wri report

W R I R E P O R T

World

Resources

Institute

A CLIMATE OF INNOVATIONNortheast Business Action to Reduce Greenhouse Gases

ANDREW AULISI

JENNIFER LAYKE

SAMANTHA PUTT DEL PINO

World

Resources

Institu t e

10 G Street, NESuite 800Washington, DC 20002www.wri.org

About WRI

The World Resources Institute is an environmental think tank that goes beyondresearch to create practical ways to protect the Earth and improve people'slives. Our mission is to move human society to live in ways that protect Earth'senvironment for current and future generations.

Our program meets global challenges by using knowledge to catalyze public and private action:

● To reverse damage to ecosystems. We protect the capacity of ecosystems tosustain life and prosperity.

● To expand participation in environmental decisions. We collaborate with partners worldwide to increase people's access to information and influenceover decisions about natural resources.

● To avert dangerous climate change. We promote public and private action toensure a safe climate and sound world economy.

● To increase prosperity while improving the environment. We challenge the private sector to grow by improving environmental and community well-being.

In all of its policy research and work with institutions, WRI tries to build bridgesbetween ideas and actions, meshing the insights of scientific research, eco-nomic and institutional analyses, and practical experience with the need foropen and participatory decision-making.

For over a decade, WRI's Sustainable Enterprise Program has harnessed thepower of business to create profitable solutions to environment and develop-ment challenges. WRI is the only organization that brings together corporations, entrepreneurs, investors, and business schools to accelerate change in businesspractices. The program improves people's lives and the environment by helpingbusiness leaders and new markets thrive.

A CLIMATE OF INNOVATION

NORTHEAST BUSINESS ACTION TO REDUCE GREENHOUSE GASES

ANDREW AULISI

JENNIFER LAYKE


World

Resources

Institute

W A S H I N G T O N , D C

ii

WRI: A CLIMATE OF INNOVATION

MARGARET YAMASHITACURTIS RUNYANEditors

HYACINTH BILLINGSPublications Director

MAGGIE POWELLLayout

Each World Resources Institute report represents a timely, scholarly treatmentof a subject of public concern. WRI takes responsibility for choosing the studytopics and guaranteeing its authors and researchers freedom of inquiry. It also

solicits and responds to the guidance of advisory panels and expert reviewers.Unless otherwise stated, however, all the interpretation and findings set forthin WRI publications are those of the authors.

Copyright © 2004 World Resources Institute. All rights reserved.ISBN 1-56973-575-1Library of Congress Catalog Card No.Printed in the United States of America. Text stock has a recycled content of30%; cover stock has a recycled content of 10%.

Cover image photo of wind turbines courtesy of the National RenewableEnergy Laboratory.

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FOREWORD

The goal of developing and sharing knowledge ongreenhouse-gas emissions is the primary driver of theClimate Northeast initiative. Our group of partners—nine corporations based in the Northeast and theWorld Resources Institute—came together to learn, toshare practices, to keep abreast of the many facets ofthe climate change issue, and to find new opportuni-ties. The initiative has allowed us to create a networkof peers that support communication and the transferof ideas. We wrote case studies, explained ouremissions management systems and challenges, andlooked for innovation. We also considered market andpolicy developments, including growth in markets forrenewable power and the emerging market fortradable carbon emissions credits. We sought tounderstand what other companies are doing and thebenchmarks being set for progressive corporateaction on climate change. Through this work we havebeen able to gain support for emissions reductionprojects and leverage diverse corporate initiatives toadvance our environmental goals.

There are many benefits that individual companiescan gain by taking action on greenhouse gas emis-sions. Businesses can become more efficient and reapfinancial returns while lowering emissions at thesame time. Companies can also position themselvesto be successful in a carbon-constrained world andcapture new markets for products and services. Inthis way, businesses identify paths to growth whileminimizing the risks they face from changes in theeconomy, markets, and public policy. Also, at a timewhen there is much discussion about using market-based policy to addressing emissions, the privatesector can lead in demonstrating the use of thesemechanisms. By ensuring that markets are structuredto be efficient, flexible, and responsive to businessneeds, companies can help build the framework inwhich they will thrive.

Forward-thinking companies can be proactive onclimate change in a manner consistent with growingtheir bottom lines. Business leaders recognize thattaking action on environmental issues is more thanbeing a good corporate citizen; it is also good business.

Businesses alone cannot solve climate change,though. Consumers and policy makers also have roles

Climate change is a long-term, global challenge thatcan be addressed by starting today with practical,cost-effective actions. Carbon dioxide and othergreenhouse gases are emitted into the air from everysector of economic activity, and each year theseemissions continue to rise. As they accumulate in theatmosphere, greenhouse gases increase the risk ofadverse impacts from climate change.

In the near term, taking steps on a manageable scalewill move society along a path toward stabilizing theconcentrations of greenhouse gases. The sooner thesesteps are taken, the quicker they will allow us to get ahandle on emissions before they rise too far and toofast. In this way, sensible action today allows for moreoptions and flexibility in making a gradual and stabletransition to lower carbon emissions. In particular, weneed to spur technological progress across varioussectors. Time will be needed before research anddevelopment gives way to the full market uptake ofnew technologies, yet experience with technologicaladvances at the end of the twentieth century offerspositive signs that new ideas can be developed quicklyand that costs will fall as those ideas are applied.

Businesses have a role to play in bringing abouttechnological solutions to climate change. Businesshas the resources and focus on innovation to drive aclean energy future, and its global reach and market-ing can help deploy new technologies on a largescale. Companies are practical in nature, usingresearch and experiments to test new ideas incommercial markets. Businesses also take risks,often making decisions without perfect knowledgeand then learning, adapting, and developing newinformation and ideas as they go. Successfulcompanies understand what it means to lead. In thisspirit, businesses have much to contribute towarddealing with climate change.

Many companies have had experience with loweringemissions and have identified instances where thereductions can be achieved in a cost-effective manner.Companies have also devised new managementsystems and new products that help reduce emis-sions. Businesses need to continue to develop andshare this information so it can be broadly imple-mented.

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to play. Consumers need to understand how theiractions drive emissions and how they can be a part ofthe solution. Policy makers need to provide credibleincentives for innovation and clear signals that reduceuncertainty so businesses can invest their time andresources with confidence.

At a time when state, regional, and national policyproposals are moving in different directions, policymakers should strive to harmonize their effortswherever possible to promote maximum efficiency.Consensus has not yet emerged on comprehensivelegislation to address climate change, yet policymakers could foster agreement between governmentand the private sector under which businessescommit to reductions in return for credits againstfuture requirements. Proactive companies shouldnot be penalized for reducing greenhouse-gasemissions. On the contrary, early actors should beencouraged by clear policies that ensure their workto reduce emissions will be rewarded. Such anapproach would give businesses the confidence toinvest resources in reductions and help to jumpstarta market-based trading system for carbon. Though

there is no single solution to climate change, long-term success will be achieved by integrating themost effective measures that are proven throughexperience.

In the Northeast, companies want to operate in aregion where policy makers are partners in findingsolutions to climate change and where there iscooperative and constructive engagement with allstakeholders. The partners in the Climate Northeastinitiative operate in different sectors and in differentcountries, and have useful experiences and knowl-edge to build upon.

In A Climate of Innovation: Northeast Business Actionto Reduce Greenhouse Gases, the World ResourcesInstitute draws on the combined experiences of thepartners and the activities taken under the ClimateNortheast initiative to provide a framework forcorporate action on climate change. We hope it willbe useful for other businesses getting started withgreenhouse-gas management programs and will helpinform policy makers about the opportunities andconstraints businesses face in moving forward withclimate change solutions.

Brian K. BoydVice President, Worldwide Environmental AffairsJOHNSON & JOHNSON

Jean M. LaVecchiaVice President of Human Resources and Environmental ServicesNORTHEAST UTILITIES SERVICE COMPANY

Al ForteAssistant Director, Environmental AffairsPFIZER

Mark BuckleyVice President, Environmental AffairsSTAPLES

Jonathan LashPresidentWORLD RESOURCES INSTITUTE

Susan VoigtVice President, Environment, Health and Safety and Corporate Product QualityBRISTOL-MYERS SQUIBB COMPANY

Joseph SproulsGlobal Head, Corporate Realty ServicesCITIGROUP

Randolph PriceVice President, Environment, Health & SafetyCONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

R. Hays BellDirector, Health, Safety & EnvironmentEASTMAN KODAK COMPANY

Stephen RamseyVice President, Environmental ProgramsGENERAL ELECTRIC

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EXECUTIVE SUMMARY

Climate change resulting from human activitiesis one of the world’s foremost environmentalchallenges. If greenhouse-gas (GHG) emis-

sions are to be reduced on a scale that will minimizethe risk of dangerous climate impacts, then theresources and innovation of businesses are surelyrequired.

Trends in GHG regulation and investor concernsrelated to climate change are compelling companies totake action. Although the outcome of those trends is notyet known, many companies are creating systems andstrategies to manage GHG emissions. The businesscase for action rests on the idea that proactive work inthe near term is more effective than reacting to events ata later date. Near-term action will help companiesmanage long-term risks and establish long-termpositions. Such action is increasingly being driven bystrategic thinking that goes beyond internal opera-tions and considers markets and consumers as well.

In 2003 the World Resources Institute convened agroup of large corporations based in the northeastUnited States to explore the various facets of private-sector action on climate change. The diverse groupincluded companies from various sectors and ofdiffering size and geographic reach. This “ClimateNortheast” initiative was designed to share experiencesand build momentum among companies for thebenefit of the business community, for informingemerging regional climate policy discussions, and fordevising strategies to succeed in a “carbon-constrainedworld.” In particular, the group assessed the drivers foraction, the management systems for quantifying andanalyzing emissions, and the energy-related projectsfor reducing emissions. This report is an overview ofthat work.

Companies collect data and information to buildGHG emissions inventories, which are a prerequisiteto establishing emissions reduction goals and tracking

performance over time. While collecting this informa-tion, the companies discovered new information andopportunities for efficiency and innovation, includingnew technologies, processes, and managementsystems. To begin reducing emissions, though,corporations often face barriers to allocating capital tosome investments. This report provides examples inwhich companies found ways to couple reductions inemissions with new business opportunities, therebylowering costs and turning in a positive financialperformance.

In the future, corporations are likely to experienceincreased regulatory and investor-related pressure toact on climate change. In response, they will have tobuild and adapt their GHG emissions managementsystems in a variety of ways. As discussed in thisreport, companies may need to incorporate environ-mental criteria into their strategic investment deci-sions, improve the quality of their data and theirinternal communication, and evaluate market-basedpolicy approaches, among other actions.

