Cleaning Up Carbon

The CO₂ scheme has generated great publicity for the Deerfield, Illinois-based company, but Baxter has also reaped financial gains from a broader environmental program. In 2005, the company reported $23 million in benefits derived from its efforts (which include water usage and energy reduction) — with $62 million in accrued benefits over the past five years. "There is a dollar savings," says Art Gibson, vice president, environment, health, and safety. "But this also positions us for what we knew would be a tougher regulatory environment."

Undoubtedly eager to shape that landscape, several other high-profile companies are touting their own solutions. In January, a coalition of four environmental groups and 10 CEOs, including General Electric's Jeffrey Immelt, sent an open letter to President Bush and Congress. In it, the group — the U.S. Climate Action Partnership (USCAP) — offered a detailed plan to combat global warming that includes federal targets limiting greenhouse-gas emissions, along with funding for new technologies. They also called for the U.S. government to get involved in the next round of international negotiations governing greenhouse gases (the Kyoto Protocol expires in 2012).

In announcing the plan, the CEOs noted that legislators need to act immediately. Any delay in CO₂ legislation, the chief executives warned, increases the chance of "even steeper reductions in the future."

Skeptics point out that while USCAP set forth a fairly bold working plan, the scheme is nonetheless sympathetic to business concerns. The proposal, for example, would credit companies for CO₂ reductions taken ahead of any regulations. That's critical for corporations that have started to curb discharges voluntarily. "If we can get documented emission reductions that go beyond a regulatory standard," says Tom Catania, vice president of government relations at Whirlpool Corp., "we see that as an asset down the road."

In fact, businesses like Whirlpool may be able to sell those credits to companies that exceed future mandated levels. At the very least, corporations don't want to be penalized for having acted preemptively. They argue that businesses that have already lowered CO₂ emissions will find it difficult to make further reductions. "A key focus for us is credit for early actions," acknowledges Dawn Rittenhouse, director of sustainable development at DuPont, a company that has reduced its global greenhouse-gas emissions by 72 percent since 1990.

The USCAP plan also calls for assistance to industries that would be especially burdened by carbon targets — presumably utilities, oil companies, and automobile manufacturers. In addition, the scheme also champions a national policy that would govern carbon emissions. That sort of federal mandate would likely supersede the current welter of state and municipal laws — and would undoubtedly place fewer restrictions on businesses. "As with the Clean Air and Clean Water Acts in the 1970s," says John Kostyack, senior counsel at the National Wildlife Federation, "business would rather have one set of rules that would preempt state rules."

Accounting for Carbon
If Congress does act, corporations can expect some sort of cap-and-trade system. Under the bill most likely to pass — a bipartisan proposal introduced in January by senators John McCain (R–Ariz.), Barack Obama (D–Ill.), and Joseph Lieberman (I–Conn.) — companies with high CO₂ emissions could purchase offset allowances from climate exchanges in other countries or a newly created agency, the Climate Change Credit Corp., in order to meet 15 percent of their targets. The price of the offsets is not known, but experts say it could be expensive.

It could also be complicated, given the difficulties in certifying and disclosing CO₂ reductions. Currently, businesses can report their greenhouse-gas inventories to a handful of registries, including EPA Climate Leaders, the Chicago Climate Exchange — a voluntary market for trading climate credits — and the California Climate Action Registry. Other regional programs have cropped up of late, too.

The problem is that each registry has slightly different requirements. What's more, the formats are not necessarily in sync with major greenhouse-gas reporting standards, which also proliferate and include the Greenhouse Gas Protocol, the G3 Reporting Framework, and the Global Framework for Climate Risk Disclosure (which was released in October by a group of institutional investors). While good starting points, these frameworks don't always lead to the same results. "There are some similarities in the major moving parts," says Melissa Carey, a climate-change policy specialist at Environmental Defense (a member of USCAP), "but all the [environmental] accounting standards are different."

It will take time for regulators to settle on one reporting standard. Meanwhile, the hodgepodge could create a problem down the road when companies attempt to claim credit for their shrinking carbon footprints.

United Technologies Corp., for example, now manufactures a jet-engine cleaner called EcoPower, which works six times faster than previous cleaners. That means the engines get washed more often, leading to improved fuel efficiency. Hawaiian Airlines estimates EcoPower will cut carbon-dioxide emissions on its Boeing 767 planes by nearly 8 million pounds each year. The question: Who gets to claim that reduction — UTC, Boeing, or Hawaiian Airlines? And what about the fuel provider, which will no doubt detail any decrease in fuel sold in its own CO₂ report?

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