plants, which will allow Cinergy to retire some of its coal-burning facilities more quickly.

The third company I want to talk briefly about today is Alcoa. Alcoa already has met its 2010 goal of reducing companywide emissions of greenhouse gases by 25 percent from 1990 levels. And in June, Alcoa issued a forecast that the aluminum industry could be greenhouse-gas neutral by 2017. Among the reasons: the increased use of aluminum in cars and trucks, which will reduce emissions from that sector. While this is an ambitious goal, there will likely be some lively debate about which industry – aluminum or autos – gets credit for this reduction.

GE, Cinergy, Alcoa and the other companies we work with at the Pew Center aren’t just looking internally at what can be done to address the climate problem. They are also looking beyond their own operations at public policies. For many years, there was a real hesitancy among business leaders to speak out on this issue, but that is changing. Why are the companies and the CEOs I have mentioned stepping out from behind the shadows now? Because they see that regulation is inevitable, and they want to make sure it is regulation they can live with. They see the states stepping into the void and adopting state and regional policies that seek to curb emissions. They see other countries putting together their own policies, some of them quite ambitious. They see that these actions are having a real effect – or soon will – on significant portions of their operations around the world. They get the picture. It’s inevitable to them that regulation is coming down the pike. In many cases, it is already here.

In addition to their interest in staying a step ahead of the regulations, these companies also want a higher level of certainty – they’re frankly tired of not knowing what’s going to be expected of them in the years ahead. It gets back to the issue of regulatory risk – they need to know what kind of risk they face.

Here is Wayne H. Brunetti, CEO and Chairman of Xcel Energy, as quoted in Business Week: “Give us a date, tell us how much we need to cut, give us the flexibility to meet the goals, and we’ll get it done.”

Four of the companies we work with at the Pew Center testified in front of the House Science Committee this year. The companies included Cinergy, DuPont, Baxter and United Technologies. Another company on the Council, Whirlpool, submitted written testimony. Their message: they are already living with greenhouse gas regulations in Europe and they are thriving in those places. These companies also told the committee that a lot of what they’re doing to cut emissions has bottom-line benefits. Efficiency pays. It’s smart business.

These companies are demonstrating a real boldness in entering the policy debate on this issue. They see it as absolutely essential to couple the work they are doing to reduce their emissions with a more active policy stance. The policy decisions that are made on this issue will have important implications for their future profits and performance, and these companies feel they have a responsibility to their shareholders to be involved.

Policies for Moving Forward

These companies also see a pressing need for U.S. leadership in the international arena. Remember: many of these firms are multinationals – they have operations around the world. So, in the same way that they want certainty here at home, they also want to know that policies around the world will be as predictable and as integrated and as consistent as possible.

At the G-8 meeting this past June in Gleneagles, Scotland, 20 business leaders were part of a special Climate Change Roundtable that identified a set of key principles for climate change policy. Included in those principles are the following:

  • “Policy frameworks that use market-based mechanisms to set clear, transparent and consistent price signals over the long term offer the best hope for unleashing needed innovation and competition.”
  • “Solutions must be global – participation of all major emitters is essential.”

The fact that these corporate leaders, including some from the United States, were able to agree to these and other principles shows how important they perceive this issue is for the future of their businesses. Business is in many respects leading the way, and it is time for policy makers, particularly those in Washington, DC, to get the message and act on their behalf.

What should policymakers do? Over the past year, the Pew Center brought together a group of policymakers and stakeholders from around the world to consider that question. We just recently held our last meeting and we’ll be releasing our final report, International Climate Efforts – Beyond 2012 next week. So without giving away too much, let me share with you a couple of key points.

First, while ultimately we need a fully global approach, what’s absolutely imperative at this stage is engaging the major economies. That includes the United States and the major developing countries. Twenty-five countries account for 83 percent of global emissions. They also account for 71 percent of global population and 86 percent global GDP. This is the core group that needs to act. It’s important, at the same time, that we recognize the tremendous diversity within this group. Their per capita emissions range by a factor of 14; their per capita income by a factor of 18.

So while all the major economies must commit to stronger action, we need to recognize and respect those differences, and allow different countries to take different kinds of approaches best suited to their needs and circumstances.

This leads to a second point: We need a more flexible framework, one that can accommodate different approaches by allowing for different kinds of commitments. Emission targets may work for some countries; but not for others. Maybe the best approach is some type of policy commitment that doesn’t entail a binding emissions limit. In the dialogue, we looked at a whole range of options, and the final report identifies those that seem most promising, and looks at ways they can be combined into a comprehensive framework. But for those details, I’ll have to ask you to stay tuned. The report will be out in just a few days, and we’ll have lots more to say about these ideas in the months ahead.

For now, suffice it to say that a tipping point is almost upon us. The combination of growing scientific certainty, growing concern – and growing action – among businesses and investors has brought us to a place where the kinds of international policies I am talking about are no longer a pipe dream. Even the U.S. Senate has shown support for real action, with a majority of senators supporting a resolution this summer that called for a mandatory national program to slow and eventually reverse U.S. emissions. The resolution was nonbinding, but it is yet another sign of change.

Thanks in large part to the leadership of the financial and business communities; climate change policy is approaching “that one dramatic moment when everything can change all at once.” My only fear is that this tipping point in policy arrives too late to keep another tipping point at bay – the point at which catastrophic climate change becomes inevitable, a force too strong to stop.

That is one case when tipping will not be appreciated. Thank you very much.