Communication and cooperative engagement withpolicy makers helps businesses meet these challenges.Policy makers should be aware of the costs and risks tobusinesses of reducing emissions in absence of anyformal recognition. Indeed, many of the low-cost, high-return GHG investments may be delayed in the face ofregulatory uncertainty. Therefore, by recognizingperformance and emissions reductions, policy makerssupport near-term action.

Businesses have shown that they can take action inthe face of uncertainty and lower emissions in afeasible, cost-effective manner. Companies from avariety of economic sectors—energy producers,manufacturers, service providers, and retailers—makevaluable contributions to reducing emissions. Theprivate sector is playing and will continue to play a vitalrole in addressing this critical environmental issue.

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federal lawsuit to urge action on climate change.Citing dangerous health threats, the lawsuit seeksreductions in carbon dioxide emissions. In addition,many states have issued far-reaching plans forlowering GHG emissions. Because climate change isnot a local issue, the states also are collaborating at aregional level to include synergy and efficiency intheir efforts. Initiatives in the northeast regioninclude an emissions trading program to reduceemissions from power generators; a GHG registry torecord corporate emissions; and a broader agreementby the New England governors and eastern Canadianpremiers to cut emissions from the transportation,agriculture, and other sectors.

These initiatives have driven the Northeast to theleading edge of climate policy development in theUnited States and are setting the stage for changeamong businesses, government agencies, andconsumer behavior. They also provide an importantwindow of opportunity for companies to learn,engage, and establish themselves as leaders.

Climate Northeast partners came together to shareexperiences, review emission-reduction strategies,and become more informed and effective participantsin policy dialogues taking place in the region andbeyond. The partners identified a number of activitiesneeded to help the private sector manage climatechange, including:

● Identifying and tracking sources of GHG emis-sions, especially those from energy consumption.

Businesses face a rapidly evolving set of challengesand opportunities arising from climate changeand the greenhouse-gas (GHG) emissions that

are causing it. Society’s expectations and emergingpublic policies in Europe, Canada, the northeastUnited States, and other regions are forcing busi-nesses to participate in finding solutions to climatechange. As a result, many business leaders arebeginning to track their GHG emissions. They alsoare assessing their exposure to current and futurerisks in markets and regulation and identifying newstrategic business opportunities that will allow themto thrive in a “carbon-constrained world.”

In 2003 the World Resources Institute (WRI) and agroup of large companies based in the northeastUnited States began to chart a course for corporationsto tackle climate change. This project, known asClimate Northeast, brought together a variety ofbusinesses from different economic sectors, includ-ing the Bristol-Myers Squibb Company, Citigroup,Con Edison, General Electric, Johnson & Johnson,Eastman Kodak Company, Northeast Utilities, Pfizer,and Staples. This report on the partnership’s activitiesis intended to help other companies learn from theexperiences of the Climate Northeast partners and tohelp them begin to chart their own course forcontributing to climate protection.

The Northeast is an ideal region for learning aboutand implementing solutions to climate change. FromMaine to New Jersey, policy makers are working toreduce GHG emissions. The attorneys general ofeight states, including five in the Northeast, filed a

1.INTRODUCTION

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● Prioritizing opportunities to reduce emissions anddeveloping a plan to take action.

● Buying cost-effective “green power” and investingin profitable energy-efficiency projects.

● Establishing a clear business case for allocatingscarce corporate resources to attractive projects.

● Learning about emissions trading markets anddifferent policy options for addressing climatechange.

● Identifying new, climate-friendly products andservices that can be profitably developed.

For as many types of greenhouse gases and sourcesthat exist, there are actions that can be taken bybusinesses to reduce emissions. To get started,businesses need to gather information, plan, andestablish systems to manage greenhouse gases.Climate change is a relatively new issue to the privatesector, so many companies must build these systemsfrom scratch. But because they are similar to othercorporate environmental management systems, suchas those dealing with energy or waste, they are notentirely unfamiliar to corporate environmental andmanagement professionals. Although corporate GHGprograms vary by company and industry, the basicactions generally include the following:

● Regularly measuring corporate GHG emissions.

● Rolling the data into a GHG inventory.

● Setting a goal for GHG reductions.

● Investing in projects that reduce emissions.

● Reporting internally and externally on emissiondata and actions taken.

● Auditing and verifying GHG information.

● Evaluating the overall program.

In addition, a GHG management program mayhave some combination of the following steps:

● Developing a corporate policy statement onclimate change.

● Buying or selling tradable “carbon credits.”

● Developing and marketing climate-friendlyproducts.

● Training employees.

● Evaluating suppliers and/or modifying procure-ment practices, including energy diversification.

The solution to climate challenge will requirebusiness ingenuity and technological innovation aswell as smart policies to create the incentives neededto build a cleaner, safer future. This report describesactions that companies can take, drawing on theexperiences of the nine corporate partners in ClimateNortheast. In the following chapters, four topics areconsidered:

● “The Business Case for Corporate Greenhouse-GasManagement” explores the drivers for corporateaction, how companies can assess the benefits, andwhy both internal and external stakeholders needto understand the business case.

● “Accounting for Emissions: Empowering Corpo-rate Greenhouse-Gas Management” covers thebasic elements of developing a GHG inventory andhow Climate Northeast partners overcame hurdlesto establish effective systems.

● “Building a Clean Energy Future: Green Power andClean Energy Projects” describes why mostcompanies should invest in clean energy solutions,the existing opportunities, and the benefits to becaptured.

● “Looking Ahead: Cutting-Edge Issues and Chal-lenges for Corporations” proposes near-termactions that companies should consider as theymove toward a carbon-constrained future.

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2.THE BUSINESS CASE FOR CORPORATE

GREENHOUSE-GAS MANAGEMENT

This trend toward regulation has been bolstered bythe growing body of scientific research linkinghuman actions to global warming and other climateshifts (see box 1). As regulations begin to limitemissions, some companies will face direct compli-ance obligations. Even companies not directlyaffected by such regulations will likely see changes,such as higher electricity prices. Emissions regula-tions for carbon dioxide (CO2) and other GHGs canaffect some part of every company’s value chain:either upstream sectors, such as energy and resourcesuppliers, or downstream shifts in consumer prefer-ences and market standards.

Investor behavior also is prompting corporateaction. Some studies indicate that environmentalissues, including climate change, can be material tocorporate share value, that significant disparities existamong companies in the same sector, and that apositive link exists between corporate environmentalpractices and the performance of share prices (Austin& Sauer 2002; Feltmate, Schofield, and Yachnin2001; Repetto and Austin 2000).

Partly as a result of the risk to share value, climate-related shareholder resolutions are increasing innumber and percentage of shareholder support (seefigure 1) (Cogan 2003; Cogan 2004). These resolu-tions generally call for corporate strategies regardingclimate change, cuts in GHG emissions, investmentin renewable energy, and/or disclosure of GHG-related information. Between 2003 and 2004, 13 ofthese resolutions received 20 percent or more ofshareholder support. In investment circles this

Companies will not invest in projects, includingGHG management systems, unless they seethe value it will provide to their firms. An

understanding of an investment’s explicit or implicitpositive financial outcome is what is often referred toas the “business case.” For companies that are justgetting started, the business case helps shape theirprograms and strategies. For companies that haveestablished programs and are evaluating theirperformance, it supports continuing or expanding thework. Over time, the thinking behind the businesscase becomes part of a corporate philosophy for long-term strategic growth in a world of limited resources.

The factors shaping the business case vary depend-ing on the type and size of the company, its sector,and its geographic location. In the Climate Northeastproject, we considered the factors affecting large U.S.corporations based in the Northeast.

Many large corporations from various industrial andcommercial sectors have begun measuring theiremissions, setting reduction targets, and exploringmarket-oriented strategies to address climate change(Kolk and Pinkse 2004). This increased activity in theprivate sector has been spurred by regulatory action atstate, national, and international levels, most notablythe Regional Greenhouse Gas Initiative in theNortheast, the McCain–Lieberman Climate Steward-ship Bill, emissions caps in the European Union, andthe potential implementation of the Kyoto Protocoltreaty.

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amount of shareholder interest is significant. Finally,large institutional investors such as state treasuriesand pension funds have asked the U.S. Securities andExchange Commission and private companies forgreater disclosure of climate-related information(INCR 2004).

Although the future of both investment andregulatory trends is uncertain, many companies arenot waiting to manage GHG emissions. Instead,they believe that acting in the near term will bemore cost-effective than reacting at a later date whenthere is more information and less uncertainty butpossibly higher costs. Near-term action to imple-ment a corporate GHG program can serve as ahedge against future unknowns, particularly if acompany is likely to be directly affected by regula-tions (Swisher 2002). Such a strategy helps compa-nies manage long-term risks and establish long-termpositioning.

Value Propositions

While the business case may be broadly tied to long-term interests, a company may anticipate specificbenefits and returns from its GHG program. Theseoutcomes, or value propositions, are indicators of asuccessful GHG program and strategy.

Value propositions can be divided into tangiblereturns and intangible benefits (see box 2). Tangiblereturns from either reducing costs or increasingrevenue can be measured in dollars, particularlyfinancial gains resulting directly from projects orproducts that reduce GHG emissions. Commonexamples are energy-efficiency projects (case study 1)and the launch of a climate-friendly product thatlowers emissions when used by the consumer. Forexample, General Electric manufactures an array ofproducts, including wind turbines and higher-efficiency gas turbines, that cut emissions during end

BOX 1 CLIMATE CHANGE

Action on GHG emissions in the private sector andelsewhere is being driven by concern aboutdangerous human interference in the climatesystem. The scientific community reports that theconcentration of atmospheric carbon dioxide (CO2)has risen by 31 percent since the onset ofindustrialization (IPCC 2001). In lockstep with thisincrease has been a steady rise in global averagetemperature, which has climbed by nearly 0.6degrees Celsius (more than 1 degree Fahrenheit)since the 1800s.

A continuation of current emissions levels willlikely lead to a rise in temperature ranging from twoto six degrees Celsius. Such a shift could triggersignificant changes in the climate, including greatlyelevated sea levels and a higher prevalence ofextreme weather events. If temperatures were toreach the upper part of this range, dangerousstructural changes in global weather patterns couldresult. For example, global warming could alter theocean currents that help regulate temperatures.

Such changes would affect communities andecosystems in the northeast United States andaround the world, potentially harming fisheries thatsupply food, erode beaches and shorelines, andcause salt contamination of water supplies in coastalareas, among the many possible negative impacts.

