Carbon Trading After Copenhagen
Following the March 9 panel discussion in San Francisco, writer Bill Roth asked Adam Boucher to boil down the message that came out of the meeting. Adam summed it up like this:
Anything you invest in - be it a car, house, or anything else - is a carbon asset or a carbon liability. Massive action is what is needed if you want to avoid the inevitable pain that will follow in the wake of current and pending legislation. I am encouraged by how investors and companies are increasingly aligning with this valuation model. The good thing is that markets adopt much quicker than governments.
New Climate Change Directives = Significant Impact on Investments
The EPA has finalized regulations imposing significant new monitoring and reporting requirements on the operators of facilities that produce or emit greenhouse gases (CO2 and Methane). In addition to covering facilities in sectors traditionally regulated by the EPA (for example energy and mining), the new requirements now extend EPA federal oversight to an estimated 30,000 new facilities nationwide, including healthcare and educational institutions with emissions equivalent to 25,000 metric tons of carbon dioxide/year.
Reeling from industry and political pressures, the EPA has recently announced a willingness to delay enforcement and perhaps increase minimum compliance thresholds. In our recent research, we found that the costs for monitoring and reporting programs provided by third party services begin at $2,000 minimum per month. Adding $2,000 per month in EPA-mandated reporting compliance costs alone to a medium sized boiler will have significant energy cost impacts and provide even more impetus for boiler operators and other energy producers to seek clean and renewable energy alternatives. If the EPA policy extends to the prior estimated 30,000 locations and the average compliance cost remains at $2,000 per location, then just the costs of reporting nationwide may exceed $60,000,000 per month.
To help put the EPA and NEPA 25,000 ton minimum compliance threshold in perspective, a single cow may account for the release of more than 5 tons of green house gases each year. It’s Easy Being Green: What Do Cow Dung, Car Tires, and Denim Have in Common? Cow 'emissions' more damaging to planet than CO2 from cars
In February, the President's Council on Environmental Quality (CEQ) released guidance addressing climate change analysis under the National Environmental Policy Act (NEPA). The new proposal will require federal agencies to evaluate climate change impacts of any proposed federal or private action involving the possibility of producing or releasing 25,000 metric tons / yr of greenhouse gases. This requirement is not limited to federal agencies; it also applies to all private projects requiring a federal permit.
The cost associated with the new NEPA guidelines are not presently known, yet it is staggering to contemplate the costs associated with developing a climate impact statement for every federal activity or federally permitted private activity with the possibility of producing or releasing more than the 25,000 ton green house gas emissions threshold.
The SEC recently updated guidance to clarify the extent to which public traded companies must account for climate change in their required disclosures. The newest SEC guidance requires: 1. that companies account for potential impacts of international climate treaties and accords; 2. that management acquire sufficient information about the company's greenhouse gas emissions to determine whether climate change legislation or regulation would have a material effect on the company; and 3. that companies consider indirect consequences of climate change regulation.
Efforts to move energy production toward clean renewable sources are both creative and destructive. It is impossible to move toward something without moving away from another. We applaud the SEC’s position and we warn investors to strongly consider both the beneficial and negative impacts of the present and coming renewable energy economy.
Adam Boucher, President
Adam Capital
Clean Energy Policy: A Creative -- And Destructive Force
- Clean energy has primarily been driven by broad state legislative mandates.
- The US Supreme Court in Mass v EPA requires the EPA to take action to reduce ghg nationwide.
- Impact of new SEC guidance related to climate change.
- Costs for clean energy producing systems have come down by more than ½ in just the last few years.
At present 29 states have renewable energy mandates and 6 more states have goals and many state legislatures continue to increase their dedication to renewable energy. In fact recently NY State increased their commitment to an aggressive goal of 45% renewable energy consumption by 2015. Almost every day, we can read about another program, incentive, or expenditure at the state level in support of clean energy. State mandates and expenditures clearly support clean energy and, while necessary, clean energy programs are certain to increase energy rates for consumers, and increase energy rates and compliance costs for industry.
New EPA Mandate. In addition to state level clean energy mandates the US EPA is now implementing a recent Supreme Court ruling (Mass. v. EPA) requiring the EPA to take action to reduce green house gas (ghg) emissions. The EPA has recently declared ghg an endangerment to human health' and expanded federal oversight to include 1,000's more business, schools, and non-profits. As the EPA continues to implement and enforce the Supreme Court ruling some fear that the economic impact on many non-clean energy business sectors and their investors may be devastating. Nevertheless, under mandate of the US Supreme Court, the EPA is moving forward in their ghg reduction enforcement roll. This new role for the EPA clearly signals increased compliance and production costs for brown energy and creates even more favorable market conditions for clean energy producers and developers.
Impact of SEC Guidance. The striking potential for negative economic impacts to investors from EPA and other climate change policy was underscored January 28, 2010 when the US Securities Exchange Commission issued their "Interpretive Guidance on Disclosure Related to Business of Legal Developments Regarding Climate Change". In order to inform and protect investors from coming adverse impact, the SEC advises all public companies to include legal developments like the EPA rulings in their public disclosure documents. While some have used this announcement as an opportunity to make political hay, we agree with the SEC's risk assessment and believe that present climate change legislation, regulation, and court rulings at the state and federal levels, as well as pending future development, while beneficial and important in the long run, are poised to become an adverse impact of game changing proportions upon many presently unknowing and unprepared U.S. market sectors and their investors.
All of these forces -- state, federal, and industry combined -- assemble clean energy into an inevitable creative and destructive force. The question set before us by these powerful collective forces is no longer if or should we embrace renewable energy. Now the question is simply down to, "how do we fund it?"
Adam Capital operates in a niche arena providing funds to renewable energy developers who are hungry for development capital. Today and for the foreseeable future, the opportunities are as enormous (and sometimes daunting) as the challenges. Our borrowers and investors now and for years to come will benefit directly from all of these powerful combined forces. Where there are big challenges there are big opportunities. Our short-term, clean energy, asset collateral focus is tuned specifically to solve the big challenges and to benefit from the big rewards of this emerging multi-trillion dollar domestic economy.
We invite you to join in on the conversation.
Adam Boucher, President
Adam Capital
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