Climate Change Legislation

Melissa Proffitt Reese, partner and chair of the agribusiness initiative at Ice Miller LLP, authored this blog.

On Thursday, Nov. 13, Ice Miller was proud to host Sen. Lugar for one of the first post election analyses on the state of agribusiness.  The event was a private briefing for our clients and an opportunity to hear first-hand about the outlook for the 111th Congress and the Obama Administration.

Sen. Lugar began his remarks with a discussion on ethanol and the extraordinary promise for the renewable energy source.  Lugar commented that by focusing on the production of ethanol, we can over time minimize our dependence on foreign sources of energy.

Lugar also focused on global trade issues, particularly the use of genetically modified organisms and climate change issues.  With respect to the economic outlook, Lugar professed that the recovery will not come soon.  Listen to some of Sen. Lugar's comments.

Sen. Lugar's remarks were followed by a panel discussion with experts from critical areas of agricultural policy and business including: Roger Bernard, Policy and Washington Editor, Farm Journal Magazine; Dave Lyons, Vice President Government Relations, Louis Dreyfus; Jeff Simmons, President, Elanco Animal Health; and Dr. Wally Tyner, Professor of Agricultural Economics, Purdue University.


Simmons commented that the, "best way out of uncertainty is to anchor to certainty."  Capitalizing on his global experience, Simmons pointed to access to technology and innovation as two essential ingredients needed to retain a competitive advantage in the global marketplace.  Listen to Simmons talking about production and technology.

A common theme throughout the discussion was the critical importance of international trade for agricultural goods and services produced in the United States.  We have far more capacity than needed to meet our own mature market’s food requirements.  More importantly, our competitive and highly efficient food and agriculture system is challenged to feed the world’s population.

With all of the talk of economic stabilization, recession, toxic debt, and presidential debates, green development discussions can get pushed to the curb. However, climate change is a hot topic among the presidential contenders. As part its efforts to address the country's economic situation the House approved H.R. 1424, the Emergency Economic Stabilization Act of 2008 (the Act) on October 3rd. The Senate passed the bill on October 1, 2008. President Bush signed the legislation.   While the purpose of the Act was not "green" legislation, several provisions of the Act, especially those relating to bond development, were included and further green development opportunities. As summarized by the National Association of Bond Lawyers the provisions include:

• Another $400 million in Qualified Zone Academy Bonds (QZABs) authority for 2008 and 2009;
• $800 million in new Clean Renewable Energy Bonds (CREBs) authority and extension of the termination date for existing CREBs by one year;
• Extension and modification of the authority to issue Green Building and Sustainable Design Project Bonds (Green Bonds) until 2012;
• Tax-exempt bond relief to federally declared natural disaster areas in 2008 and 2009; and
• A new category of tax-credit bonds called Qualified Energy Conservation Bonds (see www.nabl.org). These and other provisions of the legislation address climate change and sustainability matters. Stay tuned for further developments!

Like the little black dress, socially responsible investing (SRI) is not new but is ever present and constantly updated. The history of SRI includes boycotting of investments in companies that profited from the Vietnam War, avoidance of investments in South Africa during apartheid and, more recently, investment in companies developing sustainable energy strategies, promoting clean water, preventing climate change, producing organic foods, promoting consumer protection and other categories.

SRI can be defined in a number of ways, but it generally refers to an investment strategy that considers not only profit but also the social, environmental or other impact of the investment. This "double bottom line" approach is intended to maximize both financial return and social good. Sounds great. Lots of people seem to think so.  According to a recent study by the Social Investment Forum, approximately 11% of assets under management in the United States are involved in SRI. SRI assets increased from $639 billion in 1995 to $2.71 trillion in 2007.

As particular types of social activism (think environmental preservation) became accepted mainstream societal values, venture funds with a socially conscious agenda are becoming more common.  There's also the growth of so-called "greenwashing" that has likely contributed to the increase in SRI. Companies wanting to cash in on this societal trend may use environmental protection essentially as a marketing strategy. But, the actual operations of the business may not be carried out in an environmentally friendly manner. Your typical investor would not be in a position to know and may therefore not effectively accomplish their identified goals with their investment dollars.

Will the growth in SRI continue?

Hard to say. Funds in SRI, so far at least, have had to be "patient capital." That is, there are no quick returns and the investor should not expect liquidity on the short timeframe that is typical for private equity transactions. SRI funds and SRI companies seeking investment will have to control expectations of their investors as they strive to meet their double bottom line goals. Another concern is that the trend will catch on in a manner reminiscent of the dot com bubble.  Many investors funded dot com companies without adequate diligence and, as a result, many of those companies failed to meet their projected returns. The failure cast a dim light on all Internet-based companies, regardless of their merits as investments.

We can only hope the same does not happen to SRI. The idea of SRI is a noble one. I'd hate to see it fail because we all jump on the bandwagon before the underlying premise has been proven to make for a valuable investment

Tina Vujovich is the Vice President, Marketing & Environmental Policy at Cummins Inc.

Getting large organizations working toward a common initiative is not an easy task.  The habit to keep doing what we have always been doing is much easier than figuring out how to do things in a different way.  However, there is great power in alignment.  In fact, I am certain that at large companies it is the only way to make major changes, and moving to a more energy efficient operation is one of those big initiatives  which requires alignment.