Press Release: Alcan, Inc. Joins Pew Center's Business Environmental Leadership Council

Press Release
October 18, 2005

Pew Center Contact: Katie Mandes, (703) 516-0606
Alcan, Inc. Contact: Anik Michaud, (514) 848-8151

ALCAN, INC. JOINS PEW CENTER ON GLOBAL CLIMATE CHANGE
Global Leader Joins Effort for Market-Based Solutions

Arlington, VA. -The Pew Center on Global Climate Change announced today that Alcan, Inc. has joined their Business Environmental Leadership Council and their efforts to address global climate change. Alcan is a multinational aluminum and packaging company based in Canada.
Alcan is working to reduce greenhouse gas emissions in their own operations through their GHG emissions reduction program, TARGET. Established in 2001, the TARGET program initially set a reduction goal of 575,000 (absolute) tons of CO2e. At the end of 2004, Alcan had recorded actual reductions of 2.9 million tons of CO2e. Since setting its target and launching its program to reduce emissions, Alcan has consistently outperformed the S&P Index.
"The companies we work with at the Pew Center recognize that the reality of operating in a carbon-constrained world is fast-approaching. We can all benefit from leaders such as Alcan, and we are looking forward to working with and learning from them,"  said Eileen Claussen, President of the Pew Center on Global Climate Change.
Alcan has also been selected as one of two Canadian companies on the Carbon Disclosure Project (CDP) 2005 Climate Leadership Index. Comprised of only 60 companies worldwide, the Index is part of a CDP report that outlines the key features that make climate change a critical shareholder value issue for both investors and global corporations.
 
"By and large, leading companies are realizing the importance of climate change and its impact on the long-term sustainability of their businesses," said Travis Engen, President and Chief Executive Officer, Alcan Inc. "The Pew Center has been instrumental in bringing business leaders together with policymakers in order to ensure a sustainable future; we are pleased to be a member."
Alcan is a multinational, market-driven company and a global leader in aluminum and packaging. With world-class operations in primary aluminum, fabricated aluminum as well as flexible and specialty packaging, aerospace applications, bauxite mining and alumina processing, today's Alcan is well positioned to meet and exceed its customers' needs for innovative solutions and service. Alcan employs almost 70,000 people and has operating facilities in 55 countries and regions.
 
The Business Environmental Leadership Council was established by thePew Center in 1998. The group is comprised of mainly Fortune 500 companies representing a diverse group of industries including energy, automobiles, manufacturing, chemicals, pharmaceuticals, metals, mining, paper and forest products, consumer goods and appliances, telecommunications, and high technology. Individually and collectively, these companies are demonstrating that it is possible to take action to address climate change while maintaining competitive excellence, growth, and profitability. The companies together generate over $1.6 trillion in revenue and employ more than 3 million people.
 
The other members of the BELC are: ABB; Air Products and Chemicals; Alcoa; American Electric Power; Baxter International; Boeing; BP; California Portland Cement Co.; CH2M HILL; Cinergy Corp.; Cummins Inc.; Deutsche Telekom; DTE Energy; DuPont; Entergy; Exelon; GE; Georgia-Pacific; Hewlett-Packard Company; Holcim; IBM; Intel; Interface Inc.; John Hancock Financial Services; Lockheed Martin; Maytag; Novartis; Ontario Power Generation; PG&E Corporation; Rio Tinto; Rohm and Haas; Royal Dutch/Shell; SC Johnson; Sunoco; Toyota; TransAlta; United Technologies; Weyerhaeuser; Whirlpool; and Wisconsin Energy Corporation.

For more information about global climate change and the activities of the Pew Center and the BELC, visit www.c2es.org.
 
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The Pew Center was established in May 1998 by The Pew Charitable Trusts, one of the United States' largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is an independent, nonprofit, and non-partisan organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

Political Climate Change

Full Article (PDF)

by Truman Semans, Director for Markets and Business Strategy at the Pew Center--Appeared in Petroleum Economist, September 2005
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Press Release: GE Joins Pew Center's Business Environmental Leadership Council

Press Release
July 13, 2005

Contact: Katie Mandes
              703.516-0606

GE JOINS PEW CENTER ON GLOBAL CLIMATE CHANGE
Next step in company-wide focus on addressing pressing challenges

Washington, D.C.-The Pew Center on Global Climate Change announced today that General Electric Company (GE) has joined the Pew Center's Business Environmental Leadership Council (BELC) and their efforts to address global climate change.

GE, one of the world's largest companies, has committed to reduce its greenhouse gas (GHG) emissions one percent by 2012 and the intensity of its GHG emissions 30 percent by 2008 (both compared to 2004). Based on the company's projected growth, GE's GHG emissions would have risen 40 percent by 2012 without further action. In addition, GE is committed to doubling its investment in environmental technologies to $1.5 billion by 2010. These efforts are part of GE's "Ecomagination" initiative to aggressively bring to market new technologies that will help customers meet pressing environmental challenges.

Eileen Claussen, President of the Pew Center welcomed GE enthusiastically, "When a company like GE stands up and says that climate change is a serious issue that demands immediate action, people tend to listen. As the newest member of our business environmental leadership council, we are pleased to have them at the table as we work to craft acceptable policy here in the United States and abroad."

"Ecomagination is GE's commitment to address challenges such as the need for cleaner, more efficient sources of energy and reduced emissions," said Jeffrey Immelt, GE chairman and CEO. "It is time for the private sector to assume its rightful place as a major catalyst for environmental change. We believe that the growing market for environmental technology can get us where we need to be."

"But industry cannot get there alone," Immelt continued. "We need to work in concert with the government and important groups like the Pew Center to promote and reward leadership. We are glad to join Pew's effort to work toward these goals - all keys for our shared future."

Members of the Pew Center's Business Council agree that enough is known about the science of global climate change to warrant action, and they pledge to take steps to reduce or offset their own greenhouse gas emissions. Members work together to formulate reasonable public policy, both in the United States and internationally. The Pew Center's council now has forty members, most of them Fortune 500 companies with operations around the world.

