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        

  1. The carbon market                1
  2. History of carbon trade conflicts between industries and the environment        4        

IV.        THE ALTERNATIVES                5

  1. Continue with Current Manufacturing Processes.                5
  2. Centralize Manufacturing Facilities                7
  3. 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. In fact, reducing carbon emissions through anti-pollution technologies and entering the volunteer carbon market go hand-in-hand and will increase total profits as well as total world social welfare. However, it is an extremely costly endeavor that few companies can afford to implement. Fortunately, Heinz has the financial stability to implement these alternatives as it is a long-term solution that will guarantee sustainability in the food producing market in the years to come.

November 18th, 2009

Heinz North America

Scott O'Hara, Executive Vice President, President & Chief Executive Officer

P.O. Box 57
Pittsburgh, Pennsylvania 15230, U.S.

Dear Mr. O’Hara ,

We are independent scholars from McGill University. Over the past months we have done extensive research on the pressing issue of carbon emissions and carbon trading in the E.U. and in the United States and their impact on international trade. As the CEO of Heinz, and as the primary decision maker of that company, we send you this short report on the matter with the hopes that you will take the necessary actions.

          In this report, we mainly examine the carbon trade relationship of the E.U. and the United States. We also discuss the role of the E.U and Kyoto Protocol and their objectives they have been subject to achieving over the past years, and the years to come. We analyze the economic effects on regulation of carbon emissions and outline the alternatives you may soon have to choose from. Finally, we humbly make a suggestion on what is, in our opinion, the best plan of action available.

         Below, you will find listed three key sources that will provide background on the issue. We look forward to answering any questions you might have.

Yours sincerely,

Independent Scholars from McGill University

______________     _____________   _____________    _____________    ______________  

Claire Hackett           Dayna Murray     Aditya Swarup     Simon Turcotte      Lefei Xie      

Key Readings:

1. Merrill, A., & Jain, V. (2005, September). Europe leads way in new era of carbon trading. International Financial  

              Law Review, 24(9), 47-49. Retrieved September 21, 2009, from Business Source Complete database.

2. Babu, N. (2008). Investing in climate change: The impact of climate change regulation on businesses. Journal of Corporate Treasury Management, 2(2), 121-130. Retrieved September 21, 2009, from Business Source Complete database.

3. BSR and Ecosystem Marketplace (2008). Offsetting Emissions: A Business Brief on the Voluntary Carbon Market [Electronic Version]. Second Edition: Feb 2008.

The Issues

The Carbon Market

Regulations on emission levels will play a key role in altering business decisions in the future. Currently, these regulations found within the global carbon market can be divided into two segments: compliance and voluntary. The compliant European carbon credit market is flourishing through the Kyoto Protocol and the European Union Trading System (EU ETS) schemes, but in the United States, the Kyoto Protocol was refused ratification. Many predict, however, that a different form of a mandatory carbon reduction scheme may be implemented in the near future, especially with the recent election of Barack Obama and president of the United States (Hill, 2006). Total U.S. carbon dioxide emissions increased by 75.9 million tonnes (1.3%) from 2006 to 2007, reaching a grang 6022 million tonnes, making the United States currently the second highest emitter of carbon dioxide worldwide. This can be attributed to the small size of the voluntary carbon market in the United States.

However, an estimated 10 million tonnes of carbon dioxide was offset in 2006. The carbonmarket has developed substantially over the years due to leading U.S. companies such as Ford, Dupont, IBM, Motorals and American Electric Power deciding to create their own pilot greenhouse gas emissions trading program in 2003 – the Chicago Climate Exchange (CCX) (DiPeso 2005). This is the United States’ only cap and trade climate policy system that regulates all six greenhouse gases. Involvement in the carbon market through this scheme is voluntary, yet many major corporations have signed onto the program in anticipation of future legal regulations. They hope to see their involvement as an opportunity to gain experience in carbon credit trading, and prepare emission reduction strategies before they are forced into regulatory control (Merrill & Jain, 2005). An example of a project under the voluntary scheme is the Regional Greenhouse Gas Initiative (RGGI), which aims to reduce emissions from power plants with a capacity of over 25MW in ten of America’s Northeast and Mid-Atlantic states (Babu, 2008). Heinz U.S., being a profitable and environmentally conscious corporate firm, is a potential trader in the carbon market, and would fall under the reign of both the CCX and the RGGI.

Join now!

Members of the Exchange made a voluntary, but legally binding, commitment to the scheme and must meet yearly targets in reducing greenhouse gas emissions. The scheme works in the following way: A government agency sets a standard of emissions and divided this allowance in terms of carbon credits among all volunteer participants. Cap standards on different types of emissions create scarcity of carbon credits. Thus, as under the European Union Emissions Trading System, members that reduce emissions beyond their targets have surplus carbon credits which they can to sell on the market or bank for liquid assets. Companies that do ...

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