The main greenhouse gas of concern is carbondioxide, which is largely the result of burning coaland oil. Most of the energy in the world is producedfrom these fossil fuels. For example, more than 70percent of electricity production in the United Statesis based on coal, natural gas, and petroleum (EIA2003b). Dependence on fossil fuels for energy isexacerbated by transportation needs, as liquidpetroleum products, such as gasoline and diesel,fuel more than 97 percent of transportation-relatedenergy consumption in the United States (EIA2004b). In addition to CO2, other industrialemissions, such as methane and nitrous oxide, arepotent sources of global warming.

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use. In addition, the company recently acquired asolar photovoltaic equipment manufacturer, thusexpanding its position in the market for clean energytechnologies.

Intangible benefits are more difficult to measure yetmay be more important as they could have a substan-tial effect on corporate share value over time. Forcorporate GHG programs, these benefits are gener-ally tied to three factors: sound risk management,improved reputation or brand image, and earlypreparation for regulation. Such benefits may beinterpreted by investors as an indication of forward-looking strategy and superior business management,a perception that can be more valuable than any ofthe underlying factors.

Companies invest in GHG programs for theirbenefits, but they should consider the potentialdrawbacks when evaluating the business case. AGHG program incurs new costs based on the timeand resources necessary to design, build, operate, andevaluate the program year after year. Although someGHG reduction projects require capital investment,much of it may be recovered and eventually deliver apositive return. There also is an opportunity cost fordeveloping climate-friendly products and servicesrather than expanding or developing other options.

There are also risks with taking action on GHGs.A company that reduces emissions in advance ofany regulatory requirement may expend its best,least-cost GHG reduction opportunities and thenbe required at a later date to implement additionaland perhaps more expensive reduction projects tocomply with regulations. In other words, compa-nies can be, in effect, punished for taking earlyaction if policy makers do not recognize theirefforts. Also, a company that fails to meet perfor-mance goals, such as a GHG reduction target, mayinvite criticism and a public relations liability.Criticism may also come from stakeholders whooppose efforts and regulatory mandates to lowerGHG emissions. Clearly, companies that are takingaction on climate change see the benefits asoutweighing these risks and potential costs. Policymakers should work with firms to address some ofthese issues and minimize the drawbacks, such aspenalties for first movers.

Difficulties in Measuring Costs andBenefitsAn ideal analysis of the business case for GHGemissions management would accurately quantify allthe benefits, or value propositions, and comparethem to all the costs. If the benefits exceeded thecosts, then the effort would clearly deliver value, andadditional conclusions could be drawn about its effecton corporate finances and share price.

Unfortunately, many of the benefits and costs ofinitiatives to reduce emissions are difficult to mea-sure, particularly the intangibles. For example, howdoes one measure and value the benefit of betterpublic relations? What is the cost if new regulationsdo not recognize the early action that a company hastaken to cut GHG emissions? In addition to themeasurement challenges, publicly available data andinformation about quantification techniques andconclusions are sparse, perhaps because companiesview this information as proprietary. Despite thesechallenges, the benefits and costs of a GHG programcan still be assessed, at least qualitatively, from both abottom-up and a top-down perspective.

FIGURE 1 CLIMATE-RELATEDSHAREHOLDER RESOLUTIONS,U.S. AND CANADIANCOMPANIES

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1997 1998 1999 2000 2001 2002 2003 2004

Num

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Shar

ehol

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uppo

rt (%

)

Number of Resolutions

Shareholder Support

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BOX 2 VALUE PROPOSITIONS FOR CORPORATE GHG MANAGEMENT PROGRAMS

Businesses create a GHG strategy by gaugingtangible returns and intangible benefits. Anticipatedoutcomes, or value propositions, are the indicators ofa successful GHG program.

Tangible Returns

● Climate-friendly projects yield a positive returnon investment.

● New or enhanced products or services increaserevenue, capture market share, and/or deliver netincome.

● Internal emissions-reduction projects allow forthe sale of emissions reduction credits.

● Enhanced energy-conservation practices and fuelswitching stabilize corporate energy use andprotect against energy price volatility.

Intangible Benefits

● Competitive positioning

– Low-carbon products or services improve thecompany’s position vis-à-vis its competitors.

– The public perceives the corporate brand asenvironmentally friendly, leading to improvedpublic relations.

– Strong environmental performance results inhigher employee recruitment, retention, andproductivity.

● Shareholder-related benefits

– Shareholders drop climate resolutions as theirconditions are satisfied.

– Investors perceive strong environmentalperformance as an indicator of superiorbusiness management, resulting in a premiumon the stock price and a lower cost for capital.

– The company’s stock is included in aspecialized stock index, such as the Dow JonesSustainability Index, and is held by investmentfunds that track the index.

– The company receives higher stock ratings from“socially responsible investment” (SRI)analysts, resulting in more stock purchases bySRI investors.

● Regulatory preparedness

– Company staff are trained to manage GHGemissions, thereby broadening the company’sexperience and enabling it to adapt more easilyto future regulations.

– The company’s GHG emissions are at or belowlegal requirements at the time the GHGregulations go into effect, thereby makingcompliance easier.

– A strong GHG management program gives thecompany greater credibility and thus a greatervoice in policy discussions and an opportunityto influence policy outcomes.

● Management benefits

– Coordination of GHG management acrossbusiness units and jurisdictions improveslearning, identifies opportunities, leads toinnovation, and offers unexpected efficiencies.

– The company is protected against potentialclass-action lawsuits related to corporategovernance, specifically claiming breach offiduciary responsibility for failing to manageGHG emissions and their associated liabilities.

A bottom-up approach begins with identifying andreviewing specific GHG projects, many of which willhave a positive return on investment. Generally, themost profitable projects will be funded and willultimately reduce the company’s GHG emissions.Nonetheless, the return on investment for some

projects can be strong and still not meet thecompany’s threshold for approval of capital expendi-tures. For these projects, a company may want tomodify its criteria for capital allocation, perhapscreating a weighting system that integrates or boostsenvironmental factors. Alternatively, a company may

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decide to consider certain GHG projects case by case.How a company decides to adjust its capital allocationpractices to account for GHG value propositions is anindication of the extent to which GHGs are factoredinto its overall business operations.

A top-down approach to assessing GHG manage-ment analyzes the greater issues and trends associ-ated with climate change. These long-range analysesconsider potential regulation, the direction ofmarkets, consumers’ attitudes, and sustainabledevelopment. Based on such an analysis, a companymay then decide how it wants to position itself anddesign its GHG program and strategy accordingly.In this way, a company may select and approve morestrategic GHG projects for capital allocation. Broadvision and corporate positioning on climate changecan be critical to supporting individual projects andnew product development that normally would notpass muster for capital expenditures. As a result, atop-down approach ultimately supports bottom-upaction.

Analyzing environmental issues, regulations, andtheir effect on markets and business sectors isgaining interest in the investment community. Morethan 11 percent of professionally managed U.S. assetsare invested in “socially responsible investing,”meaning investment strategies that rely on screeningof funds, shareholder advocacy, and/or communityinvesting. Between 1995 and 2003, socially respon-sible investments grew 40 percent faster than did allprofessionally managed investment assets in theUnited States, and the use of social screens appearsto be on the rise (SIF 2003).

The analytical underpinning of “green investing” issupported by investment analysts who compileresearch on environmental issues and the connectionbetween the environmental performance and stockperformance of corporations. This research is sold toand used by institutional investors, mutual funds,

and specialized stock indexes. At a broad level, itserves to monetize some of the intangible aspects ofenvironmental performance. In the automotiveindustry, for example, the potential impact of GHGemissions constraints can either increase or decreasefuture corporate earnings by 10 percent or more,depending on the company and its product mix(Austin et al. 2004). Companies can use and adaptthese analytical methods to their own work on settingpaths for strategic growth.

Communicating the Business CasePersons both inside and outside the company need tounderstand the business case. Internally, seniorexecutive management needs to understand and helpdrive the business case. Their endorsement sends asignal to staff responsible for program implementa-tion that the necessary support exists within thecompany, especially when it comes to coordinatingbusiness units and allocating capital. To obtain theirsupport, business unit managers also need to under-stand how GHG management builds value. Likewise,investor relations staff must be able to explain thecompany’s work to shareholders. Employees, as well,should understand why a company is managingGHGs, especially if the company uses incentives orrewards employees for ideas and innovation that helpthe company meet its environmental goals.

Making the business case for creating a GHGprogram is important also to external audiences.Once a company has decided how to evaluate and seta strategy guided by environmental concerns, it cantell its investors and stock analysts about its environ-mental performance and the value that it is creating.Other interested stakeholders include policy makers,nongovernmental organizations (NGOs), and thecommunities in which companies operate. Given theconcern about climate change, a corporate GHGprogram can be an asset to public relations.

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CASE STUDY 1THE BOTTOM LINE ON GHGS:

HOW CITIGROUP SAVED MONEY WHILE REDUCING EMISSIONS

Citigroup has over 270 retail branches in the greaterNew York City metropolitan area, includingConnecticut and New Jersey. Many of thesebranches have different control systems for lightingand heating, ventilation, and air conditioning(HVAC). The use of these systems varied fromlocation to location, often without consideration ofenergy efficiency by branch personnel. In addition,the systems were not automated. If the lighting orHVAC equipment went outside of its control limits,the only option for Citigroup was to deploy amaintenance crew to identify and fix the problem,which often required nothing more than restartingthe system. Overall, the lack of standardized energycontrols and automation resulted in lost energysavings opportunities and higher operation costs.

Several years ago, retrofitting the system controlunits would have required expensive rewiring anddisruption to operations. The costs could havereached $25,000 per branch, and if a retail branchwere to close or move, the capital investment wouldbe lost. In 2002 Citigroup’s Northeast regionreexamined its options and found that a newwireless satellite technology could provide a cost-effective solution. The new lower-cost technologycould be installed over the existing systems andprovide remote control to personnel in a centraloffice. There was no need to extensively rewire thebranches, so the total installation time wassignificantly reduced and business operations werenot interrupted. If a retail branch were to close ormove, the “clip on” system could be removed andreused at another location.

System monitoring, maintenance, and help-deskactivities for all branches became centrally managed,and the lighting and HVAC systems wereprogrammed to hourly operation schedules forspecific branches. The cost of the retrofit projecttotaled $2.5 million, but Citigroup was able to applyfor $469,000 in energy efficiency rebates from theNew York State Energy Research and DevelopmentAuthority. An additional $38,000 in energy rebateswas received from the Long Island Power Authority.These rebates offset part of the cost of the project,which has an estimated payback of one year.

