Business

Energy Supply Solutions

Energy Supply Solutions

The following is a brief overview of energy supply 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’ larger hydrogen plants function as “cogeneration” facilities. In addition to producing hydrogen, steam is often produced and exported to a nearby user. The energy efficiency of these hydrogen plants is over 85% of what is theoretically achievable, exceeding the 60% efficiency level typical of modern natural gas-fired combined cycle turbine power plants.
  • A cogeneration unit was also installed to provide energy, heating and cooling at the Air Products Hersham, UK European headquarters. This innovative approach for providing energy to an office complex reduced CO2 emissions by 2700 metric tonnes per year.


Alcoa

  • Alcoa and other leading corporations are partnering with World Resources Institute (WRI) to build markets for renewable energy. Convened in 2000, WRI's Green Power Market Development Group seeks to develop corporate markets for 1,000 MW of new, cost competitive green power by 2010.
  • Alcoa produces high-efficiency turbine blades for the industrial turbine market in the electric power generation industry.


Alstom

  • In March 2010, Alstom Power and its partner Bardella opened a new plant at Porto Velho in Amazonia. This plant produces hyroelectric equipment for future power plant facilities that will be built along the Rio Madeira and in northern Brazil. This is Alstom's third plant in the country.
  • Alstom will supply two 25 MW turnkey geothermal power plants to Mexico's Los Humeros power station in Michoacán state, with the steam turbines to be produced locally at Alstom’s site in Morelia. The two plants, which are scheduled for commissioning in 2012, will power more than 100,000 homes in southeastern Mexico.
  • Alstom has installed or is installing more than 2,100 wind turbines, corresponding to a total capacity of more than 2,700 MW.
  • Alstom turbines and generators installed worldwide represent more than 25% of the total hydropower capacity today.
  • Alstom designs, engineers, and constructs geothermal power plants.

American Water

  • In 2005, American Water constructed what was, at the time, the largest groundmounted solar array east of the Rocky Mountains in New Jersey. Since then, it has expanded that system and installed an additional solar array at an adjacent facility. In 2010, these two facilities generated 864,667 kWh of green power and saved approximately one million pounds of CO2 emissions from being released. 
  • American Water is due to complete two capital projects in 2011 that will expand its solar capacity by approximately 240 kW. In addition, American Water has plans to expand its solar capacity in 2012 and 2013 by almost 2 megawatts (MW).
  • American Water has been a purchaser of green power for some years. One hundred percent of the 1,400,000 kWh of energy used annually at our Yardley, Pennsylvania plant comes from wind power. In 2009, this green wind energy supply saved 1.6 million pounds of CO2 emissions from being released into the atmosphere.

Bank of America

  • Bank of America Corp.'s Bank of America Merrill Lynch unit announced in June 2011 that it will provide $1.4 billion in loans for a four-year, $2.6 billion project to place solar panels on rooftops in 28 states. The project, led by NRG Energy Inc. and  ProLogis Inc, is designed to generate about 733 megawatts of energy, enough to serve more than 100,000 homes. The installations will be built on facilities owned by ProLogis, a warehouse operator, and co-owned by NRG. 
  • Bank of America's Brighter Planet™ Affinity Banking offers credit and debit cards that help customers finance community-based renewable energy projects. More than 150,000 Bank of America Brighter Planet customers have helped fund the construction of 19 community renewable energy projects in the U.S., preventing the release of more than 200 million pounds of carbon dioxide into the atmosphere as of June 2010.

Dominion

  • Dominion’s renewable assets in Virginia, North Carolina, West Virginia, Indiana and Illinois include wind, hydro, and wood biomass.
  • When completed and operating at full power, combined output from clean energy is expected to exceed 1,600 megawatts– enough to supply more than 400,000 typical households.
  • In 2010, hydroelectric power provided almost half (46 percent) of the company's in-service renewable energy capacity. Wind power accounted for about 41 percent of the total, with the remaining 13 percent coming from wood biomass.
  • Dominion is seeking regulatory approval of a pilot solar distributed generation program for our electric customers. Distributed generation refers to power that is generated and used on-site as opposed to power produced at a large, centrally located facility and transmitted long distances via the power grid to homes and businesses. This program would consist of utility-owned solar installations on leased roof space, as well as special pricing incentives to encourage customer-owned solar installations.
  • Offshore wind is potentially one of the largest sources of carbon-free, renewable energy in Virginia, with near-term resource availability of approximately 2,000 MW and potentially up to 3,000 MW. In 2010, the Virginia Offshore Wind Development Authority was created to facilitate the commercial development of this renewable resource.  Dominion is currently assessing the potential of Virginia’s offshore wind resources and announced an offshore transmission line feasibility study in March 2011. Dominion Virginia Power is planning to respond to the federal government’s call for interest in building electricity-generating wind turbines in the Atlantic Ocean off the Virginia coast. The U.S. Bureau of Ocean Energy Management has identified approximately 113,000 acres about 24 miles off the coast of Virginia that could be developed for electricity-generating wind turbines. Dominion plans to formally express interest in developing the offshore parcels.
  • In April 2011, Dominion announced plans to convert three small coal-burning power stations to biomass (using mostly wood waste), which, pending regulatory approvals, would add 153 megawatts of renewable energy to its Virginia generating fleet when they are scheduled to begin operations in 2013. The fuel conversion would result in reduced nitrogen oxide, sulfur dioxide and particulate emissions.

Dow Chemical Company

  • Dow will use electricity produced from natural gas created by the landfill in the City of Midland, Michigan to power its hometown facilities. This economically-viable source of clean energy will save an estimated 12,000 tons of GHG emissions annually and provide approximately 25 percent of the energy needs for Dow’s Headquarters.
  • Dow's AIRSTONE™ Systems for Wind Energy is a family of products, based on proven technology and chemistry, with performance characteristics well suited for use in the fabrication of wind blades. They include systems for infusion, hand wet layup, tooling and adhesives. Multiple product grades allow customers to tailor their final products based on specific market and environmental conditions.
  • The DOW POWERHOUSE™ Solar Shingle is developed as a Building Integrated Photovoltaic (BIPV) product and is tough, flexible and thin enough to serve as roof shingles for homes. Not only do these shingles generate power, but they shield homes from the elements.
  •  Dow is working to incorporate alternative energy into its operations. At Dow's Pittsburg, California facility, the company has installed a solar energy farm capable of generating 210 kW, which is enough energy to power 175 homes and offsets approximately 440 million pounds of CO2 per year.
  • Dow and the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) are jointly developing and evaluating a process that will convert biomass to ethanol, as well as other chemical building blocks. A mixed alcohol catalyst from Dow is seen as the key to unlocking the potential for this promising, renewable energy resource. The process will use non-food ingredients, like the leaves from a corn plant or wood wastes, and convert the bio-based material through a gasification process to synthesis gas. Dow’s technology helps convert the synthesis gas into a mixture of alcohols including ethanol that can be used as transportation fuels or chemical building blocks.
  • Dow's chemistry is essential to three 50-megawatt solar units in Spain. Using DOWTHERM™ A – a mix of specialized heat transfer fluids – to help convert heat energy into electricity, the plants will generate 150 megawatts of clean energy, enough to power 90,000 homes and save 450,000 tons of CO2 per year.

DTE Energy

  • DTE Energy is partnering with the U.S. DOE, the State of Michigan, and the City of Southfield to develop, build, and operate a pilot project that will create hydrogen gas from tap water and use that gas in stationary fuel cell generators and to refuel fuel cell vehicles. DTE Energy’s Hydrogen Technology Park, a $3 million, five-year pilot project, will be capable of delivering about 100,000 kilowatt-hours of electricity per year.
  • DTE Biomass Energy operates 29 landfill gas recovery projects at sites across the United States. Methane recovered from these projects is converted into pipeline-quality gas, steam, or electricity. DTE Biomass landfill projects have captured the equivalent of more than 25 million metric tons of CO2.
  • In 1996, Detroit Edison introduced the SolarCurrents® program and became the first utility in the nation to provide customers with solar power through the grid from a central facility.
  • DTE Energy’s Detroit Edison has promoted geothermal technology in its service area, where nearly 4,000 residential units and two-dozen commercial businesses have geothermal systems.

Duke Energy

  • Duke Energy seeks to scale up to 3,000 MW of wind, solar and biomass by 2020.

DuPont

  • DuPont and several other companies are partnering with World Resources Institute (WRI) to build markets for renewable energy. Convened in 2000, WRI’s Green Power Market Development Group seeks to develop corporate markets for 1,000 MW of new, cost-competitive green power by 2010.
  • DuPont announced in June 2005 DuPont™ Generation IV membrane electrode assemblies (MEA) technology for fuel cells requires significantly less catalyst loading compared with the previous generation, while still delivering approximately 20 percent higher power density and well over two times improvement in durability and reliability, leading to more cost-effective fuel cell systems.
  • DuPont leads the Integrated Corn-Based BioRefinery (ICBR) project – a U.S. Department of Energy-funded research program. As part of the ICBR, DuPont, the National Renewable Energy Laboratory, and other companies will develop the world's first integrated pilot-scale "biorefinery" that will make use of the entire corn plant—including the stalks, husks, and leaves—to make electricity, biofuels, and an array of biomaterials. For example, in 2003 DuPont received the President’s Green Chemistry Award for the development of bio-PDO, a raw material for its Sorona fiber.
  • DuPont is a leading supplier of materials for photovoltaic cells, and provides numerous materials for windmills as well.

Entergy

  • Entergy, along with Nike, Environmental Resources Trust, and Global Green, has started the Solar Schools Initiative in New Orleans to help revitalize New Orleans with newly constructed solar-powered schools and homes. This initiative combined with a newly adopted net metering rule will help facilitate investments in distributed renewable energy in New Orleans that will reduce customers' bills and provide direct CO2 reductions on the Entergy system. Four public schools in Orleans parish have been selected for the project. The installation of the solar equipment began in the summer of 2009, with the most recent project completed in May of 2010.

Exelon

  • Selling wind energy in Pennsylvania
    • PECO WIND is a new environmentally friendly power option provided by PECO and leading wind energy marketer Community Energy, Inc., of Wayne, Pa. PECO launched the product in May 2004, and almost 10,000 customers had enrolled by the end of the year. In aggregate, they will purchase more than 28 million kWh of wind-generated electricity annually. The environmental benefit is the same as planting about two million trees or not driving 25 million miles.
    • PECO WIND has become one of the largest and fastest growing green power programs in the country, according to DOE’s National Renewable Energy Laboratory (NREL). The customer enrollments place PECO WIND among the top 10 utility green energy programs when compared with NREL’s 2004 ranking of similar programs. Announcement of a new list is expected during the spring of 2005.
    • PECO WIND, the first wind energy product offered by a utility in Pennsylvania, is available to PECO’s residential and business customers in Bucks, Chester, Delaware, Montgomery, Philadelphia and York counties. Customers may elect to purchase wind energy either for their entire electric load or in increments of 100-kWh blocks up to 100 percent of their total load. For more information or to sign up, please call 1.866.WIND.321 or visit www.pecowind.com.
  • ComEd’s renewable energy portfolio
    • ComEd purchases electricity generated from landfill methane gas at 22 sites across northern Illinois and wind energy from the 51 MW Mendota Hills project and the 54 MW Crescent Ridge project. In 2004, Chicago passed the 1-MW milestone for installed photovoltaic systems with the completion of the Exelon Pavilions in Millennium Park that integrates photovoltaic into the building’s exterior walls – a first-of-its-kind system.
    • ComEd’s achievements in developing renewable energy resources continued to earn honors in 2004. ComEd received the Solar Electric Power Association’s Business Achievement Award, and ComEd also received an Illinois Governor’s Pollution Prevention Award for Continuous Improvement.
    • By the end of 2004, Chicago had more than 50 photovoltaic installations, totaling 1.2 MW. They include systems on ComEd’s Chicago South facility, several universities, affordable single-family housing units and the new Cook County Domestic Violence Court House – at 110 kW, the largest single system in the city to date. The Chicago solar systems represent 86 percent of the solar electric output in ComEd’s service territory and 71 percent of the total solar electric output in Illinois, contributing significantly to the state’s ranking in the top five.
    • For more on ComEd’s photovoltaic installations, click here.
  • Exelon’s Wind Generation Portfolio
    • Exelon Generation has long-term power purchase agreements (PPAs) with four wind generation projects in Pennsylvania and West Virginia, providing a total wind capacity of 153 MW. The installed capacity associated with these contracts easily makes Exelon the largest wholesale wind marketer east of the Mississippi.
    • The original rationale for Generation entering into its PPAs several years ago was the belief that the primary demand for wind would be to supply renewable energy credits to competitive retail suppliers and, with the approval of a wind block rider, through PECO. As the market developed, however, retail choice has not been a growing market. Instead, we discovered a demand for wind energy among large institutions such as universities and government agencies.
    • And now the market has again shifted with increased focus on compliance demand associated with RPS laws in Maryland, New Jersey and Pennsylvania. New RPS requirements are considered in other states in the future. Consequently, we see a tightening of renewable supply and demand in PJM Interconnection by 2006-2007. Our marketing and sales strategy will accordingly shift somewhat to compliance demand. To expand our renewable portfolio, we will pursue additional generation projects in PJM.
  • Emissions performance that beats industry averages
    • Generating electricity with fossil fuels produces a variety of air emissions and greenhouse gases. Exelon Generation’s air emissions per unit of energy produced are very low compared to the industry across all major emissions, as measured against the year 2002 U.S. electric utility average (EUA).
    • Nuclear generation constitutes the majority of our generating capacity and is the main driver behind Exelon’s low emission rates, as this technology relies on nuclear fission rather than combustion of fossil fuels as its primary source of energy to generate electric power. Other contributions come from Exelon Power’s non-emitting Conowingo Hydroelectric Station, additional generating capacity achieved from Exelon’s nuclear and hydroelectric uprate and efficiency programs and a continuation in 2004 of industry-leading capacity factors at Exelon’s nuclear units.
  • Eddystone optimization project reducing pollution and improving cash flow
    • For many years, Eddystone unit 2’s deteriorating performance on collection of dry ash resulted in significantly increased air emissions, load limitations and high costs for wet ash processing. In 2003, Eddystone unit 2 began replacing or upgrading its electrostatic precipitators (ESP) at an expected cost of $10–20 million. Rather than accepting this cost, the project team conducted a detailed study of the possible root causes of poor ESP performance. The team members mapped the fuel utilization process from coal delivery to flue gas leaving the stack, collecting and analyzing more than 10,000 data points.
    • The findings confirmed that dust loading leaving the ESPs was extremely high but also showed that, surprisingly, the ash collection issues were mostly due to two interrelated causes far upstream in the process. Flue gas flow was found to be 50 percent over design, and nearly 3 percent of all coal was being sent up the stack as particulate emissions. The team reframed the project to fix these root causes at a cost of less than half of the original concept. Benefits include reduced air pollution, substantial fuel savings, decreased capital and maintenance costs and additional revenue from fully utilizing the unit’s capacity. Together, these benefits increased the unit’s cash flow by more than $2 million annually.
    • The project installation was completed in May 2004 with zero lost-time accidents. On September 13, 2004, the project team received Exelon’s first-ever Chairman’s Environmental Award for Environmental Performance Improvement and Operational Excellence.
  • Financing clean energy in Pennsylvania
    • The Sustainable Development Fund (SDF)(www.trfund.com/sdf) finances Pennsylvania companies and projects that involve renewable energy, advanced clean energy and energy efficiency technologies. Funded by PECO settlement agreements, SDF is managed by The Reinvestment Fund, a regional nonprofit based in Philadelphia. In addition to providing the environmental benefits of clean energy, SDF helps PECO diversify its power generation options.
    • In 2004, SDF approved $4.25 million in production incentives for two wind projects that will add 50 MW of generating capacity in 2005. The incentives are expected to leverage approximately $60 million in private investment. SDF also provided $4.7 million in lease financing in 2003 and 2004 for four energy conservation projects and leveraged $2.8 million from private banks for purchasing participation in these transactions. In 2004, SDF’s Pennsylvania Advanced Industrial Technology (PA-AIT) Fund invested $670,000 in three early-stage renewable and clean energy companies. The SDF solar photovoltaic grant program grew to 83 systems and 308 kW of capacity, including PECO’s eight solar affordable housing units in Philadelphia. SDF also approved a new round of television and radio spots to encourage support for the PECO WIND product.

