Friday, April 17, 2009

US Cap-and-Trade: Positioning Your Business

Businesses will be the first to be impacted when cap-and-trade becomes law. In response more and more businesses are crafting strategies to increase their efficiency and reduce their carbon emission. The climate change legislation being discussed in the US will increase the cost of carbon emssions and this has multifaceted implications for business.

In a previous Green Market article entitled COP 15: Positioning Your Business, I reviewed some of the issues businesses should consider ahead of the UN Climate Change Convention in December. In this article I review some of the ways companies are positioning themselves ahead of proposed US climate change legislation.

According to Environmental author Miriam Horn, businesses should position themselves ahead of a cap-and-trade program. "I think that businesses really need to start looking at their own carbon footprint and recognizing that it has a cost right now to the atmosphere, and that cost will soon be reflected on their balance sheets."

Even without legislation, many businesses see the value of making serious changes. They are becoming more efficient and many are making demands of suppliers throughout their supply chains.

In the US, there are already regional programs focusing on efficiency and emissions reductions. As Horn has indicated many forward looking companies see real value in the move towards carbon neutrality. Some of the largest firms on the planet are getting involved including Intel, IBM, Cisco, Oracle, GE, Applied Materials, Microsoft and Dell.

"Wal-Mart is working on their whole supply chain, even in China, to try to ask all of their suppliers to find lower carbon ways to do their manufacturing and lower carbon materials."

"[DuPont] has reduced its greenhouse gas emissions 9.5 percent since 2004 by cutting its energy use 7 percent, saving $60 million in fuel, electricity and purchased steam. It's also on track to increase revenues by at least $2 billion from products designed to help its customers increase energy efficiency and reduce greenhouse gas emissions, including polymers to make vehicles lighter, pressboard used in transformers in wind turbines and laminates used in hybrid vehicles."

"It’s been two or three years now since Google decided that they were going to begin operating as though there was already a cap on carbon and already a price for carbon, so all of their business decisions now reflect that. They do carbon accounting in every decision that they make."

However, extensive carbon accounting, even for behemoths like Google, cannot fully insolate a firm from the effects of recession. The company's CEO Eric Schmidt said recently, "Google is absolutely feeling the impact," According to Investor Guide, Google's quarterly report reveals its first sequential drop in sales since 2004. Google has cut its total workforce with three rounds of layoffs. In addition, Google has eliminated several side projects and its capital spending declined 40% from last year's fourth quarter.

As Google illustrates going Green does not make a firm immune to the effects of recession, it is however part of the kind of positioning that will help weather the current economic storm and take advantage of the eventual recovery. It is no coincidence that despite the recession Google continues to be profitable reporting a first quarter net income increase of 8.9% or $1.42 billion from this time last year.

Most small businesses in the US have carbon outputs that fall below the level indicated in the cap-and-trade plan contained in the proposed US climate change legislation. As the bill now reads, revenue from auctioning off carbon emission allowances will offset much of the higher energy costs. Although most small businesses will not be directly impacted by the proposed cap-and-trade legislation, reducing your businesses footprint can save money and reinforce customer loyalty.

Increasingly large and small companies are realizing that Green is more than a marketing angle, it is a basic consumer expectation. Well positioned businesses understand the particular implications of restricted carbon emissions on their industry and throughout their supply chains.

Sustainable solutions involve smart thinking, technology and innovation that respond to your set of circumstances. The first thing that any business can do is become radically efficient. Some companies are taking this further and acquiring plug in hybrids to meet their transportation needs others are completely redesigning their manufacturing processes.

Although cap-and-trade still has to overcome many obstacles to become law, the confluence of environmental and economic crises are driving a paradigm shift. Future looking businesses have a vested interest in staying ahead of the curve rather than trying to play catch-up after legislation is passed.

As stated by Horn, "Preparing for the new carbon-constrained economy might seem like a burden but will actually be a winning proposition for most businesses, helping them streamline and cut costs by cutting energy use, and also opening up new market opportunities...More and more companies are recognizing that their biggest growth opportunities will come from this transition to a low-carbon economy." The writing is on the wall and future looking businesses cannot risk being left behind.

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