Reminder

Don’t forget to turn off all of your non-essential lights for one hour tomorrow evening at 8:30.

EPA Finds GHG Endangerment to Health & Welfare

As maurgood reported yesterday, EPA declared this afternoon that greenhouse gases (GHG) endanger human health and welfare. This marks the first step toward possible federal regulation under the Clean Air Act (CAA) of GHGs – and carbon dioxide (CO2) in particular – from power plants, vehicles, refineries and others facilities, as well.

As we said in our previous alert (April 16, 2009), the finding does not automatically trigger new rules. What follows now is a 60-day public comment period and two public hearings before it is finalized.

Business needs to stay closely tuned to unfolding developments for reasons explained in the April 16 alert.

maurgood will continue to monitor and report on breaking developments.

“Endangerment Finding” On Greenhouse Gas Emissions Expected Today

As we recently informed you in our April 1st newsletter, Federal Climate Change Is At the Door: Are You Ready? EPA (The U.S. Environmental Protection Agency) was expected to announce around this time its finding that greenhouse gas (GHG) emissions present a danger to the public health and welfare.

The endangerment announcement is expected to be made public today, April 16, 2009, or by April 22 (Earth Day) at the latest. Once EPA Administrator Lisa Jackson signs it, it will be followed by a 60-day public comment period and two public hearings before it is finalized.

Why This Matters To You

The endangerment finding is of the utmost concern to industry groups and environmental groups alike, for different reasons.

Industry and business are most concerned that the endangerment finding will result in costly cascading regulation down to small sources under the Clean Air Act (CAA).

While it is true that the CAA does require regulation under the circumstances, it is arguable whether it requires regulation that covers all or most emission sources.

What is more likely is that endangerment finding will result in proposed GHG regulations that will initially cover automobiles and light trucks – a measure much more likely to impact manufacturers than anyone else at this time.

Less likely, though still possible, is that EPA proposes regulation that covers not just cars and light trucks, but also stationary sources.

A middle ground position could include motor vehicles and power plants – the two largest sources of GHG emissions.

Those in energy and manufacturing industries should pay close attention since these development raise crucial issues including whether New Source Performance Standards (NSPS) should include requirements for control of GHGs; and how the New Source Review (NSR) and Prevention of Significant Deterioration (PSD) provisions of the CAA can accommodate GHG emissions and comply with a GHG National Ambient Air Quality Standards (NAAQS) in general.

What does this mean to you?

While we will learn more in the coming days about what EPA plans to do as a follow up to the endangerment finding, indications are that the ultimate goal is to coordinate GHG regulations with more comprehensive federal energy and climate change legislation. This means that strictly from a legal compliance standpoint, those businesses unlikely to be affected by the first phase of regulation are off the hook.

But perhaps the more important - and smarter – consideration for small and medium size business is the business case. Under this analysis, it should become very clear to businesses of all size that taking proactive steps toward reducing energy consumption and GHG emissions is a top priority for their business to remain both viable and profitable.

Why?

Because even the smallest of businesses is in somebody’s supply chain.

If you are in business, you are selling something to someone – and likely buying from others. That means you have stakeholders that may include employees, customers, suppliers, distributors, partners, shareholders and neighbors.

All of these groups are seeing dramatic increases in demands for responsible environmental and social behavior from those they buy from and sell to. This means that even if you have not yet experienced demands from a key stakeholder to be more environmentally or socially responsible, you are very unlikely to end 2009 without having to respond in some manner to these new market realities.

And it will only continue to grow as these issues have now entered the mainstream. They are not a fad, but a bona fide trend that should be telling smart business owners that the road to profitability and success is paved with business choices that give you the competitive edge.

Competitive advantage for small and medium business means that you have programs and policies that set you apart from the growing competition. The answer lies, in part, in taking advantage of the knowledge that the GHG and climate change regulation impacting larger companies will trickle down the supply chain.

A good example of this is the Carbon Disclosure Project (CDP), an organization that works with corporations and shareholders to disclose the GHG Emissions of large corporations.

Last year, the CDP launched a new supply chain program. The program is designed to obtain carbon (GHG) emissions information from not just the largest corporations, but from private and smaller companies, as well. Under the program, large corporations that buy from private and small companies can report to the CDP which small companies are improving their environmental and social records, and which ones are not.

Recently, the CDP issued a 2009 supply chain report. The GHG emissions-focused surveys were sent to about 2300 suppliers. The survey questions asked these smaller suppliers mainly about their perceptions and practices related to GHG emissions.

In addition to being pressured by government regulation, federal and state legislation, and organizations such as the CDP, larger companies are also facing mounting pressure from shareholders, insurance companies, credit rating agencies (e.g., S&P), and their own customers who are demanding more environmental accountability – and transparency.

The upshot: If your business is in a supply chain, you need to be prepared to set yourself apart from your competition. What distinguishes you from your competitors could be many things such as your reliability and responsiveness. There are many reasons why your customers and other stakeholders may enjoy doing business with you.

When you get right down to it, all the reasons are based on one thing: trust. People have done business with you because they trust you.

The game changer is the convergence of a global financial debacle, growing environmental disasters (droughts, unpredictable climate, pollution), and social urgencies (rising unemployment, homelessness, foreclosure, work conditions).

