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The Carbon-Constrained World: Companies Ignore It At Their Risk

When U.S. Senator Lindsey Graham last year declared that "cap-and-trade is dead" in the wake of the failed federal climate change legislation that would have capped carbon emissions, many companies – both large and small – perhaps shelved their carbon reduction programs. Indeed, some companies might think they are now immune to carbon controls.

This would be a mistake.

The state of California remains committed to its ambitious cap-and-trade program, and state legislators remain positioned to fill the legislative vacuum left by the US Senate with a state-level program that promises to set the standard for other state and regional carbon reduction protocols. Despite years of litigation and regulatory uncertainty, California now stands just a few months away from potentially adopting the most comprehensive cap-and-trade bill this country has ever seen – including the Regional Greenhouse Gas Initiative (RGGI) now being scrutinized by state legislatures throughout the northeastern United States.

For regulated Californian businesses, the implications of this development are undeniable: remaining competitive in a carbon constrained economy requires companies to minimize their carbon footprint. To do so, companies must make fundamental organizational and behavioral changes and develop a much broader and deeper understanding of greenhouse gas (GHG) management vernacular. Among the leading concepts for companies to understand are GHG inventories and carbon offsets, among others.

But what about the rest of country? Surely this need not concern other states and their local businesses. Yet time and again business, cultural and financial trends have followed the same pattern: what happens in California matters for the rest of the country. In the case of cap-and-trade, it’s worth noting that California contains the largest U.S. state population, the largest U.S. state economy and represents roughly 6 percent of the country’s total GHG emissions. This has for decades made it the bellwether state for, among other indicators, national environmental regulation. Whether it’s been regulating insecticides or controlling automotive emissions, California has long set the bar for environmental protection in the United States.

This should serve as a wake-up call to companies – small and large - who think they are immune to carbon controls. Californians may soon be entering a carbon constrained world and could bring others with them. This is the time for businesses across the country to get a jump start on managing their own carbon footprint. Failing to do so, would mean being left behind by a growing number of more efficient and innovative companies, the likes of which California is known for.

Admittedly, budgets are tight these days, however, that should not stop companies from taking action. Minimizing one’s carbon footprint can lead to substantial cost savings and, through emission reductions such as offsets, can enable companies to achieve their climate goals cost-effectively. It is time we all take notice of what’s going in California and anticipate the inevitable – a carbon constrained world.


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