Article - GHG Emissions Management

GHG Emissions Management: An additional compliance cost item or an
opportunity for competitive advantage?

Written by Alberto Alva, Process Ecology

It is a fact that whether you are in an Oil & Gas traditional operation or in a “clean” biofuels division, your
company will be facing many risks associated with global warming and the associated regulations that
are attempting to curb greenhouse gas (GHG) emissions.

Independent of your company (or even your own) views on the dangers of GHG emissions, it must be
recognized that simply because many others are concerned, the issue does have significant
implications. Investors are already discounting share prices of companies that do not appear well
positioned to compete in highly regulated industries.

The Oil and Gas sector is already facing higher production costs (non-conventional sources are more
expensive to produce) and as governments around the world enact policies placing costs on emissions,
the drive to implement energy efficiency projects is increasing. More and more, end users are taking into
consideration a company’s environmental record when making purchasing decisions. The markets in
greenhouse gas and carbon emissions are also showing significant growth rates with annual trading in
these assets in the order of tens of billions of dollars (especially in Europe where it is better
established); it is only a matter of time before the market in North America overtakes the trading volumes
already witnessed there. The Province of Alberta is currently establishing policies to encourage a
domestic offset market for emissions and a Federal program is planned to be enacted by 2010 for
Canada-wide emissions trading.

Companies that manage and exploit these new business opportunities in a new market environment
will generate a competitive advantage over rivals. In this article we discuss some ways in which GHG
regulations can affect your business and ideas for developing strategies that will help you manage the
risks and pursue the opportunities. It is clear by now that it will not be enough to just do something about
it; you have to do it better –and faster – than your competitors.

The publication in early 2008 of the Federal ‘Turning the Corner” document has provided some
indication of where Canada is going with emissions regulations but much yet still needs to be clarified at
the industrial sector level. Ignoring the financial and competitive consequences of GHG regulations
could lead a company to formulate an inaccurate risk profile. Notice that the most important distinctions
to be made when considering environmental impact evaluations aren’t between sectors but within
sectors. The energy industry has been targeted for being a large emitter and it is within its own
boundaries that a company’s climate-related risk mitigation and product strategies can create
competitive advantage.

A corporate focus on reducing greenhouse gases is a good business strategy: It has the potential to
increase overall energy efficiency and help position a company to compete effectively in a carbon-
constrained world.

Any initiative to tackle the emissions opportunity will require strong commitment from top management
and a significant amount of learning across the company. The starting point is clearly a deep
understanding of the sources and levels of the company’s own greenhouse gas emissions and the
tracking of those emissions over time; the exercise of establishing an accurate inventory of emissions
will have the secondary effect of increasing awareness across the company and expand the discussion
of the strategic opportunities available.

The emissions inventory should be carefully established and a comprehensive review of best practices
in reporting the emissions information is also a must. The aim is not simply to comply with the
information requirements established by governments but to identify and prioritize emission reduction
opportunities and establish strategies for participating in greenhouse-gas-trading markets. Companies
that accurately quantify their footprints send a strong signal that they recognize the importance of climate
change as a business risk – and an opportunity.

Emissions’ trading is one of the main policy tools currently in use for addressing climate change. It is
essential that the framework for reporting and compliance in this new global market is built on trust.
Clearly there are many parallels with financial reporting, where trust is at the heart of corporate
transparency. It is then imperative that the company’s efforts in determining the baseline inventories and
the procedures used in the estimation of emissions reductions are built on a solid foundation;
particularly for large multi-national organizations that face different regulatory requirements but that may
be accessing a single global emissions trading market. The Greenhouse Gas Protocol (GHG Protocol)
is the most widely used international accounting tool for government and business leaders to
understand, quantify, and manage greenhouse gas emissions. Within the boundaries of these
established protocols, the best possible science-based emissions estimation approaches should be
pursued aggressively so as to enable a strong position of a company for demonstrating emissions
reductions in a proactive manner.

The analysis of risks and opportunities associated with GHG emissions will highlight those areas where
the company has to develop action plans; these will range from obvious energy-efficiency improvements
at operating facilities to potential strategic investments in low-carbon products and processes. The
challenge then is not only to reducing exposure to climate related risks but on finding business
opportunities within those risks, and to do it better than your competitors.

References:

Lash, J.; Wellington, F. "Competitive advantage on a warming planet". Harvard Business Review. March
2007.
"Turning the Corner: Taking action to fight climate change"; Environment Canada, March 2008.
"Specified Gas Reporting Standard", Alberta Environment; March 2007.

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