Green Building Law Blog : Green Building Lawyer & Attorney : Shari Shapiro: Calliope Communications, LLC

In a bold new risk publication out today from Lloyd's of London, entitled Sustainable Energy Security: Strategic Risks and Opportunities for Business,  the insurance heavyweight states in no uncertain terms that businesses that fail to prepare for short and long term energy crises face potentially catastrophic risks:

Energy security and climate change concerns are unleashing a wave of policy initiatives and investments around the world that will fundamentally alter the way that we manage and use energy. Companies which are able to plan for and take advantage of this new energy reality will increase both their resilience and competitiveness. Failure to do so could lead to expensive and potentially catastrophic consequences.

Lloyds notes the importance of government regulation in managing the energy crisis.

Without an international agreement on the way forward on climate change mitigation, energy transitions will take place at different rates in different regions. Those who succeed in implementing the most efficient, low-carbon, cost-effective energy systems are likely to influence others and export their skills and technology. However, the lack of binding policy commitments inhibits investor confidence. Governments will play a crucial role in setting policy and incentives that will create the right investment conditions, and businesses can encourage and work with governments to do this.

The insurance industry makes it costly--through raising the price of insurance--to do business in risky ways.  If Lloyds prices insurance for carbon dependent businesses much higher, it could force businesses to reevaluate their stance with respect to greenhouse gas regulation.  Where the insurance industry leads, businesses will likely follow.

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According to Business Green, the United Nations suspended its third carbon credit auditing company in 15 months.  Essentially, the auditors failed to follow protocols for confirming that carbon offset projects actually provide the environmental gains they promise:

The executive board in charge of the Clean Development Mechanism (CDM) last week suspended Germany's TUEV SUED and also partially suspended Korea Energy Management Corporation, after spot checks undertaken at their offices revealed procedural breaches.

Why do we care? In order for an effective carbon regulation scheme, the carbon offset program has to be measurable and verifiable.  To do so, there needs to be auditors confirming that the projects are valid. 

On the one hand, the suspensions are a positive sign because they indicate that the UN is maintaining some sort of oversight over the auditors, on the other hand, it is distressing that three of the companies which have been charged with verification have been suspended, including TUEV SUED, "the second largest CDM validator" which "had approved 1,147 renewable energy projects – almost one fifth of the total – by the end of February this year" according to Business Green. 

As the United States builds its GHG regulatory scheme, it needs to take into consideration how to ensure that the guards of environmental validity are properly guarded--that auditing procedures and confirmation of the validity of the audits is build robustly into the system.  Nothing will erode the credibility of a cap-and-trade system faster than discovering that the carbon offsets at the base of the market are fraudulent.

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Any student of environmental law at some point will be exposed to the seminal work by Garrett Hardin, the "Tragedy of the Commons."  The thesis is essentially the following--if a resource is shared by all, it is in no individual actor's interest to protect it, and it is in each individual actor's interest to maximize his/her exploitation of the resource even though this will result in the degradation of the resource for everyone. 

Over the past few weeks we have seen two examples of the tragedy of the commons in action.  At the G-8 summit, third-world countries were unwilling to agree to reduce their greenhouse gas emissions:

The wealthy nations failed to persuade the leaders of big developing countries to promise to cut their own fast-spreading pollution, unable to overcome arguments that the well-established industrial giants aren't doing enough in the short term.

Then, when Hillary Clinton made a trip to India, she was informed by the Indian Environment Minister Jairam Ramesh

India cannot and will not take emission reduction targets because poverty eradication and social and economic development are first and over-riding priorities...

In other words, the short term benefit of carbon exploitative development to India was more valuable than the long term benefit of global climate management.  A classic example of the tragedy of the commons.

So....now what? How do world leaders convince India, China and the other emitters to prioritize the long term effects of climate change above short term economic gains? There are three possible solutions--regulation, polluter pays and privatization.  It is essentially impossible to privatize climate change, so that is out.  There is no international regulatory body which can generate regulations to rein in unwilling participants.  But, and this will be controversial, countries which are reducing their emissions can do "climate protectionism."  In other words, force goods, power, services, etc. to disclose their carbon emissions and not accept goods, power, services, etc. whose emissions are above a certain threshhold or which have not been offset.  It is essentially a polluter pays system.  If the cost is high enough, savvy entrepreneurs will find a way around a carbon based industrialization. 

