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Climate Change: The Heat Is On

From reporting to trading, utilities try to meet new expectations.
Fortnightly Magazine - January 2004

on the defendants in the court of public opinion. No company will be eager to answer charges that its actions have contributed to rising sea levels, the spread of diseases, more violent storms, longer-droughts, crop failures, or other projected climate-related harms. Furthermore, no company will be eager to bear the costs of defending such suits.

How Utilities Are Responding

Cumulatively, the various state and local initiatives amount to a new kind of outside-the-Beltway pressure system on utilities to demonstrate their readiness and ability to manage the risks-and, in some cases, opportunities-associated with operating under potential future carbon constraints. In other words, utilities are facing new expectations that they will implement a prudent corporate climate-change risk management strategy. Leading U.S. utilities are responding to this challenge in a variety of ways, ranging from undertaking internal risk assessments to participating in the emerging international emissions trading marketplace.

Many utilities are taking steps to inventory their emissions and, in the process, are identifying their lowest-cost internal mitigation opportunities. PacifiCorp has taken the further step of assigning a "shadow" internal price to its carbon dioxide emissions. In setting the shadow price, PacifiCorp has attempted to forecast the timing and stringency of potential future climate policies.

After inventorying emissions, participation in emissions reporting programs builds capacity for emissions management and signals seriousness about overall climate risk management. At the direction of the president, the Department of Energy is taking steps to upgrade the 1065(b) program, and many utilities are planning to participate in the reformed program. However, for reasons discussed above, utilities also may face pressures to participate in one or more of the various state and local reporting programs currently under development.

Participation in climate leadership groups offers utilities the opportunity to demonstrate to the public a proactive stance on this issue. A large number of utilities are participating in Power Partners, the industry's partnership with the Department of Energy that aims to promote voluntary emission reduction activities. To further distinguish a progressive stance on climate change, some utilities also have joined multi-company groups that emphasize additional proactive steps. For example, Cinergy, We Energies, the FPL Group, and American Electric Power have joined EPA's Climate Leaders program, under which members commit not only to rigorous reporting obligations but also to the development of specific emission reduction goals.

A further means of distinguishing a company in the eyes of the public is to join a climate leadership group established by an environmental organization. Entergy has joined seven companies from other industries in becoming a member of Environmental Defense's Partnership for Climate Action. Currently, the World Wildlife Fund-U.S. is soliciting companies to join its PowerSwitch! group, for which a utility member must both support binding national limits on carbon dioxide and commit to: (1) ensuring that at least 20 percent of its electricity sales come from renewable energy; (2) increasing energy efficiency by at least 15 percent by 2020; or (3) retiring the less efficient half of its coal generation by 2020.

A few major utility companies have taken the additional step of voluntarily adopting a corporate GHG