Environmental Protection

Businesses Must Prepare for Post-2012 Carbon Trading Now

Emissions trading has been described as the most economically efficient way to force carbon emission cuts, however, a new report released by global management consultancy Arthur D. Little warns that uncertainty about the nature and scope of post-2012 global carbon trading policy has left businesses under-prepared for developing future carbon strategies that will leverage next-generation emissions trading opportunities.

The report, "Carbon Futures," warns that despite the uncertain nature and scope of global, regional, and national emissions trading schemes post-2012, businesses across industry must take decisive action to address their future carbon trading and emission reduction now, or risk being caught unprepared and on the backfoot when the next generation of regulation and legislation takes effect.

While emissions trading is regulated by a tapestry of inter-governmental regulation and policy mechanisms, global industries currently operate under three specific United Nations-mandated mechanisms for carbon trading, all of which are currently under review by the UN Framework Convention on Climate Change, and will be updated for implementation in 2012.

Proposed changes to the current emissions trading infrastructure most likely to affect businesses include:

•Widening criteria for awarding carbon credits,

•Offering funding options for carbon capture and storage programs,

•Developing industry-specific schemes and reduction targets,

•Introducing new emissions caps for developing markets and adjusting those for developed markets.

"There are two critical areas of uncertainty post-2012. One is whether it will be possible to reach any sort of full international agreement on emissions trading, and more importantly, if such an agreement is reached, whether the mechanisms put in place will be robust," said David Lyon, a leader of Arthur D. Little's Global Carbon Advisory Services, part of the firm's Sustainability and Risk Practice.

"Many investors are adopting a 'wait-and-see' approach to investment, which is dangerous for a few reasons. One reason is technologies can take years to implement, and another is that agreements can take a long time to reach any sort of conclusion. The decisions made today will affect a company's carbon position for many years to come, and this is why we focus on the importance of building an infrastructure that stretches well beyond 2012."

Other key issues the report urges businesses to consider are the dynamics of the carbon debate specific to their industry sector, the availability of clean-technology, and whether there is scope to pass future carbon reduction costs along to customers.

Arthur D. Little's report highlights the importance of understanding all potential future policy possibilities and developing a carbon strategy flexible enough to deal with the full range of scenarios. Key variables for businesses to consider include what potential costs are likely to be incurred, what opportunities can be harnessed to increase revenue, and how companies can learn and improve from experience with the issue.

"Carbon Futures" is now available for download at www.adl.com/carbonfutures.

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