Why high oil prices are upending the way companies should manage their supply chains
By DAVID SIMCHI-LEVI, DEREK NELSON, NARENDRA MULANI and JONATHAN WRIGHT
High oil prices are forcing companies to rethink long-held strategies they use to make and move goods to market.
Supply-chain tactics that in recent years were considered essential to success -- things like moving factories offshore where labor is cheaper and making quick and frequent deliveries to retailers to keep inventories low -- are losing luster in an economy where every $10-per-barrel increase in the price of oil results in a four-cents-per-mile hike in transportation rates.
Although the price of oil recently has retreated, some investment banks still expect it to be well over $100 a barrel next year. To maintain a competitive edge, companies will need to continually re-evaluate the design and operation of their supply chains, even if it means ditching recently adopted strategies.
This is especially true for makers of products with low profit margins and long life cycles -- things like consumer packaged goods and chemicals. Higher transportation costs have the potential to take a bigger bite out of their profits than they do out of the profits of companies that make things like cellphones and personal computers, which have shorter life cycles and higher profit margins.
Here is a look at some supply-chain changes already taking place, as well as trends we expect to take hold:
Higher Prices, Bigger Inventories
When oil was cheaper, the trend was to move factories offshore and keep inventories low because costs associated with manufacturing and inventory outweighed the cheap transportation costs. High oil prices are upending those strategies.
As transportation costs become more dominant, it becomes increasingly important to minimize the length of the journey from distribution center to retailer -- the final leg of the supply chain -- and to ship in large quantities to take advantage of economies of scale. To accomplish this, additional and larger warehouses become necessary, which implies more stock, hence higher inventory levels and costs.
Data from the annual State of Logistics Report, sponsored by the Council of Supply Chain Management Professionals, suggest this already is happening. The report found U.S. logistics costs, which include all the expenses associated with moving goods, rose 52% from 2002 to 2007, including jumps of 47% in transportation costs and 62% in inventory-carrying costs. Maintaining more inventory can be risky because products may lose value if demand or prices fall. But the benefits can outweigh the risks when transportation costs become a bigger burden than inventory expenses.
Some companies are trying to cut shipping times and costs by moving factories closer to the markets they serve. This generally makes sense when transportation expenses offset savings generated by making products in low-cost countries.
Manufacturers are more likely to move factories inshore when a product is bulky, hence expensive to transport, when factory equipment and infrastructure are relatively simple to move or when getting a product to market more quickly allows a manufacturer to charge a higher price for it. Examples include furniture, appliances, flat-screen televisions, car parts and toys. Sharp Corp., for example, started moving a larger portion of its flat-screen TV manufacturing to Mexico from Asia to be closer to customers in North and South America. Flat-screen TV prices typically fall quickly, so reducing lead time by 4 weeks has helped Sharp's bottom line.
A move inshore is less beneficial when factory equipment and infrastructure are expensive to move. Mobile phones and computers are good examples because components like chipsets require heavy infrastructure to produce.
Flexible Manufacturing Will Grow
As a growing number of companies seek to serve markets from the closest factory, we predict another trend will emerge: a switch from dedicated to flexible manufacturing strategies. In flexible manufacturing, each factory is capable of making multiple products; in dedicated manufacturing, each plant specializes in making just a few. While dedicated manufacturing reduces production costs through economies of scale and fewer assembly-line set-ups, it can result in higher transportation costs because companies can't always serve demand from the closest factories. The opposite is true with flexible manufacturing -- production costs rise, but transportation costs fall.
A switch to flexible manufacturing will help companies keep cost increases in check if oil prices rise dramatically. In a recent study performed on a European manufacturing and distribution network, we quantified the total cost increase associated with a jump in oil to $200 a barrel from $100 a barrel. We found that the potential 14% increase could be cut to a 3.5% increase with a switch to flexible manufacturing, combined with the addition of a single distribution center to the supply chain to cut fuel use.
