Regulations and Energy/Emissions Credit Markets

Global warming and emissions science are forcing regulatory reform in virtually all business sectors, and corporations are facing significant liability and financial responsibility for reducing GHG emissions. While state and federal regulations make corporate environmental compliance more challenging, they are also creating new revenue opportunities.

Companies that act now can generate significant additional revenues through investments in GHG-related assets and carbon credit projects. Established markets are growing and creating the monetary value on Greenhouse Gases (GHG), on RECs, and other emissions, such as the SO2 and NOx allowance trading markets.

Below we share some of the key resources we use to monitor regulation, emerging markets and our clients' compliance strategies.

GHG/Carbon – Regulatory

Under a regulated limit to carbon emissions (a "cap" on emissions), permits or "allowances" are given or auctioned to carbon emitters who then conduct business within this set limit. This creates a market for these allowances, where lower emitting entities can trade their extra allowances to those who need the additional capacity, hence the term "cap-and-trade" carbon markets.

  • National CO2 cap-and-trade legislation is viewed as the most likely outcome of recent congressional activity. Federal legislation is being developed by numerous committees and is summarized here:
  • State and regional efforts are summarized here:
  • The California Air Resources Board is expected to introduce a cap-and-trade system to achieve greenhouse gas reduction of 25% by 2020 and 80% by 2050, via California AB 32, recently signed into law.

GHG/Carbon – Voluntary

In a voluntary carbon market, an entity or "emitter" volunteers to offset its carbon emissions by purchasing carbon allowances from a third party. The third party then invests this money in projects that reduce carbon in the atmosphere, such as planting trees (natural carbon sequestration) or investment in renewable energy, where this renewable capacity reduces fossil fuel use from traditional carbon-emitting energy sources.

Renewable Energy Credits (RECs) – Regulatory

Perhaps the most immediate revenue source from a corporate solar PV system are RECs mandated by state-level portfolio standards regulations requiring the use of renewable energy by the utilities or load serving entities (LSEs) feeding the grid in those states.

A Renewable Energy Credit (REC) represents one megawatt hour (MWh) of renewable electricity generated and delivered somewhere on the power grid. A REC also represents the environmental benefits of replacing traditional, fossil-fuel power with renewable power. Markets put a value on the fact that for every MWh of renewable energy produced, there is one less MWh of power that is harmful to the environment.

  • Compliance market REC pricing can be found here.

Renewable Energy Credits (RECs) – Voluntary

Many corporate clients voluntarily support "green power" by buying the "green attributes" of renewable energy through a variety of 'retail' certification and verification programs:

  • The non-profit Center for Resource Solutions has created the "Green-e" program, the largest U.S. voluntary REC certification program that verifies "green power" retailers.
  • The U.S. DOE has created The Green Power Network (GPN) to provide information on green power providers, product offerings, consumer protection issues, and policies affecting green power markets.

Institutional Investment Community

Today public companies need to assure investors and regulators of their specific environmental compliance history, policies and plans, as the institutional market has brought significant environmental criteria into their investment strategies and policies.

  • The Carbon Disclosure Project (CDP) assesses the implications for shareholder value and commercial operations presented by climate change on behalf of institutional investors with a combined $57 trillion of assets under management. CDP evaluates the business risks and opportunities presented by climate change from the world's largest companies, and is the largest repository of corporate greenhouse gas emissions data in the world.
  • Ceres is a national network of institutional investors and environmental organizations that companies can join to verify their efforts, understand emerging issues, and gain access to leading investors and sustainability experts.
  • The Global Reporting Initiative (GRI) has developed the most widely used sustainability reporting framework — Sustainability Reporting Guidelines — which outline the principles and indicators that companies can use to measure and report environmental performance.
  • The G3 Guidelines are the cornerstone of the GRI Sustainability Reporting Framework.
  • The Greenhouse Gas Protocol (GHG Protocol) is an international accounting tool for business leaders to understand, quantify, and manage greenhouse gas emissions. The GHG Protocol, a decade-long partnership between the World Resources Institute and the World Business Council for Sustainable Development, works to build proactive programs towards managing climate change.

ISO Environmental Certification(s)

The International Organization for Standardization (ISO), the world's largest developer and publisher of international standards, has developed ISO 14000 – a series of international standards that incorporate environmental aspects into business operations and product standards.

  • ISO 14001 is the specific standard in the series for a management system that incorporates a set of interrelated elements designed to minimize an organization's impact on the environment.

EPA Programs

The Environmental Protection Agency (EPA) is developing specific programs for emissions disclosure and compliance. With the EPA's Climate Leaders program, companies commit to reducing their impact on the environment with a corporate-wide inventory of their greenhouse gas emissions, setting aggressive reduction goals, and annually reporting their progress to EPA.

  • Climate Leaders program details and updates can be found here.
  • Additional EPA programs monitor GHG emissions in the corporate sector by industry group.

U.S. Green Business Council (USGBC) Standards

USGBC's LEED program (Leadership in Energy and Environmental Design) is the most prominent and recognized green building rating system, designed to set universally understood and accepted tools and performance criteria in the building/construction industry.

  • The LEED program is forcing global adoption of sustainable green building and development practices through its proprietary measurement systems.

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