Meeting Long-Term Climate Change Goals Using the Profit Motive

The recently released  3% Solution: Driving Profits Through Carbon Reduction presents, in one sense, a conceptually obvious point — energy costs money, therefore, if you reduce your energy use, both your costs and your carbon emissions will go down as a result.  As the price of electricity and energy more generally increase, the cost savings and carbon emission reductions should increase.

But habits are precisely practices and behaviors that have been repeated and become so ingrained that they are hard to give up.  Therefore, when a report is published (particularly given that it was prepared by reputable entities such McKinsey & Co., Deloitte LLP, and  Point380 (a consulting group that focuses on technical analysis and innovation for efficiency and renewable energy, water and material resources)), attention should be paid even to the “obvious.”

The report argues that by investing now an average of 3 percent to 4 percent of annual capital expenditures on profitable carbon reduction projects, including solar power, in-house energy efficiency practices, combined heat and power, and upgraded technology, companies could save a net present value (NPV) of $190 billion in 2020 and up to $780 billion NPV between 2010 and 2020.  Additionally, this investment could reduce carbon dioxide emissions by 1.2 billion tons of carbon dioxide equivalents, allowing industry to meet the Intergovernmental Panel on Climate Change’s goal of reducing carbon emissions by 25 percent from a 1990 baseline, which could prevent the global temperature from increasing above 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels.

In the United States, this effort is likely to be accomplished company-by-company.  One need not determine the overall accuracy of the aggregated cost and benefits calculated in the report to justify a climate change audit. Thus, the more difficult and company-specific (or even plant-specific) issue is how much upfront costs are warranted at each company’s plants because at some point the costs of energy efficiency are no longer cost-effective.  This requires a company to evaluate the advantages and disadvantages on a plant-specific basis.  As a result, specific companies may decide it is prudent to review their operations from this net present value perspective.  Documenting these decisions and reporting them may also be prudent, particularly in jurisdictions where carbon emissions are regulated or are likely to be regulated in the future or for companies that consider carbon emissions as part of their internal sustainability programs.

William J. Walsh, Esq.

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