This combination has resulted in transforming economies and global markets almost overnight. The change is an enduring one, but it also offers much opportunity and hope for a much better future – for all of us.

Business is an integral part of this landscape – especially American small business. In order to remain a part of that landscape, it is becoming increasingly vital to the growth, viability and profitability of small and medium business to adapt to these changes.

There is no business as usual any longer. And hunkering down won’t help, but hurt you.

What small business needs to do is understand the new rules of competition. Among these is the need to show your customers and potential customers that you are a responsible company. This means that you are implementing programs and policies that are environmentally responsible and can help your customers – current and future – strengthen their brand from partnering with you.

By pursuing strategies that fortify your environmental responsibility, you will give you customers and partners more reason to buy from you because: (1) it helps them with their stakeholders; and (2) it makes you inherently more trustworthy.

And ultimately, that is what building a profitable business is all about: trust.

Taking steps to reduce your energy consumption, lowering your GHG emissions and improving your water efficiency (also related to energy and GHG emission) is much more feasible than most people realize.

This is not an all-or-nothing proposition. What is means is that you simply start taking modest, incremental steps toward building programs and policies that reflect your company’s environmental responsibility. These steps should be the foundation on which future measures are built and measured.

The first steps consist of figuring out where you are at the moment. This is usually a very simple audit, which is followed by pursuing low- and no-cost measures that reduce your impacts.

Above all, make sure that the practices and programs you pursue conform to the business model. As a for-profit business, your goal is to be profitable.

Promoting your profitability today is best served by smart strategies that incorporate environmental responsibility.

So, even if the current EPA and Congressional efforts to regulate GHG emissions do not immediately impact you, you will still be impacted. Now is the time to act and modify your business plan in order to be prepared not just for the near future, but the present, as well.

And that’s the 360.

Federal Climate Change is At The Door: Are You Ready?

Under a new EPA rule proposed March 10th that would require mandatory reporting of greenhouse gas (GHG) emissions from thousands of U.S. facilities, businesses will need to be prepared to do much more than simply measure and report. According to the proposed rule, more than 13,000 facilities in the United States that EPA designates as large emitters of GHGs – those who emit greater than 25,000 metric tons of CO2e annually – will need specialized business strategies that will help them survive and even thrive in these economically challenging times.

Moreover, even those businesses not covered by the proposed GHG rule will need help considering the business strategies that will give them a competitive advantage in this difficult economy since they are invariably in the supply chain of the covered facilities; and even if they are not, will be subject to similar market forces rapidly emerging from a carbon-constrained economy and impending climate-change legislation likely to be in force within the next year or two.

Some of the more urgent business and legal risks involve increased demand for commercial risk disclosure by insurance companies and credit rating agencies (e.g., S&P); mounting pressure from shareholders and other stakeholders ofor material risk disclosure in SEC filings; a steady uptick in coordinated efforts by activists – and not just environmental ones – to file legal action against carbon-emitters; increased private climate change litigation; and heightened demands for unprecedented business transparency.

Covered businesses under the proposed rule would include utilities; chemical, cement, iron and steel producers;s and other facilities with large combustion sources.

Reporting requirements would mean that covered entities would need to start monitoring and recording beginning in January in 2010, and then start filing annual reports in the first quarter of 2011. Automobile and engine manufacturers would be required to report emissions from 2011 models.

The purpose of the proposed rule is to provide a factual basis on which more comprehensive federal climate change policy can be established. In essence, it is being built with a view to creating a standardized database of GHGs allowing for easier comparison of different facilities.

Existing mandatory and voluntary state and regional programs were evaluated and would not be preempted by the proposed rule. Having standardized emissions information is crucial to ensuring accuracy and reliability in the data and for comparative analyses. The aim, essentially, is to create a level playing field, which in turn can be used to implement a variety of climate change policies and emissions reduction programs at national, state and local levels.

Unlike most established programs, the new federal reporting program will require the tracking of emissions from individual facilities, rather than whole companies, except for fuel distributors, which would be evaluated on a company-wide basis. Under the proposed rule, EPA will verify completeness and accuracy of emissions data through regular audits and certification statements. The estimated compliance cost to the private sector would be $160 million in the first year and $127 million for subsequent years.

In a separate but related action, EPA has also sent a proposal to the White House that designates carbon dioxide a danger to public health and welfare. This is a precursor to regulating GHGs as pollutants under the Clean Air Act. The endangerment finding is expected to be approved and publicly announced later in April.

The ramifications of the endangerment finding extend far beyond the reach of the proposed GHG rule, as all business – no matter the size – would be vulnerable to commercial and legal risks.

For these reasons, now is the time for business to take the initiative in creating carbon financial instruments (if warranted by the specifics of their business case); developing new products and services responsive to these new business realities; engaging key stakeholders; and generally thinking about the business opportunities that climate change offers them in cutting costs and boosting profits as data continues to show that the majority of consumers are still willing to spend more on ‘green’ products and services.

The upshot: take advantage of this historic time and make climate change part of your overall business strategy, not a tactic that customers will see as a gimmick.

The proposed rule will be open for public comment for 60 days after publication in the Federal Register, with a final rule expected in late 2009. Two public hearings are scheduled for April 6 and 7, 2009 in Arlington, Virginia and April 16, 2009 in Sacramento, California.