Executive Briefings

Cap and Trade Up in Smoke, So What's Next for Sustainable Business?

It's said that the people spoke in the November mid-term elections, with the Republican Party regaining control of the U.S. Congress. It was apparently not just a murmur here and there, but screaming and shouting at historical volumes unheard for more than half a century. From January 2011, the path of political progress is far from certain and will require careful negotiation. But what's immediately apparent form both parties and President Obama himself is that cap and trade is, for now, off the agenda. The climate-change stalking horse has fallen even before the first fence. President Obama indicated he will work in as-yet undefined "other ways" to reduce greenhouse gas (GHG) emissions.

On top of this, the U.S. Environmental Protection Agency's (EPA) Climate Leaders program announced a planned wind-down this past month, and shortly after the results of the mid-term elections, the experimental, voluntary Chicago Climate Exchange (CCX) said it would discontinue trading next month. This follows a period where voluntary carbon credits were selling at "junk" prices of about $0.10 per ton of CO2-e.

Engagement and Leadership Needed. Cap and Trade? Maybe Not.
For our sake, let's hope not. Both political parties must recognize the broader implications of the low-carbon transformation for long-term, U.S. manufacturing and economic competitiveness. Sustainability is now a critical issue for global supply chains.

The Republican caucus has a potent opportunity to look beyond the increasingly marginal and decreasingly common dissenting voices on climate change as well as the cacophony calling for an energy and economic status quo to "protect" U.S. competitiveness. Without full attention to this issue, we are poised to move from being debt-fueled consumers of foreign oil to the customers of other people's clean-technology innovations. Crude oil futures took a sharp jump last week, approaching $90 a barrel on the New York Mercantile Exchange (NYMEX). In January 2009, oil was selling for less than $32 per barrel. And if price volatility isn't bad enough, according to BP's latest statistical survey of world fossil-fuel reserves, the United States has less than 15 years of known resource in ground. No matter how you look at it, this points toward an increasing dependency on reserves from geographies dominated by potentially unstable and hostile regimes.

In the long term, the cry of "cap and trade over our dead bodies" and the dismissal of clean energy and sustainability issues relating to it will serve to undermine U.S. competitiveness and growth. What's needed is leadership and engagement, not dismissal and denial. We hope there are bipartisan avenues for creatively engaging with the issue, rather than allowing the United States to continue to slip backward in the race to the top of the clean-energy and technology markets of the 21st Century.

Fully catalyzing this transformation and its attendant opportunities will require wide-ranging and integrated policy development. Cap and trade isn't necessarily the best or even a complete solution to achieve GHG emission reductions. Data from the European Union, which embraced the concept for more than five years, is inconclusive at best. Consider that the claimed 15-percent U.K. CO2 emission reduction since the commencement of the Kyoto Protocol rises by 4 percent when offshore outsourced manufacturing and services are included in the checks and balances. Similarly, Climate Leaders and the CCX were blunt, non-unique and voluntary tools of rather limited utility. However, they were still important, early tools with which to experiment, evolve and better understand the underlying economic, environmental and business imperatives. Likewise, cap and trade shouldn't be viewed as a unique solution or irritant, but as an experimental instrument to accelerate the energy and efficiency transformation and economic realignment already under way. In any case, it was only a small portion of the American Clean Air and Energy Act of 2009 passed by Congress.

Sustainable Business = Business Value
The current blockade of cap and trade, the loss of the EPA's Climate Leaders program and the end of the CCX could all be viewed as positive outcomes. They signal the end of "playing" with climate change and sustainability at the margins of the economy. The vacuum created has already been partially filled by the proactive position that leading public- and private-sector organizations have already taken in terms of sustainable business and the realization that it's becoming a key enabler of success through additions to brand, perceptional and shareholder value via the attendant reputational, performance and efficiency factors. Business has gotten serious about sustainability on a global scale.

The days of nongovernmental organization (NGO) and volunteer organization "logo collecting" and well-intended chat are over. Voluntary carbon credits are in every sense an unofficial tax on shareholder value. Carbon neutralization has been abandoned by many organizations that now realize the measure of business-savvy sustainable performance is on minimizing the energy or emission density of operations, products and services as well as ensuring risk-minimizing disclosure of environmental performance to end customers and supply chain partners alike. Understanding and right-weighting an organization's energy and resource sources, consumption rates and emission levels are about making money. Sustainable business is about business value.