Shipping Strategies Will Change
When oil was cheaper, many companies made quick and frequent deliveries to retailers and maintained a dedicated fleet of trucks to ship products. If oil prices stay high, we predict three transportation trends will gain popularity:
First, organizations will ship larger lot sizes less frequently or try to package products more efficiently to improve truckload utilization. As reported in CFO magazine, household and personal-care products maker S.C. Johnson & Son Inc. of Racine, Wis., last year saved about $1.6 million and cut fuel use by 168,000 gallons by combining multiple customer orders and products to load the fullest, best-configured trucks possible.
Second, companies will adopt cheaper and sometimes slower modes of transportation. Thus, we project more shipments will move from air to ground and from trucks to rail to cut fuel consumption. This trend also reduces carbon emissions, so as oil prices increase, environmentally friendly initiatives start making business sense.
Third, manufacturers may rely more heavily on third-party trucking services and warehouses. Third-party carriers can consolidate shipments from many vendors to ensure their trucks are full before taking off, resulting in lower shipping costs. Similarly, third-party carriers are in a better position to reduce "deadhead" travel, which is any travel by trucks when they are empty.
Push vs. Pull
There are other steps organizations can take to mitigate the impact of high oil prices, and we expect these strategies to gain traction, too.
Kinks in the Chain
The Situation: High oil prices are forcing firms to rethink supply-chain strategies.
The Details: To cut fuel use, firms are moving factories closer to the markets they serve, shipping larger lot sizes less frequently and adding warehouses.
What It Means: With transportation expenses now considered their biggest burden, some companies are allowing inventory levels and costs to grow.
Some manufacturers may switch to a "push-based" supply chain from a "pull-based" one, meaning they will base production and distribution decisions on long-term forecasts rather than simply responding to customer demand. A push strategy becomes more attractive when companies need to ship large quantities to take advantage of economies of scale. Shipping large quantities implies a company is covering demand for a longer period of time, thus the need to base decisions on long-term forecasts.
Companies also may try to cut back on expensive rush-delivery services. By better managing inventory to ensure they have enough supply to meet demand, companies can prevent shortages that might require them to rush in parts or products from distant plants or warehouses.
Similarly, tighter integration between various stages of the supply chain can help manufacturers utilize transportation capacity more efficiently. Sharing information about what products are moving off store shelves, what promotions retailers are planning and what volume discounts distributors are offering can reduce the likelihood that manufacturers will have to use rush deliveries to meet orders.—Dr. Simchi-Levi is a professor of engineering systems at Massachusetts Institute of Technology in Cambridge, Mass., and chief science officer at ILOG, a French business-software company. Mr. Nelson is ILOG's product-marketing manager based in Chicago. Dr. Mulani and Mr. Wright are partners at technology-consulting firm Accenture Ltd., based in Chicago and London, respectively. They can be reached at reports@wsj.com.
Monday, 22 September 2008
Everyone Needs to Worry About Iran
By RICHARD HOLBROOKE, R. JAMES WOOLSEY, DENNIS B. ROSS and MARK D. WALLACE
Iran's President Mahmoud Ahmadinejad visits the United Nations in New York this week. Don't expect an honest update from him on his country's nuclear program. Iran is now edging closer to being armed with nuclear weapons, and it continues to develop a ballistic-missile capability.
Such developments may be overshadowed by our presidential election, but the challenge Iran poses is very real and not a partisan matter. We may have different political allegiances and worldviews, yet we share a common concern -- Iran's drive to be a nuclear state. We believe that Iran's desire for nuclear weapons is one of the most urgent issues facing America today, because even the most conservative estimates tell us that they could have nuclear weapons soon.
A nuclear-armed Iran would likely destabilize an already dangerous region that includes Israel, Turkey, Iraq, Afghanistan, India and Pakistan, and pose a direct threat to America's national security. For this reason, Iran's nuclear ambitions demand a response that will compel Iran's leaders to change their behavior and come to understand that they have more to lose than to gain by going nuclear.
