Emissions Regulation: A New Era Dawns

Feb. 1, 2010
Whether by the hands of Congress or the EPA, regulations on carbon emissions loom in the near future for material handlers. Here's how some companies are mobilizing.

Ten years ago, sustainability was a blip on the radar, a notion only familiar to those within environmental circles. Today, it stands at the forefront of public consciousness, as evidenced by December's climate change pact among industrialized nations in Copenhagen.

As countries around the world begin taking steps to address global warming, some of the largest corporations in the United States are already springing into action. Sensing new regulations not too far behind, many have begun mobilizing for what they believe has long been looming on the horizon — a day when all of industry will be required to make dramatic cuts in greenhouse gas emissions.

That day seemed to inch a bit closer when the White House presented in Copenhagen a provisional target to reduce greenhouse gases from 2005 levels 17% by 2020 and 80% by 2050.

“We know it's coming,” says Mary Armstrong, vice president of environment, health and safety at aerospace giant Boeing. “Whatever vehicle it ends up being — whether as a cap-and-trade mechanism or a tax — it all boils down to the fact that there will be a cost to emitting carbon.”

Gathering Data

One of the first significant steps toward emissions regulations arrived on Jan. 1, 2010, when the EPA began a national registry that requires large emitters of heat-trapping gases to collect their greenhouse gas data.

The information from those reports will be released in 2011 publicly. Businesses that emit at least 25,000 metric tons of greenhouse gases per year would have to participate, which is expected to encompass about 10,000 facilities.

The EPA is hoping that the threat of appearing as one of the top U.S. industrial sources of greenhouse gases will spur companies to voluntarily slash their emissions. According to the EPA's top air official, Gina McCarthy, the emissions registry could have an impact similar to that of the Toxics Release Inventory, which, since its inception in 1987, has been credited with spurring substantial reductions in toxic emissions.

An emissions registry has been anticipated for some time, and some of the largest emitters in the United States have been tracking their energy usage for years, including such corporations as Hewlett-Packard, Boeing and Duke Energy. IBM has emissions data dating back to 1990 and has been publishing reports on it for the last 15 years with the Energy Department.

“The registry shouldn't be hugely onerous at all,” says Victor Flatt, professor of environmental law at the University of North Carolina Chapel Hill School of Law. “These facilities are already regulated, they already have to do reports (for other regulations) and the calculation of carbon dioxide release is not very complicated.”

Impact Not Equal

Traditionally, the lines on environmental legislation have been drawn between the perspectives of conservatives and liberals, between those that were adamantly protecting the interests of business versus those protecting the ecosystem. But emissions regulation has in many ways split the pro-business ranks, as corporate interests aren't all necessarily served by a single stance.

Opposition to carbon emissions regulations has been stiff. Last June, the House of Representatives passed a comprehensive bill putting caps on emissions, but the Senate still hasn't taken up the issue. Meanwhile, several of the most powerful business groups in the United States, such as the National Association of Manufacturers (NAM), the American Petroleum Institute and the U.S. Chamber of Commerce, are using all their lobbying power to kill the Senate bill.

One of the primary points of contention within industry is that dealing with climate change will almost certainly hurt some industries, while enriching others. Billions of dollars are at stake. Depending on how regulations are implemented, electricity bills in some states could rise significantly, as well as the price for gasoline.

For energy-intensive industries, such as chemical production and metal processing, those cost spikes could prove devastating. Petroleum and natural gas, as a feedstock, represents a significant proportion of the chemical industry's costs. Feedstock accounted for 70% of the chemical industry's $85.1 billion in total energy costs in 2008, according to the American Chemistry Council.

Many companies fear that higher energy costs would reduce their ability to compete globally and could drive jobs to countries that do not limit carbon. John Engler, president of NAM, has described emissions regulations as “economic disarmament.”

Others believe any emissions legislation should take into account substantial reductions made over the last two decades. The aluminum industry has reduced its energy consumption in U.S. production by 46% since 1990, according to a study by the Aluminum Association, a trade group.

