In January, the United Nations's Intergovernmental Panel on Climate Change — a group of scientists and government officials from 113 countries — issued its much-anticipated fourth report on global warming. In it, the panel not only indicated that global warming is worsening, but that the rise in temperatures is likely caused by human activity. How likely? The panel said it's at least 90 percent sure humans are responsible.

In the contentious battle over global warming, 90 percent may be as close to a dead-certain lock as you can get. Equally as certain is that businesses — the primary generators of greenhouse gases — will be held accountable for what the report calls the "unequivocal" change in the planet's weather.

The reckoning has already commenced. In the 2007 proxy season, investors filed 42 global-warming resolutions with U.S. companies — nearly double the number filed three years ago. At the same time, coalitions of eco-minded institutional investors have started to confront corporations considered slow to address their own carbon emissions. In February, a group of powerful institutional investors posted a list of 10 offending businesses, including ConocoPhillips, ExxonMobil, and Wells Fargo — then sent the dishonor roll to various news outlets, including CFO.

Such lists can harm reputations and trigger expensive campaigns to counter the attack. Risk consultants believe these shareholder complaints are merely the opening shots in a coming war on corporate CO₂ emitters. They point out that Congress, after years of inaction, finally appears ready to tackle global warming. The most likely outcome? A federally enforced limit on the amount of CO₂ companies can emit. Businesses that fail to make their numbers could pay a steep price. Under a cap-and-trade system — the centerpiece of many current bills — laggards would have little choice but to buy costly offsets from companies that have exceeded their emission-reduction requirements. Under other proposals, excessive emitters would be hit with a penalty, known colloquially as a carbon tax, that will prove difficult to pass along to customers.

Businesses face other regulatory pressures as well. The European Union now appears ready to impose its own carbon tax on imports from industrialized countries that have failed to ratify the Kyoto Protocol (read: the United States and Australia). In a recent interview, French president Jacques Chirac described a carbon tax as "inevitable."

Closer to home, a growing number of states — notably California, New Mexico, and Massachusetts — are setting aggressive greenhouse-gas reduction targets for utilities and other sizable producers of CO₂. "Each company is going to have to deal with some sort of [CO₂] regulation," says Peter Breitstone, managing principal and CEO of Aon's Environmental Services Group. "We know that it's coming."

Indeed, it appears that corporations will be grappling with their carbon output for decades. In some cases, product lines may need to be altered. Automakers, for example, claim it could cost as much as $3,000 per vehicle to build cars that will meet California's expected emissions requirements. Other businesses will end up selling operating units that generate excessive greenhouse gases. Corporate officers will also have to deal with increasing numbers of climate-related lawsuits and the unsettling prospect that damages may not be covered by general liability or directors'-and-officers' policies (see "Up in Smoke" at the end of this article). Dan Anderson, professor of risk management and insurance at the University of Wisconsin, goes so far as to say: "Greenhouse-gas emissions will be one of the critical business risks of the 21st century."

The Carbonists' Manifesto
To date, most greenhouse-gas regulations require gradual, yearly reductions in overall emissions. Typically, the rules aim to cut the discharges to below 1990 levels (a benchmark that protects businesses that have slashed carbon emissions in recent years). Failure to meet such targets will force companies to buy offsets — which could run into millions of dollars — or face hefty fines.

California's much-trumpeted new law, signed by Gov. Arnold Schwarzenegger in September, will bring the state's CO₂ emissions back to 1990 levels by 2020 (a 25 percent reduction). Past that, the plan calls for an 80 percent reduction below 1990 levels by 2050. The scheme specifically targets large emitters, which must meet mandatory caps beginning in 2012. As part of the plan, the state's public utilities recently barred California power producers from purchasing electricity from coal-fired plants.

As with almost all CO₂ legislation, California's law does not mandate specific ways to cut greenhouse gases. Left to their own devices, many companies have zeroed in on energy consumption as the surest way to cut carbon emissions. Management at Baxter International, a pharmaceutical and medical-devices company, for example, began addressing the company's CO₂ emissions in the 1990s as part of an overall plan to lower the company's environmental footprint. By curbing the company's power consumption, Baxter reduced associated greenhouse-gas emissions 27 percent (per unit of production value) from 1996 to 2005. Last year, Baxter upped its original goals, looking to reduce its greenhouse-gas emissions a further 20 percent by 2010.

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