TRIRIGA Insights

Beginning January 1, 2010, organizations will be required to track and report on greenhouse gas (GHG) emissions from those facilities that fall within the EPA Mandatory GHG Reporting guidelines. The EPA Mandatory GHG Reporting rule is just the first step to actually regulating GHG emissions. The EPA has taken the next step with the signing of the Endangerment Finding that officially places GHG emissions under the regulatory authority of the Clean Air Act. The EPA has also recently proposed a rule that would require carbon intensive facilities to implement "best practices and technologies" to minimize GHG emissions. In addition, both houses of Congress have proposed GHG regulation to significantly reduce emissions over the next several decades. Finally, President Obama is expected to address the United Nations Climate Conference in Copenhagen on December 18th and formally announce a non-binding GHG reduction commitment for the United States that aligns with the reduction levels proposed by Congress.

As with the EPA Mandatory GHG Reporting rule, the GHG regulations being proposed would directly affect large emitters of GHG. Facilities that fall under the EPA Mandatory GHG Reporting rule would most likely also have to comply with any GHG regulation. In total, somewhere between 10,000 and 14,000 facilities would fall under the proposed GHG regulations. For these facilities, there will be a direct cost to emit GHG. A recent study by Trucost and the IRRC Institute found that carbon intensive industries could experience a reduction in EBITDA (earnings before interest, tax, depreciation, and amortization) of between 1 and 117 percent as a result of proposed GHG legislation. These carbon intensive organizations need to look beyond mandatory reporting of GHG emissions and begin to implement programs to reduce the carbon intensity of facilities and processes. In order to accomplish GHG reduction in a cost effective manner, organizations need tools to identify carbon intensive facilities and pinpoint opportunities to reduce emissions. With the right decision support system in place, industrial facilities have an enormous opportunity to reduce energy use and carbon emissions.

All of the proposed GHG reduction regulation is designed to place a cost on carbon for those organizations that directly emit large amounts of GHG. This means that most organizations will not have facilities that fall under the GHG regulations. However, all organizations will be affected through increased energy prices and increased prices for carbon intensive inputs. GHG regulation with reduction targets in line with what Congress and President Obama propose could increase electricity prices by 30 percent over the next five years. Given the increased probability of GHG regulation, organizations must prepare for significantly increased energy costs in the near term. The good news is that there are many cost effective strategies that organizations can implement to reduce energy costs and environmental impact. The bad news is that few organizations have the tools to gather the energy and environmental information necessary to optimize capital and resource allocation to the projects with the highest financial and environmental return.

Whether your organization is directly or indirectly affected by GHG regulation, the time to prepare is now. Organizations that proactively prepare for GHG regulation will be positioned to capitalize on opportunities to reduce energy use and improve environmental performance.