General Electric

  • GE tracks the CO2 emissions that are avoided by its installed base of wind turbines. In 2009, the installed base of wind turbines globally was estimated to be 37.5 million MT CO2 annually.
  • GE’s next generation wind turbine is a 4-megawatt machine designed specifically for offshore deployment. As the largest wind turbine in GE’s fleet, it incorporates advanced, direct-drive train and control technologies that eliminate the need for gearboxes — which can be the single most costly failure in a turbine located in harsh ocean conditions. 
  • GE's FlexEfficiency Combined Cycle Power Plant is GE's latest innovation in gas turbine technology, engineered to deliver cleaner, more efficient energy onto the power grid and into our homes. The first product in GE’s new FlexEfficiency portfolio, the FlexEfficiency 50 plant will enable the integration of more renewable resources onto the power grid by combining efficiency and flexibility to rapidly ramp up when the wind is not blowing or the sun is not shining, and to efficiently ramp down when they are available.

General Motors

  • Four GM manufacturing facilities in the US currently use landfill gas as a source of energy. Currently, landfill gas use is 14% of the energy consumed at the Fort Wayne, IN plant; 16% if the Toledo, OH transmission plant; 18% at the Shreveport, LA assembly plant, and 58% at the newly renovated Orion, MI assembly plant.
  • GM has two of the largest automative rooftop solar power installations in the US at two facilities in California. GM also has the world's largest rooftop solar installation at its Zarazoga, Spain car assembly plant.
     

Hewlett-Packard

  • HP increased its use if renewable energy more than fivefold between 2006 and 2007, from 11 million kWh to 61 million kWh.
  • HP expanded the use of telepresence solutions to help reduce the need for business travel. It evaluates the purpose of employee travel and discourage unnecessary travel, especially for internal purposes

IBM

  • IBM and several other companies are partnering with World Resources Institute (WRI) to build markets for renewable energy. Convened in 2000, WRI’s Green Power Market Development Group seeks to develop corporate markets for 1,000 MW of new, cost-competitive green power by 2010.
  • IBM met approximately 11.3 percent of its energy consumption needs with renewable energy sources including wind, solar photovoltaics, and biomass in 2009.
     

Intel

  • In February 2011, Intel announced that it would increase its REC purchase for 2011 to 2.5 billion kWh—equivalent to approximately 85% of its projected 2011 U.S. energy use—a 75% increase over our 2010 purchase. According to the EPA, its purchase commitment—which includes a portfolio of wind, solar, small hydroelectric, geothermal, and biomass sources—has the equivalent environmental impact of eliminating the carbon dioxide emissions from the annual electricity use of nearly 218,000 average American homes or nearly 202 million gallons of gasoline consumed
  • In 2010, Intel partnered with third parties to complete nine solar electric installations at Intel locations in Arizona, California, New Mexico, Oregon, and Israel—collectively generating more than 3.8 million kWh per year of clean solar energy.

NRG Energy

  • NRG sees solar power as a national development opportunity and is building a robust multi-technology portfolio to lead the industry in delivering the benefits of this zero-emission renewable power source. NRG has made great strides in the past year in both expanding and deepening the solar portfolio. Through the combination of acquisitions in 2010 and new projects in both utility scale and distributed solar, NRG is now the nation’s largest developer of solar power with some 2,000 MW under development.

  • Reliant Energy, a subsidiary of NRG Energy, is the largest supplier of electricity to business and industry, and the second largest residential provider in Texas. NRG’s largest retail provider also supplies more electricity from renewable sources than any other Texas retailer. Texas customers have the option to choose up to 100% renewable energy from Texas wind generation. 

  • NRG owns interests in four wind farms in Texas—Elbow Creek, Langford, Sherbino and South Trent—totaling about 450 MW, which were all developed or acquired in the last three years. NRG is pursuing offshore wind projects off the coasts of Delaware, Maryland and New Jersey through our NRG Bluewater Wind subsidiary, which the Company acquired in 2009.

  • Green Mountain Energy Company, a subsidiary of NRG Energy, offers cleaner electricity and carbon offset products to residential and business customers nationwide. Acquired by NRG in 2010, Green Mountain serves about 400,000 retail electricity customers in Texas and New York City, and maintains a partnership with Portland General Electric in Oregon to run one of the nation’s leading green pricing programs. The company has also maintained a commitment to 100% carbon neutrality since 2004 and publicly reports its carbon footprint annually. Green Mountain has helped its customers avoid more than 11.3 billion pounds of carbon dioxide emissions and helped spur the development of more than 50 new wind and solar facilities across the nation since 1997.

  • NRG Energy Inc. and ProLogis Inc. said announced in June 2011 they are embarking on a four-year, $2.6 billion project to place solar panels on rooftops in 28 states, one of the most ambitious clean-energy projects in recent years. The project is designed to generate about 733 megawatts of energy, enough to serve more than 100,000 homes. The installations will be built on facilities owned by ProLogis, a warehouse operator, and co-owned by NRG. 
  • NRG owns the largest PV solar project in California, the 21 megawatt (MW) power plant in Blythe, Calif. NRG is also the lead investor, along with Google and Brightsource, of the 392 MW Ivanpah project currently being developed in southeastern California’s Mojave Desert.
  • NRG is developing and has fully permitted a project that will convert its Montville plant in Uncasville, Conn., from heavy fuel oil and natural gas to open-loop biomass as feedstock. When compete, the station will use forestry residues, tree trimmings and clean, recycled wood to produce 40 MW of carbon-neutral electric power.
  • In 2009, NRG launched a pilot project at the Big Cajun II plant in New Roads, La., to evaluate local conditions for growing dedicated energy crops near the site (closed-loop biomass). NRG created a test farm on 20 acres of land at the plant site, which is being managed by a local farmer. Harvested into bales like hay, energy grasses are dried and shredded before being fed into the combustion chamber. Since the carbon emitted from the grasses was previously absorbed from the atmosphere during the growing season, combusting the above-ground biomass is nearly carbon neutral ...l. 

PG&E Corporation

  • In 2009, PG&E's retail customers purchased 79,624 GWh of electricity. Of that amount, 28,114 GWh were generated by PG&E's own natural gas, hydroelectric and nuclear facilities, as well as small amounts of fuel oil, diesel and solar energy
  • The CPUC approved PG&E's new solar PV program, which, once complete, will generate up to 500 MW of clean energy, enough to meet the needs of about 150,000 homes. The program will include up to 250 MW of PG&E-owned solar PV generation and an additional 250 MW to be built and owned by independent developers. One of the largest undertakings of its kind in the country, the five-year program is expected to deliver more than 1,000 GWh of electricity annually once fully operational—approximately 1.3 percent of PG&E's annual electric demand. Te first PV solar projects will be operational in 2011.

Rio Tinto

  • Rio Tinto obtained sixty seven per cent of the electricity in 2010 from low carbon sources, mainly hydroelectricity
  • Rio Tinto and BP formed a jointly-owned company in 2007 called Hydrogen Energy. The joint venture develops technologies and businesses that reduce carbon emissions and accelerate the deployment of hydrogen-fuelled electric power plants. These ‘decarbonised’ energy projects are based on the conversion of fossil fuel feedstocks such as coal, petroleum coke (a refinery by-product) or natural gas, to hydrogen and CO2 gases, with 90 per cent of the CO2 being captured and sent for permanent storage in geological formations deep beneath the earth’s surface. By using hydrogen as a fuel, virtually no GHG emissions are produced and the main by-product is water. Each of the component technologies is already proven but they need to be combined and integrated to a very large scale.
  • Rio Tinto is a founding member of the FutureGen Alliance, a public-private partnership to design, build, and operate the world's first coal-fueled, near-zero emissions power plant. The commercial-scale plant will prove the technical and economic feasibility of producing low-cost electricity and hydrogen from coal while nearly eliminating emissions. It will also support testing and commercialization of technologies focused on generating clean power, capturing and permanently storing carbon dioxide (CO2), and producing hydrogen. It is expected that the chosen site will be announced this year and be up and running in 2012. 
  • Kennecott Energy Company (a Rio Tinto subsidiary) is a member of a consortium that is proposing to enter into an agreement with the U.S. DOE on FutureGen. FutureGen is a $1 billion project that may lead to the world’s first nearly emission-free hydrogen and electricity production plant from coal, while capturing and disposing of CO2 in geologic formations.
  • Rio Tinto’s energy product group invests in a number of commercial enterprises and collaborative programs to develop and commercialize new technologies aimed at improving the environmental performance of coal. This includes Pegasus Technologies, a company that uses neural networks to optimize the operation of coal-fired electricity generators, minimizing their fuel requirements and reducing the emission of major pollutants.

Royal Dutch/Shell

  • Royal Dutch/Shell’s Shell Renewables was established to pursue commercial opportunities in solar, wind, and other renewable energy technologies. By 2007, the Group expects to invest $500 million to $1 billion, subject to ongoing economic review, in further developing these business areas. The key objective for the solar business is to grow in line with the market, which is currently growing at around 25 percent a year. In the wind business, Shell is focusing on developing and operating wind farms, and selling "green" electricity.
  • Royal Dutch/Shell purchased an equity stake in Iogen Energy Corporation in 2002, a world-leading bioethanol technology company. The investment will enable the Canadian-based company to develop more rapidly the world's first commercial-scale biomass to ethanol plant. Iogen utilizes existing agricultural residues such as wheat, oat, and barley straw in its bioethanol process.

Toyota

  • Toyota is committed to supporting renewable energy development and expanding the use in its sales and logistics operations. Its Parts Distribution Center in Caldwell, New Jersey has a solar photovoltaic system on its roof that is owned by a third party. This array generates 1.8 million kilowatt-hours of energy making it available for the local grid. Toyota’s Parts Center in Ontario, California still performs to expectations and provides 58 percent of the warehouse’s energy needs. Toyota also purchased two years of Renewable Energy Certificates (RECs) for its regional Training Centers in Phoenix, Arizona, and Rancho Cucamonga, California. To meet its energy needs, the Lexus Training Center in Dallas, Texas, buys 100 percent renewable wind power from a green power utility.

TransAlta

  • As of 2008, TransAlta currently has 15 hydro plants, 13 of which are in Alberta. These include two storage reservoirs in the North Saskatchewan River Basin, and six storage reservoirs and three run-of-river hydro developments in the Bow River Basin.
  • TransAlta is expanding its portfolio of renewable energy through its investment in Vision Quest WindElectric, Canada’s leading developer of wind power. With TransAlta’s investments, Vision Quest has expanded its wind energy portfolio by 400 percent, and expects to continue to grow.
  • TransAlta has invested approximately $5 million to build a full-scale demonstration facility for its new clean coal technology. Partnering with two levels of government, equipment providers, and other energy companies, TransAlta hopes to complete the facility by 2010. The technology could reduce the GHG emissions of typical coal plants by up to 80 percent.
  • TransAlta is the first in Calgary to service its corporate headquarters through wind-generated electricity. TransAlta also signed a 10-year contract with Vision Quest to supply about eight million kilowatt-hours of electricity annually.

Weyerhaeuser

  • Weyerhaeuser met 75 percent of its operations’ energy needs in 2008 through the use of renewable and carbon-neutral biomass fuels such as wood residuals and other organic byproducts
  • Weyerhaeuser pulp and paper mills supply 70% and wood products facilities supply more than 50% of their own energy needs through biomass fuels.  Weyerhaeuser is also involved in the commercialization of gasification technology that significantly increases the amount of heat and electrical energy obtainable from biomass.
  • Weyerhaeuser employs cogeneration (also known as “combined heat and power” or CHP) in a number of its pulp and paper mills.  Its containerboard mill in Albany, OR, received EPA’s 2005 Energy Star CHP Award in recognition of its accomplishments in reducing energy and carbon emissions.

