Kaleab Woldemariam

Paper 3: Framework Analysis

ENS 552: Environmental Social Sciences and Humanities May 7, 2014May 29, 2014
Crafting Effective Strategy for American Firms in the era of Global Climate Regulations
In the age of globalization and climate change, the challenges faced by companies and
governments worldwide are immense. The key question for legislators has been how to continue
to be competitive while maintaining greenhouse emissions in check. A U.S. survey made by Pew
Center showed that 67% of respondents (n=24) think government regulation is imminent in
2010-2015 (Hoffman, 2006).
The engine behind climate change conscious corporate strategy was the Kyoto Protocol, adopted
in 1997 and enforced in 2005. The protocol sketched a general target for developed countries to
reduce their greenhouse-gas(GHG emissions including 6 greenhouse gases) by about 5% below
their 1990 levels in the 2008-2012 timeframe. The Dutch Environmental Assessment Agency
(2012) reported that global CO
2
emissions peaked 34 billion tonnes in 2011 with the top 5
emitters being China (29% share), the United States (16%), the European Union (EU27) (11%),
India (6%) and the Russian Federation (5%), followed by Japan (4%).
Mitigating climate change requires both carbon management activities implemented by
companies and regulation by federal and state authorities. Weinhofer & Hoffmann (2010)
summarized corporate carbon management strategies suggested by several authors (table 1).
These strategies can be classified into six categories (Lee, 2012): emission reduction
commitment; product improvement; process and supply improvement; new market and business
development; organizational involvement and external relationship development. Generally, the
strategies are concerned with products (environment-friendly design and life cycle), cleaner
production processes, establishing green supply chain, training personnel, introducing
environmental management systems and measuring environmental performance.
Emission reduction commitment involves setting emission targets, measurement and means to
achieve them (e.g. investment). Steps in reducing emission often comprise setting relative and
absolute goals based on carbon footprint of the enterprise (Lee, 2012). In addition to the product
improvement intrinsic to the market, another dimension Green has become a competitive
edge for firms. It focuses on energy efficiency and use of less-carbon intensive products. It also
includes carbon labelling (amount of carbon used per unit product). Process and supply
Kaleab Woldemariam
Paper 3: Framework Analysis
ENS 552: Environmental Social Sciences and Humanities May 7, 2014May 29, 2014
improvement is a means to reducing direct emissions and employing cleaner alternative energy
sources. In accordance with federal and state governments legislations, coal based industries and
power plants are gradually phasing out paving way to what is often dubbed transition fuel-
natural gas. New market and business development is a venture into emerging carbon-free
technologies such as electric and fuel cell driven vehicle development. Organizational
involvement and external relationship development are strategies aimed at educating employees
to embrace a green attitude in their activities and collaborating with other organizations using
carbon offset activities such as Emission Trading Scheme (ETS) and Clean Development
Mechanism (CDM).
Dunn (2002) Energy efciency enhancement
Fuel switch
Application of new technologies
Emission trading
Investment in project-based emission offsetting
Kolk and
Pinkse (2005)
Process improvement
Product development
New market/product combination
Internal transfer of emission reduction
Supply chain measures
Acquisition of emission credits
Schultz and
Williamson
(2005)
Investment in plant retrot
Investment in new plants
Investment in offset projects
Purchase of emission allowances
Divestment from business activities with too much current or potential carbon exposure
Boiral (2006)

Investment in clean technologies
Design-for-environment products
Purchase of emission permits on international CO2 markets
Launching of reforestation programs
Use exible Kyoto mechanism
Hoffman
(2006)
Efciency enhancement
Technology shift
Acquisition of assets that balance a companys production facilities portfolio
Development of new products and technology solutions
Forest sequestration
Purchase of emission offsets
Sourcing of renewable energy
Jeswani et al.
(2008)
Change in process technology, or process modication, or input material, or product
specication
Kaleab Woldemariam
Paper 3: Framework Analysis
ENS 552: Environmental Social Sciences and Humanities May 7, 2014May 29, 2014
Installation of energy-efcient equipment
Participation in Kyoto exible mechanism (ET, JI or CDM)

The
Conference
Board (2007)

