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7 ways to be prepared for a US federal emissions trading scheme

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With all the fuzz about the financial crisis we should almost forget about another crisis that urgently needs action: the climate crisis. According to Al Gore the former Vice President, who won a Nobel Peace Prize for his work on global warming, "the year 2009 will be the most important opportunity the world has ever had to make progress in really solving the climate crisis.'' And right he is, certainly when the US is concerned.

2009, a year of change

In 2009 Obama will replace George W. Bush, a president who opposed mandatory cuts of greenhouse gas pollution and did not want to ratify the Kyoto Protocol. Obama wants to change all that and it looks like it that he also has a willing Congress regarding carbon trading. On top of that the world will come together in Copenhagen, Denmark in December 2009, trying to agree on a major new international emissions agreement for the post 2012 period. The current Kyoto Protocol will end by 2012.

Especially in Europe there are high hopes that the US will finally live up to its responsibilities and take the lead in the negotiation process. However, the question remains whether President Obama despite all his nice rhetoric during his campaign will be able to pass a climate bill through Congress during a worldwide financial crisis in time to meet the crucial deadlines.

Challenges and opportunities for corporate America

The impact of such a federal cap and trade system for carbon would be tremendous. According to a forecast made by New Carbon Finance, the US could have a $3 trillion carbon trading market by 2020. That is more than twice the size of the European Union's Emissions Trading Scheme (EUETS).

They also forecast that a U.S. cap-and-trade program would lead to a carbon price of $40 per ton as soon as 2015. What would result in a rise in consumer energy prices in real terms of roughly 20% for electricity, 12% for gasoline and 10% for natural gas. Of course this is only a forecast, but it makes apparent the enormous challenges and opportunities that lie ahead for corporate America.

Therefore each American company that might be affected – and which company isn’t - should begin preparing to understand the economic significance of the carbon trading market and the lessons that could be learned from the European Union Emissions Trading Scheme (ETS). The ETS is already operational since 2005. So now is the right time to try to understand the carbon market dynamics.

Be prepared to benefit

Below I describe 7 tips about how to make sure that you and your company will be ready and can benefit from the opportunities that will be certainly available in an emissions trading scheme:

  1. Be prepared. From experience I know that companies tend to start too late with their preparations. Something that will certainly cost you money. It is much better to be proactive than reactive. So start now.
  2. Understand the potential impact on your company. Make scenarios of how a federal cap and trade system would have an impact on your economic, financial and competitive status, but also whether you should for instance appoint a special project team or department that will deal with this issue.
  3. Review the lessons that could be learned from your European counterparts. Companies in Europe do already have experience in an emissions trading scheme for 4 years now. Try to avoid their pitfalls and introduce their strong points and thus shorten your learning curve.
  4. Make an assessment of your alternatives next to trading emissions credits. Try to answer questions such as; are there any measures that we could introduce ourselves that would decrease our emissions levels or should we invest directly in CDM projects in countries such as China, India and Brazil?
  5. Try to influence the government in their decision process. Especially in the current climate of economic recession it would be good to put strong pressure on your policy makers to make the regulation not too tough and thus very expensive to you. Also here it is certainly interesting to monitor the discussions in Europe about the allocation of credits for the period 2013-2020. Should most credits be allocated for free or auctioned? Should auctioning be introduced phase wise, etc.
  6. Educate your key people. Your relevant managers should have a clear understanding of what emissions trading is all about. By organizing in-house workshops they will get a thorough introduction and will gain knowledge that will be very beneficial in their day-to-day job. I have given several of these workshops from a basic to an advanced level, to leading companies in Europe, India and China.
  7. Hire a good consultant. It will be our pleasure to share our expertise with you as well. By working for so many different companies we are able to bring you the ‘best practice’. Want to know how? All you have to do is contact us.

- Kasper Walet -


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