Waste Management Practices

Waste Management Solutions

The following is a brief overview of waste management 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 has successfully reduced the amount of hazardous waste generated per pound of product by more than 50%; and reduced air emissions by 60% from chemicals facilities that it acquired since 1997.
  • Air Products and Chemicals entered into an agreement with a neighboring company to provide the waste stream from one of its dimethylformamide plants for use as a fuel source for that company.  This arrangement reduces the neighboring facility’s energy demand and lowers the amount of CO2-forming volatile organic compounds flared by the Air Products facility.
  • Air Products and Chemicals has numerous operations that recover hydrogen molecules and other waste gases from the industrial processes of other companies. Hydrogen recovery reduces the amount of natural gas that would otherwise be needed to produce hydrogen.
  • Air Products also uses landfill gas to fuel a boiler at one of its operations in Cincinnati, Ohio.
  • Air Products and Chemicals’ Hometown, Pennsylvania plant received the Governor’s award for Environmental Excellence for the second time in three years for reducing raw material usage, energy usage and waste generation. Among the achievements were a 1.43 million kWh reduction in electricity usage, and 200,000 miles per year reduction in transport miles associated with raw material deliveries and waste transportation.

Alcoa

  • Alcoa encourages aluminum recycling by sponsoring recycling programs, operating the Alcoa Recycling Company, supporting research on recycling and alloy separation, and purchasing large amounts of scrap.  Aluminum produced from recycled metal requires only 5 percent of the energy required to produce the metal from bauxite ore.
  • Alcoa sponsors life-cycle analyses on a number of products, including automotive components, beverage cans, aluminum wheels, and building components, to determine where processes and product designs could be improved.

American Water

  • A large number of products purchased by American Water are produced utilizing recycled materials. With respect to infrastructural items, all iron castings, whether ductile or other, are manufactured by melting ferrous scrap mixes, depending on availability and pricing. Such items would include ductile iron pipe and fittings, hydrants, valve bodies, curb and valve box castings, and iron lids.
  • A number of American Water's treatment chemicals utilize recycled material in their production. These include the ferrous and ferric salts (ferric sulfate and ferric chloride) which are manufactured using ferrous scrap. The remaining chemicals are produced using virgin materials. For 2010, treatment chemicals produced from recycled material and used by our regulated business, accounted for 11 percent of the treatment chemical purchases across American Water.

Cummins Inc.

  • Cummins’ ReCon program facilitates the reuse and recycling of Cummins diesel and gasoline engines and components.  Through the program, Cummins remanufactured 25,000 engines and over 1,000,000 diesel components in the year 2000.  Each year, ReCon plants also generate approximately 3,000 tons of scrap metal for recycling each year.
  • Through a voluntary recycling program, employees at Cummins’ San Luis Potosi facility were able to save the equivalent of over 9000 seven-year-old trees and over 2 million kwh of electricity.

Daimler

  • Daimler seeks to increase the total volume of all parts and components of Mercedes-Benz passenger car production series that have been approved for the use of renewable or recycled raw materials by 25 percent respectively by 2015, compared to the volume for 2010

Delta Air Lines, Inc.

  • Delta generated 3. 2 million pounds of non-hazardous waste in 2010, of which 58.4 percent was recycled including oil, batteries, lamps and antifreeze.

  • Delta's in-flight recycling program successfully recycled approximately 1,108,000 pounds of material in 2010 and donated $35,797 through Delta’s Force for Global Good to Habitat for Humanity.

  • Through Delta’s aircraft carpet recycling partnership with Mohawk Aviation Carpet, in 2010, Delta recycled approximately 147,500 pounds of carpet. 

  • In 2010, the Delta's Employee Recycling Center recycled approximately 1,198,000 pounds of material, including 9, 320 pounds of aluminum cans, 23, 200 pounds of plastics, 147, 340 pounds of mixed paper, 617,000 pounds of cardboard, 385,520 pounds of office paper, 6,120 pounds of comingled material and 9,100 pounds of tin cans.

Dominion

  • Dominion strives to minimize the amount of hazardous and non-hazardous waste it creates in its facilities and operations, and to handle and dispose it responsibly in compliance with all applicable regulations. The company also actively seek sopportunities to recycle and reuse waste materials whenever possible.

  • In 2010, Dominion recycled 2.7 billion pounds of coal combustion byproducts, 476 million pounds of gypsum, 39 million pounds of biomass combustion products, 20 million pounds of oils and fluids for reclamation and recovery, 26 million pounds of scrap metals, 2.5 million pounds of paper, cardboard, plastic and glass, as well as 50,865 pounds of e-waste.

  • Within its gas transmission facilities, Dominion's recycling of surplus steel pipes, valves, flanges and other materials is generating more than $1.3 million in cash and more than $3.1 million in additional savings resulting from the reuse of idle surplus assets.

     
Dow Chemical Company
  • Dow's Benelux site in Terneuzen, the Netherlands has found an innovative way to transform waste into a viable form of energy savings. Terneuzen's municipal household waste water is being channeled via a special pipeline to Dow's production facility, where it is then purified and used to generate steam and feed Dow's manufacturing plants, getting a second and third life at Dow. Dow previously used water from the nearby river that needed to be desalinated; but can now use less energy and fewer chemicals to purify the household waste water, and consequently emit less carbon dioxide.

DTE Energy

  • DTE Energy uses modern electrostatic precipitators (ESPs) to capture all of the fly ash produced by its plants for reuse, recycling, or landfill. It aims to recycle 50 - 55 percent of the fly ash.

Duke Energy

  • Duke Energy Increase the percentage of solid waste that is recycled from 52 percent in 2008 to 62 percent by 2012. (This goal excludes Duke Energy International and
    Duke Energy Generation Services.)

DuPont

  • The DuPont-Solae plant in Memphis, Tenn. uses landfill gas as a replacement for natural gas to fuel boilers and other plant equipment, replacing more than 90% of the natural gas used by the site’s boilers.  The U.S. EPA has calculated that area greenhouse gas emissions have been reduced by an equivalent of the removal of 70,000 cars from the road or planting 95,000 acres of forest.

Entergy

  • Entergy recycles over 70 percent of its power plant waste ash. The majority of the ash is utilized in the production of concrete. This reduces the volume of material sent to landfills and reduces the energy requirements and CO2 emissions associated with the processing of materials traditionally used to produce concrete.
  • Entergy has funded a project in the eastern United States that will collect coal mine methane vented from abandoned mines and convert it to pipeline-quality gas or use it as fuel to generate electricity. The project will reduce GHG emissions by 400,000 metric tons of CO2e through 2005.

Exelon

  • Landfill Gas to Energy
    • Exelon continues to reduce overall greenhouse gas emissions by supporting landfill gas to energy recovery. Utilizing landfill methane to generate electricity produces less environmental impact than burning fossil fuels, and has the added benefit of capturing an energy source that otherwise would have gone to waste. Carbon dioxide (CO2) from landfill methane gas is considered biogenic, or part of the natural carbon cycle. Contrast this with the CO2 from the burning of fossil fuel, which is considered anthropogenic, or arising from human activity. Thus, when the landfill gas displaces fossil fuel, it helps reduce human-caused greenhouse gas emissions to the atmosphere.
    • Exelon Power is in the final year of a two-year project to convert an oil-fired plant designed in 1950 into a 21st Century, clean operating, reliable and efficient generating station through the use of improved technology and production methods.   As a result of this project, the two-unit 60 MW Fairless Hills Generating Station will be the second-largest landfill gas generating station in the U.S.; a substantial renewable energy project able to consume 100% of the landfill gas that Waste Management produces at their nearby GROWS and Tulleytown landfills; and a significant contributor to Exelon’s greenhouse gas reduction target through its consumption of landfill gas that would otherwise have been flared.
    • Exelon Power also operates the 6 MW Pennsbury plant in southeastern Pennsylvania that utilizes landfill gas to generate electric power. Exelon Power was awarded a 1997 Governor's Environmental Excellence Award for its landfill gas projects.
    • In addition, ComEd purchases electricity generated from landfill methane gas at 22 sites across northern Illinois.   To date, Exelon landfill gas initiatives have avoided over 21 million CO2-equivalent tons of emissions.
  • Coal combustion product reuse
    • Exelon continues its commitment to reuse the byproducts of coal combustion at our fossil generating stations – fly ash, bottom ash, basin ash and flue gas desulfurization products – and prevent them from consuming valuable local landfill capacity. We use these materials for applications that include restoration of land contours at coal mine reclamation sites, anti-skid agents for icy roads, production of fertilizer products and waste-stabilization media.
    • In 2004, we continued our commitment to reuse the large volume of products that result from burning coal. The first year that 100 percent of the fly ash, bottom ash, and basin ash and scrubber products were kept out of local landfills was 2002. That accomplishment included more than 137,000 tons of ash materials and just over 21,600 tons of byproducts from the SO2 scrubbing process. Greater demand for power in 2003 increased that challenge to 175,700 tons of ash products and 28,800 tons of scrubber byproducts, and the challenge was met.
    • By the end of 2004, Exelon produced more than 153,700 tons of ash products, along with approximately 34,500 tons of scrubber byproducts. Again, our goal to reuse 100 percent of these products was met.
  • Measuring the value of recycling programs
    • Exelon maintains recycling programs to collect and reuse a wide range of materials. These programs provide measurable value by the reduction of waste and waste disposal costs, as well as through the sale of recycled material.
    • A corporate team that includes members from each Exelon company tracks the current recycling programs and identifies opportunities for additional cost savings through waste minimization and new recycling programs. The team’s work led to the establishment of a corporate wide initiative to increase the recycling of municipal waste and reduce generation of hazardous waste, thereby creating additional cost savings.
    • During 2004, Exelon generated nearly $4 million in operational savings through material recycling.

General Motors

  • GM has reduced non-recycled waste by 49% globally (a reducion of 31% on a per vehicle produced basis) just in the last five years, 2005 - 2009. GM's worldwide facilities combined recycle 90% of the waste they generate.
  • As of December 2010, GM has 76 facilities that have achived zero landfill status by recycling, reusing, or converting to energy, all wastes from daily operations.
  • When designing new vehicles, GM uses recycled and bio-based materials from renewable resources whenever economically and technically possible. Recycled materials in GM's products come from a variety of origins – from things like old pop bottles, blue jeans and nylon carpet, to used tires and recycled vehicle bumpers. GM is beginning to explore some opportunities to use recycled waste products from GM's own manufacturing facilities in parts for new vehicles. 
  • Today, GM vehicles are at least 85 percent recyclable and 95 percent recoverable (by weight). GM works directly with the vehicle dismantling industry to help make sure that the majority of material in GM's vehicles is salvaged and can be recycled or reused in new vehicles or other consumer products.
  • Mobile Fluid Recovery, Inc., a Birmingham, Ala.-based absorbent materials recycler today received the General Motors Environmental Excellence Award for providing unique recycling ideas and collaborating on projects like turning oil-soaked booms from the Gulf of Mexico into Chevrolet Volt components. 

Hewlett-Packard

  • HP designs its products with recyclability in mind.  It operates end-of-life recycling programs for its hardware products in sixteen countries and offers toner cartridge recycling programs internationally to ninety percent of the cartridge market. 

Holcim

  • Holcim is working within existing material specification standards to replace cement clinker with mineral components such as fly ash, a waste material from coal-burning electric utilities, and slag, a waste by-product of steel manufacturing.  Each ton of clinker eliminated avoids one ton of CO2 emissions that would have resulted from its manufacture.  By 2010, Holcim had decreased the share of Ordinary Portland Cement to 23% of its product portfolio and increased the share of composite cements to 77%

IBM

  • Comparing only the weight of the recycled fraction of these commercial resins to the total weight of plastics (virgin and recycled) purchased through IBM’s corporate contracts in 2009, 13.2 percent of the total weight was recycled plastic versus the corporate goal of 5 percent recyclate.
  • IBM improved its product packaging by developing 100-percent recycled thermoformed  nestable cushions for various products across its server brands and retail store systems. When these products are shipped inbound, up to 10 times the typical quantity can be carried on a 40-foot truck. In addition, the 100-percent recycled polyethylene materials of which they are made are reusable. Using these cushions, in 2009 IBM reused an estimated  metric tons of polyethylene plastic and saved approximately $1.9 million in materials and transportation costs
  • In 2009, IBM’s PELM (product end-of-life management) operations worldwide processed approximately 41,400 metric tons of end-of-life products and product waste. These PELM operations reused or recycled 95.8 percent of the total amount processed and sent only 0.5 percent to landfills or to incineration facilities for treatment, versus IBM’s corporate goal of minimizing its combined landfill and incineration rate to no more than 3 percent.
  • Over the past 5 years, IBM’s total hazardous waste has decreased by 75.7 percent, and has decreased by 94 percent since 1987.

Intel

  • Intel recycled 59 percent of its hazardous waste generated worldwide and 73 percent of its solid waste generated worldwide in 2003.
  • Additionally, paper with 30 percent recycled content was purchased for all its U.S. copiers and printers.

Johnson Controls

  • Johnson Controls seeks to reduce waste intesity by 20 percent from 2008 levels by 2018. In 2008, we sent 1.98 metric tons of waste to landfill or for incineration per million U.S. dollars revenue. 

NRG Energy

  • NRG Energy pursues opportunities to reduce waste through the beneficial reuse of fly ash (residue generated through the combustion of fossil fuels). At several locations, such as Big Cajun II in Louisiana, Indian River in Delaware and WA Parish in Texas, NRG provides fly ash for use as structural fill in road construction.
  • NRG Energy's Encina facility in California and our Oswego facility in New York provide their employees with resources to recycle household electronic equipment at no cost to the employees. They organized site collection programs to encourage the recycling of electronic waste.
  • NRG Energy is in the early stages of developing plasma gasification projects with the Atlantic County Utilities Authority of New Jersey and at Port St. Lucie County, Fla., landfills that will convert municipal solid waste to energy.

PG&E Corporation

  • PG&E seeks to increase waste diversion rate by 10% at offices and service yards from 2010 - 2014

Toyota

  • Toyota has reduced the amount of hazardous waste going to landfills from its plants by 40 percent since 2000 and its non-hazardous waste by 11 percent.
  • In 2003, Toyota implemented a nationwide, web-based waste tracking system to better collect and analyze waste-related data to enable further reductions throughout Toyota’s North American manufacturing and distribution operations.
  • Toyota is also increasing the use of reusable packaging in shipments to distributors. 