The remainder of the vacuum created by the impasse on the American Clean Air and Energy Act must be filled with well-reasoned, information-based, strategic and long-term government policies designed to simultaneously address the increasingly internalized environmental and resource scarcity challenges of our time. There's also the need to build an economy based on efficiency and self-sufficiency in clean-energy technologies. It's the path to stability, security and sustainable growth. The fear of change that has, in part, driven us to the current hiatus in climate and energy policy must urgently be substituted by an expansive vision of a future that looks very little like the present. The position of climate denial has been untenable for a considerable period. History will harshly judge future governments that don't build a policy framework that fully embraces and actively catalyzes the sustainable economic realignment. Economic realities mean that long-term prosperity and well-being will be significantly co-related.

AMR Research focused on the issue of sustainable business for some time. Within Gartner, the issue is reinforced and expanded by widespread coverage from green IT specialists and related analysts. Check out our recently published Special Report on Sustainability, which showcases a selection of our recent research in this area and how it links to the current economic realignment, sustainable business process, green IT, sustainability-enabling technologies and services, components and materials and the energy sector. It's a must-read for supply chain and IT executives alike. Whether you like it or not, sustainability is an issue that will increase in importance as we move forward.

A Final Word and Bellwether for the Future: No Smoke of Any Kind From California?
It shouldn't be overlooked that in reality the only voters who were actually given an opportunity to directly express a view on cap and trade and climate legislation were in California. Yes, we know California does have something of a reputation for being "unusual" when it comes to trends, fashions and politics, but it shouldn't be forgotten that California's Proposition 23 was the first time cap and trade was put to the vote by a U.S. electorate. Despite the current challenging economic conditions Californians are facing, they voted down a proposal to delay the planned cap-and-trade program in place within California's Assembly Bill (AB) 32.

As with the failed American Clean Air and Energy Act, capping and trading GHG emissions is only one piece of a portfolio of actions proposed under AB 32. Other targets include reducing transport-related emissions, clean car and fuel standards, the expansion of energy-efficiency programs and a statewide, renewable-energy target of 33 percent.

Although it would be easy to dismiss this as merely a liberal Californian phenomenon, clean-air, environmental and sustainability policies have resulted in stable rates of energy consumption in the state for the past three decades. Its economy has grown more than nine-fold on a per-capita annual basis. U.S.-wide energy consumption over the same period increased by about 30 percent without attaining an equivalent economic growth rate.

According to the Brattle Group, cost impact modeling of AB 32's various apparatus for lowering global warming emissions could be offset by adding as little as $0.03 to a restaurant check of $20.00 in 2020. I, for one, will be only too happy to shell out the extra pennies.

Maybe there's something to the cool, clear Pacific breeze after all.

Source: Gartner

It's said that the people spoke in the November mid-term elections, with the Republican Party regaining control of the U.S. Congress. It was apparently not just a murmur here and there, but screaming and shouting at historical volumes unheard for more than half a century. From January 2011, the path of political progress is far from certain and will require careful negotiation. But what's immediately apparent form both parties and President Obama himself is that cap and trade is, for now, off the agenda. The climate-change stalking horse has fallen even before the first fence. President Obama indicated he will work in as-yet undefined "other ways" to reduce greenhouse gas (GHG) emissions.

On top of this, the U.S. Environmental Protection Agency's (EPA) Climate Leaders program announced a planned wind-down this past month, and shortly after the results of the mid-term elections, the experimental, voluntary Chicago Climate Exchange (CCX) said it would discontinue trading next month. This follows a period where voluntary carbon credits were selling at "junk" prices of about $0.10 per ton of CO2-e.

Engagement and Leadership Needed. Cap and Trade? Maybe Not.
For our sake, let's hope not. Both political parties must recognize the broader implications of the low-carbon transformation for long-term, U.S. manufacturing and economic competitiveness. Sustainability is now a critical issue for global supply chains.

The Republican caucus has a potent opportunity to look beyond the increasingly marginal and decreasingly common dissenting voices on climate change as well as the cacophony calling for an energy and economic status quo to "protect" U.S. competitiveness. Without full attention to this issue, we are poised to move from being debt-fueled consumers of foreign oil to the customers of other people's clean-technology innovations. Crude oil futures took a sharp jump last week, approaching $90 a barrel on the New York Mercantile Exchange (NYMEX). In January 2009, oil was selling for less than $32 per barrel. And if price volatility isn't bad enough, according to BP's latest statistical survey of world fossil-fuel reserves, the United States has less than 15 years of known resource in ground. No matter how you look at it, this points toward an increasing dependency on reserves from geographies dominated by potentially unstable and hostile regimes.

In the long term, the cry of "cap and trade over our dead bodies" and the dismissal of clean energy and sustainability issues relating to it will serve to undermine U.S. competitiveness and growth. What's needed is leadership and engagement, not dismissal and denial. We hope there are bipartisan avenues for creatively engaging with the issue, rather than allowing the United States to continue to slip backward in the race to the top of the clean-energy and technology markets of the 21st Century.