GE is among the leaders in energy-efficient power generation technologies, renewable energy technologies, water purification, and energy-efficient consumer appliance and lighting products. Also, GE's aircraft engines and locomotives are among the most efficient and cleanest in the world. GE serves customers in more than 100 countries and employs more than 300,000 people worldwide.

The Business Environmental Leadership Council was established by the Pew Center in 1998. The BELC is comprised of mainly Fortune 500 companies representing a diverse group of industries including energy, automobiles, manufacturing, chemicals, pharmaceuticals, metals, mining, paper and forest products, consumer goods and appliances, telecommunications, and high technology. Individually and collectively, these companies are demonstrating that it is possible to take action to address climate change while maintaining competitive excellence, growth, and profitability. The companies together generate over $1.5 trillion in revenue and employ more than 2.5 million people.

The other members of the BELC are: ABB; Air Products and Chemicals; Alcoa; American Electric Power; Baxter International; Boeing; BP; California Portland Cement Co.; CH2M HILL; Cinergy Corp.; Cummins Inc.; Deutsche Telekom; DTE Energy; DuPont; Entergy; Exelon, Georgia-Pacific; Hewlett-Packard Company; Holcim; IBM; Intel; Interface Inc.; John Hancock Financial Services; Lockheed Martin; Maytag; Novartis; Ontario Power Generation; PG&E Corporation; Rio Tinto; Rohm and Haas; Royal Dutch/Shell; SC Johnson; Sunoco; Toyota; TransAlta; United Technologies; Weyerhaeuser; Whirlpool; and Wisconsin Energy Corporation.

For more information about global climate change and the activities of the Pew Center and the BELC, visit www.c2es.org.

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The Pew Center was established in May 1998 by The Pew Charitable Trusts, one of the United States' largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is an independent, nonprofit, and non-partisan organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

GE (NYSE:GE) is Imagination at Work - a diversified technology, media and financial services company focused on solving some of the world's toughest problems. With products and services ranging from aircraft engines, power generation, water processing and security technology to medical imaging, business and consumer financing, media content and advanced materials, GE serves customers in more than 100 countries and employs more than 300,000 people worldwide. For more information, visit the company's Web site at www.ge.com

Press Release: New Reports Detail Challenges and Opportunities for Climate Change and Buildings, Electricity Sectors

Press Release
For Immediate Release:  June 16, 2005

Contact:  Katie Mandes
703.516-0606                                           

BUILDINGS, ELECTRICITY AND CLIMATE CHANGE
New Reports Detail Challenges and Opportunities

Washington, DC —The U.S. buildings and electricity sectors—which together account for the largest portion of our economy’s physical wealth and enable almost every activity of our daily life – also account for approximately half of our nation’s CO2 emissions.  Effective long-term climate change policy in the U.S. must address emissions from these two sectors.  

Two new reports released today by the Pew Center on Global Climate Change identify a number of technologies and policy options for GHG reductions in both sectors.  The first report is Towards a Climate-Friendly Built Environment, written by Marilyn Brown, Frank Southworth and Therese Stovall of Oak Ridge National Laboratory.  The other is U.S. Electric Power Sector and Climate Change Mitigation, written by Granger Morgan, Jay Apt, and Lester Lave of Carnegie Mellon University.

Long capital stock turnover, regulatory uncertainty and diverse and often competing interests all contribute to the difficulty of reducing GHGs from these two sectors.  These reports find that a portfolio of affordable technology and policy options exist to completely transform the high-emitting buildings and electricity sectors to low-GHG emitting sectors over the next 50 years.  However, the long lead time required to develop new technologies, deploy available technologies, and turn over capital stock, means that policies need to be launched now to create the impetus for change. Efforts must be sustained over time to achieve the deep reductions required.

"The importance of these two sectors to both the U.S. economy and to the issue of climate change cannot be over-stated,” said Eileen Claussen, President of the Pew Center on Global Climate Change, “This research shows that we can achieve enormous reductions in the building and electric sectors, but only if we craft a clear and comprehensive policy to guide them."

Some insights that emerge from the reports are:

  • Policies are needed to enable meaningful GHG reductions from these sectors. The diverse and fragmented nature of the buildings sector, and the current state of regulatory uncertainty in the electricity sector prevent many available GHG reduction options from being adopted in the market in the absence of policies.
  • Significant increases in R&D and deployment policies are essential if we hope to significantly reduce GHGs from these sectors. A significantly expanded R&D program is needed in the U.S. to develop new technologies, and deployment policies are needed to push and pull available fuels and technologies into the market in the near and long term.
  • An elimination of most GHGs from these sectors is possible over the next 50 years. If managed properly, the electricity sector could undergo a complete capital stock turnover to low or non-GHG emitting generation sources over the next 50 years; while buildings in the U.S. could become net low-GHG energy exporters in the same time frame – but government policies are essential to provide clear policy direction in order to drive the massive public and private investments and choices necessary to enable such a future.
Solutions Series

This report is part of the Solutions series, which is aimed at providing individuals and organizations with tools to evaluate and reduce their contributions to climate change. In 2003, the Solutions series released the first of its sectoral reports, Reducing Greenhouse Gas Emissions from U.S. Transportation, written by David L. Greene of Oak Ridge National Laboratory and Andreas Schafer of the Massachusetts Institute of Technology. Other Pew Center series focus on domestic and international policy issues, environmental impacts, and the economics of climate change.

A complete copy of this report—and previous Pew Center reports—is available on the Pew Center's web site, /global-warming-in-depth/all_reports/.

