The Economics of Lower Emissions

There is a worldwide movement to reduce carbon-dioxide (CO₂) and other greenhouse-gas emissions. While the United States has focused mostly on nitrogen oxide (NOx), European and other countries have enacted tough environmental policies to drastically cut CO₂ emissions to levels not seen in more than 20 years. Most of these countries have enacted some form of a cap-and-trade program to facilitate CO₂-emission reductions.

Cap and trade is an economically driven way to reduce CO₂ emissions. A cap is a limit on the amount of pollutants a business can emit. Businesses are given emission permits and required to stay within certain emission limits. Larger polluters that need to increase their emission allowances must acquire — by purchase or trade — credits from those who pollute less. Credits are traded like commodities through national and international markets. Emissions levels are reduced systematically until a countrywide emissions goal is met.

If a large polluter does not buy emissions credits from a smaller polluter, it will be fined by its government for exceeding its cap. Fines usually are more expensive than the cost of purchasing a credit, so it most often is to a company's benefit to buy a credit rather than risk a fine. Thus, businesses have an economic incentive to reduce their emissions levels and sell their excess credits.

When businesses are evaluating their capital expenditures and making long-term strategic energy plans, cap and trade should be considered as a relatively near-term policy that can affect energy use greatly. Because boilers are responsible for a significant portion of a company's CO₂ emissions, and most boilers are more than 20 years old, with efficiencies of less than 75 percent, retrofitting or replacing a boiler system is an excellent opportunity to substantially reduce CO₂ emissions.

Although the United States does not have a cap-and-trade program, forward-thinking businesses will reduce emissions on their own and should look to their boiler rooms as one of the first places to economically reduce CO₂ emissions.

As head of the marketing-development program for Cleaver-Brooks Inc., Paul Welch Goggins III is focused on developing the Cleaver-Brooks Energy Solutions Initiative.