WRI Publications Feed: Business and Climate

Communicating the "Financeability" of Energy Efficiency Projects (EEPs): Guide to Data Needs for Financing EEPs in China

Sarah Parsons — Tue, 08 Jan 2013 12:12:48 -0500

Executive Summary

The purpose of this guide (Guide) is to help industrial companies (Hosts) finance energy efficiency projects (EEPs) at their facilities as defined in Annex C of this document. The Guide is designed to help Hosts know what information is required of them by financing entities (Financiers) to streamline the evaluation and financing process. This Guide can also help financial institutions, energy services companies (ESCOs), vendors, and other project developers better understand the information required to finance EEPs. The Guide draws from the authors’ experiences and insights gained through extensive work with Hosts, Financiers, ESCOs, prestigious universities such as Shanghai Jiaotong University (SJTU), and other stakeholders in the financing of EEPs. It was developed in partnership with Chinese and global Financiers and energy efficiency experts.

Findings indicate that Hosts can accelerate and enhance the financing process and likelihood of success in three ways:

Communicating with Financiers as early as possible to understand their informational or structural needs, their financing decision-making criteria and processes, as well as any special services that the Financiers provide (i.e., technical assistance in designing EEPs).
Performing a “self-screening” assessment of any proposed EEPs that many Financiers would evaluate, such as type of Host or technology, size of project, and so on.
Providing as much detailed and accurate information as possible at the beginning of the financing process since plentiful data will increase credibility with Financiers.

Hosts often experience delays and rejection of EEP financing because Financiers were not provided critical Host and project data in a timely and accurate manner. This has prevented Financiers from receiving a compelling picture of the benefits and (limited) risks of a promising EEP. Being prepared to present the correct data to Financiers results in a smoother financing process and a much higher probability of success.

This Guide is designed to:

familiarize Hosts with the type of data most Financiers use to evaluate EEPs, as set forth in Annex A: EEP Assessment Indicators, and explain why the data are important;
explain the general indicators used by Financiers to evaluate Host and project attractiveness and why these indicators are used;
explain what information is important during the different stages of the financing process;
help a Host conduct its own assessment of its EEP prior to submitting an application to prospective Financiers, to help improve the quality of the financing application and likelihood of success;
highlight common mistakes Hosts make when seeking energy efficiency financing, and illustrate the impact different financing mechanisms have on a Financier’s evaluation and requirements of the Host and the EEP.

By using this Guide to become more familiar with the financing process for EEPs, Hosts can improve their success rate in securing attractive external financing to increase their facilities’ energy efficiency.

Bottom Line on Public-Private Finance Tools for Energy Efficiency

Maggie Barron — Thu, 30 Jun 2011 08:33:11 -0400

On-bill financing

How does on-bill financing provide capital for energy efficiency?

On-bill financing allows a loan for energy efficiency measures to be repaid over time via an additional line item on the recipient’s utility bill, which decreases repayment risk for the lender. The lender in “classic” utility on-bill financing has traditionally been the utility itself. Hybrid models have also emerged in which public and private funds are pooled to offer low-interest loans, with repayment similarly attached to the utility bill. The utility then collects the payment and returns it to the lender, which lowers the lender’s administrative costs. The utility customer benefits from lower energy costs after retrofits, and typically pays loans back over a period of about 2–5 years.

Where has this model been implemented?

One example of a successful on-bill financing program is the Connecticut Energy Efficiency Fund’s Small Business Energy Advantage Program, which is administered by two electric utilities in the state. The fund finances low-interest loans for projects using pre-approved contractors, and eligibility is determined by the customer’s payment history rather than by credit check. In the case of one utility, United Illuminating, over 25% of the small business customer base has participated in the program.

Commercial Property Assessed Clean Energy (PACE) Financing

How does Property Assessed financing work?

Property assessed financing1 reduces repayment risk and lowers interest rates by securing loans with a tax lien on the property. The key attributes of property assessed financing are that programs offer upfront loans for voluntary energy efficiency upgrades, which are paid back through an extra line item on the property tax bill. Payments should be less than the energy savings to yield a net gain for the consumer.

How are property assessed (PACE) loans channeled to projects?

Some cities issue bonds to raise money that they lend directly to borrowers for upgrades. Another option leverages commercial banks to provide loans, either to property owners directly or to Energy Service Companies (ESCOs). Such programs rely on commercial banks to make loans to companies for retrofits; the city simply assigns the liens on the properties to the bank as security. Loan terms typically vary from 5–20 years and interest rates are low, reflecting reduced risk because the loan is senior to all other obligations.

Was PACE financing deemed a violation of mortgage agreements in the U.S.?

Tax liens are commonly used by cities to fund public services, and the mortgage industry in the U.S. has accepted this as standard practice. However, commercial PACE programs require that property owners obtain consent from their mortgage holders before participating if the PACE loan has priority repayment ahead of the mortgage. This is in part to avoid the resistance that residential PACE programs encountered from major mortgage underwriters, which has largely stopped residential PACE programs in the United States. Commercial PACE programs have thus far been allowed to continue without being deemed a violation of mortgage lending rules.

Where has this model been implemented?

Seventeen U.S. commercial PACE programs are either in operation or planning, and several Canadian cities are considering programs. Proven successes include the Sonoma County Energy Independence Program and Boulder, Colorado’s Climate Smart Program.

Sustainable Energy Utility Model

What is a Sustainable Energy Utility?

A Sustainable Energy Utility (SEU) is an institution whose core service is to facilitate access to energy efficiency. It is typically created through legislation to administer financing programs, offer technical services, and coordinate the services of private ESCO’s and banks. An SEU is not a financing mechanism in and of itself – rather, it is a “one stop shop” that leverages financing tools, reduces transaction costs for lenders, and organizes actors to make energy efficiency significantly easier.

Where are SEU’s already at work?

Vermont, Wisconsin, Oregon, New York, Delaware, and the District of Columbia all have independent not-for-profit providers of energy efficiency services that perform the functions of an SEU. Efficiency Vermont is one of the oldest: founded in 2000, it has significantly reduced the upfront cost to deliver energy savings. It is funded by a “wires charge” on each kWh sold in Vermont, which had previously been given to the utilities to perform demand side management. Delaware’s SEU was authorized to issue tax-exempt bonds and collect funds from other sources. It will create a Sustainable Energy Revolving Fund making loans at 3.5–5% interest rates, and can also award rebates.

Loan Guarantees

How do loan guarantees improve financing?