Fully catalyzing this transformation and its attendant opportunities will require wide-ranging and integrated policy development. Cap and trade isn't necessarily the best or even a complete solution to achieve GHG emission reductions. Data from the European Union, which embraced the concept for more than five years, is inconclusive at best. Consider that the claimed 15-percent U.K. CO2 emission reduction since the commencement of the Kyoto Protocol rises by 4 percent when offshore outsourced manufacturing and services are included in the checks and balances. Similarly, Climate Leaders and the CCX were blunt, non-unique and voluntary tools of rather limited utility. However, they were still important, early tools with which to experiment, evolve and better understand the underlying economic, environmental and business imperatives. Likewise, cap and trade shouldn't be viewed as a unique solution or irritant, but as an experimental instrument to accelerate the energy and efficiency transformation and economic realignment already under way. In any case, it was only a small portion of the American Clean Air and Energy Act of 2009 passed by Congress.

Sustainable Business = Business Value
The current blockade of cap and trade, the loss of the EPA's Climate Leaders program and the end of the CCX could all be viewed as positive outcomes. They signal the end of "playing" with climate change and sustainability at the margins of the economy. The vacuum created has already been partially filled by the proactive position that leading public- and private-sector organizations have already taken in terms of sustainable business and the realization that it's becoming a key enabler of success through additions to brand, perceptional and shareholder value via the attendant reputational, performance and efficiency factors. Business has gotten serious about sustainability on a global scale.

The days of nongovernmental organization (NGO) and volunteer organization "logo collecting" and well-intended chat are over. Voluntary carbon credits are in every sense an unofficial tax on shareholder value. Carbon neutralization has been abandoned by many organizations that now realize the measure of business-savvy sustainable performance is on minimizing the energy or emission density of operations, products and services as well as ensuring risk-minimizing disclosure of environmental performance to end customers and supply chain partners alike. Understanding and right-weighting an organization's energy and resource sources, consumption rates and emission levels are about making money. Sustainable business is about business value.

The remainder of the vacuum created by the impasse on the American Clean Air and Energy Act must be filled with well-reasoned, information-based, strategic and long-term government policies designed to simultaneously address the increasingly internalized environmental and resource scarcity challenges of our time. There's also the need to build an economy based on efficiency and self-sufficiency in clean-energy technologies. It's the path to stability, security and sustainable growth. The fear of change that has, in part, driven us to the current hiatus in climate and energy policy must urgently be substituted by an expansive vision of a future that looks very little like the present. The position of climate denial has been untenable for a considerable period. History will harshly judge future governments that don't build a policy framework that fully embraces and actively catalyzes the sustainable economic realignment. Economic realities mean that long-term prosperity and well-being will be significantly co-related.

AMR Research focused on the issue of sustainable business for some time. Within Gartner, the issue is reinforced and expanded by widespread coverage from green IT specialists and related analysts. Check out our recently published Special Report on Sustainability, which showcases a selection of our recent research in this area and how it links to the current economic realignment, sustainable business process, green IT, sustainability-enabling technologies and services, components and materials and the energy sector. It's a must-read for supply chain and IT executives alike. Whether you like it or not, sustainability is an issue that will increase in importance as we move forward.

A Final Word and Bellwether for the Future: No Smoke of Any Kind From California?
It shouldn't be overlooked that in reality the only voters who were actually given an opportunity to directly express a view on cap and trade and climate legislation were in California. Yes, we know California does have something of a reputation for being "unusual" when it comes to trends, fashions and politics, but it shouldn't be forgotten that California's Proposition 23 was the first time cap and trade was put to the vote by a U.S. electorate. Despite the current challenging economic conditions Californians are facing, they voted down a proposal to delay the planned cap-and-trade program in place within California's Assembly Bill (AB) 32.

As with the failed American Clean Air and Energy Act, capping and trading GHG emissions is only one piece of a portfolio of actions proposed under AB 32. Other targets include reducing transport-related emissions, clean car and fuel standards, the expansion of energy-efficiency programs and a statewide, renewable-energy target of 33 percent.

Although it would be easy to dismiss this as merely a liberal Californian phenomenon, clean-air, environmental and sustainability policies have resulted in stable rates of energy consumption in the state for the past three decades. Its economy has grown more than nine-fold on a per-capita annual basis. U.S.-wide energy consumption over the same period increased by about 30 percent without attaining an equivalent economic growth rate.

According to the Brattle Group, cost impact modeling of AB 32's various apparatus for lowering global warming emissions could be offset by adding as little as $0.03 to a restaurant check of $20.00 in 2020. I, for one, will be only too happy to shell out the extra pennies.

Maybe there's something to the cool, clear Pacific breeze after all.

Source: Gartner