Reduction of energy consumption
Energy efciency enhancement
Fuel switch
Applying renewable energy sources
Carbon emission trading
Carbon emission sequestration
Table 1: Corporate carbon management strategies.
According to USEPA (2012), the sources of GHG emissions in the US are electricity (32%),
transportation (28%), industry(20%), agriculture (10%) and commercial & residential (10%). In
2009, President Barack Obama offered a target for reducing greenhouse gas emissions in the
range of 17% below 2005 levels by 2020. In order to meet targets specified by Kyoto Protocol
and individual (voluntary) targets, climate regulations coupled with innovations are key
strategies in reducing the impact of global climate change. In 2009 and 2010, there has been
numerous of legislative approaches forwarded in the United States (Moore, 2012) including
American Energy Security Act (WaxmanMarkey: May 2009), Clean Energy Act of 2009
(November 2009), Clean Energy Partnerships Act of 2009 (November 4, 2009), Carbon Limits
and Energy for Americas Renewal (CantwellCollins: December 2009) and American Power
Act (KerryLieberman: May 2010).The Waxman-Markey Act establishes CO
2
reduction targets,
a federal cap and trade program, a renewable electricity standard (RES), requirements for coal-
fired power plants, energy-efficiency standards, smarter cars, and smarter electricity grids. The
Clean Energy Act (2009) allocated $10 billion for incentives for innovative technologies and
development of nuclear plants. The Clean Energy Partnerships Act (2009) aims at governing
credits created from emission reductions and define eligible projects that generate offset credits.
Carbon Limits and Energy for Americas Renewal Act is a proposal that intends to distribute
carbon shares via monthly auctions to develop a market for carbon auctions. The latest
legislation suggested by Kerry-Lieberman (2010) is American Power Act, which requires
regulated sources to purchase emission allowances or offset credits through federal auctions or a
regulated market.

Kaleab Woldemariam
Paper 3: Framework Analysis
ENS 552: Environmental Social Sciences and Humanities May 7, 2014May 29, 2014
The most common legislative alternatives for reducing GHG emissions include traditional command and
control, cap and trade, cap and dividend, carbon tax, subsidies and renewable energy standards (Moore,
2012). Traditional command and control approach is attempt by governments to allow emissions that
they deem acceptable and then implement regulations to maintain the limit. It is criticized for lacking
flexibility and disregarding innovation. Cap and trade is an economic incentive intended to benefit those
innovative companies while motivating companies with excess CO
2
to cut emissions (Figure 1). In
addition, companies are able to involve in offsets. Typical offsets are projects, including the
implementation of clean energy solutions, improving energy efficiency and reforestation of deforested
land. Emission reduction achieved through such projects can be evaluated and converted into units of
equivalent compliance value to emission allowances. For an emission reduction to be considered an
offset it must not be subject to a cap and trade emissions market (IETA, 2014). Cap and dividend
involves capping carbon on the upstream as it enters the economy which requires the first sellers of
carbon fuels such as oil, coal, and natural gas to purchase carbon allowances equal to the carbon
content of their fuels. In general, the revenues in a cap and dividend program are placed into a trust
fund for payment of dividends to consumers and to finance clean energy, energy-efficiency programs,
and investment in innovative carbon mitigation strategies. Carbon taxes on the other hand, requires a
tax placed on a per unit basis of any carbon-derived fossil fuels resulting in higher prices for
consumption of carbon based fuels.

Figure 1: Cap and trade (Moore, 2012).
Kaleab Woldemariam
Paper 3: Framework Analysis
ENS 552: Environmental Social Sciences and Humanities May 7, 2014May 29, 2014
Reference
Haita C., 2012. The State of Compliance in the Kyoto Protocol, ICCG Reflection No. 12/2012.
Lee S.Y., 2012. Business Strategy and the Environment 21, 3348.
Moore C., 2012. Climate Change Legislation: Current Developments and Emerging Trends in
Handbook of Climate Change Mitigation, Springer Science+Business Media, LLC 43-87.
Weinhofer G. and Hoffmann V. H., 2010 Mitigating Climate Change How Do Corporate
Strategies Differ? Business Strategy and the Environment 19, 7789.
Offsets, 2014. IETA (International Emissions Trading Association), retrieved on May 01, 2014
from http://www.ieta.org/ index.php?option=com_content&view=article&catid=54:3-minute-
briefing&id=205:cap-&-trade-basics.