Energy efficiency investments are often perceived as risky by banks because of their unfamiliarity with the technologies and investment structures used, as well as the monitoring needed. Companies can typically only borrow money to finance these measures if they have good credit and give the lender recourse to their assets as a guarantee. However, when a public agency with good credit offers a loan guarantee, banks can lend at lower interest rates and/or extend the term of the loan because the guarantor has promised to ensure timely repayment. Individual loans or a portfolio of loans can be covered by either partial or full risk guarantees.

Loan Loss Reserve Funds

What is a Loan Loss Reserve Fund?

A loan loss reserve fund (LLRF) is another way of backing energy efficiency borrowers. If the borrower defaults, then the lender is paid back out of the reserve fund, reducing or eliminating repayment risk. A LLRF can secure a single loan or a portfolio of loans, and is often used for the latter. One example is the loss sharing facility implemented by the Global Environment Facility (GEF) and the International Finance Corporation (IFC) as part of the China Utility-Based Energy Efficiency (CHUEE) program. The IFC and the GEF set up a LLRF that guarantees loans made by local commercial banks to energy management companies who finance upgrades for their customers. This “Loss Sharing Facility” will refund 75% of the first 10% of the loan amount in case of default, and 40% of any losses on the remaining 90% of the loan amount. With $USD 50 million in loss reserve funds contributed by the GEF and IFC, the program seeks to mobilize $USD 0.7-1.45 billion for energy efficiency project financing from the private sector.

What is the difference between a LLRF and a loan guarantee?

A LLRF is another way to guarantee a loan without relying on the credit of an institution as Guarantor. An actual sum of money must be set aside in an escrow account, rather than an organization pledging its credit. Either one can be structured to repay full or partial losses in case of default.

Loan guarantees and reserve funds can work in conjunction with other types of loans. They can also be coupled with PACE programs to make mortgage lenders more comfortable that PACE loans will not increase mortgage defaults. For example, California passed a law in 2010 establishing the PACE Reserve Program to help local jurisdictions raise bond revenues at lower cost to fund their PACE programs, and thereby offer lower interest rates to consumers. A LLRF could be seeded by public funds but become self-sustaining if funded by a fee on each loan.

How can governments raise funds to leverage additional private-sector lending?

The five financing programs described above can be implemented by local, state, and federal governments in cooperation with the private sector. Such programs have leveraged significantly more private investment than their cost to administer, but do still require some upfront public investment. Governments can raise funds by establishing a small utility fee on electricity sold, requiring utilities to re-invest some revenues in energy efficiency, and/or issuing bonds.

In summary, barriers to financing energy efficiency can be overcome through public-private financing tools. Small investments by government to reduce the risk of lending to energy efficiency projects can unlock major private sector investment, as well as significant environmental benefits.

Resources for Further Information

Adapting for a Green Economy: Companies, Communities and Climate Change

Maggie Barron — Thu, 16 Jun 2011 13:54:43 -0400

A Caring for Climate report by the United Nations Global Compact, United Nations Environment Programme (UNEP), Oxfam, and World Resources Institute (WRI)

Executive Summary

Drawing on the results of a 2010 survey of corporate signatories to the United Nations Global Compact and the United Nations Environment Programme Caring for Climate initiative, as well as on existing literature, this report makes the business case for private sector adaptation to climate change in ways that build the resilience of vulnerable communities in developing countries. It then offers actions that companies and policymakers can pursue to catalyze and scale up private sector action on adaptation. It is ultimately the responsibility of the public sector to meet the critical climate change adaptation needs of the poor and vulnerable; thus private sector engagement cannot substitute for critically needed public investment and policies. However, private sector investment can serve as a pivotal part of a comprehensive governmentled approach to addressing climate impacts.

This report is a resource for companies with a national, regional or global reach that are interested in increasing their strategic focus on adaptation in developing countries where they have operations, supply chains, employees and current or potential customers.

While many companies are focused on climate change mitigation — slowing the rate of climate change through reduction of greenhouse gas emissions and other strategies — most have yet to develop strategies for dealing with the immediate to long-term consequences of climate change. This report is also aimed at national and international policymakers involved in climate change and sustainable development dialogues and decision-making, including those who will participate in the United Nations Conference on Sustainable Development in 2012 (Rio+20). It is hoped that the report’s findings will be useful for a much wider range of actors as well, including small, local businesses in developing countries that are on the front line of climate impacts; civil society organizations seeking to strengthen their work around climate change and sustainable development; and subnational policymakers, who are in a key position to shape a productive interface among government, communities and businesses.

Private Sector Adaptation, Sustainable Development and the Green Economy

The challenges that communities in developing countries face as a result of climate change — such as more frequent and intense storms, water scarcity, declining agricultural productivity and poor health — also pose serious challenges for businesses. Community risks are business risks. Both local and global companies depend on community members as suppliers, customers and employees. They also depend on local resources, services and infrastructure to be able to operate. It is difficult to separate community well-being from companies’ viability and, in turn, overall economic growth.

Businesses that make these connections and adapt to climate change with community needs in mind can gain a competitive edge. Businesses that respond to climate change in ways that undermine communities’ efforts to adapt may face reputational and brand risks, and they may even lose their ability to operate in certain locations. Through responsible, strategic approaches to addressing climate change risks and opportunities, in consultation with people in affected communities, companies can:

Avoid costs, manage liabilities and build resilience to climate change impacts by addressing climate risks throughout their operations and value chains, while at the same time increasing community resilience.
Expand market share and create wealth in communities by developing and deploying new products and services that help people adapt.
Access new opportunities to collaborate with the public sector, as developing country governments seek corporate partners who can effectively deliver goods and services that support high-priority climate change adaptation efforts.
Build corporate reputation and exercise good corporate citizenship by showing commitment to decreasing climate vulnerability and promoting long-term resilience in places where it is needed most.

Investment or other private sector actions taken to adapt to climate change can also have the benefit of promoting a transition to a “green economy”, which has been identified by governments as one of the anchoring themes of Rio+20. In its simplest expression, a green economy is one that is low-carbon, resource-efficient and socially inclusive. In a green economy, growth in income and employment can be generated by strategic public and private investments in developed and developing countries that reduce greenhouse gas (GHG) emissions, improve resource efficiency and prevent the loss of biodiversity and ecosystem services (that is, the benefits of nature to people). Businesses can accelerate the transition to a green economy by taking advantage of the natural synergies that exist between green economy initiatives and climate change adaptation opportunities. When businesses work with communities to restore mangrove forests as natural barriers against storms, or develop affordable drip irrigation equipment that can be used by small-scale farmers facing water scarcity, they are also greening the economy.