TransAlta

  • TransAlta, along with Ontario Power Generation, has contributed to carbon emissions reductions of over 20,000 metric tons by selling flyash to regional concrete and cement producers..

Weyerhaeuser

  • In 2008, Whirlpool Corporation’s manufacturing facilities worldwide produced 385,086 metric tonnes of waste.  Of this, nearly 90 percent was recycled. This represents a 4 percent reduction in overall waste generated per unit between 2004 and 2008.
  • Weyerhaeuser collected for recycling more than 6.7 million tons of paper in 2004, approximately 13% of the paper recovered in the U.S. and enough to fill more than 130,000 freight cars.  Typical recyclables include old corrugated containers, office wastepaper, old newspapers and printing papers.  More than 4 million tons of the recycled material Weyerhaeuser collects is used in its mills to make new paper. The rest is sold to customers around the world.  Recycled fiber comprises about 35 percent of the content of new Weyerhaeuser paper, as averaged across all grades of paper produced by the company.
  • Every Weyerhaeuser manufacturing facility that generates residuals and/or solid waste has developed strategies and implemented programs to manage, eliminate or reduce the production of solid wastes.  Weyerhaeuser beneficially reuses residuals in making its own products, ships them off site for use in the making of other products or converts them to energy.

Capital Cycles and the Timing of Climate Change Policy

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Capital Cycles and the Timing of Climate Change Policy

Prepared for the Pew Center on Global Climate Change
October 2002

By:
Robert J. Lempert, Steven W. Popper, and Susan A. Resetar, RAND
Stuart L. Hart, Kenan-Flagler Business School, University of North Carolina at Chapel Hill

Press Release

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Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

Patterns of capital investment by businesses can have a major impact on the success and cost-effectiveness of climate change policies. Due to the high cost of new capital, firms often are reluctant to retire old facilities and equipment. Thus, capital investment decisions made today are likely to have long-term implications for greenhouse gas (GHG) emissions. Because businesses consider a range of factors when making capital stock decisions, policy-makers need to understand and focus on these factors in order to craft effective climate change policies.

The Pew Center commissioned this report to gain an understanding of the actual patterns of capital investment and retirement, or “capital cycles.” Authors Robert Lempert, Steven Popper, and Susan Resetar of RAND, with Stuart Hart of the Kenan-Flagler Business School at UNC-Chapel Hill combine analysis of the literature on investment patterns with in-depth interviews of top decision-makers in leading U.S. firms. Their work provides important insights into the differing patterns of capital investment across firms and sectors, and what factors spur those investments.

The authors found that capital has no fixed cycle. In reality, external market conditions often drive a firm’s decision whether to invest or disinvest in large pieces of physical capital stock, and a firm often invests in new capital only to capture new markets. In the absence of policy or market incentives, expected equipment lifetimes and the availability of more efficient technologies are not significant drivers of capital stock decisions. With regular maintenance, capital stock often lasts decades longer than its rated lifetime, and the availability of new technology rarely influences the rate at which firms retire older, more polluting plants.

The authors suggest certain policies that can stimulate more rapid turnover of existing capital stock. These include putting in place early and consistent incentives that would assist in the retirement of old, inefficient capital stock; making certain that policies do not discourage capital retirement; and pursuing policies that shape long-term patterns of capital investment. For example, piecemeal regulatory treatment of pollutants rather than a comprehensive approach could lead to stranded investments in equipment (e.g., if new conventional air pollutant standards are put in place in advance of carbon dioxide controls at power plants). The authors also note that even a modest carbon price could stimulate investment in new capital equipment. Ultimately, any well-crafted policy to address climate change must consider and harness market factors and policies that drive capital investment patterns.

The authors and the Pew Center wish to acknowledge members of the Center’s Business Environmental Leadership Council, as well as Byron Swift, Ev Ehrlich, Mark Bernstein, Debra Knopman, Alan Sanstad, and David Victor for their advice and comments on previous drafts of this report. We also thank the individuals who gave their time in interviews with the project team.

Executive Summary

One important source of climate-altering greenhouse gas (GHG) emissions is the capital equipment that supports the world’s economic activity. Capital stock, such as electricity generation plants, factories, and transportation infrastructure, is expensive and once built can last for decades. Such capital also presents important and conflicting constraints on policy-makers attempting to reduce society’s GHG emissions. On the one hand, attempts to reduce emissions too quickly may create a drag on the economy if they force the premature retirement of capital. On the other hand, delaying reductions may raise the cost of future actions because the facilities built today can still be polluting decades from now.

This report aims to help policy-makers navigate between these conflicting tensions by providing an understanding of the actual patterns of capital investment and capital retirement and the key factors that affect these patterns. “Capital cycles” have been studied extensively in the empirical and theoretical literature. Nonetheless, the topic remains poorly understood in the debates over climate change policy. In part, there are few good summaries available of the voluminous and complex literature. In addition, the differing patterns of capital investment across firms and sectors can have important implications for climate change policy. Such heterogeneity is not well-captured by the existing theoretical and empirical literature.

This report begins with a brief overview of the existing theoretical and empirical literature on capital cycles. It then turns to its main focus—the results of a small number of in-depth interviews with key decisionmakers in some leading U.S. firms. In the course of the study, nine interviews, designed to illuminate the key factors that influence firms’ capital investment decisions, were conducted with firms in five economic sectors. The firms interviewed are mostly members of the Center’s Business Environmental Leadership Council (BELC). Based on the information gathered during the interviews, this report closes with some observations regarding the implications for the timing of climate change policy.

This is a small study with limited scope. Nonetheless, several consistent and clear findings emerged from the firm interviews:

Capital has no fixed cycle. Despite the name, there is no fixed capital cycle. Rather, external market conditions are the most significant influence on a firm’s decision to invest in or decommission large pieces of physical capital stock. In particular, firms strive to invest in new capital only when necessary to capture new markets. Firms most commonly retire capital when there is no longer a market for the products they produce and when maintenance costs of older plants become too large.

Capital investments may have long-term implications. Today’s capital investment decisions can have implications that extend for decades. Capital stock is expensive, and firms often have little economic incentive to retire existing plants. The environmental performance of capital stock is not fixed over time and can improve as a firm makes minor and major upgrades. Nonetheless, there are limits to such upgrades, so that investment decisions made today may shape U.S. GHG emissions well into the 21st century.

Equipment lifetime and more efficient technology are not significant drivers in the absence of policy or market incentives. It is often assumed that the engineering and nominal service lifetimes of physical equipment are important determinants of the timing of capital investment. The phrase “capital cycle” derives at least in part from the notion that capital equipment in each sector has some fixed lifetime, which drives the industry’s capital investment decisions. This study finds that the physical lifetime of equipment does drive patterns of routine maintenance in different economic sectors, but it appears to be a less significant driver of plant retirement or for investment in new facilities. With regular maintenance, capital stock can often last decades longer than its rated lifetime.

In addition, discussions of climate change policy often highlight the potential of new technology to enable low-cost reductions in GHG emissions. This study finds that however beneficial such technology may be, it will likely have little influence on the rate at which firms retire older, more polluting plants in the absence of policies promoting technology or requiring emissions reductions. New process technology, that is, technology that improves the efficiency and cost-effectiveness of a factory or power plant, requires performance improvements of an exceptional magnitude to induce a firm to retire existing equipment whose capital costs have already been paid. Firms do adopt new process technology, but only when other factors, particularly changes in demand for their products or regulatory requirements and other government policies, drive them to invest in new capital stock.

Firms focus investment towards key corporate goals. Although manifested differently across firms and economic sectors, all the firms we interviewed followed the same basic decisionmaking process for capital investment. Each year a firm’s leadership allocates the funds available for capital investment—first to must-do investments, then to discretionary investments. The former are required to maintain equipment and to meet required health, safety, and environmental standards. The latter are prioritized according to their ability to address key corporate goals. In particular, firms’ capital investment is often driven by the desire to capture new markets. Uncertainty was a recurring theme in all our interviews. Capital investment decision processes are shaped by the desire to reduce the potential regret due to adverse or unforeseen events over the long lifetime of capital stock.

These results are based on interviews with a small number of firms and are by no means definitive. Nonetheless, they suggest that climate policy should combine modest, near-term efforts to reduce emissions and more aggressive efforts to shape capital investment decisions over the long term. In particular:

The long lifetime of much capital stock may slow the rate at which the United States can obtain significant GHG emission reductions. Firms are often reluctant to retire capital and attempts to force them to do so on a short-term timetable can be costly. Sporadic and unpredictable waves of capital investment make it more difficult for climate policy to guarantee low-cost achievement of fixed targets and timetables for GHG emissions reductions. Reductions may be more rapid during periods of significant capital turnover and less rapid otherwise.

Policy-makers should consider early and consistent incentives for firms to reduce GHGs. Incentives ranging from early action credits to emissions trading can take advantage of those rare times when firms make major investments in new capital. Relatively low-cost opportunities for GHG emissions reductions are often available during such periods of investment. This analysis suggests that introducing a relatively low carbon price could serve as a consistent incentive to reduce GHG emissions.

Policy-makers should avoid regulations and other rules that discourage capital retirement. The retirement of older facilities often provides the opportunity for low-cost deployment of new, emissions-reducing technologies. The grandfathering provisions of the Clean Air Act and other environmental regulations may delay the retirement of older plants by exempting them from the environmental regulations governing new plants. At the same time, regulations governing some pollutants may provide an opportunity to address GHGs simultaneously while these investments are being made.

Policy-makers should pursue policies that shape long-term patterns of capital investment. While policy may only make small perturbations in near-term decisions regarding the composition of U.S. capital stock, over the long term, policy may significantly shape the market forces and opportunities perceived by firms. Government-sponsored research and development on new, emissionsreducing technologies and policies such as a cap-and-trade program may have a profound effect on the direction of long-term investments in new capital stock. Overall, the dynamics of capital investment and retirement suggest that policy-makers can set ambitious long-term climate goals, but should allow firms a great deal of flexibility in the timing with which they will respond to them.

Robert J. Lempert
Steven W. Popper
Stuart L. Hart
Susan A. Resetar
0

Press Release: SC Johnson Joins Pew Center's Business Environmental Leadership Council

For Immediate Release:  
June 24, 2002

Contact: Katie Mandes
703-516-4146

SC Johnson Joins Effort To Mitigate Climate Change - Pew Center's Business Environmental Leadership Council Climbs to 38 Members

Washington, D.C.-The Pew Center on Global Climate Change today announced that SC Johnson has joined the organization's efforts to battle global climate change.

The Pew Center established the Business Environmental Leadership Council (BELC) with 13 members in May 1998. The addition of SC Johnson brings the BELC's total membership to 38 companies. SC Johnson, the first and only consumer packaged goods company in the BELC, has committed to reduce its greenhouse gas emissions by 5 percent per year through 2005. Based in Racine, Wisconsin, with annual revenues of nearly $5 billion, the company is a leading manufacturer of household products including Windex®, Pledge®, and Ziploc®.

Members of the BELC are committed to take steps in their domestic and foreign operations to assess their greenhouse gas emissions and establish programs to reduce those emissions. The BELC considers the Kyoto Protocol a first step in global efforts to mitigate climate change and supports the development of market-based mechanisms as called for in the Kyoto Protocol.

The BELC includes many Fortune 500 companies in a diverse group of industries including energy, chemicals, metal, consumer appliances and high technology. These companies do not contribute financially to the Pew Center, which is supported solely by contributions from charitable organizations.

"These companies understand that the world cannot avoid dealing in a serious way with climate change," said Eileen Claussen, President of the Pew Center. "An important aspect of SC Johnson's philosophy is its dedication to reducing emissions from its operations," said the Pew Center's Claussen. "SC Johnson's decision to join the Pew Center demonstrates their commitment to this important issue and we look forward to working with them."

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; Holnam; 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; 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 conducting studies, launching public education efforts and working with businesses to develop market-oriented solutions to reduce greenhouse gases. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs. The Pew Center includes the Business Environmental Leadership Council, which is composed of 36 major, largely Fortune 500 corporations all working with the Pew Center to address issues related to climate change. The companies do not contribute financially to the Pew Center - it is solely supported by contributions from charitable foundations.

Press Release: Pharmaceuticals Industry Leader Teams With Other Top Businesses To Combat Climate Change

For Immediate Release:  
March 18, 2002

Contact: Katie Mandes, 703-516-4146 or
Sheldon Jones, 212-830-2457

Pharmaceuticals Industry Leader Teams With Other Top Businesses To Combat Climate Change

Washington, D.C.- Novartis is the latest major company to join a business coalition whose members are committed to decisive action to address the consequences of global climate change. With 71,000 employees and annual sales of more than $19 billion, Novartis, one of the world's leading healthcare companies, becomes the 37th member of the Business Environmental Leadership Council (BELC), a project of the Pew Center on Global Climate Change.

"Novartis has chosen to be a part of the solution. As a leader in healthcare, and now a leader on this critical issue, Novartis is sending a signal that market based solutions will be the way to solve this critical global issue," said Eileen Claussen, President of the Pew Center on Global Climate Change. "Together with the other members of the Business Environmental Leadership Council, Novartis is showing that success in the marketplace can go hand in hand with success in addressing the most important global environmental challenge of the 21st century."

In 2000, Novartis announced that it would voluntarily reduce its CO2 emissions by three per cent over three years. Novartis (NYSE: NVS, see also, www.novartis.com.) is a world leader in healthcare with core businesses in pharmaceuticals, consumer health, generics, eye-care, and animal health, and operates in over 140 countries around the world. Kaspar Eigenmann, Novartis' Global Head of Health, Safety & Environment, had the following comment about Novartis' commitment to the Business Environmental Leadership Council:

Novartis is very pleased to have the opportunity to join the other leading companies in working with the Pew Center on Global Climate Change. Our membership in the Pew Center's Business Environmental Leadership Council, like our recent endorsement of the UN Global Compact, is part our overall commitment to Corporate Citizenship. We believe that this association will help Novartis achieve its goal of reducing CO2 emissions, and complements the more broad goal set forth in our new Policy on Corporate Citizenship, to "do everything we can to operate in a manner that is sustainable: economically, socially, and environmentally - in the best interest of long-term success for our enterprise."

