Climate Change, Policy Shifts and the Corporate World

Categories : Procurement Stages | Evaluate Supply Market | Set Strategy Published on : Apr 21 2017

By: ProcurementIQ Analyst, Agiimaa Kruchkin

On March 28
th, President Trump declared the war on coal over as he signed an executive order officially undoing the Obama-era Clean Power Plan (CPP). The executive order aims to curb the federal government’s enforcement of climate regulations by rescinding the moratorium on coal mining on US federal lands – delivering on Trump’s campaign promise to bring back coal mining jobs. The order also urges federal agencies to identify regulations that place unnecessary and costly burdens on coal-fired electric utilities, coal miners, and oil and gas producers. While the move by the White House marks a drastic shift in US policy on climate change, the actual dismantling of the CPP will likely be a multiyear process as the Trump Administration rewrites rules and fends off legal challenges. ProcurementIQ expects this shift in policy to benefit domestic businesses by reducing regulatory hurdles; however, as some stakeholders continue their pledge to fight climate change, demand for environmental services will remain high.

The Crusade Against Climate Change

The CPP was implemented to cut carbon pollution from power plants by expanding the capacity for zero- and low-emitting power sources. While its dissolution will reduce regulatory hurdles for domestic businesses, environmental advocates and nongovernmental organizations have vowed to take legal action against the Trump administration. The international community has largely echoed these concerns. In fact, key negotiators of the 2015 Paris Agreement, the world’s first comprehensive climate agreement to mitigate emissions of greenhouse gases, are urging signatories to stay the course in their transition to a low-carbon economy. However, some billion-dollar multinational corporations have vowed to fight climate change despite the White House’s shift on the issue as well.

According to Robert Murray, the CEO of Murray Energy, coal jobs cannot be brought back as easily as the Trump administration alludes to. Regulatory change alone cannot revive coal, with the growing commitment to clean energy production placing market pressure on the coal mining industry. In fact, the increased adoption of clean energy initiatives due to the growing public awareness of climate change has been transforming the landscape of domestic energy production. From 2015 to 2016 alone, the share of US electricity generated from coal dropped from 33.0% to 30.4%, according to the US Energy Information Administration. The US oil and gas production index has been rising at an estimated annualized rate of 2.0% in the three years to 2017, as the falling price of natural gas, which is considered a cleaner alternative to coal, has increasingly replaced coal in energy production. The executive order has the potential to hurt the oil and gas sector, too. In 2007, the Supreme Court ruled that greenhouse gases are pollutants per the Clean Air Act, legally necessitating every administration to address the issue. If the White House relaxes regulations for carbon emissions from power plants and vehicles, they will have to tighten regulations on other sources of carbon pollution — in this case, oil and gas refineries, rigs and pipelines.

Corporate America is divided on climate change. Companies with strong consumer brands have been especially vocal in their support for a low-carbon economy. In 2015, hundreds of companies and investors, including Unilever, Nestle and General Mills, signed a petition to state governors urging the implementation of the CPP. Numerous tech companies, such as Google, Amazon and Apple, have also expressed their commitment to remaining part of the solution on climate change. Alternatively, electricity producers like American Electric Power have opposed the climate change plan, citing burdensome regulations that make energy more expensive.

The Future is Green

According to legal experts, it could take years for the Environmental Protection Agency to withdraw and revise the climate change regulations. In the meantime, pressure from investors, customers, shareholders and nonprofits will continue highlighting the value of sustainable practices. In response, businesses will rely on renewable sources of energy to cut costs and improve their corporate performance. For example, General Motors aims to generate 100% of its electricity from renewable resources by 2050. Furthermore, businesses’ credibility will be increasingly contingent upon their effort toward combating climate change as consumers become more conscious of how their purchasing decisions impact the environment. Procurement professionals will also be more adamant in strictly evaluating the environmental performance of their upstream suppliers, including their water usage, waste generation and greenhouse gas emissions.

ProcurementIQ recommends that corporations planning to continue advocating US climate obligations under the Paris Agreement invest in services such as energy & utility consulting services, carbon management and energy intelligence software to battle carbon pollution and meet their ambitious energy reduction goals. Over the three years to 2020, prices for these services are expected to rise 1.2%, 1.6% and 1.1%, respectively. Corporations wanting to reduce their environmental footprint can get a head start by purchasing these services now, before prices rise.

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