Business Perspectives and Action on Adaptation

The Caring for Climate survey revealed that 83 percent of 72 responding companies believe that climate change impacts pose a risk to their products or services. A slightly higher percentage of companies (86 percent) think that responding to climate change risks, or investing in adaptation solutions, poses a business opportunity for their company. Many Caring for Climate companies surveyed have employees and operations in developing countries, which are disproportionately vulnerable to climate change and have limited resources with which to adapt. Not only are companies that operate in, have markets in or source in developing countries exposed to risk, but they can also play a critical role in building climate resilience in these countries.

However, beyond planning for the most obvious or immediate threats — increasingly unreliable access to key inputs like water and energy, for example, or damage to assets from flooding — most companies are not yet taking concrete steps to address climate change risks and to respond to new opportunities in a comprehensive, integrated way.

There is not yet widespread understanding among Caring for Climate signatories of what climate adaptation is and what it means for them or for the markets they serve. Uncertainties about the location, magnitude, potential timing and consequences of climate change impacts make it risky for them to tackle adaptation on their own, and few good tools exist to help businesses assess climate risks and opportunities. The survey revealed that companies find it difficult to incorporate scientific climate change data, which typically cover a large geographic area and span a long-term time frame, into practical business decision-making, which tends to be shorterterm in nature and location-specific. Information about the full range of adaptation costs and benefits is often not available as an input to companies’ investment analyses. Companies may see few economic and policy incentives to make significant up-front investments that bolster long-term climate resilience, for the company and for communities that will be most affected by climate change impacts.

These factors can make it difficult for businesses to make adaptation a strategic priority. Even if key internal stakeholders have prioritized adaptation, it can be hard for them to find the capacity to consult and communicate with a wide range of key external stakeholders, including suppliers and customers. Few Caring for Climate signatories are engaging with suppliers around the issue of climate risk, and few are exploring how their customers’ needs may change as a result of climate change impacts, and what the corresponding business implications — and possible missed opportunities — may be of shifting demands and preferences. Companies also reported challenges in analyzing the connection between their own adaptation needs and community needs; only half of the companies that responded to the Caring for Climate survey said that they have recognized the possible social consequences (positive or negative) of their adaptation strategies. In the end, very few Caring for Climate signatories have been able to design comprehensive adaptation goals with corresponding business indicators to track economic performance and progress towards those goals.

Although business adaptation to climate change is clearly at a nascent stage, approximately one-third of companies surveyed reported having a strong emphasis on addressing climate risks, and about the same percentage reported a strong emphasis on responding to adaptation opportunities.

The survey revealed some emerging best practices in how companies are responding to complex climate change challenges and opportunities while contributing to sustainable development. This report provides several case studies that not only serve as models for other companies, but also provide evidence that private sector adaptation at the nexus of company needs and the needs of vulnerable communities in developing countries makes good business sense.

Strategic private sector adaptation to climate change must be a purposeful process: It will not happen by chance. Companies must prioritize adaptation and take action to address risks and pursue opportunities. Governments can assist companies to overcome barriers to investment and harness the resources and innovation of the private sector to contribute to the public good.

Practical Measures for Companies

Companies will find that addressing the impacts of climate change necessitates a departure from business as usual; traditional approaches are insufficient. Adaptation champions within the company will want to focus their colleagues’ attention on three key questions: 1) What does climate resilience mean for the company? 2) What will position the company to navigate risks and lead markets in a warming world? and 3) How will the company engage partners to minimize risks and seize opportunities? Effective, comprehensive responses to these questions will require companies to…

Connect climate “adaptation” and “resilience” to the company and corporate culture, building on existing mitigation initiatives.
Integrate climate adaptation into core strategic business planning processes.
Align business objectives with adaptation priorities.
Build a portfolio of climate-resilient goods and services.
Build mutually beneficial strategies with stakeholders; build communication channels.
Partner with internal and external decision-makers.

Practical Measures for Policymakers

Governments have a central role to play in catalyzing private sector provision of goods and services that support climate change adaptation and in encouraging climate-resilient business practices. Some public sector efforts to incentivize business contributions to adaptation must be developed and implemented through agreements at the international level. Policy focus at the national and local level, however, is essential, because adaptation challenges and solutions are specific to each locality, and business barriers and opportunities will be countryspecific. To create a facilitating environment for private sector investment in climate change adaptation, policymakers can…

Demonstrate policy and finance commitment to adaptation.
Engage businesses as stakeholders in planning and implementation.
Stimulate the market for adaptation through financial and risk-reduction incentives.
Develop policy and regulatory frameworks to guide corporate practices.
Provide businesses with the information and tools they need to make investments that support climate resilience in vulnerable communities.
Consider new forms of public-private partnerships to tackle the most complex challenges to sustainable development and climate resilience.

Conclusion

Addressing the adaptation needs of vulnerable communities at the scale that is necessary will require unprecedented levels of cooperation, collaboration and resource mobilization among governments, businesses, civil society groups and communities themselves. The private sector has much to contribute to the development and implementation of climate change adaptation solutions, including sectorspecific expertise, technology, significant levels of financing, efficiency and an entrepreneurial spirit. The key is to find the nexus of shared interest where business incentives align with communities’ adaptation needs. Companies that rigorously assess climate change risks and opportunities and implement creative solutions that build long-term resilience will create business value while making important contributions to sustainable development and equitable green growth.

Purchasing Power: Best Practices Guide to Collaborative Solar Procurement

Maggie Barron — Mon, 25 Apr 2011 13:30:59 -0400

Executive Summary

Background

Solar photovoltaics (PV) is a commercially proven technology and, in markets with incentives, can compete with traditional fossil fuel-based power. Wider adoption and decreases in manufacturing costs are driving down the cost of solar electricity. As the industry grows and matures, it will optimize and standardize its practices to further reduce costs and make solar energy accessible to a mainstream market. The crucial role of policy in accelerating this industry growth and maturation cannot be understated. Today, however, several barriers remain to bringing solar PV to scale:

Transaction costs can be high. Because the industry is fragmented and installation processes are not standardized around the country, each developer has different procedures and negotiated contracts. Allocating internal staff resources to research solar power and to negotiate fair contracts for each potential site can be expensive.
Learning takes time and effort. Potential buyers have to learn on their own about the solar market, financing, and technology, while building internal consensus for moving forward.
Demand is fragmented with many individual sites being developed opportunistically. The current patchwork approach of designing, permitting, contracting, and installing systems for one facility at a time is inefficient.

