Environmental regulation: Time to quit smoking

The feds are toughening up emissions regulations; act now or it’ll cost you.

Companies will soon be unable to leave their greenhouse gases to the wind without suffering the consequences. Federal regulations are on their way for 2010, and execs thinking they will be as flimsy as the government’s past Kyoto Protocol promises better think again. The in-house costs of delaying greenhouse-gas (GHG) emissions-management systems plus the potential financial penalties simply can’t be ignored—even if the final details have yet to be hashed out.

Indeed, some companies are already facing stricter rules. New laws in Alberta (the first province to enact GHG legislation) force large emitters—companies that pump out more than 100,000 tonnes of GHGs each year—to reduce their emissions intensity by 12% starting July 1. Intensity-based regulations, which are also the type planned at the federal level, don’t enforce a hard cap, but calculate a target based on production levels. British Columbia, meanwhile, has hooked up with California and other western states to develop a carbon-credit trading block.

Yet only 36% of companies have a GHG reduction plan, and just 20% have a formal reduction target, reports a 2006 joint study by the Conference Board of Canada and the Carbon Disclosure Project on the climate-change risks and actions of Canada’s 280 largest companies by market cap. Those dismal numbers are likely because the rules are still pretty hazy and the available solutions—including carbon-offset projects, carbon-credit trading and per-tonne carbon taxes—need to be standardized.

But there is a reason why companies need to be prepared for the low-carbon economy sooner rather than later. “Cost,” says Selina Lee-Andersen, a Calgary-based lawyer in Blake, Cassels & Graydon’s Energy Group. “It will cost more in the long run if you don’t do anything than if you invest time, effort and resources now.” Companies need to pull the issue off the back burner and strategically assess their options just like any other potential risk or opportunity, concludes a 2006 report by Canadian consulting firm Deloitte & Touche called Forward thinking: The Importance of Managing Greenhouse Gas Emissions.

The feds laid out five possible methods for meeting reduction targets when it released its regulatory framework in April. There’s no shortage of options, but it’s risky to choose just one. That’s why companies such as Edmonton-based energy providerEpcor Utilities Inc. are choosing a “portfolio approach.” In the short term, Epcor is investing in wind farms and buying offset credits, while working on longer-term development projects such as clean coal technology, says environment manager Oliver Bussler. Epcor began working on its emissions strategy about seven years ago, says Bussler, and has since gained market intelligence that allows it to “exert influence on developing policy.”

Adopting a smorgasbord of options is the most likely option for many companies, and the solutions tend to fall into two categories, compensatory or transformative, says Harrie Vredenburg, the Suncor Energy Chair in Competitive Strategy and Sustainable Development at the University of Calgary. Copensatory options include adding alternative energy sources to a company’s mix such as wind farms or biofuels projects, carbon offsets including tree-planting, buying and selling carbon credits, or paying carbon taxes to a government technology fund. Those shorter-term solutions fill the gap until transformative choices, which are longer-term technology investments, come to fruition. “There’s this innovation race going on right now,” Vredenburg says. For example, new state-of-the-art processes that can draw bitumen from the oilsands without using natural-gas-based—and heavy GHG-producing—systems could help businesses reduce their emissions.

There will be even more innovative technologies to come, but they all require investment, government support and, of course, time. The best advice? Don’t dismiss the new regs as a lot of hot air.