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The Keys to Kyoto: A Climate Change Primer for Business
Joel Makower, 13 Feb 05

WorldChanging ally Joel Makower joins our roster of Sustainability Sunday posters today. Joel is a widely respected writer and consultant on issues of sustainable business, clean technology and green markets. He posted the original version of this essay on his blog. It's an excellent addition to the Sustainability Sunday circle; I found it both timely and useful, and definitely of interest to WorldChanging readers.

The Kyoto Protocol on global climate change, seven long years in the making, is coming into effect on Wednesday, February 16.

Okay, great. So, what now?

That’s a question I’ve been hearing regularly in recent months, ever since Russian President Vladimir Putin signed legislation ratifying the protocol, the tipping point for the landmark treaty aimed at slowing global warming.

So, on the cusp of Kyoto’s arrival, a primer.

Kyoto commits participating industrialized countries to cut their emissions of greenhouse gases (GHGs) between 2008 to 2012 to levels that are 5.2% below 1990 emissions. Each participating country agreed to its own specific target. EU countries are expected to cut emissions by 8% and Japan by 5%. Some countries with low emissions are actually permitted to increase them.

Most climate scientists say Kyoto’s targets merely scratch the surface of the climate problem. Rather than the 5% reductions, they say, cuts on the order of 60% will be needed to avoid the worst consequences of global warming.

Perhaps. But for the time being, we’ve got Kyoto. And while the U.S. is notable in its absence among participating countries, many larger companies based or operating in the U.S. are opting to adopt or exceed Kyoto’s targets.

Kyoto, it seems, is the least of the reasons why. Shareholder groups, activists, customers, and others are asking pointed questions of companies about their climate policies and progress.

So, what will happen next for companies and Kyoto? Not much -- and quite a lot.

That is, there will likely be few, if any, momentous developments now that Kyoto is official, but there will be stepped-up activity by companies and climate-related organizations on several fronts. Following, in no particular order, is a brief overview of several of these fronts, including select resources to help you learn more or take the next step.

1. THE BUSINESS CASE. Some companies, especially U.S.-based firms, are unlikely to take much action on climate without a strong economic justification. That’s getting easier, though it’s still not slam-dunk.

Actually, the business case is fairly easy to make on the macro level: Climate change’s impacts threaten to undermine nature’s “free” services that provide the economy’s resource base, such as the ability of ecosystems to cleanse the air and replenish fresh water, prevent erosion, and fight off pests.

At the firm level, the most compelling business rationale includes reduced operating costs, usually through lower energy expenditures, as well as enhanced reputation, as customers, shareholders, and other stakeholders seek out companies with strong climate leadership. Some companies also view value in the reduced uncertainty that comes from being well ahead of regulatory requirements and stakeholder expectations.

Select resources:

  • ClimateBiz Backgrounder: The Business Case

  • Down to Business on Climate Change: An Overview of Corporate Strategies

  • The New Business Climate: A Guide to Lower Carbon Emissions and Better Business Performance

    2. GREENHOUSE GAS REPORTING. Increasingly, companies are being asked to publicly report their GHG emissions. Several U.S. states have created GHG registries, mostly in response to lax federal oversight. California, New Hampshire, New Jersey, Wisconsin, and Chicago, Ill., all have registry programs, and several other jurisdictions are working on them.

    A federal GHG registry was established under the Energy Policy Act of 1992, but it covers only reductions from specific projects, not a company’s entire emissions footprint, theoretically letting companies receive credit for reductions in one part of their business while increasing GHG emissions overall. The data are self-reported with no standardization or third-party certification, making them less reliable. Participation is voluntary, which lets many of the biggest emitters keep on polluting without any public disclosure.

    Likely to be more effective are efforts by companies to report their own emissions, either voluntarily or the result of stakeholder pressures.

    Select resources:

  • California Climate Action Registry

  • Greenhouse Gas Protocol Initiative

  • U.S. EPA Climate Leaders Initiative

    3. CARBON TRADING. The basics of trading: companies in industries that emit greenhouse gases are allocated a certain threshold for the emissions they produce. Companies that don’t use their entire allowance may sell the excess in the form of emission credits in the market. Companies that require more than their allowance, either because they have failed to reduce their emissions or because their operations have expanded so fast that they have reached their limit prematurely, can buy more allowances.

    Global interest in trading continues unabated. Last month, the European Commission approved eight national plans that allocate how much CO2 industrial plants are allowed to emit. The scheme, set to begin in January, is a key part of the 25-nation bloc’s efforts to meet its Kyoto commitments.

    The EU trading scheme will operate on a “cap and trade” basis, by which member states must set an emissions cap for each of the installations covered by the scheme. Each installation will be allocated allowances for the commitment period in question but businesses can appeal against their allocation. Each participating installation must surrender emission allowances equal to the amount of CO2 emitted each year. Businesses that go over their allowances will be fined 40 Euros (about US$52) per ton.

    Meanwhile, the Chicago Climate Futures Exchange (CCFE) obtained approval this month from the U.S. Commodity Futures Trading Commission to trade emissions futures contracts. CCFE -- the futures subsidiary of the Chicago Climate Exchange, the voluntary emissions-trading market -- will initially offer futures on emissions allowances and plans to offer options at a later date.