These barriers help explain the slow pace of solar PV adoption among commercial and government consumers. However, collaborative purchasing can help overcome these barriers and scale up solar PV deployment. By organizing interested consumers (and their potential installation sites) into groups, collaborative purchasing can reduce transaction costs, educate potential buyers, and aggregate demand so that solar panels can be installed at lower-than-average costs.

Purpose

This Best Practices Guide is intended to assist commercial and government entities in the process of organizing and executing a collaborative solar purchase. A measure of success will be the number of readers who use this guide in purchasing solar power to meet their electricity needs more sustainably and at an affordable price. The guide outlines a list of best practices, which together constitute a 12-step process to capture the economic and practical benefits of a joint purchase. The starting point for participating in such an effort is simply an interest in purchasing solar electricity. The best practices are intended as a resource for project planning and decision making. They provide specific actions in chronological order, with milestones to indicate when to move from one step to the next. The end goal is that regional groups of participants will have solar PV installed on their facilities at competitive prices.

Experts in the solar energy field, including those specializing in regional collaboration, helped to develop the best practices presented here. They are based on extensive research and real-world experiences, and are supported by case studies (one a private sector collaborative and one with public-sector participants). These two cases were unique models of regional collaboration, among the first in the country at this scale. Like all new approaches to a problem, both efforts encountered challenges along the way. Throughout the guide, we illustrate the lessons learned from these challenges, point out pitfalls to avoid, and highlight ways to streamline the process. We also provide resources, such as solicitation and procurement documents, participant questionnaires, and evaluation criteria.

By promoting the use of this guide and sample documents, we hope to encourage the use of these models for regional collaborative efforts. Successful collaboration can lead to lower costs, increased competition and vendor performance, and better projects with higher visibility.

Twelve Steps for Collaborative Solar Purchasing

1 Early regional recruiting

RESULTS: Initial participants indicate interest and agree to proceed with site identification and assessment in next stage.

2 Initial participant questionnaire

RESULTS: List of potential participating organizations with site opportunities and considerations documented.

3 Solar project workshop

RESULTS: All participants share common understanding about the basics of collaborative purchasing, key metrics to evaluate, timeline, and expectations of them. Lead organization has been identified.

4 Consolidated analysis of sites

RESULTS: Compelling technical overview of total purchase size and individual bundles. This initiative overview is consolidated into packet including talking points explaining expected benefits for participants and lead organization.

5 Internal decision maker consultation

RESULTS: Buy-in to proceed in procurement process to drafting RFP is obtained from decision makers in each participant/lead organization.

6 Design of procurement process & documents

RESULTS: All participants agree to procurement process, template contracts, and standard terms with understanding of risks and opportunities.

7 Request for proposals

RESULTS: RFP issued with compelling bids received from potential vendors.

8 Proposal evaluation

RESULTS: Winning bidder is selected for each bundle through competitive process that ensures best-value vendor selection.

9 Negotiations and award

RESULTS: Negotiations are complete with successful award and signed contracts with a qualified vendor for each bundle, within agreed timeline.

10 Installation project management

RESULTS: Solar PV systems are properly built to meet or exceed specifications and safety standards.

11 Commissioning and operations

RESULTS: Successful solar installations demonstrate energy production and savings as planned for 25 years or more.

12 Celebration of success

RESULTS: Participants’ internal and external stakeholders, regional community, and government are aware of the positive impact of this effort and support future projects.

Bottom Line on Emerging Solar Metering Policies

admin — Thu, 27 Jan 2011 13:25:16 -0500

Inflexible metering procedures limit the types of customers who can invest in solar electric power, and the scale of systems. New policies for virtual net metering, community solar, and meter aggregation can make solar more economical and accessible.

Virtual Net Metering

What is virtual net metering (VNM)?

Net metering allows utility customers with on-site renewable electricity generating systems to receive credits for excess electricity that is sent to the grid and to later use those credits to offset their electricity bill, or receive outright payment for them.1 In contrast, virtual net metering (VNM) allows multiple customers (with their own discrete meters) to share the net metered credits from a system without rewiring to physically link their meters to the system. Specific rules vary by state, and even by utility. Virtual net metering policies are currently most often available to owners and/or operators of multi-tenant buildings, or to a group of buildings within a small contiguous geographic boundary. Typically, the system must located “behind” (on customer side of) the meter of at least one of the utility customers credited and/or the customers credited must be located within the same facility where the system is installed.

For example, a low-income housing building owner could install a solar PV system where the power flows through a single meter and feeds directly back into the grid. The utility would allocate the credits for the kilowatt-hours received to each tenant’s individual utility account based on a pre-agreed percentage sharing scheme. While VNM customers sharing an electricity generation source do need to be in the same utility territory, they do not need to be under the same rate schedule in most states.

Which states allow for virtual net metering?

California
Colorado
Delaware
Maine
Massachusetts
Rhode Island
Vermont

How does virtual net metering facilitate new customer participation?

Currently, virtual net metering is most often available for occupants of multi-tenant buildings, low-income housing, municipal buildings, and to groups of buildings in contiguous proximity to the solar installation. Without VNM, separate tenants with a solar investment on their building’s roof would each have to be physically connected to the system to receive net metered credits on their separate utility bills. This is cost-prohibitive and logistically difficult.

What is “community solar”?

Community solar programs and policies facilitate joint ownership or sponsorship of a generating system, and sharing of the benefits even when the power itself cannot be physically shared. It can make solar accessible to owners of property that cannot accommodate a solar PV array and those prohibited from entering into legal ownership structures typically used for solar, among others.

Policies and incentives vary from state to state, thus there is no one standard community solar model. According to a publication of the National Renewable Energy Lab, three project models are currently the most common:

Utility-Sponsored Model: a utility owns or operates a project that is open to voluntary ratepayer participation;
- United Power, an electric co-op in Colorado, offers the option to lease panels at its Sol Partners Cooperative Solar Farm for a fixed upfront fee. In return, payment for the kilowatt-hour (kWh) production is credited to their account at a “community solar” rate higher than the retail rate.
Special Purpose Entity (SPE) Model: individual investors join in a business enterprise to develop a community solar project;
- In Maryland, a group of investors formed the University Park Community Solar LLC to invest jointly in a system located on the roof of a local church. Owners share the revenues from power sales to the church, as well as from incentives.
Non-Profit “Buy a Brick” Model: donors contribute to a community installation owned by a charitable non-profit corporation. [Donations may be tax deductible, but there are no financial benefits shared, and in fact this does not require special policy.]
- The East Portland Community Center project was funded by local businesses through the “Solar 4R Schools” program. The non-profit program installs solar systems and uses them to educate communities about solar power.