The Business Environmental Leadership Council was established by the Pew Center in 1998. Its members include major, largely Fortune 500 companies from a diverse group of industries. What the BELC members share is a belief that we know enough about the science of climate change to begin taking reasonable steps now to protect the climate. Acting individually and collectively, these companies are demonstrating that it is possible to take action to address climate change while sustaining global economic growth.

The members of the BELC include: 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, Sunoco, Toyota, TransAlta, United Technologies, Weyerhaeuser, Whirlpool, and Wisconsin Energy Corporation.

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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 conducting studies, launching public education efforts and working with businesses to develop market-oriented solutions to reduce greenhouse gases. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs. The Pew Center includes the Business Environmental Leadership Council, which is composed of 36 major, largely Fortune 500 corporations all working with the Pew Center to address issues related to climate change. The companies do not contribute financially to the Pew Center - it is solely supported by contributions from charitable foundations.

The Emerging International Greenhouse Gas Market

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The Emerging International Greenhouse Gas Market

Prepared for the Pew Center on Global Climate Change
March 2002

By:
Richard Rosenzweig, Matthew Varilek, Ben Feldman, and Radha Kuppalli of Natsource, LLC

Josef Janssen, University of St. Gallen

Press Release

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Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

As businesses, policy-makers, and other stakeholders around the world have become familiar with greenhouse gas emissions trading, it has emerged as the policy of choice to address climate change. Now—with the recent agreements in Bonn and Marrakech, with new carbon trading systems in Europe, and with private sector interest and activity across many economic sectors both here and abroad—we are beginning to see the outlines of a genuine greenhouse gas market.

In this Pew Center report, authors Richard Rosenzweig, Matthew Varilek, Josef Janssen et al. describe the various public and private programs under which many early trades have occurred, the characteristics of the emerging market including the key features of early transactions, and the potential evolution of the market given the concurrent development of domestic and international climate change policy. Case studies of actual trades between four power companies—TransAlta and HEW, and PG&E and Ontario Power Generation—help illustrate leading companies’ motivations for engaging in trading, as well as the challenges they have faced in the absence of clear guidelines in the nascent market.

Despite the impressive interest in greenhouse gas trading, the market that has developed thus far remains fragmented. For example, as originally proposed, the trading regimes put forth by the United Kingdom and the European Union differ in important respects: the former is voluntary and the latter is not; the former covers the full basket of six greenhouse gases while the latter is restricted to carbon dioxide. This results in higher transaction costs just as the market is getting off the ground. The challenge ahead, for business, policy-makers, and others, is to work together to help forge linkages between the emerging regimes, and ultimately to achieve convergence.

I am optimistic that we can meet this challenge. We are beginning to see the first glimmers of interest in the U.S. Congress, although the debate is expected to be long and difficult. Perhaps more encouraging are private sector efforts to build a greenhouse gas trading system, such as the Chicago Climate Exchange. Also, many companies have set up their own internal trading systems to “learn by doing,” and have been eager to participate in early trades. The need for certainty, for consistency, and for a level playing field all will work to encourage a merging of regimes. Policy-makers must do their best to ensure that all systems are compatible.

The authors and the Pew Center would like to thank the companies featured in this report for sharing their experiences and perspectives, and acknowledge the members of the Center’s Business Environmental Leadership Council, as well as Aldyen Donnelly of GEMCo; Erik Haites of Margaree Consultants; Richard Sandor of Environmental Financial Products, L.L.C.; and Tom Wilson of EPRI for their review and advice on a previous draft of this report. 

Executive Summary

A market for greenhouse gas (GHG) emissions has begun to emerge over the past five years. This market is driven in large part by ongoing negotiations of an international global climate change treaty, which will likely impose limitations on GHG emissions. The market has been shaped by successful emissions trading programs established over the past decade, such as the sulfur dioxide (SO2) trading program incorporated in the U.S. Clean Air Act Amendments (CAAA) of 1990.

This paper describes: (1) programs and initiatives that have provided a framework for early trades and policy development; (2) characteristics of the emerging GHG market and key features of early transactions; (3) potential evolution of the market due to ongoing concurrent domestic and international climate change policy development; and (4) potential scenarios regarding the U.S. response to climate change.

Origins

Greenhouse gas trading has its origins in the United Nations Framework Convention on Climate Change (UNFCCC). Adopted in Rio de Janeiro, Brazil, in 1992, the UNFCCC established the goal for industrialized countries to return to their 1990 GHG emissions levels by the year 2000 and a long-term objective of stabilizing atmospheric concentrations of greenhouse gases “at a level that would prevent dangerous anthropogenic interference with the climate system.” In 1995, the Parties reviewed their progress and concluded that the non-binding goal would not lead to the achievement of the Convention’s objective of atmospheric stabilization. In response, Parties agreed to pursue a complementary agreement that would establish quantified emissions limitations and reduction obligations for developed countries. This culminated in the negotiation of the Kyoto Protocol in December of 1997.

The process to develop rules, mechanisms, and institutions necessary to bring the Protocol into force is ongoing, including the seventh Conference of Parties (COP-7), held in Marrakech, Morocco, during November of 2001. Though significant progress was achieved there and in previous negotiations, the Protocol has not yet entered into force, and few national governments have imposed limitations on domestic GHG emissions or established trading rules. Thus, the GHG market is evolving under a loosely constructed, ad hoc framework. To date, it has evolved from a variety of mostly project-based emissions trading programs, which have been voluntary in nature and which collectively serve as precursors to formal GHG regulation. More recently, the United Kingdom and Denmark have developed national regulatory programs.

Project-Based Programs

The UNFCCC allows industrialized countries to meet their emissions reduction commitments “jointly with other Parties” through a form of project-based emissions trading. This program became known as Joint Implementation (JI). Subsequent programs have provided practical experience with key aspects of project-based emissions trading. These programs and initiatives include the U.S. government’s Initiative on Joint Implementation (USIJI); the pilot phase of international project-based emissions trading known as Activities Implemented Jointly (AIJ); Ontario, Canada’s multi-stakeholder Pilot Emissions Reduction Trading program (PERT); Oregon’s Climate Trust; the Dutch government’s Emission Reduction Unit Procurement Tender (ERUPT); and the World Bank’s Prototype Carbon Fund (PCF), among others.

Each of these programs is governed by a unique set of rules. However, they exhibit some common elements that constitute a de facto (though non-binding) set of minimum quality criteria that govern the creation of credible emissions reductions. These common elements include: (1) establishment of a credible counterfactual emissions baseline; (2) proof of environmental additionality; (3) evidence that the reductions are surplus to existing regulatory requirements; (4) proof of permanence or durability of the reductions; (5) demonstration that the emissions-reducing project will not cause emissions to increase beyond the project’s boundaries (referred to as “leakage”); (6) establishment of credible monitoring and verification procedures; and (7) proof of ownership of the reductions.

Market Characteristics

Even though few sources of GHG emissions presently confront binding emissions limitations, a growing number of companies and governments have begun to purchase reductions generated in most part by the programs described above. Few trades of GHG emissions to date have involved an exchange of emissions permits such as “allowances” or “credits,” since these terms refer to government-issued commodities that only exist within the context of formal trading systems. Most GHG trades have taken place under a voluntary ad hoc framework involving a commodity defined by the trade’s participants and known commonly as verified emissions reductions (VERs). These carry only the possibility, but not a guarantee, that governments will allow them to be applied against future emissions reduction requirements.

The authors estimate that approximately 65 GHG trades for quantities above 1,000 metric tons of carbon dioxide equivalent (CO2e)1 have occurred worldwide since 1996. This figure includes trades of reductions as well as financial derivatives based on reductions. However, the figure probably understates actual market activity because not all trades are made public, and internal corporate trades and small trades are excluded. It is important to note also that this figure refers to purchases of emissions-related commodities and excludes countless investments in projects that either purposely or incidentally reduce GHG emissions. Prices for VERs have ranged between $.60 and $3.50 per metric ton of CO2e. Some of the price differentials between trades can be explained by differences in the features of the reductions such as their type and vintage, geographical location, and the rigor of the monitoring and verification procedures. Other factors that affect reductions’ commercial value include contractual liability provisions, seller creditworthiness, and demonstration of host country approval of the emissions-reducing project.

Two case studies provide a detailed look at actual GHG trades in this market, illustrating some of the challenges and benefits of early GHG trading as described by market participants. The first case study reviews a purchase of VERs by TransAlta, a Canadian electric utility, from HEW, a German utility. HEW generated reductions by displacing some of its fossil fuel-based generation with electricity generated by wind. The second case study examines a purchase of VERs by Ontario Power Generation, a Canadian utility, from US Gen, a subsidiary of the U.S.-based PG&E National Energy Group. US Gen created reductions by capturing and destroying methane produced at a landfill. Both case studies demonstrate that while participants benefited from these early GHG trades, the lack of clear trading rules has increased transaction costs and been a significant impediment to the development of a more robust GHG market.

National Trading Programs

Several governments have moved forward in designing domestic trading systems while international trading rules remain under development. At the national level, the United Kingdom and Denmark have each established domestic emissions trading programs. Some trading in these programs has already begun. The European Union (EU) and other countries are in various stages of domestic policy development. At the sub-national level, the state of Massachusetts, for example, will require reductions of carbon dioxide (CO2) emissions from power plants and will allow sources to use trading as a means of compliance.

The development of these and other trading programs demonstrates that emissions trading has gained acceptance as a preferred policy instrument in the world’s efforts to reduce GHG emissions. These programs will boost GHG trading activity and motivate more rapid emissions abatement than if governments had waited for the international community to conclude negotiation of the Kyoto Protocol. Already, the initiation of these programs is producing a shift in the commodity that market participants prefer to trade. Some buyers’ interest is starting to shift away from VERs, whose eligibility for use as a hedge against binding emissions limitations is uncertain. Interest is beginning to shift towards government-issued permits created by the programs, which are by definition eligible for use against an emissions limitation in their jurisdiction of origin. Permits also stand a superior chance of being transferable into foreign jurisdictions for purposes of compliance.

Significant benefits have and will result from the current development of domestic trading systems. However, some adverse impacts have also resulted from the concurrent development of international and domestic climate change policy. Emissions trading systems currently in operation or under development exhibit unique features that may render them incompatible with each other. For example, the Danish and United Kingdom (UK) systems allow for trading of different gases, cover different economic sectors, and utilize different mixes of allowance and credit-based trading. To date, they have not developed rules governing interchange and mutual recognition of their tradable units with each other, which could impede or preclude beneficial cross-border transactions. There are also significant differences between each of these systems and the one being developed in the European Union. Already, the European Commission has warned that the differences in the UK and the EU systems “could create market distortions in the future.”2 Had the treaty been concluded more rapidly, the international framework would have made it easier for Parties to conform their systems leading to increased trading. Several private-sector and nongovernmental organizations (NGOs) also have developed initiatives to help build the market and to create and take advantage of trading opportunities. They include the Partnership for Climate Action (PCA), the Emissions Market Development Group (EMDG), and the Chicago Climate Exchange (CCX).

Future Outlook

Recent international agreements negotiated at Bonn and Marrakech resolve many details concerning implementation of the Kyoto Protocol, providing greater clarity to Parties developing domestic trading programs. These agreements will increase the likelihood that future domestic climate change policy measures will be consistent with the rules of the Protocol. However, several issues still must be resolved, and, although likely, the treaty’s entry into force is not yet assured. Thus, in the near future, international and domestic GHG policy will continue to develop concurrently, with the risk that incompatibilities between regional, national, and sub-national climate change policies will lead to market fragmentation and sub-optimal economic and environmental outcomes. Such fragmentation does not mean that market participants will not trade across systems. Indeed, market participants will likely devise methods of trading across jurisdictions. However, devising such structures and mechanisms will increase costs.

Prospects for a well-functioning international GHG market have greatly improved as a result of the agreements reached in international climate change negotiations during 2001. However, significant barriers remain, including the unwillingness of the United States, the world’s largest emitter, to ratify the Kyoto Protocol. A qualitative analysis of several scenarios related to the United States’ future climate policy response reveals that, while in the near term the lack of an emissions constraint may provide an advantage to U.S. firms against foreign competitors confronting such constraints, continued policy uncertainty may be detrimental in the longer term.

In order for the market to achieve its intended environmental and economic results, much work remains to be done. The international community must make an ultimate decision on the legal nature of Parties’ compliance obligations with the Kyoto Protocol’s provisions and must resolve several other key issues. Institutions governing the treaty’s mechanisms must move forward expeditiously to implement the details of the Protocol. Such action will provide Parties with clear policy guidance allowing them to conform their domestic programs to international rules and to enjoy the full economic and environmental benefits of GHG emissions trading.  

About the Authors

Richard Rosenzweig
Natsource, LLC

Richard Rosenzweig provides consulting services to private firms, governments, international financial institutions, and associations on all aspects of the climate change issue, including risk management, market entry strategies, international climate change negotiations, and domestic policy development. He joined Natsource from the Washington law firm of Van Ness Feldman, where he was Principal. Mr. Rosenzweig counseled clients on Clean Air Act matters and provided strategic government affairs counsel on global climate change and energy matters. Mr. Rosenzweig has extensive experience in all aspects of emissions trading and risk management. He represented several companies in the design of the U.S. Acid Rain Program and the Nox SIP Call. Mr. Rosenzweig was involved in the first transactions of UK and Danish greenhouse gas allowances. He also assists companies to determine their risk to the climate issue and develop appropriate risk management strategies. Mr. Rosenzweig served as Chief of Staff to the U.S. Secretary of Energy from 1993-96. His national policy responsibilities included key roles in the development of the first U.S. Climate Change Action Plan. He also helped to negotiate voluntary agreements between the Department of Energy and more than 600 electric utilities in the "Climate Challenge" program.