Tehran claims that it is enriching uranium only for peaceful energy uses. These claims exceed the boundaries of credibility and science. Iran's enrichment program is far larger than reasonably necessary for an energy program. In past inspections of Iranian nuclear sites, U.N. inspectors found rare elements that only have utility in nuclear weapons and not in a peaceful nuclear energy program. Iran's persistent rejection of offers from outside energy suppliers or private bidders to supply it with nuclear fuel suggests it has a motive other than energy in developing its nuclear program. Tehran's continual refusal to answer questions from the International Atomic Energy Agency (IAEA) about this troublesome part of its nuclear program suggests that it has something to hide.
The world rightfully doubts Tehran's assertion that it needs nuclear energy and is enriching nuclear materials for strictly peaceful purposes. Iran has vast supplies of inexpensive oil and natural gas, and its construction of nuclear reactors and attempts to perfect the nuclear fuel cycle are exceedingly costly. There is no legitimate economic reason for Iran to pursue nuclear energy.
Iran is a deadly and irresponsible world actor, employing terrorist organizations including Hezbollah and Hamas to undermine existing regimes and to foment conflict. Emboldened by the bomb, Iran will become more inclined to sponsor terror, threaten our allies, and support the most deadly elements of the Iraqi insurgency.
Tehran's development of a nuclear bomb could serve as the "starter's gun" in a new and potentially deadly arms race in the most volatile region of the world. Many believe that Iran's neighbors would feel forced to pursue the bomb if it goes nuclear.
By continuing to act in open defiance of its treaty obligations under the Nuclear Non Proliferation Treaty, Iran rejects the inspections mandated by the IAEA and flouts multiple U.N. Security Council resolutions and sanctions.
At the same time, Iranian leaders declare that Israel is illegitimate and should not exist. President Ahmadinejad specifically calls for Israel to be "wiped off from the map," while seeking the weapons to do so. Such behavior casts Iran as an international outlier. No one can reasonably suggest that a nuclear-armed Iran will suddenly honor international treaty obligations, acknowledge Israel's right to exist, or cease efforts to undermine the Arab-Israeli peace process.
Mr. Ahmadinejad is also the chief spokesman for a regime that represses religious and ethnic minorities, women, students, labor groups and homosexuals. A government willing to persecute its own people can only be viewed as even more dangerous if armed with nuclear weapons.
Finally, our economy has suffered under the burden of rising oil prices. Iran is strategically located on a key choke point in the world's energy supply chain -- the Strait of Hormuz. No one can suggest that a nuclear Iran would hesitate to use its enhanced leverage to affect oil prices, or would work to ease the burden on the battered economies of the world's oil importers.
Facing such a threat, Americans must put aside their political differences and send a clear and united message that a nuclear armed Iran is unacceptable.
That is why the four of us, along with other policy advocates from across the political spectrum, have formed the nonpartisan group United Against Nuclear Iran. Everyone must understand the danger of a nuclear-armed Iran and mobilize the power of a united American public in opposition. As part of the United Against Nuclear Iran effort, we will announce various programs in the months ahead that we hope will be rallying points for the American and international public to voice unified opposition to a nuclear Iran.
We do not aim to beat the drums of war. On the contrary, we hope to lay the groundwork for effective U.S. policies in coordination with our allies, the U.N. and others by a strong showing of unified support from the American people to alter the Iranian regime's current course. The American people must have a voice in this great foreign-policy challenge, and we can make a real difference through national and international, social, economic, political and diplomatic measures.
Mr. Holbrooke is a former U.S. ambassador to the United Nations. Mr. Woolsey is a former director of the Central Intelligence Agency. Mr. Ross was a special Middle East coordinator for President Clinton. Mr. Wallace was a representative of the U.S. to the U.N. for management and reform
Iran's President Mahmoud Ahmadinejad visits the United Nations in New York this week. Don't expect an honest update from him on his country's nuclear program. Iran is now edging closer to being armed with nuclear weapons, and it continues to develop a ballistic-missile capability.
