Cool Planet

By Bob Sheppard,
CFO and VP of the Business Program,
Clean Air-Cool Planet

While there is a great deal of flux in current discussions of federal climate policy, one thing is clear: the interests of businesses demand that businesses be heard.

Here’s why the business community should favor action now on climate:

• The business as usual baseline — continuing as we are without an energy pricing policy — contains considerable costs: it is not free.
• The alternative to climate legislation is EPA regulation, which would be particularly costly to American businesses.
• Removing uncertainty will aid business planning and investment.
• Businesses know that energy prices will go up.

What businesses need to know is that there are new, market-based approaches that will make our necessary energy transition less costly and more politically acceptable if we adopt a simple, transparent, and economically efficient strategy with the following components:

Efficient design

One tried-and-tested approach to emissions reductions sets a cap or upper limit on the amount of CO2 allowed by allocating a limited number of allowances, each equivalent to one ton of the pollutant.

A market is created through buying and selling these allowances. If initially allowances are auctioned rather than given away, the resulting revenue stream can be used to alleviate the effects of higher energy prices. If, in addition, you impose regulation where the carbon-emitting fuel enters the economy — at the refinery, the well head or the mine — you spread the cost over the whole economy with the costs efficiently distributed and therefore minimized for all who use energy.

Controlling costs

Probably there is no more valuable information for businesses on the energy front than what it’s going to cost. Another widely discussed innovation, now included in the new bill offered by Sens. Maria Cantwell, D-Wash., and Susan Collins, R-Maine, (the Cantwell-Collins bill), is the “price collar,” which attaches a floor, a ceiling and a known price range for current and future allowances. A collar allows businesses to plan their energy purchases and investments without worrying about sudden price spikes or declines. The collar can be adjusted, if need be, by a combination of federal executive and legislative action.

Reducing economic impacts

Another concept gaining traction in Washington is recycling auction revenues through the tax code. Reducing corporate and payroll tax rates would put money back into the hands of those most affected by regulation. It also presents an unusual opportunity to link the interests of businesses and individual taxpayers. Special provisions could allow for greater distribution of revenues to lower-income individuals who would be especially vulnerable to increased costs. Funds could also be dedicated to technology research and development and to assist businesses disproportionately affected by increasing energy costs.Businesses will benefit in numerous ways

Businesses have much at stake in ensuring that climate policy is understandable, effective, and fair. Businesses need to keep abreast of the climate debate in Washington and advance the discussion of alternative approaches within the business community and through their elected representatives.

This blog originally appeared in the business section of the Portsmouth Herald, Feb. 1, 2010.