By Sima Matthes (New York City)

Exclusive of industry leadership, what do PepsiCo, Baxter Healthcare, SC Johnson & Sons and the Philadelphia Phillies have in common?

All of these companies have made a commitment to using renewable energy and carbon offsets to reduce at least part of their corporate carbon footprint, and all are partners in the Environmental Protection Agency’s Climate Leaders.

As previously reported by The Glass Hammer there is a growing—and essential—attention to the environmental impact of business activities within the corporate community. An increasing number of corporations are trading and purchasing carbon credits as a way to offset the greenhouse gasses produced by their routine operations.

For the uninitiated, a primer:

  • Renewable energy is energy from sources other than fossil fuels: wind, solar, nuclear and hydropower
  • Carbon offsets or carbon credits enable individuals and businesses to counterbalance the effect of the carbon dioxide generated by the company’s—or an individual’s—daily activities by paying a fee to companies that, in return, plant trees and/or invest in renewable energy.

There are three ways to use carbon emissions trading to achieve remission reductions. One is an emission cap and permit trading system. This sets the emission level permitted at a fixed amount while the price for the offset credit remains fluid and adjusts with the market.

The second is an emission tax, which fixes the price while the emission level is allowed to vary according to the corporation’s activity. The third choice is a hybrid known as a safety valve, which sets up both an emission cap and a tradable permit with a minimum or maximum capped price for the permit.

Each of these has its benefits as well as its disadvantages. When the emission level is capped, it’s easier to measure the environmental impact; however, the increased cost and unspecified expense may make it less likely that companies will opt to comply. The solution may be in setting the emission level at a very low cap so that companies have a financial incentive to stay within the acceptable range of emissions.

Conversely, the emission tax seems to assure that as long as companies are willing to spend to offset their emissions, they may pollute at will. The key to this system is a high premium on emissions to provide an incentive for companies to keep their emissions low. Finally, the safety valve allows governments to adjust the price and caps on emissions as the market will bear. The elements can be adjusted to have the same affect as either of the two schemes above.

Of course, there is a fine balance that must be struck between costs of reduction and benefits of reduction. According to Wikipedia, “With the creation of a market for mandatory trading of carbon dioxide emissions within the Kyoto Protocol, the London financial marketplace has established itself as the center of the carbon finance market…The voluntary offset market, by comparison, is projected to grow to about $4 billion by 2010.”

Whatever the chosen scheme, it is clear that growing numbers of large corporations are incorporating environmental considerations into their corporate DNA. The EPA’s Climate Leaders are a who’s who of Fortune 1000 companies. In addition to those above, the list also includes Dell, Inc., 3M, Mack Trucks, Miller Brewing and Unilever. All the partners have committed to “reducing their impact on the global environment by completing a corporate-wide inventory of their greenhouse gas (GHG) emissions, setting long-term reduction goals, and annually reporting their progress to EPA.”

PepsiCo, for example, uses solar energy at their Frito-Lay facility in Modesto, California to produce 75% of the energy required to produce Sun Chips at that location. Additionally, according to their sustainability report, they have “reduced per-pound water use by more than 38%, manufacturing fuels by more than 27% and electricity by more than 21% since 1999; and our Quaker, Tropicana and Gatorade businesses have reduced manufacturing fuels by 26%, electricity by 24% and water by 12% in the last three years.”

In addition to being a Climate Leader, PepsiCo was the first consumer products company to join the U.S. Climate Action Partnership. PepsiCo is also a leader in purchasing renewable energy certificates to offset the electricity costs of all of PepsiCo’s United States-based facilities and offices.

Baxter Healthcare identifies climate change as “the most pressing global environmental challenges of this generation” in its sustainability report. Energy conservation is at the center of their plan to reduce the corporation’s environmental impact. They’ve switched from heating oil to natural gas. Their overseas facilities in Turkey and Spain operate cogeneration units. “These units capture heat created during power generation on-site and apply it to other useful purposes. This,” according to their sustainability report, “increases efficiency and improves energy reliability while reducing cost.”

Baxter is pioneering emissions trading as “a founding member of the Chicago Climate Exchange (CCX), the world’s first and North America’s only voluntary, legally binding, rules-based GHG emissions-reduction and emissions-trading system, carbon registry, trading and emissions-verification program.” They are advocates for renewable energy at the state and federal levels, and have initiated several renewable energy projects at their locations in the United States and overseas.

Those who deride the effect of carbon offsets are quick to call it a tax on businesses that are successful. And there is some truth to that—this is, after all an additional actual financial cost to companies operating in a manner incompatible with sustainability—however, the cost of not doing anything at all is much higher.

According to the Carbon Neutral Alliance, a program that assists non-profits in reducing their environmental impact, businesses that wish to become carbon neutral can take the following steps to move toward that goal:

  • Calculate greenhouse gas emissions (GHG) by tonnage—how many tons of carbon dioxide is your business emitting?
  • Reduce energy use-this is often the most easily achievable step. Companies that make energy efficiency a priority notice a lower cost of doing business as well as helping reduce GHGs. As an additional bonus, companies may notice an increase in productivity when employees travel less—telecommuting, carpooling or using public transit—and when meetings are conducted via phone or computer conferencing rather than in person.
  • Purchase renewable energy AND purchase carbon offsets—as suggested elsewhere in this article, this is a part of the path that must be trod thoughtfully. An organization must demonstrate a commitment to reduced energy usage and not just use renewable energy or offsets to justify excessive energy consumption.
  • Education and collaboration—Corporations have a responsibility to educate their employees, their clients and the communities they serve about the issues of global warming and about the importance of putting the steps above in place at home and in other business environments.

Corporate leaders need to take the initiative and view the environmental risks as a fiduciary issue, and integrate solutions at every level of the company, from investors to consumers, from directors to staff, in order for the change already in progress to become the global solution that’s needed.