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Climate Legislation Provides Opportunities to Score

In the face of clear concerns over global warming, governmental representatives are increasingly being scrutinized under the lens of a fiduciary environmental obligation to the public. Concerned parties are demanding clear public policy proposals to appropriately calculate the potential risks to their respective industries. To understand this trend, the legal effects of this line of reasoning must first be specifically addressed. Secondly, this conversation demands a discussion of the key initiatives voluntarily adopted by States and the private sector. Lastly, the scope of potential federal policies will be summarized.
 
The common law notion of a fiduciary obligation – the legal requirement of a trustee to act in the best interests of the beneficiary – has been applied to governmental representatives in light of the public trust doctrine. Although the specific legal application would be uniquely dependent upon the constitutionally defined role of each branch, generally, the legislative and executive branches would be deemed agents of the trust with the judiciary retaining the role of steward. In light of the threat posed by global warming – regardless of if one is a supporter of the science or a skeptic – the impudent attempts at political consensus demonstrated by American lawmakers surely merits a deep consideration of whether or not this obligation has been breached.
 
Regardless of the political ineptitude demonstrated by Congress under both the Bush and Obama administrations towards the subject, key public-private partnerships have been formed to forge a basis for private sector reform. In 2005 the "Regional Greenhouse Gas Initiative" (OTCPK:RGGI), which set in place a cap-and-trade program for power producers in ten northeastern States, established the first market mechanism to incentivize greenhouse gas (NYSE:GHG) reductions among key polluters. While States are banding together to collectively increase emission reduction levels, private energy producers have also become the target of climate based litigation forcing some of nation’s largest companies to take formal note of their carbon footprint or risk lengthy bouts of litigation.
 
In light of such a patchwork of options, past private sector actors are demanding policy clarity to assist in their investments and long-term strategic planning projects. The following is a partial list of the expected developments on the horizon to provide some minimal actionable advice for stakeholders:
 
(1)    In the short term, America’s Environmental Protection Agency (EPA) has recently indicated a willingness to regulate GHG emissions under the Clean Air Act. Private sector actors would be wise to develop an internal auditing system to calculate emissions, while establishing a decisive strategy, be it individually or in concert with an industry standard, for emissions reductions or face hefty penalties.
 
(2)    As the US House of Representatives cap-and-trade initiative (known as the “Waxman-Markey” bill) is not expected to pass the Senate, a simplified and more pragmatic “cap-and-dividend” bill supported by Maria Cantwell (D-Wash) may yet find its way to the oval office. Again, with proposed emission caps a clear possibility, investment in alternative R&D and GHG reduction policies should begin prior to legislative action to remain ahead of international competitors.
 
(3)    Most assuredly emissions accounting legislation will be tackled more quickly then that of the climate – for practical reasons of fraud, market speculation or manipulation. As such, emission intensive sectors should work to find consensus on a harmonized standard for recordkeeping of emission levels, to not only be prepared for the added expense, but to provide investors with a clear climate picture.
 
Agility and foresight will prove to be the key strategic characteristics needed for adaptation to the forthcoming legislation. Private sector leadership must remain vigilant and set the standard rather then simply react to it. Those who lead the curve will be the first to see returns in the new carbon conscious economy, and will be the last to be considered in breach of their own obligations to investors.
 


Disclosure: Long on all.