Such developments may be overshadowed by our presidential election, but the challenge Iran poses is very real and not a partisan matter. We may have different political allegiances and worldviews, yet we share a common concern -- Iran's drive to be a nuclear state. We believe that Iran's desire for nuclear weapons is one of the most urgent issues facing America today, because even the most conservative estimates tell us that they could have nuclear weapons soon.
A nuclear-armed Iran would likely destabilize an already dangerous region that includes Israel, Turkey, Iraq, Afghanistan, India and Pakistan, and pose a direct threat to America's national security. For this reason, Iran's nuclear ambitions demand a response that will compel Iran's leaders to change their behavior and come to understand that they have more to lose than to gain by going nuclear.
Tehran claims that it is enriching uranium only for peaceful energy uses. These claims exceed the boundaries of credibility and science. Iran's enrichment program is far larger than reasonably necessary for an energy program. In past inspections of Iranian nuclear sites, U.N. inspectors found rare elements that only have utility in nuclear weapons and not in a peaceful nuclear energy program. Iran's persistent rejection of offers from outside energy suppliers or private bidders to supply it with nuclear fuel suggests it has a motive other than energy in developing its nuclear program. Tehran's continual refusal to answer questions from the International Atomic Energy Agency (IAEA) about this troublesome part of its nuclear program suggests that it has something to hide.
The world rightfully doubts Tehran's assertion that it needs nuclear energy and is enriching nuclear materials for strictly peaceful purposes. Iran has vast supplies of inexpensive oil and natural gas, and its construction of nuclear reactors and attempts to perfect the nuclear fuel cycle are exceedingly costly. There is no legitimate economic reason for Iran to pursue nuclear energy.
Iran is a deadly and irresponsible world actor, employing terrorist organizations including Hezbollah and Hamas to undermine existing regimes and to foment conflict. Emboldened by the bomb, Iran will become more inclined to sponsor terror, threaten our allies, and support the most deadly elements of the Iraqi insurgency.
Tehran's development of a nuclear bomb could serve as the "starter's gun" in a new and potentially deadly arms race in the most volatile region of the world. Many believe that Iran's neighbors would feel forced to pursue the bomb if it goes nuclear.
By continuing to act in open defiance of its treaty obligations under the Nuclear Non Proliferation Treaty, Iran rejects the inspections mandated by the IAEA and flouts multiple U.N. Security Council resolutions and sanctions.
At the same time, Iranian leaders declare that Israel is illegitimate and should not exist. President Ahmadinejad specifically calls for Israel to be "wiped off from the map," while seeking the weapons to do so. Such behavior casts Iran as an international outlier. No one can reasonably suggest that a nuclear-armed Iran will suddenly honor international treaty obligations, acknowledge Israel's right to exist, or cease efforts to undermine the Arab-Israeli peace process.
Mr. Ahmadinejad is also the chief spokesman for a regime that represses religious and ethnic minorities, women, students, labor groups and homosexuals. A government willing to persecute its own people can only be viewed as even more dangerous if armed with nuclear weapons.
Finally, our economy has suffered under the burden of rising oil prices. Iran is strategically located on a key choke point in the world's energy supply chain -- the Strait of Hormuz. No one can suggest that a nuclear Iran would hesitate to use its enhanced leverage to affect oil prices, or would work to ease the burden on the battered economies of the world's oil importers.
Facing such a threat, Americans must put aside their political differences and send a clear and united message that a nuclear armed Iran is unacceptable.
That is why the four of us, along with other policy advocates from across the political spectrum, have formed the nonpartisan group United Against Nuclear Iran. Everyone must understand the danger of a nuclear-armed Iran and mobilize the power of a united American public in opposition. As part of the United Against Nuclear Iran effort, we will announce various programs in the months ahead that we hope will be rallying points for the American and international public to voice unified opposition to a nuclear Iran.
