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The World Needs a Ruler: Life with Carbon on the Balance Sheet

By Lawrence E. Goldenhersh, President and CEO, Enviance

In horse racing terms, the first quarter of 2007 represented the ‘trifecta’ for advocates of greenhouse gas regulation and carbon constraint. In three consecutive months, decisions in the scientific, financial and legal communities drove this nation past the tipping point on greenhouse gas – moving from ambivalence about the need to address climate change to a decision that greenhouse gas regulation and reduction were important and necessary.

Because greenhouse gases have not been regulated before, the imposition of restrictions on greenhouse gas emissions has the potential to drive a fundamental restructuring of our carbon-based economy. If analysts are correct, the ‘right’ to emit greenhouse gas, which today is ‘free’ in the U.S., could cost industry between $13 to $40 per ton of carbon dioxide (CO2) or CO2 equivalent (CO2e) emitted. This represents the potential addition of $50 billion in cost per year to the U.S. economy.1

The Greenhouse Gas Trifecta and the Year-Long Run
In the first 90 days of 2007, the science, financial and legal communities all tipped on greenhouse gas. In January of 2007, the Intergovernmental Panel on Climate Change (IPCC), a panel of 2500 scientists from 130 countries, announced that they were 90% certain that mankind’s activities had caused global warming since the 1950s. This decision, which was a revision of their earlier statement that they were ‘50% sure,’ effectively ended the debate about whether a greenhouse gas crisis ‘existed.’

One month later, in February of 2007, the TXU buyout deal rocked not only the financial community, but the greenhouse gas world as well. At $44 billion, the TXU deal was the largest buyout in history, and the first to be predicated on a ground-breaking deal with environmentalists to cut greenhouse gas by replacing proposed coal fired power with alternatives. The transaction was a milestone, not only for it size, but because it represented a very substantial bet by the financial markets that carbon restraints and greenhouse gas regulations were coming to the U.S., and soon.

Finally, the Supreme Court, in Massachusetts v. EPA, took the last step, by finding that the Environmental Protection Agency (EPA) could regulate greenhouse gas under the Clean Air Act and that the states had the right to sue if the EPA failed to act.

Throughout the rest of 2007, the pace initiated in the first quarter only accelerated. Reduction of greenhouse gas emissions moved to the forefront at national, state and local levels of government. Not only is the EPA required to finalize GHG registry in 2009 as part of omnibus spending bill, but the Senate Environment and Public Works Committee voted to send a bill to cut greenhouse gases to the Senate floor this year. Industry readied itself as California pressed forward with Assembly Bill 32, which mandates collection of greenhouse gas emissions commencing January 1, 2008 and which requires that the state’s global warming GHG emissions be reduced to 1990 levels by 2020. In addition, various states enacted legislation requiring that a portion of electricity come from renewable sources. At the local level, more than 700 mayors signed a pledge to reduce greenhouse gases by 2012. Internationally, 180 nations, including the United States, met at the United Nations Climate Change Conference in Bali, and adopted the Bali roadmap, which provides for a formal process that is intended to lead to an international agreement on climate change. Cutting across all levels of the community was ‘An Inconvenient Truth,’ former Vice President Al Gore’s consummate populist articulation of the greenhouse gas problem.

This momentous year was punctuated with the award of the Nobel Prize to Al Gore and the IPCC and publication of the IPCC’s fourth report, which rang alarm bells over the potential irreversibility of the adverse effects of greenhouse gas: “(Global warming) is ‘unequivocal as…’ evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global average sea level. This warming effect is (and will continue to have) adverse affects on natural and human ecosystems – and may be irreversible.”

Starting Point for Transition: The World Needs a Ruler
As carbon forces its way onto the balance sheet, all sectors of our society are struggling to cope with the changing paradigm. In this transition one thing is clear: The fundamental prerequisite to any meaningful effort to manage greenhouse gas is the implementation of a system that produces auditable, verifiable, standardized greenhouse gas emissions data – a ‘ruler.’ All stakeholders need this standardized measurement capability.

Affected companies need this ‘ruler’ to:
  1. Understand their footprint within the fence line
  2. Assess, address and audit the greenhouse gas footprint of its supply chain
  3. Provide competent calculations that can be used to disclose to management and investors the costs and future financial risk posed by greenhouse gas issues, and
  4. Create and assess the success of greenhouse gas reduction strategies
The visibility that such a system provides companies allows them to manage the costs and risks of the greenhouse gas challenge while, at the same time, gives them credibility with regulators and policy makers making the rules that affect the company’s competitiveness and financial well-being. This credibility could get the affected company perhaps the most valuable short-term objective of all: A ‘seat at the table’ – the right to meaningfully participate in the crafting of the rules that will be issued.

Policy makers, too, need such a system because it is not possible to architect a successful greenhouse gas strategy in a vacuum, without access to reliable data that can be used to assess the cost impacts of the rules to be implemented. These ‘rulers’ themselves need a ‘ruler’ – a reliable, auditable, standardized system that can create a common measure for CO2e.

Internet-Based Technology Has Provided the Measurement System
Fortunately, the Internet has been the source of both a platform and commercialized technology to provide the solution. Given the global scope of the greenhouse gas problem, and the need for ‘supply chain environmentalists’ to track emissions across the global supply chain, traditional enterprise systems cannot be cost effectively deployed to meet the measurement and management needs of the carbon-constrained world. Because they have been designed from inception to be deployed quickly over the Internet, without the need for hardware or software, Internet-based applications are ideal for addressing the greenhouse gas management challenges. Moreover, current Internet-based software solutions are sold as a service, with the software provider offering not just technology, but deep greenhouse gas specific domain guidance as well.

As with any other purchase, the buyer needs to ask the right questions and conduct the necessary investigation to ensure the provider offers the technology and expertise required. Before buying, make sure that the Internet-based service provider confirms that it has deep compliance and greenhouse gas emissions knowledge and extensive in-house experience in providing the 7x24x365 Internet application service being offered. Most importantly, the provider needs a deep list of reliable reference customers that will vouch for the knowledge base, technological ability and service record.

As a country, the United States is charging headlong towards robust greenhouse gas regulations and limitations. Without an auditable system that can reliably and cost-effectively track greenhouse gas emissions, organizations will have no way to manage its emissions, and regulators will have no way to promulgate rules that achieve greenhouse gas reductions without destroying the economy. The world needs a ruler, and quickly. If you don’t believe it, just ask the polar bear.

1 Various greenhouse gases warm the earth to differing degrees. For measurement purposes, greenhouse gas emissions are all converted to the amount of CO2 required to produce the warming produced by the gas emitted. For example, methane has approximately 23 times the warming potential of CO2 and, therefore, one ton of methane would have the CO2e of 23[0] .

Lawrence E. Goldenhersh is President and CEO of Enviance, the provider of the industry’s leading Internet-based environmental, health and safety compliance solution. He founded Enviance in 1999 to drive a sea change in the quality of compliance management by leveraging the revolutionary power of the Internet. Larry is responsible for the strategic and operational management of the company, helping leading companies at 10,000 users in 45 countries to manage environmental compliance. For article feedback, contact Lawrence at info@enviance.com  

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