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Carbon Credit Trading

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International Business MGCR 382, Section 071 Carbon Credit Trading Topic 36- Group Project Submitted to Mr. Jan Jorgensen & Mr. Nicholas Matziorinis By Aditya Swarup Claire Hackett Dayna Murray Lefei Xie Simon Turcotte McGill University November 18th, 2009 TABLE OF CONTENTS I. EXECUTIVE SUMMARY iii II. COVER LETTER iv III. THE ISSUES 1 A. The carbon market 1 B. History of carbon trade conflicts between industries and the environment 4 IV. THE ALTERNATIVES 5 A. Continue with Current Manufacturing Processes. 5 B. Centralize Manufacturing Facilities 7 C. Enter a Voluntary Carbon Reduction Scheme within the United States 8 V. CONCLUSION 11 VI. REFERENCES v VII. APPENDIXES viii VIII. BEST ARTICLES xiv Executive Summary H.J. Heinz Company, more commonly known as Heinz, significantly contributes to the global carbon dioxide emission due to its many manufacturing facilities worldwide. Carbon credit trading is a major growing sector of the international trading economy; this must be kept under consideration by all enterprises. Heinz's facilities in the EU are under the influence of the Kyoto Protocol and the European Union Emission Trading System (EU ETS). For Heinz Company, this currently applies for their facilities in the EU, but not for those in the U.S. This resulted in the emergence of volunteer carbon credit markets to prepare for the inevitable integration of the Kyoto Protocol in the United States. Meanwhile, while the United States' government delays the integration of the Kyoto Protocol, the world emission levels continue to rise and the economic opportunities related to the trading of carbon credits are unreachable for the industries in the United States. There are two possible strategic solutions for Heinz to pursue the carbon credit trading and reduce their total carbon emission levels in the United States: entering the volunteer carbon trading market, or investing in anti-pollution technologies. After thorough analysis of each alternative, the best option for both Heinz and the market as a whole is to follow through with both alternatives. ...read more.


Following in the footsteps of the European Union`s EU ETS, both the United States and Japan have introduced voluntary carbon trade markets (Nelson, 2009). Having understood the financial drawbacks of compliance with these emission caps, carbon credit trade now stands as a notable entry barrier for companies wishing to enter carbon regulated countries. Companies have been seen to either explore the markets with less stringent ecological policies or bypass elements of their value chain, and in few cases suffer the consequences. Hitachi, for example, now owns 30% less plants in the European Union than it did in 2001 (Asia News, 2007). Though being environmentally friendly is currently the consensus of the global economy, the financial consequences of conforming to carbon reduction schemes are often underestimated. EU based Agrifem LTD, specializing in fertilizers, suffered losses of �1.3 million during the implementation of the EU ETS in 2005 and 2006. Similarly, the Aalborg Portland Group of cement, operating in Denmark, reported �3.6 million in expenses, due to participation in carbon schemes, in its financial report of 2006 (Financial Reports, 2006). Today, the image of a company hinges on its environmental friendliness and compliance with global carbon standards. However, the compromise for an increased goodwill comes often at heavy prices. But, for most that have turned green, initial financial losses soon turn into increased revenues; and, having analyzed the corporate and operational structure of Heinz, involvement in the carbon market seems to hold much promise for return in the future. Alternatives Continue with Current Manufacturing Processes Heinz's emissions are caused by the use of fuels and electricity in its manufacturing facilities. Due to the reign of carbon reduction schemes in Europe, Heinz has launched efficient operating programs that use environmentally-friendly technology and alternative resources in reducing carbon emissions (Heinz, 2008). However, this is not the case in Heinz U.S. facilities, even though their home country emitted the highest levels of carbon dioxide per capita in 2008 (Merrill & Jain, 2005). ...read more.


This alternative would require Heinz to carry out frequent SWOT analyses to ensure that environmental factors are monitored and political decisions made within the U.S. government still tend towards eventual implementation of a carbon reduction scheme. This would ensure that business decisions made regarding the implementation of carbon reducing technologies would continually be guided towards Heinz's strategic goals. Conclusion Carbon trading around the world is a very important and controversial issue. The United States is the second largest producer of carbon emissions where production facilities by Heinz are located. In an effort to protect its customer-based market share and to protect world carbon emissions, different organizations like the Kyoto Protocol have set forth regulations on the matter. That, however, has been the catalyst of several conflicts initiated by the countries implementing the Kyoto Protocol and by countries who do not accept it, namely the United States. We have therefore, come up with several alternatives that Heinz, a United States based international company, may soon have to choose from in order to maintain its business status and carbon emissions at a lower level for future carbon emission regulations to come. Among the three alternatives analyzed, it is recommended that Heinz U.S. enters the voluntary CCX carbon reduction scheme within the United States. The advantages this alternative may bring to the organizational stakeholders, the natural environment and general social world welfare as a whole far outweigh the disadvantages. In fact, carbon credit prices are expected to rise when the world gets out of our current recession, and this promising future will be a profitable market for selling excess credits acquired through reduced carbon emissions. Heinz will, however, need to invest and focus their financial assets and this might affect their short-term business financial statements. Furthermore, this will place Heinz Company at a much higher socio-cultural standpoint vis-�-vis global consumers due to their involvement in global carbon reduction. Finally, Heinz will secure a long-term advantage compared to other U.S based companies and will reach production efficiencies in conjunction with carbon emission regulations. ...read more.

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