Community solar models often aim to reduce the high upfront costs of solar, sometimes allowing participants buy into the program’s installation(s) monthly or per kWh. Their contribution then entitles them to receive payments for the system’s production, and can fix the price for a portion of their bill to protect against future price increases.

Where is community solar allowed?

The following states allow at least one of the community solar models listed above:

Arizona
California
Colorado
Delaware
Florida
Illinois
Maine
Maryland
Massachusetts
Utah
Washington

Meter Aggregation

What is “meter aggregation”

Meter aggregation allows for allocation of the credits from a solar electric system to meters in buildings separate from where the actual power is produced, if they are on the same customer’s utility account. It is usually reserved for buildings located in a tight geographical boundary, either adjacent to one another or located no more than a few miles from one another. It can be done physically, which may require additional equipment, or virtually.

Often, net metering policies limit the amount of power that a customer can sell back to the grid to less than a set percentage of their annual consumption. The benefit of meter aggregation is that several facilities’ metered annual consumption is aggregated; thus the owner can install a larger system and sell more power back. Meter aggregation is often used in agricultural operations or business campuses where there are multiple separate facilities with the same owner.

Summary

In summary, net metering, virtual net metering, community solar, and meter aggregation can be characterized as follows:

Net metering: allocation of benefits to one customer via one meter;
Virtual net metering: allocation of net metered energy credits denoted in kWh to multiple customers with separate meters, often system located on their site or nearby;
Community solar: allocation of benefits across meters of multiple customers who may or may not be near and/or own some part of the generating system, and
Meter aggregation: allocation of system benefits to multiple meters of one customer.

Corporate Greenhouse Gas Inventories for the Agricultural Sector: Proposed Accounting and Reporting Steps

admin — Thu, 27 Jan 2011 12:07:38 -0500

Corporate inventories of greenhouse gas (GHG) emissions provide a firm foundation for emissions management by business. But they rarely include agricultural emissions, often because of confusion about the best practices needed to address unique aspects of agricultural sources. This paper suggests accounting and reporting procedures based on the GHG Protocol Corporate Accounting and Reporting Standard. The objective is to stimulate and inform discussion amongst stakeholders towards a common understanding of best practices.

Summary

Agricultural activities cause greenhouse gas (GHG) emissions from a diverse range of sources. An equally diverse range of issues affects whether and how these emissions should be included in corporate GHG emissions inventories. This paper provides a preliminary assessment of these issues and how they can be addressed within the framework provided by the GHG Protocol Corporate Accounting and Reporting Standard (Corporate Standard). The key findings are:

The Corporate Standard outlines generic accounting procedures that are directly applicable to many of the organizational and operational structures common in the agricultural sector, such as co-operatives, leasing arrangements, and commodity production contracts.
Accounting for the GHG emissions from equipment and machinery on farms is relatively straightforward. But the emissions from non-mechanical sources, such as soils and livestock, are more challenging. Specific challenges include the variability in GHG emission rates over time and space, the difficulty in disentangling the effects of current management practices on GHG emissions from those caused by natural factors, and the reversibility of carbon stocks and the long timescales over which carbon stocks change.
Consensus best practices for dealing with these challenges do not yet exist, but such best practices might include:

Separately reporting GHG data on mechanical and non-mechanical sources within inventories
Reporting carbon stock information using data on both stock size and carbon dioxide (CO2) fluxes
Allocating long-term changes in carbon stocks evenly across multiple reporting periods
Reporting the current impact of historical changes in land management practices on carbon stocks. Companies should adopt a time threshold to determine when historical management changes are relevant
Reporting all GHG emissions from land use change under an appropriate scope and not as a separate memo item.

This paper concentrates on core GHG accounting and reporting issues, but a range of other issues are also relevant to the creation of GHG inventories. For instance: What business goals do agricultural companies have for addressing climate change and how are GHG inventories useful in meeting these goals? How can companies acquire the activity data needed to calculate GHG emissions? And what gaps exist in emissions calculation methodologies and how should these gaps be handled within GHG inventories? The GHG Protocol intends to develop a consensus-based GHG accounting and reporting protocol for the sector. A crucial next step is to conduct broad stakeholder consultations on this paper and identify remaining questions.

About the GHG Protocol

The Greenhouse Gas Protocol is a decade-long partnership between the World Resources Institute and the World Business Council for Sustainable Development. It works with businesses, governments, and environmental groups around the world to build a new generation of credible and effective standards for the accounting and reporting of GHG emissions at the corporate, project, and product levels.

Bottom Line on Renewable Energy Tax Credits

Tim Herzog — Mon, 18 Oct 2010 14:39:17 -0400

This is an update to the first Bottom Line on Renewable Energy Tax Credits, published April 2008, which answers basic questions about different types of tax credits, their purpose, and qualification requirements. This document has been updated to reflect legislative changes that have occurred since then and is up-to-date as of September 12, 2010.

Watch the Video Overview

Stock video footage courtesy of Footage of the World

What are the Production Tax Credit (PTC) and the Investment Tax Credit (ITC)?

The Production Tax Credit (PTC) reduces the federal income taxes of qualified tax-paying owners of renewable energy projects based on the electrical output (measured in kilowatt-hours, or kWh) of grid-connected renewable energy facilities. The Investment Tax Credit (ITC) reduces federal income taxes for qualified tax-paying owners based on capital investment in renewable energy projects (measured in dollars). The ITC is earned when the equipment is placed into service.

What is the Treasury cash grant?

The cash grant is an option for ITC-eligible projects to receive the value of the ITC as a direct grant instead of as a tax credit. Eligible technologies can receive a cash grant covering up to 30% of the capital investment. Since the American Recovery and Reinvestment Act (ARRA) allowed PTC-eligible projects to elect the ITC instead, those projects can also elect to receive the cash grant.

What is the Advanced Energy Manufacturing Tax Credit (MTC)?

The Advanced Energy Manufacturing Tax Credit (MTC) awards tax credits to new, expanded, or re-equipped domestic manufacturing facilities that support clean energy development. The Department of Energy (DOE) and the Internal Revenue Service (IRS) allocated MTC credits in April 2010 to projects based on their commercial viability, job creation, GHG reductions and other factors. Since more applications were received than anticipated, the Obama administration requested that the MTC be extended.

Who qualifies for the PTC?

