Climate change & clean technology: from challenge to opportunity

Over the past few years, climate change and sustainability have been catapulted to the forefront of headline news. As ongoing public pressure for improved environmental stewardship continues to mount, governments are actively pursuing legislation, including regulations, to accelerate positive change.

We have already witnessed significant regulatory, policy and legal changes related to lower emissions in manufacturing and transportation as well as discussions about requirements for formal disclosure related to sustainability and environmental practices among public companies and related exclusions in directors’ and officers’ liability policies.
The need to address climate change and sustainability has spawned an entirely new business sector, clean technology. Clean technology is broadly defined as knowledge-based products or services that improve operational performance, productivity or efficiency while reducing costs, inputs, energy consumption, waste or pollution. For example, clean technology includes alternative energies (such as wind and solar power), information technology, fuel cells, hybrid vehicles, biomass, biofuels, lighting and energyefficient household appliances.

VC investment in clean technology third largest category It’s difficult to estimate the impact and potential of clean technology. Venture capitalists are increasingly investing in this area, which is significant because these investments are leading indicators of future economic growth. Many large global corporations have or are developing sustainability plans.

In addition to venture capital (VC) and direct business investment, governments are developing policies and funding incentives at the federal, provincial/state and municipal levels to promote clean technology adoption and foster development of those technologies.  North American VC investment in clean technology has more than doubled in the past two years to $2.9 billion, which makes it the third-largest category after biotechnology and computing. General Electric (GE) intends to double its current clean technology VC investment to $50 million by 2008. GE’s bigger plan is to double its overall investments in clean technology and renewable energy to $4 billion by 2010.  During the first quarter 2007, $237 million was invested in alternative energy deals in the U.S. alone. For those who are counting, this represents the lion’s share of this quarter’s VC investment in the clean technology category.  The federal government has also been active in providing programs and funding for clean technology initiatives. However, its most significant piece of legislation, Bill C-30, the Canada’s Clean Air Act, is not likely to become law in the short-term, due to a revised policy position on climate change. Until a national Canadian regulatory scheme comes into force, we will have to rely on our provinces coordinating their legislative and policy initiatives in this area.  Sustainability and clean technology — good business sense Ontario and British Columbia are moving aggressively to accelerate the development of clean technologies in their respective jurisdictions by providing various incentive programs and setting emission reduction and renewable energy targets, through regulations and government policy.  Ontario has created a $650 million Clean Tech Fund and incentive programs for consumers to purchase green products. It also passed Bill 21, the Energy Conservation Responsibility Act, 2006, providing conservation measures for public utilities and the introduction of “smart meters.” Further, the government has announced that 5% of Ontario’s energy will come from new renewable sources by the end of 2007 and 10% by 2010.

B.C.’s Energy Plan has taken a broader approach that includes a variety of emission reduction-related activities including zero greenhouse gas (GHG) emissions from new electricity projects, the use of biofuels/renewable fuels in gasoline and diesel, the new Green Building Code and aggressive conservation targets.

Sustainability is also a key driver in traditional business operations, having an impact on product evolution, services and their overall approach to doing business. For example, innovations relating to energy and water usage improvement in oil sands extraction are now seen as crucial for achieving sustainability.

Companies are beginning to understand that sustainability and clean technology make good business sense. A recent Goldman Sachs report showed that, among a wide range of sectors — energy, mining, steel, food, beverage and media, companies that are leaders in implementing environmental and social governance have outperformed the general stock market by 25% since August 2005. And 72% of these companies have outperformed their peers over the same period.

Several other traditional businesses, such as financial institutions, are also taking on clean technology and sustainability principles. Citigroup has committed to spend $50 billion over the next 10 years to address global climate change and, in 2007, the Bank of America launched a 10-year $20-billion green plan.

Even icons of the information technology industries, including Google, are exploring alternatives to reduce their global footprint by providing for alternative energy solutions for energy-intensive aspects of their businesses, such as server farms.

Sustainability is also becoming an aspect of corporate governance for directors and senior executives.  Initially, the focus covered the areas of risk management, corporate social responsibility and corporate reputation.  Rising public awareness and sustainability concerns are effecting changes in business practice in certain traditional industry sectors. Engaging local communities and obtaining the legitimacy of a ‘social licence’ from that community is now becoming standard practice. The Canadian mining industry has played a leadership role in setting global standards in this area.
Governments responding with new policies, regs Governments across the globe are also responding to public and judicial pressures with new and revised policies and regulations. For example, earlier in 2007, in Massachusetts v.  EPA, the U.S. Supreme Court rebuked the U.S. Environmental Protection Agency (EPA) for its inaction on climate change, affirmed the EPA’s right to regulate GHG emissions and invited the Bush government to regulate emissions.  In the U.S., California took the regulatory lead in 2006 with the California Global Warming Solutions Act, mandating GHG emissions be reduced to 1990 levels by 2020.  At the same time, seven states signed a Regional Greenhouse Gas Initiative (RGGI), resulting in a model rule, enacted by each state.

The RGGI differs from the California Act in two fundamental ways:

  • it applies only to GHG emissions from electrical utilities, with limited offsets for wider reduction programs, and
  • it is specifically designed to establish a cap-and-trade program.

As a result of this patchwork approach, U.S. multinationals are pressing the government to provide comprehensive national regulations to avoid having to comply with a variety of possibly contradictory standards and regulations.  The European Union (EU) has been a leader in implementing emission reduction requirements in accordance with the Kyoto Protocol and introducing quotas in six industries: energy, steel, cement, glass, paper and brickmaking.  The Council of the European Union has also agreed to additional binding emission reduction targets past the 2008-2012 Kyoto timeframe.

Companies operating in the EU need to be aware that, in the future, restrictions and/or taxes are likely on imported goods that don’t meet EU standards and may require labelling and GHG-related disclosure, which will affect domestic and international aspects of operations and supply chain.

For some, clean technology has been embraced as a passion. For others, it’s a commitment to their children and grandchildren. Initially, business leaders across industries may be challenged by new laws and public demands related to climate change, sustainability and clean technology, but ultimately, these changes present a tremendous opportunity to “do good business,” which includes making money.

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