When the companies of the United States Climate Action Partnership (USCAP)—businesses including GE, Alcoa, DuPont and PG&E—announced their call for federal standards on greenhouse gas emissions in January 2007, The Wall Street Journal castigated these “jolly green giants” for acting in their own self-interest in promoting a regulatory program “designed to financially reward companies that reduce CO2 emissions, and punish those that don’t.” But seeking advantage is what companies do. Any company that can foresee business opportunities in influencing carbon-emissions regulation is practicing what is expected of business managers—capitalism.

Indeed, any company that sits on the sidelines as policy is formulated is recklessly playing the bystander to a significant shift in its market environment. Carbon-emissions regulation will burden certain companies, industries and sectors more than others, and, likewise, will deliver advantage unevenly. Regulatory policy will set the rules of the game that affect how that burden will fall and how advantage will be delivered. It’s time to plot how you’ll respond.

At a minimum, all companies should know their carbon footprint—where their emissions are coming from and in what amounts (this may include understanding suppliers’ footprints, too). At the next level, they can take steps to reduce emissions and calculate the costs per ton to make those reductions. The most advanced companies can parlay that experience into an advisory role with governments, gaining a seat at the table when regulations are designed. BP and Shell, for example, became savvy carbon-emissions traders in advance of any requirements, allowing them to become advisers to policymakers in the European Union.

Companies that hope to participate in policy making need to know the answers to two questions: First, what’s on the table (what are the regulatory issues at stake)? And second, where is the table (where are standards being developed)?

WHAT’S ON THE TABLE? To shape policy to your advantage, you must start by monitoring pending regulations and understanding how they may affect your business objectives. That requires being knowledgeable about the relevant language and issues. Here’s a quiz:

§          Do you understand how cap-and-trade programs work or how carbon taxes might be applied? Do you know which of the possible programs under discussion would best serve your company’s interests?

§          Do you have good intelligence on how carbon-emissions permits will be allocated, whether there will be economy-wide or sector-based standards, whether deeper reductions will be expected from upstream or from downstream industries, whether there will be a “safety valve” above which emission prices will not go, and what emissions will be counted (direct, indirect, or both)?

§          Do you know the difference between renewable energy credits, verified emission reductions, certified emission reductions, emission reduction units, and European Union allowances? Do you know how to make deals under the Clean Development Mechanism and the Joint Implementation?

                If your company doesn’t know the answers, you’re probably ill-prepared to participate in policy development and already missing out on the fast-growing carbon-trading market—one that roughly tripled from $11 billion globally in 2005 to $30 billion in 2006.

WHERE IS THE TABLE? Climate-related standards are being set at the state, national and international levels. Which will become the dominant standard? Answering that question tells you which table to sit at but requires making a calculated guess among an array of possibilities.

For example, a company in the New England region of the United States might focus on shaping local policy in the near term and become involved in the Regional Greenhouse Gas Initiative in the Northeast and Mid-Atlantic United States. On the West Coast, a company could lobby the California Air Resources Board as it develops mandatory emissions-reporting rules.

Or a US company could lobby in the 47 states that, according to a July 2007 report, had begun to inventory emissions, developed renewal portfolio standards and climate action plans, or committed to a cap-and-trade system. Thinking more broadly, the firm could lobby at the federal level on one of the more than 100 climate-related bills making their way toward a vote.

On the international level, and thinking in the longer term, a company could engage with the United Nations Framework Convention on Climate Change as it debates what rules will be established after the Kyoto treaty expires in 2012.

Establishing a presence at each of these tables would require tremendous resources. An efficient alternative is to join one of the many industry or activist groups or trade associations that are weighing in on these myriad negotiations, such as the Chicago Climate Exchange, USCAP, the Pew Center’s Business Environmental Leadership Council, the Global Roundtable on Climate Change or the World Business Council for Sustainable Development. Participation in such organizations can keep you informed about policy development and give you the tools to help you shape it.

Andrew J. Hoffman is the Holcim (US) Professor of Sustainable Enterprise and the associate director of the Erb Institute at the University of Michigan in Ann Arbor. He is a coauthor, with John Woody, of the forthcoming book Climate Change: What’s Your Business Strategy?

What makes change happen?

You have been charged with implementing a significant new initiative. Perhaps your company has defined a new competitive strategy and you need to align your group behind it. Or maybe you’ve identified stubborn problems in your unit that need solving.

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When the companies of the United States Climate Action Partnership (USCAP)—businesses including GE, Alcoa, DuPont and PG&E—announced their call for federal standards on greenhouse gas emissions in January 2007, The Wall Street Journal castigated these “jolly green giants” for acting in their own self-interest in promoting a regulatory program “designed to financially reward companies that reduce CO2 emissions, and punish those that don’t.”

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