Depending on the complexity of the ownership structure, it may be appropriate to get a letter of opinion from the IRS for specific projects. Below is some high-level guidance on claiming the PTC:

A tax-paying entity must own the generating asset and sell the electricity to an unrelated third party.
Entities that do not pay taxes, such as publicly owned electric utilities, rural electric cooperatives and government bodies, may not take advantage of the PTC. Investor-owned utilities do qualify for the PTC.
Generating assets must be located in the United States and placed in service between December 31, 1992 and January 1, 2013 (for wind) or January 1, 2014 (all others).

Who qualifies for the ITC?

The following are basic guidelines for claiming the ITC:

System owner must be a tax-paying entity.
Equipment must be new, though used equipment can potentially be treated as new depending on the amount of upgrades after the purchase.
System must be placed in service between December 31, 2005 and December 31, 2016.
PTC-eligible projects can elect to receive the ITC instead of the PTC.
While the original ITC excluded publicly owned electric utilities, those can now benefit from the ITC as of 2008. Investor owned utilities remain eligible.

What are the other tax incentives granted to renewable energy projects? What are MACRS and Bonus Depreciation?

Modified Accelerated Capital-Recovery System (MACRs) is a system of rules and schedules for accelerated depreciation. A five year depreciation schedule is allowed for all ITC-eligible technologies as well as large wind projects. For some biomass property, the schedule is over 7 years. Bonus Depreciation allowed taxpayers to deduct 50% of the value of eligible systems in the first year but has not been renewed for 2010.

What are the upper limits or maximum value that can be awarded in tax credits?

The ITC does not limit the total credit value granted to a project, but does limit the credit value granted per kW of capacity of certain technologies. For small wind projects placed in service starting in 2009, the ITC dollar cap was removed by the ARRA. The maximum incentive for fuel cells is $3,000 per kW and for microturbines is $200 per kW.

Bottom Line on Offsets

Maggie Barron — Sun, 01 Aug 2010 08:37:17 -0400

What are greenhouse gas offsets?

A greenhouse gas (GHG) or “carbon” offset is a unit of carbon dioxide-equivalent (CO2e) that is reduced, avoided, or sequestered to compensate for emissions occurring elsewhere. These offset credits, measured in tons, are an alternative to direct reductions for meeting GHG targets in a cap-and-trade system. In some systems, regulated facilities can buy offset credits from projects located in sectors or countries not legally required to reduce their emissions. The cost of meeting the GHG reduction targets of a cap-and-trade program can be reduced by buying offsets in cases where reducing GHG emissions at uncapped facilities or sectors is less costly than at capped sources. Many businesses and organizations currently buy GHG offsets to help meet voluntary commitments to reduce their GHG emissions.

What qualifies an activity as an offset project?

There are five commonly agreed-upon criteria that an offset credit must meet to ensure environmental integrity.

1. Real: GHG offsets must represent one ton of CO2e greenhouse gas emissions reduced or sequestered as a result of an activity undertaken for the purpose of reducing emissions. In practice, this ensures that total GHG emissions to the atmosphere are lower due to the implementation of the offset project, relative to a business-as-usual baseline scenario. Determining theoretical baseline emissions in the absence of the offset project (i.e., under the business-as-usual baseline) is not an exact science, so all baselines must be accurately and conservatively defi ned. The quantity of emission reductions should not be infl ated by incomplete accounting, which could occur if emissions were reduced at one location but increased elsewhere as a result (known as emissions “leakage”).

2. Permanent: Emission reductions or removals are permanent if they are not reversible; that is, the emissions can’t be rereleased into the atmosphere. The issue of permanence applies to projects where emissions are sequestered in ways that could be reversed over time, such as in forests (which can release carbon through fi res or decay) and through geological sequestration (where gases could potentially leak unexpectedly). There are mechanisms to account for or reduce the risk of reversal, though they can bring additional costs. These include buying insurance in case of emissions reversals, establishing a reserve “buffer” pool of credits or issuing temporary credits from the project that are valid for a period of time but must be re-certified or replaced in the future.

3. Additional: In order to generate offsets, a project must be a response to the incentives provided by a carbon offset market. Activities that would have happened without such incentives are business-as-usual and do not represent new emission reductions. Since offsets are used to compensate for continued or increased emissions elsewhere, if they are not additional then their use allows a net increase in GHG emissions. Additionality is ultimately a subjective judgment. Regulatory approaches attempt to ensure that additional projects are able to get credits while weeding out those that would occur in the absence of the incentive provided by the carbon market. For example, if regulation requires a landfi ll to capture the methane it produces, it cannot earn offsets for this activity. Since the landfi ll would have captured the emissions anyway, it is business-asusual and not additional.

There are two primary ways additionality can be determined in existing offset programs: on a project-specific basis or through standardized criteria. Project-specific additionality is determined through an evaluation of the proposed project against a range of alternative scenarios. The scenario deemed most financially viable and/or probable in the absence of the incentive provided by the carbon market is considered the business-as- usual scenario from which offset credits are calculated. Standardized additionality criteria evaluate projects against a set of consistent criteria for a particular project type and are intended to exclude non-additional projects, without developing a business-as-usual scenario for each individual project. This can include requirements that the project is not mandated by law, is not common practice (based on technology use or activity data),involves a specific pre-approved technology, and/or has an emissions rate lower than most others in its class.

The Clean Development Mechanism currently uses a project-specific additionality test to certify offsets for use to meet reduction obligations under the Kyoto Protocol. Other systems such as the Climate Action Reserve, EPA Climate Leaders, and the Regional Greenhouse Gas Initiative use standardized additionality approaches.

4. Verifiable: Credible offset programs require that emission reductions be monitored and regularly verified by an independent, qualified third party.

5. Enforceable: One credit can only credibly offset one ton of CO2e emissions; as a result, it must be tracked and it must be possible to enforce its ownership and use in order to avoid double counting. This is usually done via a registry.

Who can implement offset projects and earn emissions reduction credits?

Offset owners must be able to claim the legal right to the emission reductions of the project, usually through legal or contractual means. In addition, most offsets bought and sold today are certified by a third party certifier, who provides a “seal of approval” that the offset is providing the promised emission reduction benefit. Currently, U.S. facilities that are not operating under a regional GHG reduction program could attempt to claim offset credits. Once a federal climate program is in place, U.S. facilities will no longer be able to claim offset credits if they are located in a regulated sector.

How are offsets measured and tracked? What are standards, verifiers, and registries?