“What we are looking for here is recognition at the efforts we've made and a reasonable amount of time to achieve some doable and meaningful reductions,” says Steve Larkin, president of the Aluminum Association.

Action Is Certain

But not all of industry is convinced carbon regulation is such a bad thing. A range of companies, from Exelon, the largest U.S. nuclear power producer, to Alcoa, the largest manufacturer of aluminum, to General Electric, have suggested that any comprehensive environmental legislation passed by Congress will be far more business-friendly than any regulation handed down by the EPA.

“Climate action is inevitable,” says Michael Morris, CEO of American Electric Power. “The only choice is whether to encourage the Senate to pass comprehensive, well crafted climate legislation or to wait for the EPA to enact regulations under the Clean Air Act.”

The latter is a result no one in industry wants, says Flatt of the University of North Carolina. Though comprehensive legislation passed by Congress might not be perfect, it would be a more palatable solution, crafted in part to help appease industrial interests. EPA regulations, some fear, would be more onerous.

“If the climate bill does not pass this spring, the EPA's going to start regulating,” says Flatt. “I'm positive of that. It will look pretty similar to what's been proposed by Congress — focusing on the same size emitters. But it will come faster than the legislation and won't include some of the regulations on fuel importation that is included in the legislation.”

Better to Anticipate

So, if the day is drawing near when companies will be required to make dramatic cuts in greenhouse gas emissions, where does that leave industry?

For the time being, there is a prevailing sense of uncertainty. No one knows yet what the rules will be, but many have responded by instituting aggressive measures in advance. By laying the groundwork on a comprehensive system to reduce greenhouse gases, they are getting an early jump before specific regulations come out of Washington, providing an easier transition into compliance.

That begins, says Neil Hawkins, vice president of sustainability for Dow Chemical, by being aware of the subtle shifts in public policy.

“The bottom line is you better start anticipating regulations before they ever become final,” Hawkins says. “You want to be assessing and planning, and you want to hit the ground running with a program and management approach, especially if it's a large-scale regulation that's going to affect your whole enterprise.”

That management approach should hit on two fronts, says Wayne Balta, IBM's vice president of corporate environmental affairs: marrying a company's operations and business interests with a lower environmental footprint and taking a leadership position on the issue, which allows the company to be at the forefront in policy.

“A company's environmental policy is a long-term subject, and it requires a long-term focus,” says Balta. “It's not a bandwagon that you just jump on and off based on public opinion. And, it's not something that you waver from based on quarterly business results.”

Recognizing Opportunity

Not all corporations have the resources to create entire departments in charge of overseeing emissions regulation compliance. For some medium-sized companies that emit enough greenhouse gases to qualify for oversight, new regulations pose a significant threat.

“Manufacturers are always concerned about the nature of regulation because it can fundamentally alter the way they do business,” says Ethan Cohen, a senior manager in application services at Hewlett-Packard. “But on the opposite side of the coin is that altering the way you do business can often produce real benefits.”

HP has worked with its top suppliers at reducing both costs and environmental footprint, while Boeing has now begun taking environmental considerations into its bidding and contracting process.

Some corporations have found valuable perspective by looking back at previous experiences in facing sweeping regulations. Robert Shobar, director of infrastructure engineering and environmental programs at Campbell Soup Co., remembers when he was tasked with mastering the language of the EPA's new regulation on hazardous waste management in 1980.

Though the regulation was daunting and threatened to cost corporations millions of dollars a year, it forced many corporations to innovate. In the case of Campbell Soup, inside of two years, a solvent-based enamels process, which resulted in hazardous waste, was reworked so that it was water-based and cleaner.

“We've seen this every 10 years or so,” says Shobar. “Whether it's the Clean Water Act of 1970 or the hazardous waste regulations of 1980 or the Clean Air Act of 1990, they all cause significant changes to the way things are handled. Sometimes, they're rather onerous, but they also help companies such as ourselves develop ways of doing things differently — and doing them better.”

Contributing editor Peter Alpern is associate editor of MHM's sister publication, IndustryWeek. This article originally appeared in IndustryWeek's February 2010 issue.

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