We do not aim to beat the drums of war. On the contrary, we hope to lay the groundwork for effective U.S. policies in coordination with our allies, the U.N. and others by a strong showing of unified support from the American people to alter the Iranian regime's current course. The American people must have a voice in this great foreign-policy challenge, and we can make a real difference through national and international, social, economic, political and diplomatic measures.
Mr. Holbrooke is a former U.S. ambassador to the United Nations. Mr. Woolsey is a former director of the Central Intelligence Agency. Mr. Ross was a special Middle East coordinator for President Clinton. Mr. Wallace was a representative of the U.S. to the U.N. for management and reform
Viability of extraction questioned
By Mike Scott
Published: September 21 2008 18:02
With more than three-quarters of global oil reserves controlled by governments, the options for the oil groups are diminishing. In a world of high oil prices, Canada’s Athabasca oil sands look like a godsend. Covering an area larger than England, they are estimated to contain at least 1,700bn barrels, – equivalent to all the conventional oil reserves in the world.
But fears over climate change mean sentiment has turned against many fossil fuel projects, as the recent protests in the UK over plans to build a new coal-fired power station at Kings-north in Kent have shown. A significant number of coal-fired plants in the US have also been abandoned or rejected recently.
“This is not the same environment we were in 10 years ago,” says Elizabeth McGeveran, senior vice-president in F&C’s governance and sustainable investment team. “Companies need to think differently about projects with high environmental impacts.”
F&C is among a group of investors, including Calpers and Calstrs, the Californian public pension funds, that have pressed the US Securities and Exchange Commision to require oil and gas companies to factor in the carbon intensity of their reserves in future. “We are concerned climate change, and policies adopted to combat greenhouse gas emissions, could render certain assets – particularly those with high carbon intensity – uneconomic,” says a letter sent by the group.
“Current SEC regulations require the disclosure of known trends that companies can reasonably expect will have a material impact on net sales, revenues or income from continuing operations. For the oil and gas industry regulatory, physical and litigation- related climate risks fall clearly into this category.”
Oil sands are increasingly important for the oil majors’ future strategy, says Ms McGeveran, but they require so much energy to extract at a time of increasing regulation of energy and emissions that there is a lot of risk here for investors.
Producing oil from oil sands causes serious environmental impacts, according to environmental group the Worldwide Fund for Nature, including destruction of forests, depletion and pollution of water, loss of biodiversity, acid rain and air pollution. There are no schemes in place for land reclamation, it adds.
In the UK, Co-operative Asset Management has urged fellow investors to put pressure on the energy companies to think again about their rush into unconventional fossil fuel assets. “We want to alert other investors to what we believe could be a material risk to shareholder value through large-scale, rapid exploitation of unconventionals,” says Niall O’Shea, the group’s engagement manager.
The firm also called for greater transparency from oil groups about their scenario planning around carbon capture and storage, carbon pricing and licence to operate issues.
Environmental groups say oil from oil sands generates 80kg-135kg of CO2 per barrel, against an average of 28.6kg for a barrel of conventional oil. Oil companies need to think again about what they are doing, says Marc Brammer of Innovest Strategic Management. “What they are investing in now is completely unsustainable in every sense.” Instead, he says, the oil groups should hedge against their fossil fuel investments by investing in renewable energy and energy efficiency strategies.
While Alberta – and Canada – have no legislation concerning carbon capture and storage at the moment, this could well change. With a general election imminent in Canada, to be followed by the US presidential contest, the political and regulatory regimes could look much more hostile to this type of investment in six months’ time and lead to significant extra costs.
Shell, whose Athabasca Oil Sands Project currently produces 155,000 barrels per day through mining, says oil sands are only 15 per cent more carbon intensive than conventional sources of oil and that a new high-temperature treatment process will cut energy consumption by 10 per cent. It also intends to install technology at its upgrader facility that would take out another 1m tonnes of CO2.