There are two primary markets for offsets: the regulatory market and the voluntary market. In regulatory markets, such as the Regional Greenhouse Gas Initiative, government agencies are responsible for establishing the standards for offset crediting and programmatic structure. In the voluntary market, the predominant market to date in the United States, there is no common standard for offset measurement and verification.

Various voluntary standards have been developed to provide independent quality assurance. A standard provides a detailed list of eligibility requirements for projects and methodologies for calculating a project’s emission reductions. Most rely on third party auditors, called verifiers, to perform the due diligence and attest to the veracity of the information provided by the project in its application. It must be verified that the project as a whole meets the standard, and that each individual offset credit issued is based on data that meets the requirements of the registry or policy program.

For a company with a voluntary commitment to reducing its carbon footprint, what value do offsets provide in GHG reduction strategies?

Purchasing and retiring (that is, not re-selling) high-quality offsets can be a useful component of an overall voluntary corporate emissions reduction strategy once internal abatement opportunities have been realized. The cost comparison of internal abatement versus offsets as a strategy is accurate only if evaluated over an appropriate time scale, such as the lifetime of the internal abatement (with appropriate discount rates) and if it includes all of the additional non-CO2 benefits of the internal abatement (such as greater efficiency or lower fuel costs). Also, it should be noted that it is more likely that future climate programs will recognize internal GHG abatement rather than offsets.

Which standard should I buy from or use to certify my project? Which is likely to be accepted in a federal program?

There is currently no bottom line on this question. The leading U.S. standards (ranked by the size of the 2009 market) include the: Climate Action Reserve (CAR), Voluntary Carbon Standard (VCS), Chicago Climate Exchange (CCX), American Carbon Registry (ACR), and The Gold Standard (GS). In general it is more likely that offsets certified under existing mandatory cap-and-trade systems (such as the Northeast’s Regional Greenhouse Gas Initiative (RGGI) or California’s AB 32) would be recognized automatically under a federal climate program, but this is not certain. Project types within sectors regulated by cap-and-trade policy will not be eligible to generate offsets because their emissions are covered by the cap. For instance, grid-connected renewable energy and energy efficiency projects are highly likely to be covered by a federal program and thus would be ineligible to produce offsets.

Additional Resources:

Broekhoff, Derik and Kathryn Zyla, 2008. Outside the Cap: Opportunities and Limitations of Greenhouse Gas Offsets. World Resources Institute Climate and Energy Policy Series. December 2008
Kelly, Alexia and Bianco, Nicholas “Options for Addressing Early Action Greenhouse Gas Reductions and Offsets in U.S. Federal Cap-and-Trade Policy”: WRI Working Paper. August, 2009
Offset Quality Initiative (OQI), 2008. Ensuring Offset Quality: Integrating High Quality Greenhouse Gas Offsets into North American Cap-and-Trade Policy. July 2008.

Bottom Line on Climate Bill Compliance

Jefferson Cox — Fri, 19 Mar 2010 15:57:19 -0400

Will my facility need to comply with climate change policy?

Rather than regulating all GHG emissions, most approaches focus on the largest sources. This typically involves large “smokestack” emissions (e.g., from electric power plants), as well as the upstream bulk sale or import of fuels (e.g., petroleum) that emit GHGs when used. This helps limit the number of facilities under direct regulation while still covering most GHG emissions—approximately 80 percent in some cases. Facilities that are not directly regulated would still have a cost incentive to reduce their indirect GHG emissions (e.g., from electricity consumption) where compliance costs are passed through from regulated fuel and electricity suppliers.

Recent legislative proposals in the U.S. Congress seek to regulate facilities that emit 25,000 metric tons of CO2-equivalent per year which is roughly equivalent to the CO2 emissions of a 4 MW gas turbine running at full load with 98 percent availability. These “covered entities” would include electric power plants and large industrial facilities. Federal legislative proposals would also cover GHG-emitting fuels sold by natural gas utilities (local distribution companies) and petroleum refiners and importers. For more information on the point of regulation, see WRI’s federal climate policy summary.

In addition to federal proposals, there are regional and state programs a business may need to consider. Regional and state climate policies vary in their respective points of regulation. For more information on regional programs, see WRI’s summary on regional cap-and-trade programs.

Will my facility need to report GHG emissions?

Beginning in 2010, a new mandatory GHG reporting rule went into effect that requires large “smokestack” and other selected sources to report emissions to the U.S. Environmental Protection Agency (EPA). For more information on this rule, see the EPA’s FAQ document on GHG emissions reporting.

In addition to the EPA GHG reporting rule, individual states may also have reporting requirements. For example, the Regional Greenhouse Gas Initiative (RGGI) requires energy generation plants larger than 25MW to report GHGs.

What are the compliance costs for regulated facilities?

Compliance costs depend on how efficient a facility is in reducing its GHG emissions and what policy mechanisms or programs are implemented to reduce costs. A regulated facility would need to weigh the various costs of these options to understand full compliance costs. In a cap-and-trade program, for example, covered facilities would need to hold GHG allowances equal to their annual emissions, so costs depend on how much the facility emits and the price of GHG allowances (estimated to be about $32 per ton CO2e in 2020 according to a Department of Energy analysis of a recent federal proposal1). The trading option would allow entities to buy and sell allowances (meant to encourage the most cost-effective emission reduction options and lower overall compliance costs).

Most federal proposals provide these or other flexibility options (including allowances allocated for specific purposes in early years or tax incentives) to reduce costs and encourage investment in GHG emission reduction projects. For more information, see WRI’s Bottom Line on Cost Containment.

What costs can non-regulated facilities expect?

Facilities that are not directly regulated by climate policies may see upstream costs passed down from energy providers and other suppliers. Costs could be high for facilities that source from suppliers that are major GHG emitters. Meanwhile, costs could be minimal for facilities that source from suppliers that produce few or zero GHG emissions.

Will facilities be able to leverage new competitive advantages?

Both regulated and non-regulated facilities could see new market opportunities and competitive advantages. Facilities that produce clean, low-GHG emissions technologies could see increased market demand for those products and services. Price signals and funding programs may provide additional incentives for GHG reduction projects, such as both supplyand demand-side efficiency upgrades, fuel switching from more carbon-intensive to less carbon-intensive fuel sources and clean energy equipment. In general, facilities that reduce their GHG emissions—as well as upstream (supplier) and downstream (customer) emissions—can optimize competitive positioning.

Will climate legislation increase energy bills?

