Regulatory pressures

Due to the magnitude of the problem of climate change and because of its far reaching consequences, there will continue to be an increase in legislation aimed at reducing greenhouse gas emissions. All tiers of policy making, from global to national are pointing to stronger legislative frameworks to cut greenhouse gas emissions and to improve energy efficiency.

A key means by which significant emissions reductions can be made is through market intervention. This is because free markets do not currently place a value on environmental pollution and as such they are not efficient at limiting emissions. A way of addressing this is through the implementation of legislation designed to make the ‘polluter pay’ to encourage emissions reducing behaviour and to impose the relevant penalties for environmental pollution.

Emissions Trading Scheme

Another key way in which Ireland is to achieve its Kyoto Protocol second commitment phase target is through the EU Emissions Trading Scheme. This is a ‘cap and trade’ system whereby companies or installations are allocated individual emissions allowances. It has been transposed into Irish legislation through the European Communities (Greenhouse Gas Emissions Trading) Regulations 2004 (S.I. 437 of 2004). In general the ETS does not directly affect SMEs as it is focused at roughly 100 energy intensive installations in Ireland. It still should be borne in mind however as this form of cap and trade may be expanded into broader business sectors in the future.

To meet their emissions targets, participating organisations must take measures to reduce their emissions such as using lower carbon energy sources or investing in energy efficient technology. Alternatively, if they are struggling to meet their allowances, they can buy credits on the market from those companies who have met (or exceeded) theirs and are selling the excess.  In this way the market offers flexibility to compliance and thus seeks to identify the necessary emissions reductions at the lowest costs. The logic is that if there are not sufficient allowances in the market then the price of allowances will increase and thereby encourage others to take action as it becomes ‘cost effective’ to do so.

The EU ETS presents a challenge to those involved in the scheme. However, it also provides impetus for innovative thinking to avoid these fines. For many industries research and investment into low carbon technologies and energy sources will have significant payback, especially given the permanency of the climate change issue and the likelihood of stricter controls on industrial emitters.

National Government Policy
 
On a national level, government policy plays a part in stimulating greener business through mechanisms other than the ETS. For the average company, government measures such as the introduction of the Building Energy Rating System (BER) and the phasing out of incandescent light bulbs are just some of the measures that have been introduced to help lower Ireland’s emissions.

Rather than aiming for mere compliance with impending regulation, businesses should try to act ahead of impending regulations and aim for best practice. While climate change threatens to alter some sectoral activity, those companies who predict these changes and respond early to the changing legislative environment can become leaders and innovators, capturing new market segments and gaining first mover advantages. Leadership in the area of environmental responsibility will have important paybacks. It can reduce associated fines from non-compliance, lead to reduced energy costs, and help gain stakeholder support.