| Climate change legislation and cap-and-trade proposals | | | | Step One: Measure your GHG emissions or "Carbon |
| have created significant concerns with respect to | | | | Footprint" in accordance with existing state and |
| potential risks that companies are facing. We can call | | | | proposed federal GHG reporting requirements. |
| these "Carbon Liabilities." What many leading-edge | | | | Step Two: Evaluate existing and proposed state and |
| companies are beginning to discover is the potential | | | | federal climate change laws and regulations that may |
| for opportunities in a cap-and-trade environment. We | | | | affect your business operations. |
| can call these "Carbon Assets." For companies with | | | | Step Three: Determine if your company will be |
| greenhouse gas ("GHG") emissions, identifying and | | | | required to incur costs to reduce GHG emissions or |
| evaluating Carbon Liabilities and Carbon Assets is a | | | | purchase carbon allowances or offsets. What are the |
| critical step in preparing for future climate change | | | | Carbon Liabilities? |
| legislation. | | | | Step Four: Determine what GHG emissions will not be |
| Federal law as soon as next year will require | | | | regulated. For those emissions, evaluate whether |
| companies to measure and report their greenhouse | | | | reductions be monetized and sold as carbon credits |
| gas emissions to EPA. The House has passed a | | | | or retained to use for the companies own compliance |
| climate change bill, and the Senate will be considering | | | | requirements with a reasonable rate of return on |
| and voting on a climate change bill as early as this fall. | | | | investment. What are the companies Carbon Assets? |
| If it passes, emitters of greenhouse gases depending | | | | Step Five: Companies with GHG emissions need to |
| on the industry they are in may be required to | | | | evaluate the legal and technical issues involved in |
| reduce their greenhouse gas emissions. Almost half | | | | evaluating both Carbon Assets and Carbon Liabilities |
| the state have adopted or are working on adopting | | | | as state, federal, and international programs go into |
| climate change legislation in their own states. | | | | effect for the first time or continue to develop that |
| In a cap-and-trade program, companies may | | | | regulate GHG emissions. |
| purchase GHG or "carbon" permits, sometimes called | | | | Step Six: Engage management on climate change |
| allowances or offsets to meet their regulatory | | | | regulatory issues and present the companies GHG |
| requirements in lieu of reducing their emissions. In | | | | emissions, Carbon Assets, and Carbon Liabilities. |
| addition, under a cap-and-trade system, at the end | | | | Step Seven: Develop a Climate Change Strategy to |
| of each year, either carbon allowances or offsets | | | | reduce Carbon Liabilities and to develop and produce |
| must be turned in for every ton of GHGs emitted | | | | revenue or reduce costs using Carbon Assets. |
| during the prior year. | | | | This 7-Step Process is the general approach |
| The challenge for companies looking forward is to | | | | companies should be considering to address the |
| understand how these regulatory requirements may | | | | potential risks and opportunities that may arise as a |
| effect them. The following 7-Steps provide a guide | | | | result of current and developing state and federal |
| to how to address these issues: | | | | climate change legislation. |