According to analyses of recent federal proposals, climate legislation will increase the price of producing energy from resources that emit GHG pollution (e.g., coal and petroleum). Higher energy prices or electricity rates, however, do not always translate to higher energy bills. Facilities that reduce total energy use by increasing their energy efficiency or that purchase power from low-GHG energy sources can mitigate energy costs or reduce energy bills.

The table (see PDF) presents estimates from the Energy Information Administration (EIA) for how energy prices could change under the American Clean Energy and Energy Security Act (ACESA) that passed the House of Representatives in 2009.

What types of incentives and programs will be available to reduce GHG emissions at my facility?

Climate policies often incorporate additional incentives and financing programs to assist facilities in reducing GHG emissions. These can involve funding for federal, state and local programs. These funds are generally distributed in the form of competitive grants, rebates and tax credits. Below are a few examples of activities typically eligible for such support:

Clean energy technology deployment (including wind turbines, solar panels, electric vehicles and fuel cells)
Industrial electricity and thermal energy efficiency, including combined heat and power (CHP)
Worker training for energy efficiency
Building efficiency retrofits
Motor efficiency upgrades

Additional Resources

Note

This issue builds on topics and policy mechanisms discussed in previous issues:

Bottom Line on Climate Policy Terminology

Bottom Line on Cap-and-Trade

Sharpening The Cutting Edge: Corporate Action for a Strong, Low-Carbon Economy

Tim Herzog — Tue, 28 Apr 2009 17:50:22 -0400

The window of opportunity to effectively respond to climate change is now. Leading scientists warn that global greenhouse gas (GHG) emissions must begin to decline in ten years if we are to avoid the worst impacts of climate change. The United States is at a clear decision point. The scale of the climate challenge, paired with the investments needed to respond to a deep global recession, represent a unique opportunity to shift to a low-carbon economy that can provide a stronger, safer and more sustainable future. As users and producers of goods and services, businesses are central to an effective climate change response.

To be successful in a low-carbon future, companies must become expert in today’s best practice, emerging innovative practice and tomorrow’s “next” practice. This report can help guide corporate actions over the next few years, as companies and policymakers accelerate the pace of responding to climate change. It offers guidance on six key actions:

DEVELOP COMPREHENSIVE, STRATEGIC CLIMATE CHANGE METRICS. Performance targets that go beyond carbon-only measures will be more useful for measuring and managing an effective corporate response to climate change.
EXPAND GHG REPORTING. Companies will need to develop efficient, responsive reporting processes to meet growing demands for climate change risk disclosure (financial and physical) from a variety of stakeholders.
REALIGN CLIMATE CHANGE STRATEGIES TO A LOW-CARBON ECONOMY AND A WARMING WORLD. Strategic partnerships across the value chain will help identify cost-effective GHG emission reductions and minimize exposure to carbon price impacts. Businesses will also need to analyze their entire value chain to assess how they may be exposed to shifting weather patterns and climate risks.
ANTICIPATE AND MEET NEW MARKET DEMANDS. Tomorrow’s economy will place new value on goods and services that use energy and natural resources more efficiently and reduce GHG emissions. Companies can capture new business opportunities if they position themselves to supply these new markets.
INFORM AND ADVANCE EFFECTIVE CLIMATE POLICY. Companies will need to be constructive participants in U.S. and international policy dialogues. Corporate insights can help to inform effective climate and energy policies to ensure a safe climate and sound economy.
MAKE LONG-TERM INVESTMENT DECISIONS THAT FACTOR IN CLIMATE RISKS. All corporate investment decisions will need to evaluate climate change risks and whether investments put the company at an advantage or disadvantage in a low-carbon future. Poor investment decisions can lead to significant future costs if they lock in commitments to high-carbon products or strategies.

Companies that are successful in these areas will help to set the new benchmark for corporate leadership in a low-carbon future. The World Resources Institute has been working with the private sector for more than a decade on developing responses to climate change. Many of our corporate partners are building a solid foundation for long-term action. This has taken time, resources and commitment. Key challenges remain, however.

This report assesses how companies have fared in addressing the “cutting-edge issues” identified in our 2004 report A Climate of Innovation. The experiences of our corporate partners illustrate important progress and barriers.

VERIFYING AND REGISTERING DATA. GHG registry programs have grown over the last few years with companies seizing the opportunity to verify and register their emissions.Many companies that are not participating still are undergoing the process of third-party verification of data. For most companies, however, data management can be a time-consuming challenge.
SETTING AND UPDATING PERFORMANCE TARGETS. Setting GHG emission reduction targets has become a fairly common practice among major corporations. GHG targets alone, however, do not fully communicate corporate commitments to action nor do they necessarily focus investments on the critical changes necessary to prepare companies for a low-carbon future.
IDENTIFYING COST-EFFECTIVE EMISSION REDUCTIONS. New financing models are helping to accelerate clean technology investments, and a growing number of companies are also engaging in emerging supply chain management activities. Fuller engagement of senior financial executives remains a key barrier to increased deployment of low-carbon projects.
MANAGING INTERNAL COMMUNICATIONS. Simple, clear messaging and engagement of a wide range of employees has proved to be a successful strategy for involving the broader company in climate commitments. Cutting through the barrage of corporate information targeted at employees and successfully diffusing climate change knowledge remains a challenge.
CAPTURING NEW BUSINESS OPPORTUNITIES. Companies that have explored opportunities to supply low-carbon goods and services have been able to demonstrate financial success in these new markets. Advancing these opportunities will require new business models, increased investment, and policy frameworks that value and reward action to reduce GHG emissions.
ADAPTING TO MARKET-BASED SOLUTIONS. Policy action to address climate change is likely to include market-based mechanisms, such as a cap-and-trade program or a carbon tax that attaches a cost to GHG emissions.Many companies are preparing for climate policy by engaging in stakeholder processes and building an expert base of policy knowledge. Other companies, however, are relying on limited sources of information or remain unengaged, and risk being unprepared for future climate regulations. Overall, the dynamic policy environment is difficult to navigate, and uncertainties continue to prevent effective longterm corporate planning and investment.

Moving forward, a complex set of transformations will be required to dramatically increase the efficiency of energy use, rapidly accelerate clean energy technology deployment, bridge the technology gap between today’s practices and tomorrow’s clean energy economy, and maximize the efficiency of the transportation system. Each of these transformations represents business risk and opportunity.However, while many companies recognize climate change is a business issue, corporate climate change goals and implementation strategies are not yet sufficient for achieving the scale of necessary GHG emission reductions.We need to forge a new definition of corporate leadership to build on the progress made to date and to adequately meet the scale and urgency of the climate challenge.