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Who’s afraid of cap-and-trade?

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The discussion at “The Cost of Doing Business in a Cap and Trade World" was my first open forum that provided a glimpse into the financial and legal havoc that a carbon market could impose on many organizations.

Here’s a quick carbon market primer: proposed regulations cap the amount of carbon emissions by providing a set number of carbon credits to businesses in a defined set of industries. Businesses that exceed their amount of credits must purchase them on the market. Those who can operate below the number of credits can sell the credits to the market and use the revenue to pay for the emissions reductions projects. The success of the carbon market depends on whether or not companies are accounting for CO2 accurately (either emissions or offsets). This has created a new field for auditors and independent verifiers.

There have been numerous studies on the costs and benefits of a carbon market. The disappointing realization that I came to is that the real cost of a carbon market not only comes from the investment in new technologies, the need to purchase credits in the market, or the efforts to find programs with partners that offset current emissions through renewable energy investment or aforestation (creating forests where none existed before).

The real cost will come in lawsuits and insurance. According to recent research, “climate change litigation is booming. The past five years have witnessed a proliferation of global warming lawsuits brought under an array of novel legal theories."

Therefore, directors of many companies face liabilities that the insurance companies are writing new policies to underwrite. I find that this is an unfortunate influence on an otherwise efficient use of economic markets. I am no economist, but I think it must be difficult to get good estimates of the financial impact on all market players. And that is precisely why businesses are worried.

Let’s just hope that common sense will prevail and a good solution will emerge from the industry that can be sponsored and managed efficiently among engineers, lawyers, and environmentalists. Your comments are welcome!

Tags carbon compliance sustainability management
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About Author

Alyssa Farrell

Advisory Industry Marketing Manager, SAS

Alyssa Farrell leads industry marketing for the SAS Global Health and Life Sciences Practice. In this role, she focuses on the SAS solutions that help optimize health outcomes for individuals and their communities. Alyssa is actively engaged in analyst relations, market research and influencer marketing to stay on top of industry trends and align SAS capabilities to customer needs. She has also supported the global energy and public sector teams during her career at SAS. Prior to joining SAS in 2004, Alyssa was a senior consultant in the Deloitte Public Sector practice. She earned her MBA degree with a concentration in Management Information Systems from the University of Arizona. She also holds a Bachelor of Arts degree with honors from Duke University. Follow Alyssa on Twitter @alyssa_farrell and LinkedIn at http://LinkedIn.com/in/alyssafarrell

1 Comment

  1. EL on

    Came across this entry. My hope is that someone would put forth some real scientifically-sound evidence for this hysteria. I'm still waiting to see compelling data that show man-made activity is the dominant cause for "climate change."
    Funny how global cooling was the bogeyman in the 1970s. Then it became global warming. Now the catch-all "climate change" rules the day. Kind of hard to argue against change - it's sort of par for the course. It's nice to see a growing number of scientists refuse to be bullied into accepting all the legerdemain. Who gets to sell the credits anyway? Follow the money.

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