Quantifying the actual financial savings on alarge number of locations is difficult and requiressignificant time and resources after a system goesinto service. Variable factors include the timing ofthe installation, changes in energy rates, changes inoperating hours as directed by the business,expanded branch operations, and weather. Anybusiness considering installing a central control andmonitoring system should recognize thesedifficulties and structure an automated reportingsystem that can capture relevant data. Additionally,other benefits should be factored when consideringa centralized monitoring and control system. Theseinclude reduced maintenance, reduced service calls,alarm detection, and service quality improvements.

Despite the quantification challenges, Citigroupestimates that the improved performance of itsHVAC system has reduced electricity and naturalgas use by 15 percent. Furthermore, the ability ofcentral office managers to remotely monitor andrestart the HVAC systems has reduced the number

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CASE STUDY 1 CONTINUED

of service calls by 30 percent. Citigroup believes thatthe system can be further optimized based onfamiliarity and experience.

In addition to saving energy and operating costreduction, Citigroup’s investment is also helping toreduce GHG emissions by reducing the amount offossil fuels used to generate its electricity needs. Inaddition, the project is reducing GHG emissionsfrom vehicles used by maintenance crews onservice calls.

The investment also assists Citigroup inenhancing its corporate environmental managementpractices. The control systems have the ability totrack electricity use and heating and coolingtemperatures, which is then sent via satellite to acentral location. While this type of energy use data isoften valuable to management, it can be difficult toobtain, especially when a building is leased as isfrequently the case with Citigroup. With this project,

Citigroup can capture the data and use it to populatea company-wide energy management system calledthe “Environmental Database.”

This database tracks the energy and materialsconsumption at all of Citigroup’s 13,000 sitesworldwide. Although Citigroup is still working tostandardize reporting procedures and improve dataquality, the database is able to provide a baseline forenergy consumption. This helps Citigroup fieldmanagers to better control consumption and trackprogress towards environmental goals. Ultimately,Citigroup expects that the data they collect in theEnvironmental Database will allow them to easilyproduce environmental activity reports as well as tocompare environmental performance betweenfacilities. This will help in identifying inefficientenergy use and ultimately target the best projects forenvironmental and financial gains.

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FIGURE 2 STEPS IN DEVELOPING ACORPORATE GHG INVENTORY

3.ACCOUNTING FOR EMISSIONS:

EMPOWERING CORPORATE

GREENHOUSE-GAS MANAGEMENT

people from the accounting department as well asenergy and environment staff and facility managers.It should also decide how closely the facility person-nel will be involved in calculating the emissions, asopposed to simply passing activity data to a centralmanager, perhaps in a corporate headquarters office,where the emissions are calculated and the data areaggregated.

Once a company commits to taking action onclimate change, one of the first steps isdeveloping an inventory of its greenhouse-

gas emissions. An inventory helps the companydetermine the extent of its GHG emissions andoptions for reducing them and helps track its emis-sions performance over time. In sum, the informa-tion provided by the inventory is vital to makingdecisions and to implementing an effective climatechange strategy.

Building and managing an inventory is a series ofsteps, each with its own set of considerations (seefigure 2). (For detailed information on GHG account-ing standards, refer to the GHG Protocol Initiativedescribed in box 3.) From streamlining data collectionprocedures to improving data quality, ClimateNortheast partners have learned valuable lessons anddevised innovative systems to overcome challenges.

DETERMINING GOALS FOR A GHGINVENTORY AND ESTABLISHING ATEAM

A company may have several goals for its inventoryprocess, from managing GHG risks to participatingin GHG markets. Establishing these goals andforming a team early in the process will help acompany manage its inventory process efficiently.Since it will need to obtain data from all parts of thecompany, it should assemble a team that has accessto the appropriate records. The team may include

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SETTING BOUNDARIES

Developing a corporate GHG inventory can presentsignificant challenges, especially if the company islarge and many of its facilities are involved. Acompany must decide whether to include subsidiar-ies, joint ventures, franchises, and other partnershipsin the inventory and according to what criteria thesedecisions will be made, a process known as definingthe “organizational boundaries” of the inventory.Companies sometimes decide to include operationsbased on their share of equity ownership (an equityshare approach). Alternatively, decisions are some-times based on whether the company has financial oroperational control of an entity (a control approach).The GHG Protocol recommends that companiesaccount for emissions using both approaches, eventhough eventual reporting of emissions may use onlyone method.

Companies also must identify and categorize thesources of its emissions to determine whether theyare “direct” or “indirect.” This is known as definingthe inventory’s “operational boundaries.” Directemissions—also referred to in the GHG Protocol as“scope 1” emissions—are created by sources that thecompany owns or controls, such as the combustion offuel in a company-owned furnace. Indirect emissionsarise from sources not owned or controlled by thecompany. A major source of indirect emissions formany companies is purchased electricity. Theseemissions are known as “scope 2” in the GHGProtocol. All other indirect emissions are known as“scope 3” and cover items such as employee businesstravel in commercial aircraft and the use of productsmanufactured by the company.

The difference between direct and indirect emissionsis important to avoid “double-counting.” Emissionsregistries, emissions trading systems and any futureregulation of emissions should distinguish betweenthe two so that different companies do not report thesame emissions as direct emissions. According to theGHG Protocol, a company should report its scope 1and scope 2 emissions. Including Scope 3 emissions isoptional, but inclusiveness is encouraged since Scope 3emissions may present greater opportunities forreductions by some companies.

The various scopes of emissions will inspire differentreduction strategies. For example, most of the emis-sions by Con Edison and Northeast Utilities are direct(scope 1) and result from power generation plants thatthey own or control. Scope 1 emissions are the typemost likely to be subject to regulation. In contrast, theGHG inventory of a company like Staples is morelikely to be made up of indirect emissions (scope 2).Staples’ reduction activities are therefore likely to bedirected to projects to reduce or alter its consumptionof purchased electricity. WRI has only indirect emis-sions in its inventory (case study 2). A company likeGeneral Electric, which manufactures a diverse rangeof energy-efficient products, might consider includingscope 3 emissions in its inventory to capture thedownstream emissions reductions from the use of itsproducts. In similar fashion, Citigroup is committed topublishing a carbon intensity index on new powergenerating projects that it finances.

BOX 3 THE GHG PROTOCOL: TOWARDA COMMON STANDARD FORBUSINESS REPORTING

The GHG Protocol Initiative is a unique,multistakeholder partnership of businesses,NGOs, and governments led by the WorldResources Institute (WRI) and the WorldBusiness Council for Sustainable Development(WBCSD). The protocol is the premier source ofinformation about corporate reporting andaccounting of greenhouse gases. It draws on theexpertise and contributions of individuals andorganizations from around the world. Theprotocol’s latest edition of the CorporateAccounting and Reporting Standard, published in2004, provides detailed GHG accounting andreporting standards, guidance on how to apply thestandards, and several cross-cutting and sector-specific calculation tools. The tools, which areavailable at no cost, represent international bestpractice. They are extensively road tested and peerreviewed, and companies can use them for theirown data collection and calculation systems. Formore information, visit www.ghgprotocol.org.

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Another issue in setting boundaries is selecting thetypes of greenhouse gases that will be included. TheGHG Protocol recommends the six major types ofgases: carbon dioxide, methane, nitrous oxide,chlorofluorocarbons, perfluorocarbons, and sulfurhexafluoride. Although many companies will findthat most of their emissions are in the form of carbondioxide, other gases can be significant as well.Because they are far more potent than carbon dioxidein trapping heat energy and causing global warming,they can be important, cost-effective sources formajor reductions in emissions (case study 3).

GATHERING DATA ANDCALCULATING EMISSIONS

In order to calculate its emissions, a company mustfirst gather data on all its emissions sources. This taskcan be difficult, especially when multiple facilities areinvolved. Companies should strive to be as inclusiveas possible while maximizing efficiency in the datacollection system.

General Electric operates nearly 6,000 facilities in 56countries. After weighing the resources that would be

CASE STUDY 2WRI AND INNOVATIONS IN ESTIMATING EMPLOYEE COMMUTING EMISSIONS

In 1999 the World Resources Institute committed to“walk the talk” by reducing its emissions to “net zero”through internal emissions-reduction and efficiencymeasures in combination with external purchases ofcarbon credits to offset emissions from electricityconsumption, paper use, and employee travel. WRIoccupies leased office space and has no direct, scope 1emissions. Each kilowatt-hour of electricity that theorganization uses is “greened up” by ensuring thatenergy generated from clean, renewable sources isput into the electricity mix. By 2003, WRI emissionswere 21 percent below its 2000 base year. WRI hasreached its target each year since 2000.

Gathering data for some indirect sources, suchas employee commuting, has been a keychallenge. Employees are surveyed once each yearto determine their average annual commutinghabits. In the first two years of the initiative, WRIused an Excel spreadsheet accessible to all itsemployees on a shared internal network but hadonly a 48 percent participation rate. A simplified,Web-based survey that was downloaded into aspreadsheet improved participation to 65 percentin the third year. Using feedback on the surveydesign, WRI further simplified and refined thequestions, made it more user-friendly, andreduced the time needed to complete the survey toless than a minute. The employee participationrate rose to 88 percent.

Designing a survey that was easily navigated andhad clearly articulated questions significantlyimproved the completeness and accuracy of theemployee commuting activity data. An added benefitwas that employees felt a certain amount of pride athaving contributed to the inventory developmentprocess. The experience also provided a positiveinternal communications opportunity.

Transportation-related emissions are the fastest-growing GHG emissions category in the UnitedStates, including commercial, business, andpersonal travel as well as commuting. By accountingfor commuting emissions, companies may findseveral practical opportunities for reducing them.For example, when WRI moved to new office space,it selected a building located close to publictransportation. In its lease, WRI also negotiatedaccess to a locked bike room for those employeeswho cycle to work, and the building provided showerand changing facilities to all building residents. Forsome companies, telecommuting programs may alsogreatly lower commuting emissions bycircumventing or decreasing employee travel.

WRI publishes a full inventory report each yearwhich is available from its Web site athttp://pubs.wri.org/pubs_description.cfm?PubID=3972.