Matthew Varilek
Natsource, LLC

Matthew Varilek is an emissions markets analyst in Natsource's Strategic Services unit. Since joining Natsource in 1999, he has led projects for clients including the World Bank, the European Commission, the U.S. Agency for International Development, the Dutch Ministry of Economic Affairs, the Government of Uganda, and several multinational companies. Previously, Mr. Varilek lectured for Columbia University on international environmental agreements as an environmental policy teaching assistant at Biosphere 2 Center in southern Arizona. Mr. Varilek has a Masters degree with distinction in Economic Development from the University of Glasgow, Scotland, and a B.A. with distinction in Philosophy and Environmental Policy from Carleton College, Minnesota.

Dr Josef Janssen
University of St. Gallen

Josef Janssen is an expert in financial and economic aspects of greenhouse gas emissions trading and the Kyoto Mechanisms. He is head of Emissions Trading and Climate Policy at the Institute for Economy and the Environment (IWOe) at the University of St. Gallen (HSG) in Switzerland (www.iwoe.unisg.ch/kyoto). He is also scientific coordinator of the European R&D project entitled "Implementing the Kyoto Mechanisms - Contributions by Financial Institutions." In early 2001, he completed his PhD in economics at the University of St. Gallen. In his PhD thesis (Risk Management of Investments in Joint Implementation and Clean Development Mechanism Projects) he focuses on carbon portfolio risk diversification and insurance.

Dr. Janssen has advised several firms and organizations on the Kyoto Mechanisms, including UBS, Swiss Re, Sanpaolo IMI, Landesbank Baden-Württemberg, and the World Bank. In 1998 he was a member of the Italian delegation to the international climate policy negotiations at the EU and UN level. Dr. Janssen frequently speaks on greenhouse gas emissions trading at international commercial and academic conferences, and has published a number of articles on this subject.  

Ben Feldman
Josef Janssen
Matthew Varilek
Radha Kuppalli
Richard Rosenzweig
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Technology and Climate Change: Sparking a New Industrial Revolution

Technology and Climate Change: Sparking a New Industrial Revolution

Remarks by Eileen Claussen, President
Pew Center on Global Climate Change

American Institute of Chemical Engineers
New Orleans, Louisiana

March 10, 2002

Thank you very much. I want to thank the American Institute of Chemical Engineers for inviting me here today and for pulling together a very impressive roster of speakers. You are to be commended for taking on such a critical topic, and for having the good sense to do it at such a critical moment, as both the United States and the global community struggle to come to grips with the challenge of global climate change.

It's especially fitting, I think, that we are gathered for this meeting in New Orleans, which of all the major cities in America, is perhaps the one most vulnerable to the effects of global warming. As I am sure all of you are aware, scientists project that climate change could raise sea levels by as much as three feet by the end of this century. And since much of this city already sits well below sea level, this is no idle concern to the good people of New Orleans.

Nor is it a joking matter. But let's imagine for a moment what the future may hold for New Orleans if global warming continues unabated: Imagine, for example, all of the watering holes along Bourbon Street filled up with, you guessed it, water. Imagine the Lake Pontchartrain Causeway, the longest over-water bridge in the world, becoming, yes, the longest underwater bridge in the world. Imagine the city identified for generations as The Big Easy becoming The Big Sloppy. You like gumbo? Well, stick around long enough and you'll be up to your ankles in crawfish.

In all seriousness, global climate change is a profound challenge. Indeed, I believe it is one of the most profound challenges of our time. Meeting it will not be easy. In fact, I'd like to suggest to you today that meeting the challenge of global climate change will require nothing short of a new industrial revolution. But unlike past industrial revolutions, we can't afford to wait for this one to happen all on its own. We must make it happen. We must look to governments to help launch this revolution. We must look to the marketplace to mobilize the resources needed to carry out this revolution. And we must look to the creative minds of people like yourselves for the expertise and ingenuity needed to make this revolution a success. Because in the final analysis, our success will rest on our ability to devise new, cleaner, more efficient technologies - new technologies that can power our global economy without endangering our global environment.

Climate Change: Where We Stand Today

A little later, I'll have more to say about the kinds of technologies we will need and the kinds of policies that can help bring them about. But first let me spend a few minutes looking at where we stand today in our efforts to address climate change, both here in the United States and abroad.

The best place to start, I think, is with the science. And here, I believe, the consensus that has emerged is quite clear. Both the Intergovernmental Panel on Climate Change and the report prepared last year by a panel of the National Academy of Sciences are agreed on three main points: 1) the earth is warming; 2) human activity is largely to blame; and 3) the warming trend is likely to accelerate in the years ahead. And the implications for the United States alone are profound, affecting everything from farming and tourism to the reliability of the water supply and the livability of our coasts.

Of course, there are uncertainties, and there always will be. But these uncertainties cut both ways. Certainly it is possible that the effects of climate change could be less than we currently project. But it is just as likely that the effects will be greater. And so I believe that uncertainty is a reason for action, rather than a reason for inaction.

How are governments responding? Let's look first at the international picture. Over the last year, we saw both the greatest success and the greatest setback since the international effort to address climate change was launched a decade ago. The success was that after years of wrangling, nations finally agreed on a set of rules for implementing the Kyoto Protocol, which sets the first binding international limits on greenhouse gas emissions. European nations are well on track to ratifying the Protocol. Vigorous debates are underway in Japan, Canada and other industrialized countries that face some serious challenges in meeting their targets, but the prognosis is for the treaty to enter into force either this year or next.

The setback, of course, was President Bush's outright rejection of Kyoto. I do not intend to spend any time here debating the merits of the Protocol. It's true, Kyoto is at best a modest first step on a long journey. But from my perspective, the basic architecture of the treaty is sound. In fact, it is an architecture largely designed in the United States. It uses emissions trading, a concept born and bred here in America, to ensure that emissions are cut as cost-effectively as possible. I happen to believe that the emissions target for the U.S. negotiated by the previous Administration was unrealistic. It couldn't be met. But there were ways to deal with this problem short of a unilateral withdrawal.

And what has President Bush offered as his alternative? The President has offered a promise - a promise that the United States will do really no better than it's doing right now. When you do the math, the President's goal of an 18-percent reduction in greenhouse gas intensity by 2012 amounts to a 12-percent increase in actual emissions. It essentially continues the same trends we've seen over the last two decades. In other words, the target is nothing more than business as usual. On the positive side, the President has said that companies reducing their emissions should not be penalized in the event that there is a future regulatory regime requiring reductions. A first step, perhaps, but a very modest one.

Fortunately, that's not the end of the story. There are people in Washington who think climate change is a serious issue that warrants serious action. It may come as a surprise to you, but despite the Administration's lackluster efforts - or, perhaps more correctly, inspired by the Administration's lackluster efforts - there is growing bipartisan interest in Congress in doing something about climate change. Nearly twice as many climate change bills were introduced in the past year as in the previous four years combined.

These bills cover everything from regulating carbon dioxide emissions from power plants to raising fuel economy standards for cars and trucks, boosting research and development on alternative fuels, and encouraging farmers to adopt practices that suck carbon out of the atmosphere. Several bills would establish a national system for tracking and reporting greenhouse gas emissions - an important first step. And, of course, Senators Lieberman and McCain plan to introduce legislation later this year to establish a comprehensive nationwide emissions trading system. That's a bold idea - one that frankly I can't see being enacted for some time, probably years. Still, for the first time, serious debate about how the United States should meet its responsibilities on climate change is now underway.

But what we really need, of course, is action, not debate. And I'm pleased to be able to tell you that real action is indeed taking place. To find it, though, you have to look beyond the Beltway--first, to the boardrooms and factories of major corporations that are taking it upon themselves to tackle their greenhouse gas emissions; and second, you have to look to the states and local communities that, instead of waiting for leadership from Washington, are taking up this challenge on their own.

On the corporate front, let me talk very briefly about some of the activities that are being undertaken by the membership of the Pew Center's Business Environmental Leadership Council. This is a group that now includes 37 major companies that accept the need for action on this issue and that are taking concrete steps to protect the climate. These are primarily Fortune 500 firms such as Weyerhaeuser, Intel, Boeing, Dupont, Shell and Alcoa. Together they employ more than 2 million people and generate annual revenues of nearly $900 billion.

What are these companies doing? Many are adopting voluntary targets for reducing their greenhouse gas emissions. Consider Dupont, which is working to reduce its emissions by a stunning 65 percent below 1990 levels before 2010. Alcoa's target, to cite another example, is a 25-percent reduction over the same period. Some companies are looking beyond their industrial processes. They're setting targets for reducing emissions from their products as well. Major automakers, for example, will reduce greenhouse gas emissions from their European fleets by 25 percent by 2005; and IBM is working to make sure that 90 to 100 percent of its computers are Energy Star-compliant. Still other companies are setting targets for their purchases of clean energy. Dupont anticipates getting 10 percent of its electricity from renewable sources by 2010; and Interface is aiming for 10 percent by 2005.

We recently completed a report taking a close look at six companies - why they've taken on targets, and what their experiences have been. The companies cited several motivations: They believe that the science of climate change is compelling, and that over the long term, their climate-friendly investments will pay off. They also believe that by taking the initiative, they can help the government create climate change policies that work well for business. But each of the companies cited one other important motivation for taking on a target - to improve their competitive position in the marketplace. And that, in fact, has been the result. Each is on track to meeting or exceeding its greenhouse gas goal. Together, they've delivered reductions equal to the annual emissions of 3 million cars. And all of the companies are finding that their efforts are helping to reduce production costs and enhance product sales today.

Equally impressive efforts are taking shape at the state level as well. Over the past year, the Pew Center has worked with the National Association of State Energy Officials to gather information on state programs that reduce greenhouse gas emissions. Earlier this month, we officially unveiled the results: a searchable database on our website describing 21 state programs that have delivered real emissions reductions. Here are just a few examples: Oregon requires that all new power plants limit or offset their carbon dioxide emissions, making it the first state in the nation to enact mandatory carbon controls. Texas requires that all its electricity providers generate about 3 percent of their power using renewable sources. New Hampshire is cutting emissions and saving $4 million a year through energy-saving retrofits on state-owned buildings. The state of Washington is battling emissions and traffic congestion by giving commuters alternatives to the single-occupancy auto. And finally, one of my favorite examples: High school students in Pattonville, Missouri, teamed up with state officials to fuel their school's boilers with methane captured from a neighboring landfill.

So what do all these examples from companies and from the states show us? First, that despite the lack of leadership in Washington, there are significant efforts underway across America to address climate change, and the momentum is growing. These efforts are delivering real reductions in greenhouse gas emissions-and, better yet, they are doing it cost-effectively. A second important lesson is that these efforts pay multiple dividends. In the case of the companies, they deliver operational efficiencies, reduced energy costs, and increased market share - all things that contribute to a healthier bottom line. In the case of the states, they deliver cleaner air, smarter growth, new energy sources, and real savings for taxpayers. A third important lesson is the sheer diversity of approaches being taken. Climate change is an enormous challenge. It has to be tackled on many fronts. If ever there were an issue that defied one-size-fits-all solutions, this is it.

New Technologies Needed

So, yes, these efforts represent a good start. But let's step back and ask ourselves, What is really needed if we are going to effectively address climate change? In the long run, I believe, the answer is clear: The only solution to climate change is a fundamental transformation in the way we power our global economy.

To keep our planet from overheating, we must dramatically reduce emissions of carbon dioxide and other greenhouse gases. The primary source of these gases is the combustion of fossil fuels. So our goal over time must be to steadily reduce our reliance on coal and oil and to develop new sources of energy that, as I said earlier, can power our economy without endangering our climate. Yes, it is a tall order. It implies technological and economic transformation on an unprecedented scale. As I said at the outset, it demands nothing short of a new industrial revolution.

Because there are so many sources of greenhouse gas emissions, and because energy is what powers our entire global economy, there is no silver bullet technology that will solve this problem alone. The ultimate success of a climate change strategy-whether at the national or international level-will hinge on the development and deployment over time of a vast array of technologies that dramatically reduce the carbon intensity of the overall economy. That includes changes in how we produce electricity, how we get from one place to another, how we farm and manage our forests, how we manufacture products, and even how we build and manage our buildings.

Granted, none of these changes will happen overnight. Some of the necessary technologies will take years or even decades to develop and to deploy on a sufficient scale to make a difference. By the same token, however, some technologies are already showing they can make a difference and contribute to climate solutions.

What sorts of technologies am I speaking of? I think the best way to look at them is sector by sector. And, as I prepared my remarks, I tried to come up with catchy phrases to describe the fundamental challenges we face in each of the four critical sectors - electricity, transportation, buildings, and industry.

In the electricity sector, for example, I'd boil it down this way: "Here's the Fix: A Better Mix." As all of you know, we now have a moderately diversified fuel mix. I say moderately because coal still supplies 55 percent of U.S. electricity. That said, we do have a significant and growing amount of power supplied by natural gas, a significant and stable amount of nuclear energy, some hydroelectric power, a small but growing share of wind power, and a very small share of renewables. And so the challenge over time is fairly obvious: we need to shift the supply mix--not necessarily to wean ourselves entirely from fossil fuels (at least not in the near future) but to place ever-increasing emphasis on the lowest carbon fossil fuel (natural gas) while increasing our reliance on renewables.

Next up is transportation, and here my catchphrase would be: "And to Oil a Goodnight." Initially, of course, we must focus on using oil more efficiently. As the National Academy of Sciences has made clear, there are huge cost-effective efficiency gains that could be made in the near term. Ultimately, however, we face a far more fundamental challenge. We must make the transition to entirely new fuel sources, and we must build the infrastructure needed to produce and deliver them. We'll have to think big - the new hydrogen fuel cell initiative launched by the Bush Administration is a step in the right direction. But we must be careful not to pick winners too early in the race. We must explore every viable option.

In the building sector, where we use one-third of our energy, the name of the game is efficiency. And my slogan? "Smart is beautiful." Efficiency doesn't mean we all sit in the dark wearing wool cardigans. Smart technology and smart building design can deliver enormous energy savings without sacrificing comfort or quality of life. In the near term, there is much we can do to save energy - things as simple as replacing conventional light bulbs with compact fluorescents, or shutting off computers when we go home at night. Over the longer term, new designs, new materials, new equipment, and new information technologies promise remarkable gains. In design, for example, we can take much better advantage of natural shading and sunlight to enhance heating, cooling and lighting. And, in the information technology area, new sensors that monitor the use of equipment and lighting will allow us to overcome ordinary humans' failure to "just shut it off."