BP, whose joint venture with Husky Energy is due to come on line in 2012, says: “For us, the issue is providing the energy and products that the world demands. Fossil fuels will continue to be the mainstay of the energy mix for decades to come and we need stable sources of supply – oil sands is part of that.” Its project, still to be approved, uses steam-assisted gravity drainage (SAGD), which it says is more environmentally friendly than strip mining.
However, the logic of SAGD production is likely to come under scrutiny, says Mr Brammer. “A huge amount of natural gas is being used to produce the steam needed to release the oil sands – it makes no sense at all. We are taking a low-carbon product [natural gas] and using it to make a high-carbon product.”
Oil companies should revise their expansion plans to much more moderate levels “and treat oil sands not as a bonanza but an experiment in getting the sustainability issues addressed before going on to a large-scale exploitation, if – and we stress if – this is something that has international political support, by that time”’ says Mr O’Shea. “We remain to be convinced that the sustainability and long-term viability of these projects stack up.“
Copyright The Financial Times Limited 2008
Published: September 21 2008 18:02
With more than three-quarters of global oil reserves controlled by governments, the options for the oil groups are diminishing. In a world of high oil prices, Canada’s Athabasca oil sands look like a godsend. Covering an area larger than England, they are estimated to contain at least 1,700bn barrels, – equivalent to all the conventional oil reserves in the world.
But fears over climate change mean sentiment has turned against many fossil fuel projects, as the recent protests in the UK over plans to build a new coal-fired power station at Kings-north in Kent have shown. A significant number of coal-fired plants in the US have also been abandoned or rejected recently.
“This is not the same environment we were in 10 years ago,” says Elizabeth McGeveran, senior vice-president in F&C’s governance and sustainable investment team. “Companies need to think differently about projects with high environmental impacts.”
F&C is among a group of investors, including Calpers and Calstrs, the Californian public pension funds, that have pressed the US Securities and Exchange Commision to require oil and gas companies to factor in the carbon intensity of their reserves in future. “We are concerned climate change, and policies adopted to combat greenhouse gas emissions, could render certain assets – particularly those with high carbon intensity – uneconomic,” says a letter sent by the group.
“Current SEC regulations require the disclosure of known trends that companies can reasonably expect will have a material impact on net sales, revenues or income from continuing operations. For the oil and gas industry regulatory, physical and litigation- related climate risks fall clearly into this category.”
Oil sands are increasingly important for the oil majors’ future strategy, says Ms McGeveran, but they require so much energy to extract at a time of increasing regulation of energy and emissions that there is a lot of risk here for investors.
Producing oil from oil sands causes serious environmental impacts, according to environmental group the Worldwide Fund for Nature, including destruction of forests, depletion and pollution of water, loss of biodiversity, acid rain and air pollution. There are no schemes in place for land reclamation, it adds.
In the UK, Co-operative Asset Management has urged fellow investors to put pressure on the energy companies to think again about their rush into unconventional fossil fuel assets. “We want to alert other investors to what we believe could be a material risk to shareholder value through large-scale, rapid exploitation of unconventionals,” says Niall O’Shea, the group’s engagement manager.
The firm also called for greater transparency from oil groups about their scenario planning around carbon capture and storage, carbon pricing and licence to operate issues.
Environmental groups say oil from oil sands generates 80kg-135kg of CO2 per barrel, against an average of 28.6kg for a barrel of conventional oil. Oil companies need to think again about what they are doing, says Marc Brammer of Innovest Strategic Management. “What they are investing in now is completely unsustainable in every sense.” Instead, he says, the oil groups should hedge against their fossil fuel investments by investing in renewable energy and energy efficiency strategies.
While Alberta – and Canada – have no legislation concerning carbon capture and storage at the moment, this could well change. With a general election imminent in Canada, to be followed by the US presidential contest, the political and regulatory regimes could look much more hostile to this type of investment in six months’ time and lead to significant extra costs.