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required to develop an exhaustive inventory, it deter-mined that the most resource-efficient solution waslimiting its data collection to the more manageablenumber of manufacturing plants and offices, whichare responsible for approximately 95 percent of thecompany’s emissions. As a result, emissions data aregathered from approximately 11 percent of its facilities,and estimates are used to approximate emissions fromthe company’s small sites. To do this, GE identifiedapproximately 5,000 small sites worldwide that werenot included in the company’s GHG inventorydatabase. Emissions for these facilities were estimatedusing an emissions factor based on determining theaverage GHG emissions per site for a number oftypical small facilities. This emissions factor was thenmultiplied by the total estimated number of smallfacilities each year. Small facility emissions wereassumed to be 75 percent indirect (purchased electric-ity) and 25 percent direct (combustion of natural gas),which was consistent with the emissions profile of thetypical small facilities used to calculate the smallfacility emissions factor.

The inventory team at Pfizer had a similar experi-ence. They determined that although Pfizer has 102facilities worldwide, just 30 of those facilities comprisethe majority of the company’s energy use, with justtwo facilities responsible for nearly one-quarter of bothits global energy consumption and its emissions.

Eastman Kodak Company (Kodak), also a globalconcern, has conducted a GHG inventory for severalyears. It, too, concluded that gathering emissions datafrom its smaller sites, which make up only about 2percent of its inventory, would not be efficient.Instead, using its emissions data at hand, Kodakestimates its per capita emissions and applies thisformula to its smaller sites to complete its inventory.

Companies must also determine the most appropri-ate level of centralization or decentralization. Acentralized approach, in which business units provideactivity data such as megawatt-hours of electricityused or gallons of fuel consumed to their corporateheadquarters at regular intervals, can ease the burdenfor facility staff. For example, after Kodak’s businessunits report their activity data to their headquarters, itthen becomes the responsibility of Kodak’s inventory

manager to review the information for accuracy andto apply appropriate emissions factors to completethe calculations and aggregate the information toproduce corporate-wide emissions information. Thiscentralized approach gives Kodak more control overhow the data are compiled, thus avoiding the poten-tial pitfalls of a decentralized approach, such ascalculation errors and inconsistent record keeping.

Developing tools and using online capabilities tofacilitate data gathering can help companies calculatetheir inventory more efficiently. Pfizer has devised anonline, user-friendly tool for this purpose. Employeesat their facilities worldwide—usually from theEnvironment, Health and Safety team—enter theenergy data each year, and the inventory team at theheadquarters office completes the process by applyingthe appropriate emissions factors.

The design of such systems needs to consider thelinks among record keeping, internal auditing ofinformation, and, ultimately, data quality, which iscritical to an accurate inventory. Climate Northeastpartners have instituted measures for ensuring thequality of their inventory data. GE discovered thatemployees charged with entering data into theironline data-gathering tool need to be familiar with thedata type. For example, an employee who is notfamiliar with energy units but is responsible forentering energy data will have difficulty spottingerrors. To minimize data quality problems, GE isenhancing the tool so that a user can view theprevious year’s data, enabling obvious discrepanciesto be detected more easily. Pfizer’s tool has a built-inalgorithm that automatically compares new data withhistorical data and flags potential errors for furtherinvestigation by the inventory team.

CHOOSING A BASE YEAR

Selecting a year for which complete and reliableinformation is available enables a company to compareits emissions performance over time. This becomesthe company’s base year. The year that is selected isless important than ensuring data integrity. A numberof companies have established 1990 as a base year,since this year figures prominently in the goals of

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international agreements to reduce GHG emissions(including the United Nations Framework Conventionon Climate Change and the associated Kyoto Protocol).Many companies have been unable to find reliable datafrom 1990, though, leading some to use more recentbase years. For example, Pfizer’s base year is 2000 andBristol-Myers Squibb Company’s is 2001. Kodak setone CO2 reduction goal using 1997 as the base year(with the goal to be achieved in 2002) and subse-quently set a second reduction target for the periodfrom 2002 to 2008 using 2002 as the base year.

ESTABLISHING AN EMISSIONSREDUCTION TARGET AND FINDINGREDUCTION OPPORTUNITIES

Like any other business target, establishing a GHGtarget helps a company focus its activities. There aretwo general types of emissions-reduction targets. Thefirst is an “absolute” target to reduce emissions belowthose from a selected base year, and to be achieved bysome target year in the future. For example, thecompany will lower its emissions 10 percent below1998 levels by 2005. The primary advantage of theabsolute target is that the environmental benefitsfrom achieving the target are clear and concrete: thecompany is emitting fewer GHGs into the atmo-sphere. Absolute targets also are easier to understandand communicate.

CASE STUDY 3CAPTURING MAJOR REDUCTIONS IN NON-CO2 GASES:

CON EDISON’S WORK TO REDUCE METHANE RELEASES

Con Edison is a utility that provides electricity,steam, and natural gas to its customers. Like manyenergy companies, Con Edison has various types ofGHG emissions from its operations, includingemissions of methane, a potent greenhouse gas.Through its work with the U.S. EnvironmentalProtection Agency (EPA) Natural Gas STARProgram, Con Edison began to evaluate bestpractices for reducing methane releases. Thecompany discovered a number of ways of managingthese releases and implemented projects acrossvarious company operations, including

● Inspection and maintenance at pipelineinterconnection and metering stations.

● Repair and replacement of more than 500 milesof leaky natural gas mains and distribution pipes.

● Installation of computerized, remotely operatedregulators to lower pipeline pressure duringperiods of low demand for gas.

Since 1993, Con Edison has reduced its emissionsof methane by more than 47,000 metric tonnes,which is equivalent to over 1 million tonnes of carbondioxide. This reduction of methane emissions hashelped Con Edison save about $5 million in avoidedleakage costs. Con Edison also won the “DistributionPartner of the Year” award from the EPA forexcellence in implementation, outreach efforts, andpromotion of the economic, safety, andenvironmental benefits of the STAR program.

Con Edison is building on its success. Workingwith other New York State gas utilities through theNortheast Gas Association, Con Edison cofunded thedesign, development, and assembly of a newtechnology to capture natural gas in pipelinesundergoing maintenance and repair work.Maintenance crews can remove the gas from asection of pipeline being repaired and feed it backinto the active part of the pipeline, thus avoiding therelease of the gas into the atmosphere. Thetechnology is currently being field-tested, and it willhelp the gas industry and Con Edison further reducemethane emissions.

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The second type is an “intensity” target, or a commit-ment to cut emissions relative to some measure ofbusiness activity. For example, the company willreduce its emissions by 10 percent per unit of productmanufactured by 2005. This type of target can beuseful for comparing intrasector performance. Al-though some companies favor intensity targetsbecause they accommodate growth, the environmentalbenefit is ambiguous because a company’s absoluteemissions may increase even if the goal is met.

Once a target has been set, companies can exploreways of reducing emissions. One of the benefits ofdeveloping a comprehensive GHG inventory is that ithelps reveal emissions reduction opportunities. Themore inclusive an inventory is, the more reductionopportunities are likely to exist. Before GE conductedits first inventory, corporate environmental managersdid not know that the company was in fact emittingsome very potent GHGs in specific manufacturingoperations. After reviewing its inventory results, GEidentified the source of the emissions and began aprocess aimed at achieving some large reductions atthe small number of sites where these emissionswere occurring.

Kodak has also undertaken a variety of smallreduction projects across the spectrum of companyoperations. Most of its reductions have resulted fromvarious forms of energy efficiency measures, includ-ing building-use efficiency. Kodak’s effective realestate management, which includes consolidatingsites to eliminate buildings not being maximized, hasreduced the company’s need for energy.

At Pfizer, each site—including the small ones—participates in the company’s comprehensive energyprogram, in which each is encouraged to identifyenergy-saving projects (case study 4). Pfizer currentlyhas approximately 600 energy-saving projectspending at all levels of the company.

VERIFYING EMISSIONS

Verifying a corporate inventory can improve dataquality, system design, credibility, and transparencyand can demonstrate to stakeholders that the reportedinformation is a true accounting of emissions. Theprocess may begin with an internal review of data andregular quality-control checks, but to achieve indepen-dent verification of a corporate GHG inventory, it isnecessary to bring in a third party. Independentverifiers may be private consultants, perhaps from anenvironmental or accounting firm, or they may workfor a public GHG reporting or registration program.

Independent verification may take different levels ofscope and effort depending on the objectives of thecompany seeking the review. The practice of third partyverification is relatively new, though common standardsare emerging (ERT 2004). Verification may involve, forexample, an examination of the procedures used to setinventory boundaries, the methods and calculationsused to estimate emissions, the supporting data anddocumentation, and the systems for data collection,management, and record keeping. Some corporateobjectives, such as trading in verified emissions reduc-tions, may require extensive verification.

Whatever the level of verification that a companychooses, a sample of data and/or facilities is selectedfor review. Because most companies have too manydata and facilities to review every detail, an auditsample serves as a representative subset. Afterreviewing the company’s profile, a verifier may selectan audit sample based on criteria such as type andsize of emissions sources in the inventory.

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BOX 4 EXAMPLES OF GREENHOUSEGAS REPORTING PROGRAMS

● Business Roundtable Climate RESOLVEProgram (http://www.businessroundtable.org)

● California Climate Action Registry(http://www.climateregistry.org)

● Carbon Disclosure Project(http://www.cdproject.net)

● Chicago Climate Exchange(http://www.chicagoclimatex.com)

● Dow Jones Sustainability Index(http://www.sustainability-index.com)

● European Union Emissions Trading System(http://europa.eu.int/comm/environment/climat/home_en.htm)

● Global Reporting Initiative(http://www.globalreporting.org)

● Northeast Regional Greenhouse Gas Registry(http://www.rggi.org)

● Trade associations

● U.S. Department of Energy 1605(b) Registry(http://www.eia.doe.gov/oiaf/1605/frntvrgg.html)

● U.S. Environmental Protection AgencyClimate Leaders Initiative(http://www.epa.gov/climateleaders)

● World Wildlife Fund Climate Savers(http://www.worldwildlifefund.net/climate/projects/climate_savers.cfm)

● World Economic Forum Emissions Registry(http://www.weforum.org)

REPORTING EMISSIONSOne factor that managers must consider whendesigning their inventory is to whom they intend toreport their emissions data, especially becausedifferent programs may have different reportingrequirements. An inventory that is designed to beflexible will be able to accommodate multiple needs.For that reason, companies should develop inventorysystems that capture as much information as possiblewhile allowing for it to be assembled and disas-sembled in various ways.

A lack of standardization among GHG emissions-reporting programs is a significant concern in theprivate sector. The GHG Protocol strives to definestandards that can be used universally, and mostreporting programs have converged around thesestandards. According to the GHG Protocol, thereported information should include organizationaland operational boundaries, calculation methodolo-gies, emissions factors, emissions data for eachsource, the base year, the company’s reduction goal,and the company’s emissions performance over time.Based on a recent review of corporate GHG report-ing, though, many companies do not report enoughdetail to be consistent with the protocol’s standards.