Take telephone service for example.  There are very few telephone poles and lines running through many parts of the Third World, yet there is telephone service through cell phones.  It was not necessary to go through the same development of telecommunications that the United States and Western Europe went through to get phone service--Africa and Asia went directly to a more efficient technology.

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Yesterday, the Obama Administration released a study analyzing the potential impact of climate change in the United States. It read like the Ten Plagues at my family's annual seder:

heavy downpours, rising temperature and sea level, rapidly retreating glaciers, thawing permafrost, lengthening growing seasons, lengthening ice-free seasons in the ocean and on lakes and rivers, earlier snowmelt, and alterations in river flows

And if that wasn't enough...

heat stress, waterborne diseases, poor air quality, extreme weather events, and diseases transmitted by insects and rodents

That's right, all that is missing is slaying of the first born. 

This study is very positive in that it is a frank assessment in relatively plain language of what we will have to address in terms of the impact of climate change.  Hopefully, now that the issues have been named, we will be able to be more proactive about enacting market-based and regulatory amelioration, and ideally, solutions. 

The current amelioration mechanism on the table--Waxman-Markey--seems to be in trouble.  First, the bill has not been very effectively communicated or sold to the American public.  Second, it seems to be subsumed beneath the health care media juggernaut.  Finally, agrobusiness interests have been successfully gaining a foothold in tying up the process. 

We need to get on with it.  Cap-and-trade or carbon tax, regulation of GHG under the Clean Air Act, green building market and regulatory programs.  Either that, or be prepared to host a giant tropical cockroach at your next seder.

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Today, the EPA briefed Congress on its intent to

formally declare carbon dioxide and other heat-trapping gases to be pollutants that threaten public health and welfare.

This declaration clears the way for EPA to regulate greenhouse gases through the Clean Air Act and other regulatory mechanisms. 

According to the USGBC, in the United States alone, buildings account for 38% of all carbon dioxide (CO2) emissions.  Even if these statistics are wrong by HALF, that is still 20% of carbon dioxide.  Yet many cap-and-trade and other carbon management programs do not incorporate carbon regulation of buildings because they are categorized as "indirect" and therefore more difficult to calculate and regulate.  There is also the argument that the emissions from "direct" sources like power plants are already regulated, and therefore it will be easier to regulate their emissions.

However, the health and safety of buildings is already regulated by energy codes, fire codes,  building codes, zoning codes, etc.  If greenhouse gases are a threat to human health, regulation of greenhouse gas emissions from buildings is as critical as protecting from the risk of fire. Moreover, if a cap-and-trade system is put in place, carbon credits will be very valuable.  If reductions in greenhouse gases can be generated by high performance building practices, this value should be available to those developers who choose to pursue those solutions.

Today's announcement by the EPA will lead to regulation by the executive branch, or spur Congress to act to regulate greenhouse gases.  The regulatory solution must include a regualtory mechanism for managing the greenhouse gas emissions of buildings.

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Today, the EPA briefed Congress on its intent to

formally declare carbon dioxide and other heat-trapping gases to be pollutants that threaten public health and welfare.

This declaration clears the way for EPA to regulate greenhouse gases through the Clean Air Act and other regulatory mechanisms. 

According to the USGBC, in the United States alone, buildings account for 38% of all carbon dioxide (CO2) emissions.  Even if these statistics are wrong by HALF, that is still 20% of carbon dioxide.  Yet many cap-and-trade and other carbon management programs do not incorporate carbon regulation of buildings because they are categorized as "indirect" and therefore more difficult to calculate and regulate.  There is also the argument that the emissions from "direct" sources like power plants are already regulated, and therefore it will be easier to regulate their emissions.

However, the health and safety of buildings is already regulated by energy codes, fire codes,  building codes, zoning codes, etc.  If greenhouse gases are a threat to human health, regulation of greenhouse gas emissions from buildings is as critical as protecting from the risk of fire. Moreover, if a cap-and-trade system is put in place, carbon credits will be very valuable.  If reductions in greenhouse gases can be generated by high performance building practices, this value should be available to those developers who choose to pursue those solutions.

Today's announcement by the EPA will lead to regulation by the executive branch, or spur Congress to act to regulate greenhouse gases.  The regulatory solution must include a regualtory mechanism for managing the greenhouse gas emissions of buildings.

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