Mr. Poad

Eco-Friendly Practices

A Look at Green Legislation, Nearly One Year into the New Administration

By Jim Poad, Director of Client Solutions, Advantage IQ

Obama's election to the presidency came with the promise of sweeping policy change. A point of focus for the new administration was the climate; protecting it from the dangerous emissions that are released into the atmosphere at an alarming rate.

Now nearly one year into the President's first term, the new administration has taken action that is considered long overdue by many. They have introduced legislation that will regulate the release of greenhouse gases (GHG). The US is the last industrialized, developed country to address regulating these gases and was only recently overtaken by China as the largest GHG emitter in the world.

These new environmental protection policies come in the form of the Climate Bill, which was passed by the House of Representatives on June 29, 2009. The legislation is designed to reduce the US carbon emissions by 17% (from 2005 levels) by 2020. It is believed that this bill will become law in the fall of 2009.

As the bill currently sits, there are three primary ways this legislation will impact businesses.

Power Prices/CO2e Emissions

Facilities that emit greater than 25,000 tonnes of carbon per year will be regulated. Primarily, these include electrical generators, refineries, chemical, metal, and cement plants. Those businesses below that mark will see the trickle down effect; higher energy costs resulting from the money those larger emitters must spend to clean up their production process.

It's expected that energy costs will increase between 7 and 15 percent, depending on the final version of the bill that is signed into law. The effect on natural gas prices is still somewhat of a mystery, but they will likely increase. As power utilities switch from coal to this cleaner option, the increased demand for gas will cause a spike in rates.

In addition, the older, less efficient coal fired power plants could be shut down when new generation sources come on line. The cost of the new plants will then be included in the utilities rate base, causing utility rates to increase.

Energy Efficiency Incentives and Renewable Energy

Standards will be put in place to increase the efficiency of commercial facilities, industrial facilities, and appliances. Across the board, these standards will make buildings more expensive to construct, but less expensive to operate.

  • By 2020, power utilities must have 20% of their electricity demand met by a combination of energy efficiency improvements by customers and use of renewable energy internally. Until a viable option to sequestrate carbon emissions from power plants is found, many power companies will look to low or no-carbon generation sources for new power plants. No carbon includes renewable energy, energy efficiency, and nuclear. Low carbon includes natural gas power generation and fuel switching from coal or oil to natural gas.

  • There will be a greater emphasis on water conservation and promotion of the use of ENERGY STAR® tools, standards, and programs. Businesses will have the opportunity to receive incentives for successful energy and water conservation efforts as well as to garner and trade energy efficiency credits, known as White Tags.

  • There are potential opportunities for small-scale, on-site renewable energy projects for companies with utility, State and Federal incentives that will lower power costs and provide you with the opportunity to supply green products to customers.

Revenue Opportunities with Sellable Credits

A byproduct of this legislation will be the creation of a robust market for carbon offsets, energy efficiency credits (White Tags), and renewable energy certificates (RECs).

Companies that are not required to reduce their carbon emissions will have the option to do so anyway, and then register and verify those reductions to sell them to those companies who by law must meet government regulated emissions standards. As a result, an additional cash flow may become available to those companies reducing their emissions by choice, instead of by force. This financial incentive is also available to companies who undertake qualified energy efficiency improvements and then register and verify those reductions.

In the renewable energy area, on-site projects will create tradable RECs, which can produce an income stream that helps offset the cost of the renewable energy project. These on-site projects have the opportunity to insulate owners from the rising cost of grid power while providing a known future cost of power.

Timeline for action

Once the climate bill becomes law, there will be a lag period for implementation of its many parts, and therefore a delay before energy users see an increase in their monthly bill. Different sections of the law will impact costs in different timeframes.

It's expected that utilities will be able to move quickly in the renewable energy and energy efficiency areas. Utility programs focused in these areas will provide companies with the opportunity to reduce their individual cost. However the total cost of those programs will then be rolled into utility rates and spread to rate payers via utility tariffs. Consumers may feel the effects in 2010.

In terms of the cost of carbon emission allowances, there are still negotiations going on that will determine how to allocate these. This issue is key to passage of the final legislation. The number of allowances provided free versus auctioned off to utilities will determine how quickly they will roll into energy rates. One can expect to see some of these costs hit the energy consumer in 2011.

What it means for you

While it will take time for the regulations described in the Climate Bill to directly effect typical business owners, who for the most part produce an amount of carbon that is well below the benchmark determined by the government, it is not too soon to consider how you might benefit from taking a closer look at your own energy consumption and evaluate the efficiency of your facility. In the coming years, those businesses who are first to take advantage of the burgeoning markets for carbon offsets, White Tags, and RECs may see significant financial gain. The most successful businesses to enter these markets will be those who got an early jump on understanding their own energy consumption profile and carbon footprint.

Energy management consultants with expertise in these areas have already begun helping businesses get a clear picture of how they stand to benefit from the passage of the Climate Bill, and positioning them so that they can realize those benefits as soon as the time comes. Consider enlisting your own consultant to take a look at your portfolio.

There will certainly be winners and losers when this bill becomes law. There will be companies who will do nothing to impact their position, but many will seize this as an opportunity to reduce costs and create a competitive advantage for themselves. Which side will you be on?

Jim Poad, a 30-year energy industry veteran, serves as Director of Client Solutions for expense and energy management firm, Advantage IQ. In this capacity, Mr. Poad is responsible for developing and directing the Company’s energy management programs on behalf of clients. He works with clients to develop and implement a customized strategy to better manage energy usage, reduce overall operational costs, and meet overriding corporate objectives. He has helped clients save millions of dollars through the implementation of supply-side and demand-side initiatives. Mr. Poad can be contacted at 608-755-1650 or jpoad@advantageiq.com. Extended Bio...

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