Companies may be required or may choose toreport their emissions to a number of differententities, including public registries, investor groups,nongovernmental organizations, and governmentagencies (see box 4). To which organization a com-pany chooses to report depends on a variety offactors, such as the location of the company’s opera-tions, its interest in obtaining credit for loweringemissions, and public relations.

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CASE STUDY 4REAPING THE BENEFITS OF A GHG INVENTORY:

PFIZER’S EXPERIENCE WITH GLOBAL DATA COLLECTION

Since 1993, Pfizer’s Energy Conservation Guidelineshave required the company to reduce itsenvironmental footprint by lowering energyconsumption. To do this, Pfizer began laying thegroundwork for a corporate GHG inventory. Armedwith this information, Pfizer then decided on anemissions reduction target using the intensityapproach, specifically a 35 percent reduction in GHGemissions per dollar of revenue, starting with 2000as its base year and aiming to achieve the target by2007. The company also set a goal of obtaining 35percent of its electricity from “clean technology,”including combined heat and power, by 2010.

Environmental Health and Safety (EH&S)personnel serve as the core of the GHG inventoryteam. With operations in many countries andfacilities of differing size and purpose, it wasimportant for Pfizer to design an efficient, flexible,and user-friendly tracking and reporting system forits emissions. Given its complex structure, Pfizerused Web technology to capture worldwideemissions data. It also tried to keep the datacollection process simple in order to minimize errorsand obtain high-quality information.

The company built a computer application with acustom-designed database and a user-friendly Webinterface. Pfizer designed the Web site so employeesdo not have to convert data. Each year EH&Semployees at designated facilities use the standardWeb page to report raw activity data, such as fuel oiland electricity consumption. Once this informationhas been collected, the GHG computer applicationconverts it into emissions and compares it with thecompany’s targets. The application also uses a built-in algorithm to automatically compare the new datawith historical data and to flag potential errors forfurther investigation. For the personnel at thecompany headquarters, the system provides valuableinformation on Pfizer’s overall emissionsperformance.

The facilities use the GHG inventory to findpossible emissions reduction projects. Once a year,large facilities are required to report theirconservation and efficiency projects through anenergy database. Small facilities are required to doso every other year. The project reports are rolled upat the corporate level for analysis and possiblereplication. Participation is encouraged by evaluatingprojects using a generous five-year payback. As aresult of these efforts, Pfizer has identified morethan 600 energy-saving projects at all levels of thecompany.

For the smaller facilities, Pfizer discovered anumber of benefits from requiring participation inits GHG emissions program. The inclusion of thesmaller, less visible facilities has helped foster amore positive corporate culture throughout thecompany. Employees get excited about theconservation and efficiency efforts and thecompany’s green power purchases. Another benefitis that the employees of smaller facilities haveoffered useful ideas. A small plant in Arnprior,Canada, for example, installed an innovative solarheating wall and is studying the feasibility of havingan on-site wind turbine, both of which have neverbeen done at Pfizer. Even though the small facilitiesaccount for only a fraction of GHG emissions, theyact like laboratories, acquiring valuable experiencewith new technologies and GHG reduction activities,which Pfizer can later implement at its larger plants.

With the GHG data collection system up andrunning, Pfizer began working on the accuracy andquality of its data. This can be improved by using a thirdparty to provide independent verification that emissionsdata has being properly collected, converted, andreported. Four Pfizer facilities in Ireland and the UnitedKingdom are required to have third party verificationunder the European Union Emissions Trading Systemfor GHG emissions. Pfizer is considering extendingthird party verification to a global scale in order to keepup with demands for GHG information.

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4.BUILDING A CLEAN ENERGY FUTURE:

GREEN POWER AND

CLEAN ENERGY PROJECTS

GREEN POWER SOLUTIONS

Some companies are turning to green power solu-tions to help meet reduction goals for GHG emis-sions. Green power refers generally to electricitygenerated by renewable energy sources that do notemit greenhouse gases, such as wind, solar, biomass,and geothermal. There are three ways to buy greenpower: on-site generation systems, green electricitydelivered through the power grid, or renewableenergy certificates.

On-site generation can use various renewableresources. For many years the pulp and paperindustry used biomass extensively to generateelectricity and steam at its manufacturing plants.Solar photovoltaic (PV) arrays can be used for a widevariety of applications and are often mounted onrooftops. Johnson & Johnson, for example, is thesecond largest corporate consumer of solar PVs in theUnited States, and it has several rooftop arrays,including a 500-kilowatt system at its pharmaceutical-manufacturing plant in Titusville, New Jersey. Windturbines can also be constructed on-site as long asthere is adequate wind. Kodak, for example, erected awind monitor at its flagship Kodak Park facility inRochester, New York. The information collected willbe used to determine the feasibility of developing anon-site wind farm.

An important consideration for on-site generation isthe up-front capital cost required to engineer, pro-cure, and construct the system. Although renewablegeneration projects can deliver a positive return on

Once a company has developed its GHGinventory, set a GHG reduction goal, andcharted its strategy on climate change, it can

begin exploring its emissions reduction opportuni-ties. Most companies find that the bulk of theiremissions is related to energy consumption, eitheron-site generation of electricity and steam (scope 1emissions) or purchased electricity and steam (scope2 emissions).

Commercial and industrial users consume morethan 50 percent of all energy in the United States(EIA 2004a). In addition, CO2 emissions from thecombustion of fossil-fuel energy resources accountfor more than 80 percent of total GHG emissions(EPA 2004). Given the prevalence of emissions fromenergy consumption, it is not surprising that moststrategies for reducing emissions, whether at thecompany, state, national, or international level, beginwith an analysis of energy use and ideas for reducingthe related CO2.

The private sector plays an important role in drivingthe demand for new technologies and helping shapea clean energy future. Corporations can buy ordevelop green, renewable power and thereby help todiversify energy resources away from traditional fossilfuels. In addition, companies can invest in energyefficiency and distributed generation, such as com-bined heat and power, to lower the amount of energyneeded to produce goods and services.

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investment, the rate of return may fall short of thecompany’s standards for allocating capital to com-pany projects. One way of addressing this is to factorin some of the benefits of renewable power, such aszero emissions and the possibility of hedging againstprice fluctuations in purchased electricity. In addition,many states offer incentives, such as rebates, thatdirectly offset some of the cost of on-site generationprojects.

Another approach that helps overcome resistance toinvesting in lower-return renewable energy projects isthe “services model,” in which a company can host anon-site generation system and agree to buy the powerwithout actually owning the equipment. For example,Staples initiated a solar PV project using a servicesmodel. The project developer, SunEdison, Inc.,arranged for the financing, design, and constructionof a 260-kilowatt solar rooftop array at a Staplesfacility. In return, Staples signed a ten-year powerpurchase agreement with SunEdison, with the optionto renew for five-year intervals. Staples will avoid allcapital and maintenance costs. The price for power inthe contract is competitive with local commercialrates, and the agreement has a fixed cost structurethat acts as a hedge against price volatility in retailelectricity.

The second option for buying green power is tohave it delivered through the electricity grid. In bothrestructured and regulated markets, many powersuppliers offer their customers green power products.For example, Con Edison Solutions, a subsidiary ofConsolidated Edison in New York State’s restructuredelectricity market, offers green power to its commer-cial and industrial electricity customers in New YorkCity and adjacent counties. The company partnerswith a wind power marketer and developer to buywind power from wind plants in northern New York.The green power product is branded and thus distinctfrom the conventional offer for commodity electricity,and corporate customers can choose, for a premium,to include anywhere from 1 to 100 percent greenelectricity in their power mix.

In regulated markets, such as Vermont, where thelocal utility has a monopoly on power customers, theutility may offer a “green pricing” program. As of

April 2004, there were more than 580 green-pricingprograms in 34 states. Among leading programs, theprice premium for the green power is in the range ofabout $10 per megawatt-hour (DOE 2004).

Utility green-pricing programs can present severalchallenges to large commercial and industrialcustomers. The premiums can be expensive. Therealso can be administrative complexity with structur-ing the contracts, especially if many locations areinvolved, which drives up transaction costs. Inaddition, some markets have few options and/or littlecompetition.

The difficulties of delivered green power haveprompted greater interest in another product: therenewable energy certificate (REC). Every megawatt-hour of renewable power that is generated displaces amegawatt-hour of power that would have beengenerated from fossil fuels like coal or natural gas. Asa result, new renewable power can help clean up theelectricity supply. Energy buyers who want to supportthese renewable electricity sources can buy a REC, therevenue from which helps make renewable energyprojects financially secure. The REC gives the buyer aguarantee that the renewable energy was generatedand was put into the electricity grid. All the pollutionthat was avoided because of that renewable energysource can be calculated, and companies can “green-up” their electricity supply by matching some amountof electricity use with a REC purchase.

RECs are in high demand in states that have amandatory renewable portfolio standard, such asConnecticut and Massachusetts, where powersuppliers are required to supply a minimum amountof green power. In these states, power companies buyRECs for compliance purposes, making RECsgenerated from local renewable resources expensive.

RECs generated in other areas are sold in the“voluntary market,” which is driven by corporations,organizations, universities, and other buyers seekingto support renewable energy and lower the pollutionassociated with their energy use. In these marketsRECs generally are much cheaper. In addition, RECsare attractive because they offer simplified transac-tions, a wide selection of suppliers, and a greater

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CASE STUDY 5EXECUTING A LARGE CORPORATE PURCHASE OF RECS:

JOHNSON & JOHNSON’S EXPERIENCE

In 2003 Johnson & Johnson completed one of thelargest purchases of renewable energy certificates(RECs) by a U.S. corporation. Twelve business unitswithin the company combined to purchase biomassRECs over three years. The RECs are provided by anational REC marketer, which contracts withrenewable generators to act as their agent forbringing the RECs to the market. The total purchasewas equivalent to more than 162,000 megawatt-hours during a three-year period.

Purchasing RECs allowed Johnson & Johnson toovercome a number of challenges that the companyfaced while exploring different options for expandingtheir existing clean energy purchases.

If Johnson & Johnson opted for a traditional greenpower purchase involving delivered electricity, thenthe different business units might have had tocontract with many different local retail electricitysuppliers, and several significant obstacles wouldhave arisen. Some facilities would have had to waitfor their electricity contracts to come up for renewalbefore switching to green power sources, or theywould have had to pay a fee for breaking orrenegotiating their existing contracts.