    Select resources:

  • Chicago Climate Exchange

  • Domestic Emissions Trading Overview

  • Emissions Marketing Association

  • European Union Greenhouse Gas Emission Trading Scheme

  • International Emissions Trading Association

    4. CARBON OFFSETS. An offset is “any project that negates the impact of a company’s emissions by avoiding an equal amount of pollution, usually at another site, or by sequestering an equal amount of carbon,” according to Offsets are used after companies have reduced their emissions through efficiency measures or less-polluting alternatives, such as buying renewable energy in place of fossil-fuel energy.

    Examples of offset opportunities include:

  • restoring biodiversity-rich forests that have been degraded or fragmented;

  • preventing the destruction of threatened biodiversity-rich forests;

  • engaging in other land-use improvement options (such as agro-forestry, reforestation, soil conservation); and

  • reducing energy-related emissions in non-company facilities, through, for example, energy efficiency, green power purchases, or fuel-switching (such as replacing oil-fired burners with natural gas ones).

    One of the more common means companies use to offset their emissions falls into the last category: purchasing “green tags.” These financial instruments are created when wind power or other renewable energy is substituted for traditional power. They represent the real savings in carbon dioxide and other pollutants that occur when green power replaces burning fossil fuel.

    Another mechanism is the World Bank’s proposed Community Development Carbon Fund, which will link small-scale offset projects with companies, governments, and NGOs. The project will enable companies to invest in small-scale projects that can benefit local communities in developing countries while reducing or sequestering GHGs -- for example, small-scale hydro, wind energy, small municipal and agricultural waste projects, energy efficiency, clean transport, and agro-forestry projects.

    There are a variety of other offset mechanisms, arranged through both nonprofit and for-profit entities.

    Select resources:

  • Bonneville Environmental Foundation

  • The Climate Trust

  • World Bank Community Development Carbon Fund

    5. CLIMATE NEUTRAL. Companies that substantially reduce their climate emissions, then offset the balance, may be able to make claims of being carbon or climate “neutral.” Such claims could become a branding or marketing mechanism for some firms, though the value of such claims remains to be proved.

    Simply declaring one’s self to be “neutral” won’t necessarily work; to be credible in the marketplace may require certification by a third party. There are two principal groups working to do this: in the U.S., the Climate Neutral Network (which owns the ClimateCool brand); and in the U.K., Future Forests (which owns the Climate Neutral brand).

    Almost anything can be certified -- a company, a facility, or a product or service. Recently, we’ve seen climate-neutral claims made for rock band tours, carpeting, Web sites, and more.

    Beware that not everyone agrees on the methodology to become “neutral.” For example, Future Forests, as its name implies, relies on planting trees to offset carbon emissions. While this method is relatively simple, some experts believe that it is not as effective as offsetting emissions through a variety of efficiency and other measures. As a result, claims of climate or carbon neutrality limited to trees may not be as well-regarded as other, more diverse means.

    Select resources:

  • Climate Neutral Network

  • Future Forests

    This is just the beginning. None of the foregoing deals with the basics of understanding, measuring, tracking, and reducing one’s climate footprint. It doesn’t necessarily make the connection between climate and water use, transport of goods and people, solid waste generation, and other types of resource use.

    Kyoto’s coming. And there is much to learn.

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    Excellent addition to the Sustainability Sundays. I'll also follow Joel's blog.

    Thank you for your contribution.

    Posted by: Mikhail Capone on 13 Feb 05

    The issue of Kyoto barely scratching the surface of the problem is easily addressed relative to corporations. Metaphor is probably the easiest way. When the starting gun goes off for a big race, NASCAR drivers, Olympians, racehorses, grayhounds, corporations, all jockey for early position. Odds for a good finish improve based on it. When brand image is at stake, its even more critical to 'place or show' because important stockholders might be in the stands. Once a plurality of customers and stockholders become convinced that climate change is real and may be hazardous to stock value and to their heirs, the educated, the policy elite, and the activits will take detailed note of performance relative to climate issues. I feel we are still approaching that point.

    Once fear of climate consequence takes hold, even on a very minor scale (provoked by say two more major years of tropical storm damage in the Southeast), the "climate flu" will have Wall Street in a stew. Analysts and trade journals have so buried themselves in denial and spin they will have no credibility by then. Whom will wise stockholders trust to call the "buy, sell or trade" question? When public dread arrives, it will be transformative of the financial community. That said, good corporate risk managers understand the above and are actively positioning for that "tipping point" day.

    Posted by: John Laumer on 14 Feb 05

    John, good comments, but people aren't very good at recognizing consequences that happen decades after their actions. Many people believe that we should wait until climate change is completely "proven" - then do something. That will be too late. Any climate disturbance we're seeing now is from greenhouse gasses emitted about 20 years ago. Today's emissions will have an impact about 20 years from now. CO2 persists in the atmosphere for several hundred years. The time spans of climate change outstrip the planning horizons of even the most forward-looking corporations. When we get better at "extending the present" to at least a century - that will be worldchanging.

    Posted by: David Foley on 14 Feb 05



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