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The Pew Center was established in May 1998 by The Pew Charitable Trusts, one of the United States’ largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is an independent, nonprofit, and non-partisan organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

Towards a Climate-Friendly Built Environment

Buildings Cover

Towards a Climate-Friendly Built Environment

Prepared for the Pew Center on Global Climate Change
June 2005

By:
Marilyn Brown, Oak Ridge National Laboratory
Frank Southworth, Oak Ridge National Laboratory
Therese Stovall, Oak Ridge National Laboratory

Press Release

Download Report (pdf)

Read the In-Brief summarizing this report

Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

Buildings in the United States – homes, offices, and industrial facilities – account for over 40 percent of our nation's carbon dioxide emissions. Most of these emissions come from the combustion of fossil fuels to provide heating, cooling, and lighting and to run electrical equipment and appliances. The manufacture of building materials and products, and the increased emissions from the transportation generated by urban sprawl, also contribute a significant amount of greenhouse gas (GHG) emissions every year. In this report, authors Marilyn Brown, Frank Southworth, and Theresa Stovall identify numerous opportunities available now, and in the future, to reduce the building sector's overall impact on climate. 

This Pew Center report is part of our effort to examine key sectors, technologies, and policy options to construct the "10-50 Solution" to climate change. The idea is that we need to tackle climate change over the next fifty years, one decade at a time. Looking at options for the near (10 years) and long (50 years) term, this report yields the following insights for reducing GHG emissions from the largest portion of our nation's physical wealth – our built environment.

  • This sector presents tremendous challenges. There are so many different energy end uses and GHG-relevant features, multiple stakeholders and decision-makers, and numerous market barriers to energy efficiency.
  • Yet numerous opportunities exist. In the near term, simply bringing current building practices up to the level of best practices would yield tremendous energy and cost savings. Past studies have shown that many climate-friendly and cost-effective measures in the buildings sector are not fully utilized in the absence of policy intervention. The R&D and six deployment policies examined in this report could reduce forecasted energy consumption and carbon emissions of buildings in the United States in 2025 by almost one-quarter, or by an amount roughly equal to 10% of total projected U.S. carbon emissions. In 2025 and beyond, newly constructed net-zero-energy homes and climate-friendly designs for large commercial buildings and industrial facilities could begin to generate sizeable GHG reductions by displacing the energy-intensive structures that embody today's standard practices.
  • An integrated approach is needed to reduce GHG emissions from the diverse and fragmented building sector. Such an approach coordinates across technical and policy solutions, integrates engineering approaches with architectural design, considers design decisions within the realities of building operation, integrates green building with smart-growth concepts, and takes into account the numerous decision-makers within the industry.
  • An expansive view of the building sector is needed to completely identify and capitalize on the full range of GHG-reduction opportunities. Such a view needs to consider future building construction (including life-cycle aspects of buildings materials, design, and demolition), use (including on-site power generation and its interface with the electric grid), and location (in terms of urban densities and access to employment and services).

The authors and the Pew Center would like to thank Robert Broad of Pulte Home Sciences, Leon Clarke of the Pacific Northwest Laboratory, Jean Lupinacci of the U.S. Environmental Protection Agency, and Steven Nadel of the American Council for an Energy Efficient Economy for their review of and advice on a previous draft of this report, and Tony Schaffhaeuser for contributions to an early version this paper.

Executive Summary

The energy services required by residential, commercial, and industrial buildings produce approximately 43 percent of U.S. carbon dioxide (CO2) emissions. Given the magnitude of this statistic, many assessments of greenhouse gas (GHG) reduction opportunities focus principally on technologies and policies that promote the more efficient use of energy in buildings. This report expands on this view and includes the effects of alternative urban designs; the potential for on-site power generation; and the life-cycle GHG emissions from building construction, materials, and equipment. This broader perspective leads to the conclusion that any U.S. climate change strategy must consider not only how buildings in the future are to be constructed and used, but also how they will interface with the electric grid and where they will be located in terms of urban densities and access to employment and services. The report considers both near-term strategies for reducing GHGs from the current building stock as well as longer-term strategies for buildings and communities yet to be constructed.

The United States has made remarkable progress in reducing the energy and carbon intensity of its building stock and operations. Energy use in buildings since 1972 has increased at less than half the rate of growth of the nation's gross domestic product, despite the growth in home size and building energy services such as air conditioning and consumer and office electronic equipment. Although great strides have been made, abundant untapped opportunities still exist for further reductions in energy use and emissions. Many of these-especially energy-efficient building designs and equipment-would require only modest levels of investment and would provide quick pay-back to consumers through reduced energy bills. By exploiting these opportunities, the United States could have a more competitive economy, cleaner air, lower GHG emissions, and greater energy security.

GHG Emissions: Sources and Trends

GHG emissions from the building sector in the United States have been increasing at almost 2 percent per year since 1990, and CO2 emissions from residential and commercial buildings are expected to continue to increase at a rate of 1.4 percent annually through 2025. These emissions come principally from the generation and transmission of electricity used in buildings, which account for 71 percent of the total. Due to the increase in products that run on electricity, emissions from electricity are expected to grow more rapidly than emissions from other fuels used in buildings. In contrast, direct combustion of natural gas (e.g., in furnaces and water heaters) accounts for about 20 percent of energy-related emissions in buildings, and fuel-oil heating in the Northeast and Midwest accounts for the majority of the remaining energy-related emissions. Based on energy usage, opportunities to reduce GHG emissions appear to be most significant for space heating, air conditioning, lighting, and water heating.

Mechanisms of Change

Because the building industry is fragmented, the challenges of promoting climate-friendly actions are distinct from those in transportation, manufacturing, and power generation. The multiple stakeholders and decision-makers in the building industry and their interactions are relevant to the design of effective policy interventions. Major obstacles to energy efficiency exist, including insufficient and imperfect information, distortions in capital markets, and split incentives that result when intermediaries are involved in the purchase of low-GHG technologies. Many buildings are occupied by a succession of temporary owners or renters, each unwilling to make long-term improvements that would mostly benefit future occupants. Regulations, fee structures in building design and engineering, electricity pricing practices, and the often limited availability of climate-friendly technologies and products all affect the ability to bring GHG-reducing technologies into general use. Some of these obstacles are market imperfections that justify policy intervention. Others are characteristics of well-functioning markets that simply work against the selection of low-GHG choices.

