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With a nascent emissions market, U.S. companies may not be so grateful they're out of the club.
Domestic energy companies may have breathed a sigh of relief last March when the United States pulled out of the Kyoto Protocol. Gone was the specter of expensive compliance with emissions reduction targets set by the treaty. So long as they don't care about expanding globally or entering emerging emissions trading markets, they probably have a reason to think they've dodged the emissions bullet. For now, at least.
There is that pesky matter of multi-pollutant legislation, either in the form the Clean Power Act of 2001, S. 556, proposed by Sen. James Jeffords, or the proposal the Bush administration is expected to unveil in early 2002. Yet, even assuming passage before year's end, compliance with any new law is well over a year away. The real effect of the Kyoto treaty for U.S. utilities may turn out to be not what they must do, but what they're not allowed to do-participate in nascent worldwide emissions markets created by the international, sans-United States agreement.
Despite the U.S. pullout from negotiations last March, the Kyoto Protocol effort has not collapsed, as some had predicted it would. In November, the parties-55 countries, representing over half of global emissions producers in 1990-met in Marrakesh, Morocco, to work out remaining differences. Though the parties announced an 11th-hour agreement on a variety of issues, including an enforcement mechanism for countries that do not reach their emissions goals and eligibility requirements for engaging in emissions trading, the details remain sketchy. As Mary Gallagher, spokeswoman for AEP Energy Services Ltd. in London, says, "the agreement was signed with great fanfare ... [but] there's not a lot of explanation" of how compliance mechanisms will work under the treaty.
The immediate effect of Kyoto on U.S. companies will be negligible, even for those with international holdings. The treaty regulates emissions based on the geography of a facility, rather than the citizenship of the facility's owner. U.S. companies with operations abroad are accustomed to dealing with different regulatory regimes, says Frank Maisano, spokesman for Global Climate Change, an industry trade group that opposed United States participation in the Kyoto Protocol. And Gallagher seems to agree. "We'll follow the rules of the UK and Europe," she says, without mentioning any hardship that AEP might face to comply with such regulation.
Despite their apparent comfort with various countries' regulatory schemes, one likely response to Kyoto is that companies with significant overseas holdings will establish company-wide environmental compliance policies, according to John Palmisano, a managing director with Evolution Markets. "It's much easier if companies have one set of standards" for things such as environmental management programs, he explains.
Indeed, at least one international company with large U.S. holdings, Royal Dutch/Shell, has adopted a company-wide policy that bans ownership of interest in coal-fired generation, according to Steve Piper, a senior consultant with RDI Consulting/Platts. He says that Shell, an RDI client, adopted its policy of not holding interests in coal-fired generation due directly to Kyoto concerns.