To Green or Not to Green?

For companies wanting to know whether, when and how to
incorporate regulation of greenhouse gas (GHG) emissions into their business
planning, there seems to be as much uncertainty in the air as anything else.
Businesses do not have a clear idea of the form that climate policy may take or
what will be required, and it is not even certain whether such laws are
inevitable. Proposed federal legislation, some versions of which included a
market-based system for trading emissions allowances, has been on and off the
table several times already, and its ultimate fate may hinge on the outcome of
the November elections.

As the federal legislation has seesawed into limbo,
industries in the state of Washington also have faced the potential of a
regional cap-and-trade program that is proposed to start in 2012 under the
Western Climate Initiative (WCI).
Due, however, to the weak economy, the Washington Legislature has not
authorized implementation of the WCI program, leaving uncertainty regarding if
or when a facility in this state might have to comply.

On still another track, the federal Environmental Protection
Agency (EPA) has been proposing greenhouse gas regulations in response to a
2007 U.S. Supreme Court ruling directing the agency to decide whether such
emissions are a pollutant under the Clean Air Act. The EPA did so, and also
proposed rules that would require GHG emissions reporting, set a high-emissions
compliance threshold for industries and limit emissions from light-duty
vehicles. Those rules are subject to numerous ongoing court challenges and
legislative efforts to block their implementation.

To the extent that a federal cap-and-trade law passes, or
EPAs regulations survive the courts and Congress and/or that WCIs
cap-and-trade program gets started, those measures are likely to pose new and
complicated requirements for some businesses, primarily large industries with
high levels of GHG emissions. If some or all of those measures take effect, the
complexity of the rules is likely to create its own set of uncertainties about matters such as scope, reporting and
compliance.

Even if a business never has to consider whether to buy or
sell a GHG emissions allowance or file a report with the EPA, there is a
growing market-based approach by some of the worlds largest purchasers of
goods and services that may end up affecting many more companies than would the
proposed legislation. Programs such as Wal-Marts Supplier Sustainability
Assessment, Procter & Gambles Supplier Environmental Sustainability
Scorecard, IBMs Supplier Conduct Principles and Kaiser Permanentes
Sustainability Scorecard for medical products already require vendors and
suppliers to compile data and report on energy usage, GHG emissions, water use,
waste disposal, purchasing guidelines and raw material sources.

These initiatives measure more than GHG emissions and apply
to businesses that are substantially smaller than the high-emissions industries
that a federal or state-mandated cap-and-trade program would regulate. Some
corporate supply chain sustainability programs encourage vendors to use the
scorecard with their customers and suppliers, having the potential to affect
thousands of businesses and billions of dollars in revenue. Combined with the
scope of the data required, these programs actually may have a wider and deeper
impact on changes in business practices than any contemplated federal or state
legislation.

Whether it is because of, or despite, inaction at the
federal and state levels, many businesses are no longer waiting for direction
from the government. These initial corporate supply chain sustainability
programs are becoming models and many more large companies are likely to
implement similar measures. Thus, even as some businesses remain unclear about
what the law may require of them, many others can be certain that their top
customers will want them to account for their GHG emissions and other business
practices that fall under the sustainability label.

This is a sponsored legal report. Michael A. Nesteroff is a shareholder and chair of Lane
Powells Sustainability and Climate Change Team. He regularly speaks and writes
on climate change issues and is the principal contributor to the firms
Sustainability & Climate Change Reporter blog. He can be reached at
[email protected] or 206.223.6242.