Numerous individual, corporate, community, and state initiatives are leading the implementation of "green" building practices in new residential development and commercial construction. The most impressive progress in residential green building development and construction is the result of communities and developers wanting to distinguish themselves as leaders in the efficient use of resources and in waste reduction in response to local issues of land-use planning, energy supply, air quality, landfill constraints, and water resources. Building owners and operators who have a stake in considering the full life-cycle cost and resource aspects of their new projects are now providing green building leadership in the commercial sector. However, real market transformation will also require buy-in from the supply side of the industry (e.g., developers, builders, and architects).

Affordability, aesthetics, and usefulness have traditionally been major drivers of building construction, occupancy, and renovation. In addition to climatic conditions, the drivers for energy efficiency and low-GHG energy resources depend heavily on local and regional energy supply costs and constraints. Other drivers for low-GHG buildings are clean air, occupant health and productivity, the costs of urban sprawl, electric reliability, and the growing need to reduce U.S. dependence on petroleum fuels.

Technology Opportunities in Major Building Subsectors

The technical and economic potential is considerable for technologies, building practices, and consumer actions to reduce GHG emissions in buildings. When studying the range of technologies, it is important to consider the entire building system and to evaluate the interactions between the technologies. Thus, improved techniques for integrated building analyses and new technologies that optimize the overall building system are especially important. In this report, homes and small commercial buildings and large commercial and industrial buildings are analyzed separately for their energy-saving and emission-reduction potential, because energy use in homes and small businesses is principally a function of climatic conditions while energy use in large buildings is more dependent on internal loads. 

Applying currently available technologies can cost-effectively save 30 to 40 percent of energy use and GHG emissions in new buildings, when evaluated on a life-cycle basis. Technology opportunities are more limited for the existing building stock, and the implementation rate depends on the replacement cycles for building equipment and components. However, several opportunities worth noting apply to existing as well as new buildings, including efficiencies in roofing, lighting, home heating and cooling, and appliances. Emerging building technologies, especially new lighting systems and integrated thermal and power systems, could lead to further cost-effective energy savings. All of these potential effects, however, are contingent upon policy interventions to overcome the barriers to change.

Community and Urban Subsystems

Evidence suggests that higher-density, more spatially compact and mixed-use building developments can offer significant reductions in GHG emissions through three complementary effects: (1) reduced vehicle miles of travel, (2) reduced consumption for space conditioning as a result of district and integrated energy systems, and (3) reduced municipal infrastructure requirements. Both behavioral and institutional barriers to changes in urban form are significant. The effect of urban re-design on travel and municipal energy systems will need to be tied to important developments in travel pricing, transportation construction, and other infrastructure investment policies.

Past studies have concluded conservatively that changes in land-use patterns may reduce vehicle miles traveled by 5 to 12 percent by mid-century. More compact urban development could also lead to comparable GHG reductions from efficiencies brought about by district and integrated energy systems, with a small additional decrement from a reduced need for supporting municipal infrastructures. In total, therefore, GHG reductions of as much as 3 to 8 percent may be feasible by mid-century, subject to the near-term enactment of progressive land-use planning policies.

Policy Options

Policy research suggests that public interventions could overcome many of the market failures and barriers hindering widespread penetration of climate-friendly technologies and practices. The mosaic of current policies affecting the building sector is complex and dynamic, ranging from local, state, and regional initiatives, to a diverse portfolio of federal initiatives. Numerous policy innovations could be added to this mix, and many are being tried in test-beds at the state and local level.

In this report, buildings energy research and development (R&D) and six deployment policies are reviewed that have a documented track record of delivering cost-effective GHG reductions and that hold promise for continuing to transform markets.   The six deployment policies include (1) state and local building codes, (2) federal appliance and equipment efficiency standards, (3) utility-based financial incentive and public benefits programs, (4) the low-income Weatherization Assistance Program, (5) the ENERGY STAR(r) Program, and (6) the Federal Energy Management Program. Annual energy savings and carbon-reduction estimates are provided for each of these policies, both retrospectively and prospectively. Summing these values provides a reasonable estimate of the past and potential future impacts of the policies.

Annual savings over the past several years from these R&D and six deployment policies are estimated to be approximately 3.4 quadrillion Btu (quads) and 65 million metric tons of carbon (MMTC), representing 10 percent of U.S. CO2 emissions from buildings in 2002. The largest contributors are appliance standards and the ENERGY STAR Program. Potential annual effects in the 2020 to 2025 time frame are 12 quads saved and 200 MMTC avoided, representing 23 percent of the forecasted energy consumption and carbon emissions of buildings in the United States by 2025. The largest contributors are federal funding for buildings energy R&D (especially solid-state lighting) and appliance standards.

Conclusions and Recommendations

The analysis presented in this report leads to several conclusions:

