Obama’s green dream and corporate carbon reduction

 —  Article by JLL Staff Reporter
Image credit: Shutterstock
Image credit: Shutterstock

The Obama Administration recently challenged power producers across the U.S. to become greener, with a new plan aimed at reducing carbon dioxide emissions from power plants.

The ambitious step to help tackle climate change aims to slash greenhouse gas emissions from power stations in the U.S. by around a third over the next 15 years – the equivalent of taking 166 million cars off the road, the White House estimates.

For U.S. companies, limiting dependency on greenhouse gas-generating fossil fuels is a realistic goal, given the dramatic rise in clean energy sources.

As Dan Probst, chairman of Energy and Sustainability Services at JLL, wrote in a blog on The Hill: “The Clean Power Plan is in the best interest of businesses, which are already working to move us towards cleaner energy. Recent research shows a majority of Fortune 100 companies have a renewable energy and/or greenhouse gas goal.

“It’s clear that commercial real estate can have an enormous impact on environmental sustainability. Commercial buildings generate about 40 percent of total greenhouse gas emissions in the world’s developed countries. So if you want to control greenhouse gases, you can’t avoid buildings,” he adds.

The effect on CSR targets

But will there be unintended consequences for companies with corporate social responsibility (CSR) 2020 targets?

Since environmental sustainability is a major part of CSR, many companies already have green energy targets. These are noteworthy commitments, since commercial and industrial buildings account for nearly 50 percent of US greenhouse gas emissions.

Among other blue-chip companies, for example, Marriott has pledged to reduce energy consumption by 20 percent, and Coca Cola plans to reduce carbon dioxide emissions by 25 percent.

And, despite the global oil glut, global clean energy investment surged by 16 percent in 2014, according to Bloomberg.

It’s a trend the White House is keen to boost further. It has stated that the Clean Power Plan will “drive more aggressive investment in clean energy technologies … resulting in 30 percent more renewable energy generation in 2030 and continuing to lower the costs.”

But, 2030 is not 2020. Corporations with 2020 commitments need to act sooner, rather than later, to meet their goals.

Will energy prices rise before they fall?

Emissions restrictions can have unpredictable consequences, according to JLL’s David Gralnik, Senior Vice President and Global Director of Renewable Energy Services, who negotiates corporate renewable energy purchasing solutions. Corporations may see a near-term rate increase from electric utilities, for example—but a price decrease in power purchasing agreements (PPAs) with renewable energy providers. The difference should motivate companies focused on near term-goals.

The Clean Power Plan requires U.S. states to reduce carbon dioxide emissions from their power plants—the greatest source of U.S. carbon emissions—but they have the freedom to decide exactly how they will do this. For many utility companies, the fastest and most affordable route to full compliance will be to buy renewable energy credits. Some also may invest capital to improve efficiency, convert coal-fired plants to natural gas, acquire renewable energy companies, or establish PPAs with them.

“Whatever their strategies, utility companies will undoubtedly pass the costs onto their customers. Among business customers, manufacturers in energy-intensive sectors like glass, pulp and paper and aluminum packaging will feel the impact the most,” explains Gralnik. “Historically, that has been the response to mandates.”

Getting credit for (renewable energy) credits

However, the Clean Power Act may lead to lower pricing for PPAs with renewable energy providers. Emissions mandates typically increase demand for, and the value of, renewable energy credits, enabling developers to provide energy at lower cost because they can sell their credits to utilities or other companies.

“Corporate energy users should lock in PPAs as soon as possible, particularly in states where existing mandates make renewable energy credits highly valued,” advises Gralnik.

Also important, a company must negotiate precise language into its PPA to purchase both the power and the credit. Otherwise, only the power producer can claim the renewable energy credit.

Another reason to lock in a PPA: Federal solar energy investment tax credits will be significantly reduced at year-end 2016, effectively increasing the cost of installations.

One megawatt, multiple prices

As this Renewable Energy World article explains, the value of tax incentives and renewable energy credits varies geographically. Credits are much more expensive in states with strict carbon ceilings, like New York and New Jersey.

The bottom line: a megawatt of energy could have variable price tags. Therefore, the path to 2020 will be different for every company.

“Every company’s needs are unique—and the clock is ticking,” notes Gralnik. “Most will need a customized energy plan that builds on an evolving mix of renewable and traditional energy sources.”

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