Business units acting independently in differentstates and regions would not have been able to benefitfrom the economy of scale provided by a largeaggregate purchase. When buying green power,companies are often restricted by a price premium.The unbundled aspect of RECs, however, breaks downgeographic constraints on renewable generation andthus provides access to less expensive resources.

Johnson & Johnson faced several complications inthe RECs purchasing process due to the company’s

decentralized operational structure. With over 200operating companies in approximately 57 countries,projects are initiated and funded at the companylevel, not from a central corporate office. ForJohnson & Johnson to complete a large RECspurchase, the corporate energy team could not selectindividual business units and projects, but had tocoordinate a program through which the businessunits could act in concert. This posed a challengefor Johnson & Johnson because of the complexity ofcompleting many different RECs contracts and thepotential for terms and conditions to vary.

To overcome this obstacle, the company workedwith WRI to craft a master agreement, consisting of 12separate subcontracts for each business unitparticipating in the RECs purchase. The masteragreement allowed Johnson & Johnson to work withone REC provider which offered the company a three-to six-month window in which the price quotes werefixed. The master agreement and the firm REC pricingallowed the corporate energy team to approach each ofits affiliates with actual cost figures. The responses bythe affiliates were positive, as evidenced by thesignificant amount of RECs that were bought.

This large RECs purchase also provided Johnson& Johnson an efficient and cost-effective means ofaddressing the company’s climate changecommitment. Under Johnson & Johnson’sCLIMATE FRIENDLY Energy Policy, the companycommitted to reduce absolute GHG emissions by 7percent below a 1990 base year by 2010. As a resultof the RECs purchase, Johnson & Johnson offsetover 68,000 metric tonnes of CO2 emissions, orroughly 6 percent of the company’s total annualemissions in 2003.

variety of renewable resource options from differentgeographic areas. The advantages of RECs havespurred recent market growth, including the largestever corporate purchase of RECs in 2003 (more than

265,000 RECs per year) involving ten large corpora-tions and WRI. Case study 5 describes Johnson &Johnson’s experience assembling its own largepurchase.

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INVESTING IN ENERGY EFFICIENCYAND COMBINED HEAT AND POWER

Energy costs can be both expensive and volatile. As aresult, reducing energy consumption through effi-ciency and conservation investments can providesignificant value that goes straight to the bottom line.As energy consumption falls, so too do CO2 emissions.

Despite strong financial returns, companies mayoverlook investments in energy efficiency whileallocating capital. In some instances the returns maynot rise to the company’s required rate of return forinvestments, and the company may not be factoringin certain intangible benefits, such as lower GHGemissions, or analyzing energy efficiency across thesystem.

Efficiency projects can take many forms. Long-termprojects with large capital outlays may include upgradesto on-site utility plant equipment and control systems orthe replacement of heating, ventilation, and air condi-tioning (HVAC) systems. Smaller projects, for which thecapital may be approved more quickly, may meanreplacing pumps and valves, improving buildingexteriors and insulation, fixing leaks in HVAC systems,and retrofitting the lighting, including occupancysensors. Efficiency projects may also involve operationaladjustments such as equipment calibration, evaluationof systems to see whether they match the originaldesign criteria, operator training, and automation.

Although energy efficiency is built on individualprojects, it also applies to whole systems and can bepart of strategic business investment and planning.For buildings in particular, there are detailed ratingsystems for evaluating overall efficiency. For example,the U.S. Environmental Protection Agency providesguidance for building efficiency through its “EnergyStar” ratings, which allows for buildings to be rankedaccording to their actual energy performance.Building retrofits that adhere to these ratings havebeen shown to be excellent investments (Rickard etal. 1998). As figure 3 illustrates, whole-buildingefficiency upgrades have an excellent risk-returnprofile when compared with typical financial invest-ments. In this comparison, 14 projects were analyzedbased on their initial performance data and projected

ten-year returns, taking into consideration variousrisk factors that could alter the returns. This risk-return profile was then plotted against historicalinvestment returns and risk associated with stock andbond portfolios.

System-wide approaches to energy efficiency can bemore practical and help alleviate the hurdles associ-ated with project-specific calculations of return oninvestment (ROI) and the subsequent approval ofcapital expenditures. For example, rather thanranking efficiency projects by ROI and then reviewingonly the top tier, energy managers can bundle a wholeset of energy projects, including renewable energyinvestments, and have the entire package approved atonce. This scales up the efficiency investment andallows some of the lower ROI projects to receivefunding rather than being set aside for later consider-ation and possibly delayed indefinitely. The bundlingapproach can save time in the approval process aswell as spread project performance risk among abasket of investments, as a mutual fund does.Linking energy projects together can also lead tomuch greater GHG reductions (case study 6).

FIGURE 3 RISK-RETURN COMPARISONFOR VARIOUS INVESTMENTS

Source: Reprinted with permission from ACEEE,Summer Study, 1998.

0

5

10

15

20

25

0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2Risk (Coefficient of variation)

Short-term municipal bonds

Long-term government bonds

Energy Star Buildings

NYSE compositeS&P 500 composite

S&P high technology composite

Latin American stock composite

Aver

age

retu

rn (%

)

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CASE STUDY 6PARLAYING EFFICIENCY INTO GREEN POWER:

STAPLES’ EXPERIENCE WITH OPTIMIZING GHG PERFORMANCE

Staples established its Office of EnvironmentalAffairs in 2002 to set company policy and driveenvironmental commitments. One of the biggestchallenges for the new office was justifying initialcapital investment for projects that did not appear todeliver returns meeting the company’s internalhurdle rate. To overcome this challenge, projectchampions used a “whole systems” approach tounderstand project benefits. For energymanagement, this included looking at the differencebetween anticipated budgets and actual expendituresand recognizing that these variances would cost theorganization in planning and performance. They alsolooked at synergies among multiple projects as wellas overall project costs, including both up-front andmaintenance costs. Finally, Staples weighed aproject’s long-term affect on reducing their overallGHG emissions profile, and therefore overall risk.

Staples has been steadily acquiring knowledge onenergy efficiency and load reduction, including itsexperience with a California demand reductionprogram during the 2001 energy crisis. As a result,the Office of Environmental Affairs began tosystematically implement best practice approaches toenergy management in all company stores. Theseprojects ranged from control technology retrofits forlighting and HVAC load to incorporating more greendesign principles into new construction. In oneproject, Staples increased the energy efficiency of awarehouse by installing motion- and sound-activatedfluorescent lighting instead of installing traditionalspot lighting from halogen bulbs, and this quicklybecame the standard for all future warehouses.Another simple but noticeable change was made inits lighting fixture specifications. At no cost,changing the specifications saved two watts for everylamp used in more than 1,500 locations. Combinedwith a 30 percent longer life, the small shift inequipment specifications amounted to large savings.

Since 2001, Staples reduced energy consumptionby 12.3 percent per square foot of floor space. This

included 46,000 megawatt-hours in the first yearand an additional 19,000 megawatt-hours in thesecond, with savings of $4.5 million and $2.0million, respectively. By reducing energyconsumption, Staples also reduced the indirectGHG emissions that are released when electricityproviders burn fossil fuels to generate power.Using the average emissions factor for the UnitedStates, Staples’ energy efficiency avoided morethan 41,000 metric tonnes of GHG emissions overtwo years. This is equivalent to taking nearly 8,000cars off the road.

The effort to reduce emissions did not stop withenergy efficiency. The company leveraged the moneyit saved from its efficiency investments to purchaserenewable power, including renewable energycertificates equivalent to 46,000 megawatt-hourseach year. Consequently, in 2003 Staples was able toincrease its renewable power use from less than 2percent of its annual electricity consumption in theUnited States to an industry-leading 10 percent. Theuse of green power resulted in an additional 35,000metric tonnes of avoided GHG emissions.

These actions have led to considerablerecognition and positive publicity. In 2004, theDepartment of Energy and the EnvironmentalProtection Agency selected Staples for the annualGreen Power Leadership Award, a competitiveaward that recognizes outstanding commitmentsand achievements in the green power marketplace.The work by Staples has also been covered ininvestment press, for example, by the MillstoneEvans Group of Raymond James & Associates andby The Progressive Investor, an e-journal bySustainableBusiness.com. News about Staples’green energy purchase also appeared in severalnewswires, publications, and Web sites. Positiverecognition like this can improve Staples’ brandimage, improve its relationships with stakeholders,and help the company to establish itself as a leaderin business and on the environment.

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When analyzing energy efficiency, one consider-ation for corporate energy users is on-site generation.In addition to improving efficiency, on-site power canlower costs, improve reliability, and hedge againstfluctuations in power prices. Solar PV arrays are oneform of on-site generation. For large commercial andindustrial demands, though, combined heat andpower technology offers perhaps the greatest gains.

Combined heat and power (CHP), also known ascogeneration, is a technology for producing bothelectricity and heat (in the form of steam or hotwater) for industrial processes. The turbine forproducing the electricity is usually powered by steam.Once the steam passes through the turbine, it is thenused for industrial operations. CHP is very efficientand, if used at the source of consumption, minimizestransmission losses. CHP makes sense, though, onlyif the energy user needs steam or can sell the steamto a nearby facility. While CHP holds the promise ofsignificant efficiency and environmental gains forcompanies (case study 7), the diffusion of the technol-ogy has been slowed by permitting and interconnec-tion barriers. With the removal of these barriers, newCHP construction could greatly reduce GHG emis-sions throughout the U.S. economy while savingenergy and money (Elliott and Spurr 1999).

CAPTURING THE BENEFITS OFGREEN POWER AND CLEAN ENERGYPROJECTS

When a company buys green power or finances cleanenergy projects, it will want to capture the GHGemissions reductions. To do that, the company musttrack both its scope 1 and 2 emissions. For example, ifa company invests in constructing a new CHP unit togenerate its own electricity, the company has effectivelyimported GHG emissions into its site. Even thoughthe generation is likely to be much more efficient thangrid-delivered power, the company needs to track thenet effect on both its scope 1 and 2 emissions todemonstrate the emissions reduction benefit.

Green power purchases and energy efficiencyprojects do not always lower a company’s direct scope1 emissions. Rather, these investments often reducethe emissions by power companies that feed electric-ity into the grid. As a result, the project investorsneed to calculate the reduction of GHG emissions inthe larger geographic region covered by the powerpool.

One way that a company can support its energyproject investments is to create a public record of itsdirect and indirect emissions performance. This canbe facilitated by a public GHG emissions registry. Forinstance, the Northeast States for Coordinated AirUse Management (NESCAUM) is creating theNortheast Regional Greenhouse Gas Registry. Amongits goals is supporting voluntary corporate action tocut GHG emissions. Companies can use the registryto record their actions and emissions over time andpotentially gain credit from policy makers at a laterdate when GHG policies take effect.