  • An expansive view of the building sector is needed to completely identify and exploit the full range of GHG-reduction opportunities. Such a view needs to consider future building construction (including life-cycle aspects of buildings materials, design, and demolition), use (including on-site power generation and its interface with the electric grid), and location (in terms of urban densities and access to employment and services).
  • There is no silver bullet technology in the building sector because there are so many different energy end uses and GHG-relevant features. Hence, a vision for the building sector must be seen as a broad effort across a range of technologies and purposes.
  • An integrated approach is needed to address GHG emissions from the U.S. building sector - one that coordinates across technical and policy solutions, integrates engineering approaches with architectural design, considers design decisions within the realities of building operation, integrates green building with smart-growth concepts, and takes into account the numerous decision-makers within the fragmented building industry.
  • Current building practices seriously lag best practices. Thus, vigorous market transformation and deployment programs are critical to success. They are also necessary to ensure that the next generation of low-GHG innovations is rapidly and extensively adopted.
  • Given the durable nature of buildings, the potential for GHG reductions resides mostly with the existing building stock for some time to come. However, by 2025, newly constructed net-zero-energy homes and climate-friendly designs for large commercial buildings and industrial facilities could begin to generate sizeable GHG reductions by displacing the energy-intensive structures that embody today's standard practices. By mid-century, land-use policies could have an equally significant impact on GHG emissions. This inter-temporal phasing of impacts does not mean that retrofit, new construction, and land-use policies should be staged; to achieve significant GHG reductions by 2050, all three types of policies must be strengthened as soon as politically feasible.
  • Similarly, applied R&D will lead to GHG reductions in the short run, while in the long run basic research will produce new, ultra-low GHG technologies. This does not mean that basic research should be delayed while applied R&D opportunities are exploited. The pipeline of technology options must be continuously replenished by an ongoing program of both applied and basic research.

By linking near-term action to long-term potential, the building sector can assume a leadership role in reducing GHG emissions in the United States and globally.

Conclusions

The energy services required by residential, commercial and industrial buildings produce approximately 43% of U.S. CO2 emissions. Additional GHG emissions result from the manufacture of building materials and products, the transport of construction and demolition materials, and the increased passenger and freight transportation associated with urban sprawl. As a result, an effective U.S. climate change strategy must consider options for reducing the GHG emissions associated with how buildings are constructed, used, and located.

Homes, offices, and factories rarely incorporate the full complement of cost-effective climate-friendly technologies and smart growth principles, despite the sizeable costs that inefficient and environmentally insensitive designs impose on consumers and the nation. To significantly reduce GHG emissions from the building sector, an integrated approach is needed-one that coordinates across technical and policy solutions, integrating engineering approaches with architectural design, considering design decisions within the realities of building operation, integrating green building with smart-growth concepts, and taking into account the timing of policy impacts and technology advances.

A. Technology Opportunities in the 2005 to 2025 Time Frame

In the short run, numerous green products and technologies could significantly reduce GHG emissions from buildings, assuming vigorous encouragement from market-transforming policies such as expanded versions of the six deployment policies studied here. In the coming decade, given the durable nature of buildings, the potential for GHG reductions resides mostly with the existing building stock and existing technologies. Some of the numerous promising off-the-shelf technologies and practices outlined in this report include reflective roof products, low-E coating for windows, the salvage and reuse of materials from demolished buildings, natural ventilation and air conditioning systems that separately manage latent and sensible heat, smart HVAC control systems, and variable speed air handlers.

Federally funded R&D for energy savings in buildings must also be expanded in the short term so that an attractive portfolio of new and improved technological solutions will be available in the mid and long term. Achieving the goal of a cost-competitive net-zero-energy home by 2020, for example, will require scientific breakthroughs to be incorporated into new and improved photovoltaic systems, power electronics, thermochemical devices, phase-change insulation and roofing materials, and other components. In addition, policies that promote higher-density, spatially compact, and mixed-use building developments must begin to counteract the fuel-inefficient impact of urban sprawl.

In the 2025 timeframe, newly constructed net-zero-energy homes and climate-friendly designs for large commercial buildings and industrial facilities will need to begin to displace the GHG-intensive structures that embody today's standard practices. The emerging technologies described in this report could help significantly reduce GHG emissions from the building sector including

  • sealing methods that address unseen air leaks,
  • electrochromic windows offering the dynamic control of infrared energy,
  • unconventional water heaters (solar, heat pump, gas condensing, and tankless),
  • inexpensive highly efficient nanocomposite materials for solar energy conversion,
  • thermoelectric materials that can transform heat directly into electrical energy,
  • solid state lighting that uses the emission of semi-conductor diodes to directly produce light at a fraction of the energy of current fluorescent lighting,
  • selective water sorbent technologies that offer the performance of ground-coupled heat pumps at the cost of traditional systems,
  • abundant sensors dispersed through buildings with continuously optimizing control devices, and
  • 80-90 percent efficient integrated energy systems that provide on-site power as well as heating, cooling, and dehumidification.

Market transformation policies are expected to continue to improve the existing building stock and play an essential role in ensuring the market uptake of new technologies. In addition, land-use policies could begin to have measurable benefits.

The analysis reported here suggests that six expanded market transformation policies-in combination with invigorated R&D-could bring energy consumption and carbon emissions in the building sector in 2025 back almost to 2004 levels. At the same time, the built environment will be meeting the needs of an economy (and associated homes, offices, hospitals, restaurants, and factories) that will have grown from $9.4 trillion in 2002 to $18.5 trillion in 2025.

B. Building Green and Smart in the 2050 Time Frame

Green building practices and smart growth policies could transform the built environment by mid-century. Some of the climate-friendly features of this transformed landscape that are outlined in this report include:

  • building efficiency measures that dramatically reduce the energy requirements of buildings;
  • high-performance photovoltaic panels, fuel cells, microturbines and other on-site equipment that produce more electricity and thermal energy than is required locally, making buildings net exporters of energy, thereby transforming the entire demand and supply chain in terms of energy generation, distribution, and end use;
  • higher-density communities that enable high-efficiency district heating and cooling;
  • gridded street plans and other compact and readily accessible local street systems that also enable mass transit, and pedestrian and cyclist-friendly pathways to displace other forms of travel;
  • parks and tree-lined streets to act as carbon sinks and to mitigate the "heat island" effect; and
  • in-fill and mixed-use land development to shorten trip distances while reducing infrastructure requirements.

In the long run, improving the locational efficiency of communities and urban systems could possibly have as large an impact on GHG emissions as improving the design, construction, and operation of individual structures.