Finally, there is industry, which accounts for about a third of our energy consumption. And here my slogan, with apologies to Descartes, is "I rethink therefore I am." Rethinking in this case means looking at the entire life cycle of products. It means doing four things: changing inputs, redesigning production processes, reworking the product mix, and, wherever possible, reusing and recycling products so they don't have to be produced again.

Consider the life cycle of one product, aluminum, as a case in point. Alcoa has reduced the electricity required to produce a ton of aluminum by 20 percent over the past 20 years-that's from redesigning production. The company also sponsors life cycle analysis on a number of products including automotive components, beverage cans, and more, to determine how product designs and the product mix can be improved. Andit encourages recycling by supporting research alloy separation and purchasing large amounts of scrap. As for changing inputs, let's stick with aluminum but look at another industry: automobile manufacturing. A recent study showed that every ton of aluminum substituted for steel in automobile construction reduces greenhouse gas emissions by 20 tons over the life of the vehicle. For automakers-and, indeed, for all of society-that should be an important incentive to rethink what goes into our cars.

Getting to Tomorrow

So there you have a sampling of some of the technologies that can help us meet the challenge of global climate change. The question is: How do we get them? What must we do now to ensure that the right technologies are in place in the years ahead?

As I said earlier, we must look to the marketplace to be the primary engine driving technology development. First, most of the changes needed to reduce greenhouse gas emissions - whether they be new products, new processes, or new sources of energy - must come from the private sector. Second, only the marketplace can redirect resources and mobilize investment on the scale needed to create a climate-friendly future. What's more, only the magic of the marketplace can ensure that the necessary goods are delivered at the least possible cost. So we must count principally on the private sector to generate, and to deliver, the broad array of technologies that will make possible this new industrial revolution.

But the market will only deliver if it perceives a demand. And for that, I am convinced, we must look to government. We must look to government, first, to set the goal - to send a clear signal to the marketplace that this is the direction we must go. We must look to government, second, to prime the pump - to provide strategic assistance that will help spawn new technologies and then move them from the laboratory to the marketplace. And we must look to government, third, to keep us all on track - to make sure we not only keep our eye on the goal, but meet it, or face clear consequences.

Let me be clear: I am not advocating a draconian command-and-control system that says do it, and do it this way, or else. We've had enough experience with such approaches to know they won't work here. Rather, I am suggesting a comprehensive but careful mix of measures that provides the private sector with the necessary incentives - and the necessary flexibility - to ensure that we get to where we need to go, and that we do it cost-effectively.

Let me be a little more specific. On the incentive side, there are a host of policy tools available: targeted tax credits or low-interest loans to encourage the development and use of energy-efficient technologies and alternative fuels; government investment in basic research and public-private partnerships that can lead to breakthrough technologies; incentives to builders and landlords to encourage the use of energy-saving materials, appliances and building methods; and incentives to farmers and other landowners to adopt innovative methods to capture carbon in soils and forests.

But incentives alone will not be enough, just as voluntary efforts will not be enough. We must also establish clear, enforceable expectations. At some point, we must resolve as a society that the risks posed by climate change are too great, and that government must mandate action to avert them. This could take the form of emissions targets or efficiency standards. In either case, we should use market-based strategies to reward those who exceed the norm - for instance, by awarding tradeable credits to those who exceed their targets or standards. But government's expectations - society's expectations - must be clear and they must be binding.

This, I would suggest, is how you launch a revolution. I won't tell you the revolution is just around the corner. But I believe in time it will come. And I believe there will be enormous opportunity for those who help lead the way. Over the past century, the chemical engineering field has made tremendous contributions to the protection of our environment. Catalytic converters, smokestack scrubbers, reformulated gasoline, and new recycling technologies are just a few of the environmental advances that owe their existence in one way or another to you and your peers. Time and again, this distinguished profession has answered the call to make the world a better place.

And today, I ask you to do so once again. As individuals who apply scientific and technical knowledge to solve problems, you have the power and the ability to help the world respond to one of the greatest challenges of the 21st century. You also have the knowledge and the understanding to inform the development of forward-looking climate policies for the United States-the types of policies that will make the second industrial revolution real.

In closing, let me say once again that climate change is a problem that calls for new thinking and new approaches. And, as we gather here in a city that could be profoundly affected by this problem in the coming years, I hope we will vow together to solve it so we can leave behind a safer, more prosperous world for generations yet to come.

Thank you very much. 

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State and Corporate Action on Climate Change: Multiple Benefits From Multiple Approaches

State and Corporate Action on Climate Change: Multiple Benefits From Multiple Approaches

Speech by Eileen Claussen, President
Pew Center on Global Climate Change

National Governors Association Workshop
Washington, DC

February 28, 2002

Thank you. I'm delighted to be here this morning to talk with all of you about climate change. And, before I begin, I want to tap into the spirit of the recently concluded Olympics by awarding a few medals. The first medal goes to the White House. It is for speed skating around an issue, and is awarded in recognition of the Bush Administration's recently announced climate policy. This policy could just as easily have won the slalom competition for the way it zigs and zags around the real problem. Or perhaps it should have been entered in the downhill race, because that's where it will inevitably lead us-downhill.

That said, I think there are plenty of medals to go around. The former administration, for example, is a prime candidate for the gold in the biathlon. This is the competition, of course, in which you do two entirely different things-such as talking big on the international stage about your commitment to addressing climate change while doing next to nothing at home to put any kind of serious policies in place. I apologize for being so harsh in my assessment, but you can rest assured I was not pressured in any way by other judges on the panel.

Seriously, though, it's always a pleasure to spend some time with a group of people who are not only interested in learning about climate change, but are in a position to do something about it. A little later on I'll talk about what many states already are doing about it, and why it's in your state's interest as well as the national interest for you to do even more. But first I'd like to spend just a couple of minutes looking at where we stand in our efforts to address climate change, both here in the United States and abroad, and where ultimately we need to go.

The best place to start, I think, is with the science. And here, I believe, the consensus that has emerged is quite clear. Both the Intergovernmental Panel on Climate Change and the report prepared last year by a panel of the National Academy of Sciences are agreed on three main points: 1) the earth is warming; 2) human activity is largely to blame; and 3) the warming trend is likely to accelerate in the years ahead. And the implications are profound, affecting everything from farming and tourism to the reliability of the water supply and the livability of our coasts. Of course there are always uncertainties, and there always will be. But these uncertainties cut both ways, and are not an excuse for inaction. For example, it is possible that the impacts will be less severe than we expected. But it is equally possible that the effects will not be linear, and that we are in for some serious and negative climate surprises, such as a dramatic shift in the Gulf Stream current that warms Western Europe.

So, with or without uncertainty, I believe it is absolutely essential that we act. Now what is it we need to do? There are lots of ways we can begin to attack this problem, and I'll come back to those. But right now I want to lay out the big picture - the grand scheme, if you will. I'll be blunt about it: In the long run, the only solution is a fundamental transformation in the way we power our global economy. To keep our planet from overheating, we must dramatically reduce emissions of carbon dioxide and other greenhouse gases. The primary source of these gases is the combustion of fossil fuels. So our goal, over time, must be to end our reliance on coal and oil and to develop new sources of energy that can power our growing economy without endangering our climate. Yes, it is a tall order. It implies technological and economic transformation on an unprecedented scale. In fact, it demands nothing short of a second industrial revolution.

Is this revolution underway? Let's look first at the international picture. Over the last year we saw both the greatest success and the greatest setback since the international effort to address climate change was launched a decade ago. The success was that after years of wrangling nations finally agreed on a set of rules for implementing the Kyoto Protocol, which sets the first binding international limits on greenhouse gas emissions. European nations are well on track to ratifying the Protocol. Vigorous debates are underway in Japan, Canada and other industrialized countries that face some serious challenges in meeting their targets, but the prognosis is for the treaty to enter into force either this year or next.

The setback, of course, was President Bush's outright rejection of Kyoto. I do not intend to spend any time here debating the merits of the Protocol. It's true, the Protocol is at best a modest first step on a long journey. But from my perspective, the basic architecture of the treaty is sound. In fact, it's an architecture largely designed in the United States. It uses emissions trading, a concept born and bred here in America, to ensure that emissions are cut as cost-effectively as possible. I happen to believe that the emissions target for the U.S. negotiated by the previous Administration was unrealistic. It couldn't be met. But there were ways that could have been fixed short of a unilateral withdrawal.

And what has President Bush offered as his alternative? The President has offered a promise - a promise that the United States will do really no better than it's doing right now. When you do the math, the President's goal of an 18 percent reduction in greenhouse gas intensity by 2012 amounts to a 12 percent increase in actual emissions. It essentially continues the same trends we've seen over the last two decades. In other words, the target is nothing more than business as usual. On the positive side, the President has recommended that companies that make emission reductions should not be penalized in the event there is a future regulatory regime that requires reductions. A first step, perhaps, but a very modest one.

Fortunately, that's not the end of the story. There are people in this town who think climate change is a serious issue that warrants serious action. (If there were not, I think I would be a very lonely person.) In fact, some of those who are supporting serious action happen to be members of Congress. It may come as a surprise to you, but there is growing bipartisan interest in Congress in doing something about climate change. In fact, nearly twice as many climate change bills were introduced in the past year as in the previous four years combined. There is, of course, a serious debate over whether or not carbon should be covered in new multi-pollutant legislation for power plants. But there are literally dozens of other bills that would do everything from raising fuel economy standards to boosting research and development to encouraging farmers to adopt practices that suck carbon out of the atmosphere, or use some of their land for wind farms. Several bills would establish a national system for tracking and reporting greenhouse gas emissions - an important first step, which, if coupled with provisions that legally recognize the private sector's accomplishments in reducing emissions, would at least begin to put us on a constructive path for dealing with this issue. And finally, Senators Lieberman and McCain plan to introduce legislation later this year to establish a comprehensive nationwide emissions trading system. That's a bold idea - one that frankly I can't see being enacted for some time, probably years. But for the first time, serious debate about how the United States should meet its responsibilities on climate change is now underway.

What we really need, of course, is action, not debate. And I'm pleased to be able to tell you that real action is indeed taking place. To find it, though, you have to look beyond the Beltway. You have to look in two places - first, in the boardrooms and factories of major corporations that are taking it upon themselves to tackle their greenhouse gas emissions; and second, you have to look to the states and local communities that instead of waiting for leadership from Washington are taking up this challenge on their own. None of these efforts can in the end substitute for a credible, comprehensive national effort. Ultimately that is the direction we need to go. But addressing climate change requires a multiplicity of strategies at all levels. And the states and corporations that are taking the lead right now are the laboratories and proving grounds that will help us identify the smartest, most cost-effective strategies that can best serve the nation as a whole. That's not all. In the process, they are discovering that addressing climate change delivers a host of other benefits as well.

Let me begin by telling you about some of the efforts underway in the private sector. The Pew Center's Business Environmental Leadership Council now includes 37 major companies that accept the need for action on this issue and are taking concrete steps to protect the climate. These are primarily Fortune 500 companies such as Weyerhaeuser, Intel, Boeing, Dupont, Shell and Alcoa. Together they employ more than 2 million people and generate annual revenues of nearly $900 billion.

The Pew Center recently released a report that takes a close look at six companies that are members of the Council and that have adopted voluntary greenhouse gas targets. It also looks more broadly at a total of 31 companies with emission reduction targets. The report assesses the reasons why these companies took on targets, and what the results have been. The companies cited a number of reasons for taking on a target. They believe that the science of climate change is compelling, and that over the long term, their climate-friendly investments will pay off. They also believe that by taking the initiative, they can help the government create climate change policies that work well for business. It is one thing to advocate policies such as reasonable targets and timetables and flexibility for businesses to use various means to implement clearly defined goals. It is another thing to actually demonstrate via corporate action that these measures work.

But each of the companies cited one other important motivation for taking on a target - to improve their competitive position in the marketplace. And that, in fact, has been the result. Each company is on track to meeting or exceeding its greenhouse gas goal. Together, they've delivered reductions equal to the annual emissions of 3 million cars. And all the companies are finding that their efforts are helping to reduce production costs and enhance product sales today.

I think one of the most important lessons to be gleaned from this analysis is the variety of approaches employed by these companies. For example, a number of companies have greenhouse gas emission targets that relate directly to their industrial processes: Alcoa plans to reduce its direct process emissions by 25% below 1990 levels by 2010; and Dupont is on track to reducing its greenhouse gas emissions by a remarkable 65% by 2010.

Others have determined that their greatest contribution comes from the use of their products: Ford Motor Company will reduce the greenhouse gas emissions from its European fleet by 25% by 2005; and IBM will have 90-100% of its computers Energy Star-compliant each year.

Some have chosen to use relative measures for their targets: Toyota North America will reduce its energy use per unit of production by 15% below 2000 levels by 2005; United Technologies will reduce its energy consumption per unit of sales by 25% below 1997 levels by 2007; and Baxter International will reduce its energy use and associated greenhouse gas emissions per unit of production by 30% below 1996 levels by 2005.

Still others have chosen to increase their purchases of renewable energy, thereby creating greater demand for clean energy. For example, Dupont will get 10% of its electricity from renewable sources by 2010; and Interface is aiming for 10% by 2005.

BP and Shell have set up internal emissions trading systems among their business units, and have much practical advice to offer based on their experiences. And many companies, including American Electric Power, PG&E and others have invested significantly in carbon sequestration projects to offset their emissions. So as you can see, companies are experimenting, innovating and coming up with an array of strategies best suited to their individual circumstances.

Let me turn now to the equally impressive efforts taking shape at the state level. Over the past year, the Pew Center has worked with the National Association of State Energy Officials to gather information on state programs that reduce greenhouse gas emissions. Earlier this month, we officially unveiled the results: a searchable database on our website describing 21 programs that have delivered real emissions reductions. We'll be adding more programs in the weeks and months ahead. What's different about this database-and the reason I recommend it to your attention-is that it provides detailed information about how these programs started, what kinds of barriers states encountered, and how they dealt with them. It also quantifies the emissions reductions resulting from each of the programs. We posted the database two weeks ago and it's been accessed more than 1,000 times already.