Shell, whose Athabasca Oil Sands Project currently produces 155,000 barrels per day through mining, says oil sands are only 15 per cent more carbon intensive than conventional sources of oil and that a new high-temperature treatment process will cut energy consumption by 10 per cent. It also intends to install technology at its upgrader facility that would take out another 1m tonnes of CO2.
BP, whose joint venture with Husky Energy is due to come on line in 2012, says: “For us, the issue is providing the energy and products that the world demands. Fossil fuels will continue to be the mainstay of the energy mix for decades to come and we need stable sources of supply – oil sands is part of that.” Its project, still to be approved, uses steam-assisted gravity drainage (SAGD), which it says is more environmentally friendly than strip mining.
However, the logic of SAGD production is likely to come under scrutiny, says Mr Brammer. “A huge amount of natural gas is being used to produce the steam needed to release the oil sands – it makes no sense at all. We are taking a low-carbon product [natural gas] and using it to make a high-carbon product.”
Oil companies should revise their expansion plans to much more moderate levels “and treat oil sands not as a bonanza but an experiment in getting the sustainability issues addressed before going on to a large-scale exploitation, if – and we stress if – this is something that has international political support, by that time”’ says Mr O’Shea. “We remain to be convinced that the sustainability and long-term viability of these projects stack up.“
Copyright The Financial Times Limited 2008
The future remains green despite financial downturn
Published Date: 22 September 2008
By PETER RANSCOMBE
BUSINESS REPORTER
SUPERMARKETS and other major retailers are pressing ahead with green business practices despite the threat of recession, according to a report published today.
In the study, the Forum for the Future – a sustainable development charity – claims it makes "good business sense" to concentrate on the "green agenda". This is because of consumer pressure for greener goods, the rising cost of energy and other resources, and efficiency savings.The charity highlights ten business areas – ranging from vision and governance through to products and services and the supply chain – in which companies can improve their sustainability.The report holds up dozens of firms as leaders in their fields, including tea and coffee company Cafédirect for its "vision and strategy", Tesco for its "green" marketing and the John Lewis Partnership, for improving its supply chain. Other companies praised by the report included the Co-operative Food Group, for the definitions of its ethical policies, and Cadbury for reducing its packaging and cutting its carbon dioxide emissions.The forum says it works with 130 businesses and public sector organisations to support sustainability in the workplace. Tom Berry, head of retail at the forum and the report's author, said: "Maintaining an emphasis on sustainable development in core business will be an important element of retail success – recession or not."Staying focused on sustainability in a downturn will only help to reinforce claims and dispel accusations of greenwash."Ray Baker, director of corporate responsibility at B&Q-owner Kingfisher, which commissioned the report, said: "The global economic slowdown may cause some to question the benefits. In my mind, there is no question. During the past year, we have seen an enormous public shift in the attention given to environmental and social issues and our customers look to us for solutions to create more sustainable homes."Peter Madden, chief executive of the forum, said: "Our partners are leading the way in building a sustainable, low-carbon economy because they understand it is good for their profits, good for their customers and good for the communities they serve."The Forum for the Future was founded by Sara Parkin, a nurse from Edinburgh and former chairwoman of the UK Green Party, and Jonathon Porritt, the chairman of the UK Sustainable Development Commission.
First US greenhouse gas auction set for Thursday
The Associated Press
Published: September 22, 2008
ALBANY, New York: A coalition of 10 northeastern states this week will take steps to check global warming when it conducts the nation's first carbon auction, taking the same approach that curbed lake-killing acid rain.
Environmental groups, energy producers, and government leaders will be watching closely as the Regional Greenhouse Gas Initiative sells carbon credits Thursday in the first of a series of quarterly online auctions.
The cap-and-trade greenhouse gas reduction program, which aims to hold carbon dioxide emissions steady through 2014 and then gradually reduce them, is widely viewed as a model for future programs around the globe.
"With the leadership vacuum in Washington, it has fallen to the states to take the lead on combating climate change," said Richard Revesz, dean of the New York University School of Law and an expert on environmental law.