C. Linking Near-Term Action with Long-Term Potential

Given the durable nature of buildings, the potential for GHG reductions resides mostly with the existing building stock for some time to come. However, by 2025, newly constructed net-zero-energy homes and climate-friendly designs for large commercial buildings and industrial facilities could begin to generate sizeable GHG reductions by displacing the energy-intensive structures that embody today's standard practices. By mid-century, land-use policies could also significantly reduce GHG emissions. This inter-temporal phasing of impacts does not mean that retrofit versus new construction versus land-use policies should be staged; to achieve significant GHG reductions by 2050, all three elements of an integrated policy approach must be strengthened in the near term.

Similarly, applied R&D will lead to GHG reductions in the short run, while basic research will take longer to produce new, ultra-low GHG technologies. This does not mean that fundamental research should be delayed while applied R&D opportunities are exploited. The pipeline of technology options must be continuously replenished by an ongoing program of both applied and basic research. Vigorous market transformation and deployment programs will be needed throughout the coming decades to shrink the existing technology gap and to ensure that the next generation of low-GHG innovations is rapidly adopted.

By linking near-term action with long-term potential in an expansive and integrated framework, the building sector can be propelled to a leadership role in reducing GHG emissions in the United States and globally.

Frank Southworth
Marilyn Brown
Therese Stovall
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Press Release: Exelon Corporation Joins Pew Center's Business Environmental Leadership Council

Press Release
For Immediate Release: May 24, 2005
Contact: Katie Mandes
703.516-0606

EXELON CORPORATION JOINS PEW CENTER ON GLOBAL CLIMATE CHANGE

Leading Utility Establishes Target to Reduce Emissions

Washington, D.C.-The Pew Center on Global Climate Change announced today that Exelon Corporation has joined the Pew Center's Business Environmental Leadership Council (BELC) and their efforts to address global climate change.

Exelon Corporation, one of the nation's largest electric utilities and a Fortune 500 company, has committed to reduce its greenhouse gas (GHG) emissions by eight percent from 2001 levels by the end of 2008. Exelon has also committed to work with, and encourage, its suppliers to reduce their GHG emissions. The company will incorporate recognition of GHG emissions and their potential cost into its business analyses as a means to promote internal investment in climate-reducing activities. Exelon recently made this pledge under the U.S. Environmental Protection Agency's Climate Leaders program. The Pew Center assisted Exelon in developing its goal, strategy and program.

"Exelon is pleased to join the Pew Center and the other BELC members in addressing this challenging issue," said John W. Rowe, chairman, president and CEO, Exelon. "We believe it is incumbent upon anyone concerned about the consequences of global climate change to take action to begin the transition to a carbon constrained future."

Exelon Corporation is a leader in the electric power industry, with 2004 revenues exceeding $14 billion, about 17,500 employees, over $42 billion in assets, and approximately 5.2 million customers in Illinois and Pennsylvania. In December 2004, Exelon announced plans to merge with New Jersey-based Public Service Enterprise Group. FORTUNE magazine named Exelon one of America's "Most Admired Companies" in its 2005 annual report card on corporate reputation. Forbes magazine named Exelon one of the best-managed utility companies in December 2004.

The Business Environmental Leadership Council was established by the Pew Center in 1998. The BELC is comprised of mainly Fortune 500 companies representing a diverse group of industries including energy, automobiles, manufacturing, chemicals, pharmaceuticals, metals, mining, paper and forest products, consumer goods and appliances, telecommunications, and high technology. The members share the belief that enough is known about the science of climate change to begin taking reasonable steps now to protect the climate. Individually and collectively, these companies are demonstrating that it is possible to take action to address climate change while maintaining competitive excellence, growth, and profitability. The companies together generate annual revenues in excess of $600 billion and employ more than 1.7 million people.

"Exelon Corporation is the latest company to acknowledge publicly not only the certainty of the science, but also the necessity for action now. We look forward to working with them on both market-based solutions to climate change and the formulation of sound public policy here in the United States and around the world," said Pew Center president Eileen Claussen.

The other members of the BELC are: ABB; Air Products and Chemicals; Alcoa; American Electric Power; Baxter International; Boeing; BP; California Portland Cement Co.; CH2M HILL; Cinergy Corp.; Cummins Inc.; Deutsche Telekom; DTE Energy; DuPont; Entergy; Georgia-Pacific; Hewlett-Packard Company; Holcim; IBM; Intel; Interface Inc.; John Hancock Financial Services; Lockheed Martin; Maytag; Novartis; Ontario Power Generation; PG&E Corporation; Rio Tinto; Rohm and Haas; Royal Dutch/Shell; SC Johnson; Sunoco; Toyota; TransAlta; United Technologies; Weyerhaeuser; Whirlpool; and Wisconsin Energy Corporation.

For more information about global climate change and the activities of the Pew Center and the BELC, visit www.c2es.org.

###

The Pew Center was established in May 1998 by The Pew Charitable Trusts, one of the United States' largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is an independent, nonprofit, and non-partisan organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

Exelon Corporation is one of the nation's largest electric utilities with approximately 5.2 million customers and more than $14 billion in annual revenues. The company has one of the industry's largest portfolios of electricity generation capacity, with a nationwide reach and strong positions in the Midwest and Mid-Atlantic. Exelon distributes electricity to approximately 5.2 million customers in northern Illinois and Pennsylvania and gas to more than 460,000 customers in the Philadelphia area. Exelon is headquartered in Chicago and trades on the NYSE under the ticker EXC.

Taking The Long View

Read the full article (pdf)

by Elliot Diringer

This article appeared in Environmental Finance, Dec/Jan 2004 Issue

 

by Elliot Diringer, Director of International Strategies— Appeared in Environmental Finance, Dec/Jan 2004 Issue
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An Effective Approach to Climate Change

POLICY FORUM: CLIMATE POLICY

An Effective Approach to Climate Change

By Eileen Claussen

Enhanced online at www.sciencemag.org/cgi/content/full/306/5697/816
Originally published October 29, 2004: VOL 306 SCIENCE

The Bush Administration’s “business as usual” climate change policy (1), with limited R&D investments, no mandates for action, and no plan for adapting to climate change, is inadequate. We must start now to reduce emissions and to spur the investments necessary to reduce future emissions. We also need a proactive approach to adaptation to limit the severity and costs of climate change impacts.