Let's look at some of the examples it provides. We all know about Nixon going to China. But what about George W. Bush as a champion of renewable power? It's true. Legislation signed by then-Governor Bush to restructure the Texas electricity industry requires that all electricity providers generate about 3 percent of their power using renewable sources. The Texas Renewable Portfolio Standard was expected to bring more megawatts of renewable power on line in 2001 than in the prior 100 years. The result should be a reduction of approximately 3.3 million tons of CO2 per year, as well as reductions in sulfur dioxide and nitrogen oxides.

Oregon, meanwhile, was the first state in the nation to enact mandatory controls on carbon dioxide. The state requires that all new power plants meet a tough new emissions standard, and allows utilities to comply by paying a fee to the nonprofit Climate Trust, which in turn invests in projects that reduce or sequester CO2 emissions.

Other states are reducing emissions - while also reducing the burden on taxpayers and consumers - by investing directly in energy efficiency. New Hampshire, for instance, is saving $4 million a year through energy-saving retrofits on state-owned buildings. And Colorado has provided free energy efficiency upgrades to more than 70,000 low-income households, trimming their energy bills an average of 20 to 25 percent.

In the transportation sector, Washington State is leveraging nearly $8 in private funding for every dollar from the state for a program that gives commuters alternatives to the single-occupancy auto. The payoff is enormous: The program is generating roadway capacity at just a third the cost of building and operating new roadways.

Farmers are also pitching in. A program in Georgia that gives growers access to special "no-till" equipment has not only cut emissions and saved energy, but also conserved more than 2 million tons of soil. And finally, on the local level, high school students in Pattonville, Missouri, teamed up with state officials to fuel their school's boilers with methane captured from a neighboring landfill.

So what do all these examples from companies and from the states show us? First, that despite the lack of leadership here in Washington, there are significant efforts underway across America to address climate change, and the momentum is growing. These efforts are delivering real reductions in greenhouse gas emissions-and, better yet, they are doing it cost-effectively.

A second important lesson is that these efforts pay multiple dividends. In the case of the companies, they deliver operational efficiencies, reduced energy costs, and increased market share - all things that contribute to a healthier bottom line. In the case of the states, they deliver cleaner air, smarter growth, new energy sources, and real savings for taxpayers. The fact of the matter is that many of these initiatives were launched for reasons having nothing to do with climate change. The emissions reductions they are producing are simply side benefits - but they are real, and they are making a difference.

A third important lesson is the sheer diversity of approaches being taken. Climate change is an enormous challenge. It has to be tackled on many fronts. If ever there were an issue that defied one-size-fits-all solutions, this is it. The efforts being initiated right now in the boardroom and in your state capitols demonstrate that we have the drive and the ingenuity to come up with strategies of all different shapes and sizes. We must be careful not to squash that drive and ingenuity. Yes, we ultimately need a comprehensive national program to meet this challenge. But it must be one that provides the necessary incentives - and the flexibility - to encourage and allow a broad array of strategies.

In closing, I'd like to commend all of you from states that are already stepping up to the challenge of climate change and seizing the very real opportunities it presents. I'd like to encourage the rest of you to go back home to your bosses and tell them why it's in the interest of their constituents to do the same. Many times in the past, when we couldn't count on Washington to take the lead, the states have stepped into the breach. Climate change is another opportunity for you and your states to demonstrate that real leadership and real innovation are not top-down but bottom-up. If you lead, Washington will follow. And only then will the United States be able to become a real gold medal contender in the global effort to meet this global challenge. Thank you very much. I will be very happy to answer any questions. 

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Implications for U.S. Companies of Kyoto's Entry into Force without the United States

This working paper examines some of the potential implications for U.S. business of the Kyoto Protocol's entry into force – in particular, the effects of the U.S. decision to stay out of the Protocol.

The Bonn and Marrakech meetings adopted generally sound rules regarding the Kyoto mechanisms. However, the implications for U.S. business will depend as much or more on the domestic policies and measures of Annex B parties1 as on the Kyoto rules themselves. The Kyoto rules merely establish the general framework within which national implementation will take place. Although bad Kyoto rules might have precluded efficient implementation of the Protocol, the Bonn and Marrakech rules do not ensure efficiency, since this will depend on the extent to which governments choose to utilize the Kyoto mechanisms to achieve their targets.

The implications of Kyoto for U.S. business will also depend significantly on whether the United States decides as a matter of domestic policy to undertake emission reduction requirements, and the stringency of any such requirements. This paper generally assumes a scenario in which the U.S. does not take significant domestic action to control emissions. In the final section, it considers an alternative scenario involving adoption of strong U.S. domestic measures to reduce emissions.

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by: Daniel Bodansky, University of Washington

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Corporate Greenhouse Gas Reduction Targets

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Corporate Greenhouse Gas Reduction Targets

Prepared for the Pew Center on Global Climate Change
November 2001

By:
Michael Margolick and Doug Russell, Global Change Strategies International, Inc.

Press Release

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Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

In the United States and around the world, many businesses are demonstrating their commitment to solving the problem of climate change. Not only are companies speaking out on the severity of the problem, they are setting and meeting corporate targets to reduce greenhouse gas (GHG) emissions from their businesses.

DuPont has committed to reduce its GHG emissions by 65 percent from 1990 levels by 2010. Shell will reduce its GHG emissions 10 percent from 1990 levels by 2002. And earlier this year, Alcoa announced it would reduce its GHG emissions by 25 to 50 percent by 2010.

In this report, authors Michael Margolick and Doug Russell of Global Change Strategies International, Inc. provide guidance to companies contemplating targets. Based on in-depth case studies of six diverse members of the Center’s Business Environmental Leadership Council—ABB, Entergy, IBM, Shell, Toyota, and United Technologies Corporation—the authors trace the corporate target-setting process from the point of deciding to act on climate change, to the factors involved in setting a target, to management and employee engagement, and to evaluating, monitoring, and performance review.

A number of underlying themes emerged regarding companies’ motivations for setting targets. Among the most salient are these: companies that set GHG reduction and energy efficiency targets do so because they believe that setting and meeting the targets will improve their bottom line and drive innovation. They believe that over the long term, the world will have to deal with climate change, so their climate-friendly investments will pay off. They also believe that by taking the initiative, they can help the government to create a climate change policy regime that works well for business. It is one thing to advocate policies such as reasonable targets and timetables and flexibility for businesses to use various means (such as emissions trading) to implement clearly defined goals. It is another thing to actually demonstrate via corporate action that these measures work.

However, in taking these actions, these leading businesses are taking risks. They are betting that there will ultimately be government policy on climate change, that it will allow companies flexibility, and that it will reward and not punish early movers. If they turn out to be wrong, these companies could be disadvantaged relative to their less proactive competitors.

As climate policy continues to develop, we should keep the following lessons in mind. First, it is clear that GHG emissions can be substantially reduced, and that there are many approaches that can be employed to meet this objective. Second, emissions can be reduced in ways that are cost-effective, and that generate ancillary benefits that improve companies’ competitive positions. Finally, the diversity in the type and scope of targets and implementation activities that companies have taken on voluntarily indicates that policies to reduce emissions should be as flexible as possible. Flexibility not only allows for more cost-effective reductions, but also ensures that companies can focus their limited resources on achieving the greatest reductions. Companies and countries have only so much money to invest in addressing climate change. The more flexibility we allow, the more economically efficient our response will be, and thus the more environmental progress we will achieve.

The authors and the Pew Center would like to thank the companies featured in this report for sharing their experiences and perspectives, and acknowledge the members of the Center’s Business Environmental Leadership Council, as well as Jennifer Nash of the John F. Kennedy School of Government and Sarah Wade of Environmental Defense for their review and advice on a previous draft of this report, and Matt Jones and Bob Masterson for their valuable contributions. Additionally, the Pew Center would like to thank the Energy Foundation for its generous support of this project.

Executive Summary

A growing number of companies have voluntarily adopted climate-related targets—numerical performance objectives for indicators related to climate change, such as energy efficiency and greenhouse gas (GHG) emissions. This report explores companies’ reasons for adopting targets, their choices of target types and levels, their plans for meeting the targets, and their progress to date. It also provides guidance, based on their experiences, to other companies that are considering climate-related targets.

The report is based on in-depth case studies of six members of the Business Environmental Leadership Council (BELC) of the Pew Center on Global Climate Change, supplemented by surveys and a workshop with additional BELC members. The case study companies are ABB, Entergy, IBM, Shell, Toyota Motor Manufacturing North America (TMMNA), and United Technologies Corporation. These particular companies were chosen to reflect a diversity of industries, target types, and headquarters locations.

The companies in this study vary widely in their reasons for adopting climate-related targets, and most have done so for several reasons. All of the companies see targets as improving their competitive market position by reducing production costs and enhancing product sales today, and in anticipation of regulatory and market environments of the future. Other reasons for setting climate-related targets include: to prepare for future regulation by investing in GHG emissions reductions now, to contribute to the design of efficient and equitable international and domestic GHG policies and programs, and to enhance corporate reputation via environmental leadership. However, voluntary targets can present risks to shareholders. Like the motivations for setting a target, the risks of doing so also vary by company. Risks include the following possibilities: governments will not recognize early action; governments will select a late baseline, rendering early reductions less valuable; and governments will not regulate at all, essentially punishing companies with targets for their good deeds because they, but not their competitors, will have incurred costs of making emissions reductions.

Companies have adopted several different kinds of targets. Some targets apply to purchases, others to companies’ own energy use or emissions, and others to products; some focus on greenhouse gases, and others on energy use; some serve as absolute limits, and others are relative to indicators such as production levels and revenues. Which type of target an individual company chooses depends on its products and production methods, policy environment, and business models. The target’s effect on emissions reductions, the existence of uncontrollable factors relating to emissions or energy use, the opportunity for cost-effective emissions or energy reductions, and the potential impact on company growth are four general considerations that influence a company’s choice of target type.

Companies also have different methods for setting the target level. A “top-down” target-setting process sets the level for the whole corporation at once, without a plant-by-plant analysis. Under a “bottom-up” process, the corporate target level is based on analysis of potential reductions by individual plants.

Top-down and bottom-up elements occur within each company’s target-setting process, but in widely varying proportions. Common steps in setting the target level include an emissions or energy use inventory, choice of target year, projection of business-as-usual emissions, and an iterative process that weighs potential target levels against the feasibility and costs of prospective action plans. It is beneficial to involve those who will be responsible for implementing the action plan in this process, in order both to ensure a reasonable target, and to put the organizational elements of the action plan into place. The case studies suggest that an environmental management system is a valuable tool for these purposes.

Naturally, the specific components of action plans to achieve climate-related targets depend on the target type and the products and production methods of each company. However, every company must make several general design decisions, including whether the plan will be designed through a “top-down” or “bottom-up” process, how the target will fit in with other environmental management activities, to what extent the plan will feature market mechanisms such as internal emissions trading and external offsets, and how to use research and development (R&D) resources and other means to drive technology innovation. Emissions trading may be useful for companies that wish to drive down costs by using market competition to encourage efforts to discover least-cost reductions. Internal emissions trading is especially useful for companies that are uncertain as to whether their allocation of the target among business units is least-cost, that are uncertain as to how their target will be achieved, and that have low trading transaction costs. Offsets may be valuable where the cost of emissions reductions within a company’s own operations is high. The action plan may also need to respond to external risks imposed by markets, technological change, and regulation. An assessment of these factors may be useful in explaining the target results, both internally and externally, should emissions or energy use trend off-target.

The companies studied found that incentive systems for specific ideas and initiatives, as well as reinforcement of commitment by senior management, motivated employees and managers throughout the company. Many managers indicated that targets drive innovation within the company. Sometimes the mere existence of emissions or energy use data generates interest in, and ideas for, improvements that turn out to be profitable on their own. Companies also found that climate-related targets have a positive influence on employee morale. Internal communications are important in all cases — increasing employee understanding of climate change helps gain buy–in to the target, and generates new ideas on how to improve environmental performance.

Communications efforts and styles also vary by company. Typically, firms with relatively high direct emissions and top-down target-setting processes have higher-profile climate change communications efforts, including speeches and public presentations by the CEO. Companies with lower direct emissions, that have had environmental management systems in place for a number of years, and that have bottom-up target-setting processes, tend to take a more low-key approach to communications. Several companies have benefited from collaboration with third parties, such as environmental non-governmental organizations, to help get the message across. Partnerships with non-governmental organizations can build credibility and provide useful services.

Finally, all the companies studied are committed to reach their targets systematically, at low cost, and according to conditions in their particular businesses. The companies consider the achievement of climate-related targets to be as important as other critical indicators of the health of the business.

About the Authors

Michael Margolick, Ph.D.
Global Change Strategies International, Inc.

Dr. Margolick is one of Canada's leading experts in energy planning and in the economics and policy development of climate change. He was a Research Associate in the Program in Natural Resource Economics and the Senior Scientist of the Forest Economics and Policy Analysis Project, both at the University of BC. He has also worked for the Corporate Strategic Planning Unit at BC Hydro and was the Executive Director of the British Columbia Energy Council. Related expertise includes research and program evaluation, and public/stakeholder consultation. He is an adjunct professor in the School of Resource and Environmental Management at Simon Fraser University.

Douglas J. Russell
Global Change Strategies International, Inc.

Mr. Russell is President of GCSI - Global Change Strategies International Inc., a Canadian firm dedicated to working with progressive corporate and public sector organizations to anticipate and respond to the challenges and opportunities of global change. Mr. Russell is responsible for the overall management and operation of GCSI. Prior to moving to the private sector, Mr. Russell was a senior executive in the Canadian government where he managed the development of Canada's National Action Program on Climate Change, and co-headed the Canadian delegation to the UN Framework Convention on Climate Change. He was the chief negotiator for Canada for the Berlin Mandate approved in April 1995 at the first meeting of the Conference of the Parties, and he chaired the international work of the OECD and IEA to define the reporting guidelines for Annex I countries under the Framework Convention. His professional experience includes complex international negotiations, federal-provincial and business- government relations, development of strategic plans, financial and personnel management, and management of organizations during periods of change.

Doug Russell
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