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Heads Out of The Sand on Regulatory Expectations, But Companies Still Unprepared

Energy and utility professionals surveyed expect environmental regulations to increase – but two thirds have no plan to manage financial risk stemming from them.

Submitted by: Francesca Rheannon

Posted: Feb 07, 2013 – 09:12 AM EST

Tags: energy, environment, ab32, regulation, enviance, water management, carbon tax, cap and trade, energy law, environmental law


By Francesca Rheannon

When President Obama gave his inaugural address on January 21, he gave a strong signal that climate change was going to be a priority for his second administration. “We will respond to the threat of climate change, knowing that failure to do so would betray our children and future generations.”

How this intention will actually be carried out is yet unclear, but American energy and utility companies seem to have gotten the message.

That’s the conclusion from a survey conducted by environmental tracking and reporting software company Enviance at the annual Energy, Utility and Environment Conference (EUEC 2013) recently concluded in Arizona.

The conference, which began in 1995, is the largest energy, utility and environment gathering in the U.S. This year, it brought together more than 2,000 delegates, including company executives from the energy and utility industry, environmental professionals, government policymakers, and representatives from NGOs and advocacy organizations. Conference topics ranged over areas such as air policy and regulations, renewable energy, biofuels and biomass, energy efficiency, and sustainability and water, among others.

Enviance has been surveying participants over the past four years about the impact of regulation and sustainability issues on their organizations.

Darryl Gordon, Marketing VP at Enviance told CSRwire:

“We talked to about two hundred attendees representing a wide range of companies and organizations -- from business leaders who manage compliance of environmental regulations to policy makers that help design those regulations and the energy executives who play a big role in meeting our energy goals and mandates.”

The results are striking. They show that while the respondents are aware that the regulatory environment is changing around energy and climate issues, most are unprepared for it.

Companies Fail To Plan For a Cost on Carbon

Two thirds of survey participants admitted they “do not have a plan in place to manage the financial cost of carbonrisk associated with the imposition of a cost on carbon, either through cap and trade or a tax.” This was in spite of the fact that in Enviance’s 2012 survey, 60 percent of the respondents acknowledged that pricing or taxing carbon emissions would have an impact on their company.

“The fact that two thirds of respondents haven't planned for the financial risks associated with the imposition of the cost of carbon was surprising,” said Gordon. “A cost on carbon can drive revenue and help environmental efforts, but can also increase costs on businesses if they aren't properly prepared.”

Pricing Carbon Gets Underway, Despite Challenges

But when it comes to the particulars of pricing carbon, survey respondents were less clear on the impact to them, at least as far as California’s carbon cap and trade act, AB32, is concerned.

California ranks15th in global greenhouse gases, emitting about 2 percent of the total; the act aims to bring emissions down to 1990 levels by 2020 (a 17 percent cut over current levels) and to slash them 80 percent by 2050. It follows the Regional Greenhouse Gas Initiative (RGGI) in the Northeast and is widely seen as a model for other U.S. initiatives to come, whether on the state, regional or even federal level.

But when asked whether AB 32 would have an impact on their organization, 72 percent of those surveyed by Enviance answered in the negative.

I asked Gordon how he interpreted this result – did it mean that AB32 was seen as ineffective?

“Because 72 percent of the respondents believe it won't have any impact on their organization doesn't necessarily mean that the program is ineffective or a paper tiger, but possibly that these people don't represent companies or organizations that need to comply with the program due to emissions levels, geographic scope or that it just might not affect them in the short term,” he replied. 

AB32 has been the subject of legal challenges from both industry groups, like the Chamber of Commerce andcap and trade some environmental organizations seeking tougher standards for allowing carbon offsets, but so far, courts have decided in the act’s favor. 

And in a political climate that shows widespread support for a tax on carbon and even whispers of praise from some in Congress (if not the Obama Administration), carbon pricing is likely to have a much broader impact than on just the companies included in the early stages of implementation. Regulated “entities” under AB32 include the expected production facilities, mining operations, and power plants and electricity importers, but also colleges and universities, foods and beverages manufacturers and sewage treatment facilities. 

As one writer put it on Sustainable Business Forum:

California’s program doesn’t directly impact many businesses throughout the country, however, what it does do, is mark a signal about the role and value of offsetting programs in delivering efficient and effective emission reduction programs: programs that will deliver strategic value to business.

Apart from the obvious benefits of getting ahead of the competitive curve by putting good carbon management policies into place, companies that fail to do so risk incurring serious costs, from fees for not complying with environmental regulations to volatility in energy prices, according to Gordon.

Water Key Concern for Energy Companies, Utilities

Another area of concern for many survey respondents was water management. Two thirds ranked it projected water scarcity in 2025as “of equal or greater value to them as managing carbon emissions.” This represented a big turnaround from last year’s conference survey, where a majority responded that “water management was either of no importance, or less important than carbon emission reporting.”

Darryl Gordon thinks the results “highlight the growing concerns over protecting our increasingly scarce water resources and stricter regulations surrounding water quality.” He added by referencing the costs of ignoring the problem, “Water management affects many industries’ bottom lines and more and more consumers, regulators and investors scrutinize an organization's engagement with this issue.”

Embrace Regulation Or Fall Behind, Says CEO

Enviance CEO Larry Goldenhersh told CSRwire:

“The re-election of President Obama, followed by his highlighting of climate in his inauguration speech, and a resurgent economy, assure that the drum beat of federal regulatory pressure on greenhouse gas emitters will continue and probably intensify. In light of this momentum, companies without a compliance management system should consider implementing one to avoid an otherwise inevitable escalating spiral of risk and cost.”

Whether tackling environmental issues head-on or being dragged kicking and screaming into the future, executives and managers had better pay heed to the winds of change. Talking about it is no longer enough.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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