Alignment starts at the top.  As much as we would like to think that grass roots, bottom up efforts at a new initiative are successful, there is nothing like having the top of the organization on board.  But "on board" does not mean a tacit approval of the initiative.  It means a very active, visible and supportive behavior.  At Cummins, this happens only after a strong business case for the initiative is established.

Cummins jumped with both feet into the environmental energy efficiency initiative about two years ago.  We decided that the debates on Climate Change and greenhouse gases were over, and if nothing were done with the consumption of fossil fuels and the production of GHG the world as we know it will change markedly, and thus sustainability of Companies such as our own would diminish.  So, we made the leap and made a commitment to the USEPA Climate Leaders Program.  We committed to reduce greenhouses gas intensity by 25% from 2005 to 2010.

The business case for Cummins was an obvious one.  For our facilities -- over 250 of them worldwide -- our efforts to get them more energy efficient would result in lower utility costs!  For our products -- the majority of which are involved in producing power -- our efforts to improve energy efficiency translates to lower operating costs for our customers!  Once we had our top management convinced of the business case, their energy went quickly from challenging the initiative to putting their unwavering support behind it.

Aligning the organization was the next step.  Cummins has long held that our ability to design, develop and manufacture products for an environmentally regulated market is a capability with a worldwide competitive advantage.  All of our employees know well our mission statement which says that we "demand that everything we do leads to a cleaner, healthier and safer environment."  Moving the organization to the next environmental frontier of greenhouse gas control and energy efficiency was easy -- particularly when it comes with a payback to our bottom line and to our customers.  Important to note is that not all projects in this initiative gets implemented.  Every project must pass our financial hurdles.  In other words, if the payback is not reasonable, the project is not done.  But the interest in succeeding in this initiative has caused us to get very creative and industrious in the projects so that they do produce a satisfactory payback.

Now, about one and a half years into our six year commitment we are well over half way to our Climate Leaders goal.

With regard to our products, we are just as aggressive about energy efficiency.  Even before definitive legislation is structured, we are already developing plans for significant fuel efficiency gains from our products.

At Cummins, we have found that the secret to a successful environmental energy efficiency initiative was all about having the right mission, articulating a clear business case, and getting the alignment of the organization behind the initiative.  It has worked well for us, and we expect to continue this effort long after our Climate Leader's goal is met.

Only in that way can we expect to sustain ourselves in this very competitive and energy consuming environment.

Earth Day Greetings! What is Earth Day and why does it matter to your business? Earth Day was founded to put environmental issues on the nation's political agenda. It certainly is on the national agenda in 2008. Do you feel inundated by news stories about going green? Just today I heard on the radio how one national cafeteria vendor is incorporating the slow food movement into their cafeteria management by going on a low "carb" diet, which in this case is a low-carbon emitting plan, read about how one San Francisco Air District is weighing fees on greenhouse gas emissions and learned about the Environmental Protection Agency's new initiative to encourage the building industry to adopt green building practices and to enhance public awareness of the benefits of green buildings.

Why does this matter? Because customers and consumers are hearing the same messages. Editorials are changing from when is the United States going to address environmental impacts to how. As green takes center stage, we are facing a heightened awareness and a more educated consumer base. So, has the original Earth Day goal been met? Is the environment on the political agenda? One can argue that it is. One commentator today discussed whether the next president of the United States will be able to undertake climate change as a legislative priority and one Indiana gubernatorial candidate is running a platform of creating Green Collar jobs in Indiana.

"Five months before Earth Day, on Sunday, November 30, 1969,  The New York Times carried a lengthy article by Gladwin Hill reporting on the astonishing proliferation of environmental events: 'Rising concern about the environmental crisis is sweeping the nation's campuses with an intensity that may be on its way to eclipsing student discontent over the war in Vietnam...a national day of observance of environmental problems...is being planned for next spring...when a nationwide environmental 'teach-in'...coordinated from the office of Senator Gaylord Nelson is planned....'" With a change in terminology to green, sustainable and renewable, there is again a proliferation of reporting on environmental events and a renewed sense of enthusiasm and energy for Earth Day, 2008.

Ice Miller is celebrating Earth Day by renewing its commitment to being a green business and by joining the Greater Indianapolis Chamber of Commerce Green Business Initiative.  Ice Miller has pledged to continually strive toward green business practices, and to operate to conserve natural resources and eliminate waste. For more information on the Greater Indianapolis Chamber of Commerce's Green Business initiative, email GreenBusiness@indylink.com.

Wyoming has established a regulatory framework for carbon capture and sequestration.  Governor Freudenthal signed two bills March 4 (H.B. 89 and H.B. 90) to establish a framework for carbon capture and sequestration.  H.B. 90 gives the Wyoming Department of Environmental Quality the authority to regulate the long-term storage of carbon dioxide.  It sets up permitting requirements. H.B. 89 addresses the control of underground pore spaces where carbon dioxide could be stored long term.  According to policy associate with the National Conference of State Legislatures in Denver (see 43 BNA ISSN 1521-9402) as of March 5, 2008, 231 bills were pending in 31 states concerning carbon capture and sequestration.

Michigan is a member of the Midwestern Regional Initiative (the Midwestern Greenhouse Gas Reduction Accord) to address climate change.  Michigan legislators are considering legislation aimed at encouraging the development of alternative energy technology, according to a spokeswoman for the Senate Republican Caucus.  The spokesperson told BNA, Inc. the bills introduced March 4th establish tax incentives to encourage development and the purchase of clean energy and was an authority on clean energy for the permitting and oversight of carbon sequestration and other clean energy processes.