Science and Economics

Those who are opposed to national climate change policies make much of the uncertainties in climate models, specifically the rate and magnitude of global warming. The Climate Change Science Program’s plan, points out Secretary Abraham, would address these uncertainties, although he offers no assurances that the program will be adequately funded. However, the scientific community already agrees on three key points: global warming is occurring; the primary cause is fossil fuel consumption; and if we don’t act now to reduce greenhouse gas (GHG) emissions, it will get worse.

Yes, there are uncertainties in future trends of GHG emissions. However, even if we were able to stop emitting GHGs today, warming will continue due to the GHGs already in the atmosphere (2).

National climate change policy has not changed significantly for several years. The first President Bush pursued a strategy of scientific research and voluntary GHG emissions reductions. The new Climate Change Science Program has a budget comparable, in inflation-adjusted dollars, to its predecessor, the Global Climate Research Program, during the mid-1990s. The Administration’s current GHG intensity target will increase absolute emissions roughly 14% above 2000 levels and 30% above 1990 levels by 2010 (3). These increases will make future mitigation efforts much more difficult and costly.

While reducing uncertainty is important, we must also focus on achieving substantial emissions reductions and adapting to climate change.

Low-Carbon Technology Development

The Administration’s more substantive R&D initiatives, such as Hydrogen Fuels and FutureGen (clean coal) are relatively modest investments in technologies that are decades away from deployment. We need a far more vigorous effort to promote energy efficient technologies; to prepare for the hydrogen economy; to develop affordable carbon capture and sequestration technologies; and to spur the growth of renewable energy, biofuels, and coal-bed methane capture.

Equally important, we need to encourage public and private investment in a wide-ranging portfolio of low-carbon technologies. Despite the availability of such technologies for energy, transportation, and manufacturing, there is little motivation for industry to use them. Widespread use of new technology is most likely when there are clear and consistent policy signals from the government (4).

One-fifth of U.S. emissions comes from cars and trucks (5). The Administration’s targets to improve fuel economy for light trucks and “sports utility” vehicles (SUVs) by 1.5 miles per gallon over the next three model years fall far short of what is already possible. California is setting much more ambitious emission standards for cars and light trucks. Current efficiency standards can be improved by 12% for subcompacts to 27% for larger cars without compromising performance (5).Hybrid vehicles can already achieve twice the fuel efficiency of the average car.

About one-third of U.S. emissions results from generating energy for buildings (6). Policies that increase energy efficiency using building codes, appliance efficiency standards, tax incentives, product efficiency labeling, and Energy Star programs, can significantly reduce emissions and operating costs. Policies that promote renewable energy can reduce emissions and spur innovation.Sixteen states have renewable energy mandates (7).

The Power of the Marketplace

Policies that are market driven can help achieve environmental targets cost-effectively. A sustained price signal, through a cap-and-trade program, was identified as the most effective policy driver by a group of leaders from state and local governments, industry, and nongovernmental organizations (NGOs) (8).

Senators Lieberman (D–CT) and McCain’s (R–AZ) 2003 Climate Stewardship Act proposes a market-based approach to cap GHG emissions at 2000 levels by 2010. The bill, opposed by the Administration, garnered the support of 44 Senators. Nine Northeastern states are developing a regional “cap-and-trade” initiative to reduce power plant emissions. An important first step would be mandatory GHG emissions reporting.

Adapting to Climate Change

An important issue that Secretary Abraham failed to address is the need for anticipating and adapting to the climate change we are already facing. Economic sectors with long-lived investments, such as water resources, coastal resources, and energy may have difficulty adapting (9). A proactive approach to adaptation could limit the severity and costs of the impacts of climate change.

By limiting emissions and promoting technological change, the United States could put itself on a path to a low-carbon future by 2050, cost-effectively. Achieving this will require a much more explicit and comprehensive national commitment than we have seen to date. The rest of the developed world, including Japan and the European Union, is already setting emission-reduction targets and enacting carbon-trading schemes. Far from “leading the way” on climate change at home and around the world, as Secretary Abraham suggested, the United States has fallen behind.

References and Notes

1. S. Abraham, Science 305, 616 (2004). |
2. R. T. Wetherald, R. J. Stouffer, K. W. Dixon, Geophys. Res. Lett. 28, 1535 (2001).
3. “Analysis of President Bush’s climate change plan” (Pew Center on Global Climate Change,Arlington,VA, February 2002); available at www.c2es.org.
4. J. Alic, D. Mowery, E. Rubin, “U.S. technology and innovation policies: Lessons for climate change” (Pew Center on Global Climate Change,Arlington,VA, 2003).
5. National Research Council, “The effectiveness and impact of corporate average fuel economy (CAFÉ) standards” (National Academies Press, Washington, DC, 2002).
6. “U.S. greenhouse gas emissions and sinks: 1990–2002”(EPA/430-R-04-003, Environmental Protection Agency, Washington, DC, 2002), Table 3–6.2002.
7. Workshop proceedings, “The 10-50 solution: Technologies and policies for a low-carbon future,”Washington, DC, 25 and 26 March 2004 (The Pew Center on Global Climate Change and the National Commission on Energy Policy, Arlington,VA, in press).
8. J. Smith, “A synthesis of potential climate change impacts on the United States” (Pew Center on Global Climate Change, Arlington,VA, 2004). Published by AAAS

by Eileen Claussen, President— Appeared in Science, October 29, 2004
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