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CASE STUDY 7COMBINED HEAT AND POWER: RELIABILITY, EFFICIENCY,

AND GHG REDUCTIONS AT BRISTOL-MYERS SQUIBB COMPANY

Bristol-Myers Squibb Company operates a 1 millionsquare-foot pharmaceutical research anddevelopment facility in Wallingford, Connecticut.The site covers 180 acres and houses a state-of-the-artresearch laboratory. It is staffed by approximately1,200 employees working to discover cures fordiseases such as cancer and HIV. The site requires asignificant amount of energy, both electricity andsteam, and consumes more than 48,000 megawatt-hours of power and 280 million pounds of steamannually.

Many research studies span multiple years and arein a continuous state of operation. As a result,research facilities require a constant, regulatedenvironment, including controls on temperature,humidity, and non-recirculated ventilation. Utilityinterruptions could be detrimental to the operations,so highly reliable utility services—electricity, steam,and chilled water—are vital.

To optimize reliability, efficiency, economics, andenvironmental performance, Bristol-Myers SquibbCompany constructed a combined heat and power(CHP) plant at its Wallingford site. An engineeringanalysis determined that a 4.8-megawatt combustionturbine and heat recovery system (waste heat boiler)would meet the company’s various requirements. Inaddition to the financial advantages, the CHP plantrelieved a shortfall in backup steam-generatingcapacity. It also provided a large standby generatorthat could be used if the public utility was unable toprovide electrical power. The turbine uses clean-burning natural gas for fuel, and it has a dual-fuelcapability that allows for burning oil as a backup. Theunit is also very efficient and can handle the site’speak steam load, thereby eliminating the need tocontinuously operate an additional boiler.

The installation of the CHP system providedflexibility that allowed the utility plant staff to

redesign the sequence of equipment operation andsupply of utility services, thus achieving optimalefficiency. During the winter months, all the wasteheat from the gas turbine is recovered to makesteam to heat the complex. This has resulted inlarge reductions in the amount of fuel used in thestandby boilers. During the spring and fall months,the facility is often able to meet its total steam andchilled water requirements by solely using the CHPsteam to simultaneously meet process and chillerplant loads. This results in several months of “runtime” during which no boilers are needed to supportsteam demands.

The CHP investment has deliveredenvironmental benefits as well. Producing electricpower “inside the fence” is more efficient thanelectricity supplied through the power grid, andthere are no transmission line losses. The efficiencyof the Wallingford CHP facility is approximately 72percent. In comparison, the efficiency of the entireU.S. electric power system is estimated at 32 percent(EIA 2003a). Considering the amount of electric andsteam energy that Bristol-Myers Squibb Companydraws from its CHP plant and comparing this withthe alternative (buying power from the New Englandpower pool and generating steam through a typicalboiler), the CHP project has reduced GHGemissions by 20 percent, or roughly 6,600 tonnesper year. These reductions are helping Bristol-MyersSquibb Company meet its Corporate goals ofreducing GHG emissions and energy use.

In addition, when Bristol-Myers Squibb Companyinstalled the CHP unit, it realized thatadvancements in gas turbine technology wouldallow for reductions in emissions of nitrogen oxides(NOx). The facility voluntarily upgraded thecombustor section of the turbine to cutting-edgetechnology, which resulted in approximately a 33percent reduction in NOx emissions.

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5.LOOKING AHEAD:

CUTTING-EDGE ISSUES AND

CHALLENGES FOR CORPORATIONS

Work to reduce greenhouse-gas emissionswill continue for decades. In the near term,though, a variety of regulatory and volun-

tary proposals and programs will emerge for address-ing climate change, including approaches based ontechnology standards, markets, taxes, and othermeasures to rein in emissions. In the United States,state and regional efforts include GHG emissionsregistries, a CO2 cap-and-trade program in theNortheast, and a CO2 standard for automobiles inCalifornia. At the national level, the McCain-Lieberman Climate Stewardship Bill will continue tostir debate among federal policy makers. For corpora-tions, this myriad of regulatory actions has createduncertainty about their investments and corporatestrategy. Markets and consumer behavior may alsocontinue to change as investors, communities, andconsumers seek greater action on GHG emissions.

In response, companies require flexible GHGmanagement systems that can adapt over time. Theyalso need to consider strategic investment andplanning, especially with new products and services.Companies need to make the business case for theiractions and consider drawing on some of theanalytical techniques being used in the investmentresearch community. Specific quantitative analysesof the business case on climate change are notwidely available to the public, and companies shouldhelp to build this body of knowledge. The privatesector can support technological progress for newenergy sources, new building designs, and newenergy management systems, to name a few areas.How and when companies will address these

challenges requires vision, leadership, and prag-matic business goals.

Many companies have already begun to controltheir GHG emissions and to recognize the implica-tions of climate change for their businesses. In thecoming years, a number of GHG management issueswill challenge corporate environmental and energyprofessionals:

●●●●● Setting and updating performance targets. Emis-sions and energy targets help companies focus ontheir investments and track their progress. As theregulatory and market environments continue toevolve, companies may need to reevaluate andredesign their targets so that they remain relevantand useful.

●●●●● Managing internal communication. As acompany’s response to climate change begins totouch on many corporate divisions, includingEH&S, energy management, accounting, investorrelations, and public relations, internal communi-cation will become more complicated. A companymay benefit by consolidating program oversight,management, and coordination under a team orperson empowered to champion the company’sclimate goals and strategy.

●●●●● Verifying and registering data. Many companieshave constructed data collection and reportingsystems and are continuing to improve thosesystems over time. The external verification of dataand practices is a logical next step. Verificationstandards for corporate GHG inventories are

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beginning to emerge, and companies will need totest them. Furthermore, the public registration ofGHG emissions data will be more accessible withthe development and improvement of registries,and companies will need to review and test thesedatabases.

●●●●● Capturing new business opportunities. Over time,low-emission products and services, especiallyclean energy technologies, are likely to gain favorworldwide. Incentives and funds for research anddevelopment can help companies experiment withand promote new business opportunities.

●●●●● Identifying cost-effective emissions reductions.Allocating scarce financial and human resources toreducing emissions is a challenge. Aligningcorporate investment and incentives to recognizethe benefits of reducing emissions is difficult andrequires new analytical processes and a clearstrategic vision. Companies will benefit frominternal management systems that identify thebest emissions reduction projects, allocate capitalto them, and accurately quantify and capture thereductions.

●●●●● Adapting to market-based solutions. Some com-plex environmental issues can be tackled withflexible policy solutions that maximize the environ-mental benefit for the least economic cost. Inparticular, emissions cap-and-trade programs allowcompanies to reduce emissions while structuringcompliance around their own circumstances.Creating markets for carbon that recognize actionsacross multiple business sectors will also helplower costs. In addition, the integration andharmonization of international market-basedapproaches to addressing climate change mayprovide even greater flexibility, cost-effectiveness,and environmental protection. As carbon marketscontinue to emerge, companies will need to assesstheir own internal costs of GHG emissionsreductions relative to the price for carbon set bythe markets.

Cooperative engagement with policy makers canhelp businesses overcome these challenges. Policymakers should be aware that reducing emissionswithout any formal recognition poses both costs andrisks to businesses. Many of the lowest-cost, highest-return GHG investments may be forgone in the faceof regulatory uncertainty. By recognizing perfor-mance and reductions, policy makers can supportnear-term action.

Companies from various sectors can reduceemissions through changes in electricity use and on-site electricity generation. To harness the innovationand resources of these companies in addressingclimate change, policy makers should recognize theirpotential role and create appropriate incentives.Public emissions registry programs in northeasternstates and other regions could take steps in thisdirection by working with companies to draw upguidelines for emissions from energy consumptionas well as emissions offsets, such as the purchase ofrenewable energy certificates. Likewise, policy makersworking on market-based approaches to climatechange should recognize companies’ diversity andtheir various emissions reduction opportunities, andthen create incentives for an array of corporateinvestments.

To say that climate change is a complex issue forcompanies is an understatement. It is a long-termproblem that requires near-term action to gaincontrol of emissions. At the same time, strategiccorporate decisions and investments require long-term thinking, and shareholders demand short-termresults. Despite these complexities, businesses haveshown that they can take action in the face of uncer-tainty and lower emissions in a feasible, cost-effectivemanner. The private sector plays a vital role inaddressing this critical environmental issue.

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ABOUT THE AUTHORS

Andrew Aulisi is a Senior Associate, Jennifer Layke isthe Director of Business Engagement, and SamanthaPutt del Pino is an Associate with WRI’s SustainableEnterprise Program.

ACKNOWLEDGMENTS

The authors gratefully acknowledge the contributionsto this publication by Shelley Alpern, Karen Risse, andDaniel Sosland. We thank Pankaj Bhatia, Liz Cook,David Jhirad, Ryan Levinson, Marta Miranda, MarkMilstein, Carl Schlemmer, and Lydia Vermilye Weiss atthe World Resources Institute for their comments. Wealso thank all the people who work on the ClimateNortheast project for sharing information and contrib-

uting to this report, including Mark Buckley, DennisCanavan, Rich Cicciari, Al Forte, Don Harwood, OlegKrotoff, Stephen Lane, Pat McCullough, Steve Meyers,Jon Russell, and Roy Wood.

We also express our gratitude to Hyacinth Billings,Gayle Coolidge, Maggie Powell, Curtis Runyan, andMargaret Yamashita for assistance in turning ourdraft paper into a complete publication. This projectwould not be possible without the generous supportof the Emily Hall Tremaine Foundation and S.C.Johnson Fund, Inc. We especially acknowledge thesupport and long-time environmental leadership ofthe late Sam Johnson.

The authors alone are responsible for the views andperspectives expressed in this publication.

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Repetto, R., and D. Austin. 2000. Pure Profit: TheFinancial Implications of Environmental Performance.Washington, DC: World Resources Institute.

Rickard, S., B. Hardy, B. Von Neida, and P. Mihlmester.1998. The Investment Risk in Whole Building Energy-Efficiency Upgrade Projects. ACEEE 1998 SummerStudy on Energy Efficiency in Buildings Proceedings,4.307–18. Washington, DC: American Council for anEnergy Efficient Economy.

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W R I R E P O R T

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I nst it ut e

A CLIMATE OF INNOVATIONNortheast Business Action to Reduce Greenhouse Gases

ANDREW AULISI

JENNIFER LAYKE


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