In July 2003, then-New York Gov. George Pataki brought together nine other governors to develop a regional strategy to limit carbon dioxide emissions from power plants. The bipartisan action followed President George W. Bush's rejection of greenhouse gas reduction goals set under a 1997 United Nations protocol reached in Kyoto, Japan.
Governors in Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Hampshire, Rhode Island, and Vermont joined Pataki in the coalition known as RGGI, or "Reggie." Other regional greenhouse gas coalitions, such as the Western Climate Initiative and the Midwestern Greenhouse Gas Accord, are in earlier stages of development.
Both John McCain and Barack Obama support cap-and-trade programs to reduce greenhouse gas emissions, seen as key contributors to global warming.
The approach is patterned after the acid rain-reducing program targeting sulfur dioxide that began with a New York law in 1984 and was expanded nationally with amendments to the Clean Air Act in 1990.
RGGI caps the total amount of carbon that power plants in the 10-state region can pump out of their smokestacks at the current level — 188 million tons (171 million metric tons). Electric power generators must pay for allowances covering the amount of carbon they emit and RGGI will provide a market-based auction and trading system where the generators can buy, sell and trade the emissions allowances.
The initiative will gradually reduce carbon going into the atmosphere by lowering the cap in several steps, until it is 10 percent below the current level in 2018. During that 10-year span, businesses will have to reduce their emissions. Those that can't, because of cost or technical hurdles, can buy allowances from companies that have achieved cleaner emissions.
Companies have a financial incentive to curb emissions because they won't have to buy as many credits and because they can sell any they don't need. The price of credits is likely to rise as the cap is lowered. That gives companies more incentive to curb emissions sooner rather than later so they can buy and use credits at a lower price and sell them at a profit.
In addition, generators can make up for a small percentage of their emissions by purchasing narrowly defined carbon offsets, such as investing in energy-efficient building technology or planting trees to absorb carbon from the atmosphere.
The overall goal is to give utilities an economic incentive, rather than a regulatory mandate, to burn less coal, fuel oil and natural gas, while at the same time making carbon-free energy alternatives such as wind and solar power more economically attractive.
While power plants account for only a third of the carbon dioxide generated in the region, they're the easiest source to regulate because their emissions are already monitored in other pollution programs, said Peter Iwanowicz, director of the state Department of Environmental Conservation's Climate Change Office.
Eventually, the program may be expanded to include sources such as industry and transportation, Iwanowicz said.
Some business and utility leaders have urged the states to hold off until a national plan is developed.
The Business Council of New York State warns that the regional plan could harm the power supply and system reliability while increasing energy prices that are already 52 percent higher than the national average for commercial customers.
Research conducted by RGGI projects the typical New York residential customer will see an increase of 78 cents per month. But the Independent Power Producers of New York, an industry group, says the cost assumptions used by RGGI are outdated and inaccurate.
Not all energy generators oppose the plan.
"We're very much in favor of a national cap-and-trade system for reducing carbon emissions because we believe climate change is real and that it requires a national, and really international, solution," said Don McCloskey, environmental policy manager for Public Service Enterprise Group, a power generator in Newark, New Jersey.
While other carbon-curtailing programs have been proposed, including a carbon tax, McCloskey said PSEG supports cap-and-trade because it allows companies to use their ingenuity and knowledge of markets to achieve environmental goals.
He noted that while steep price increases were predicted when a similar program was launched to curb acid rain-causing sulfur dioxide emissions, the worst fears didn't come to pass.
The three-hour auction will be conducted online among previously approved bidders. At the end, bids in the system will be used to determine a clearing price based on supply versus demand.
Proceeds of the auctions are to be invested in programs to increase energy efficiency, support non-carbon-generating renewable energy sources such as wind and solar, and develop carbon abatement technologies.
Published: September 22, 2008
ALBANY, New York: A coalition of 10 northeastern states this week will take steps to check global warming when it conducts the nation's first carbon auction, taking the same approach that curbed lake-killing acid rain.
Environmental groups, energy producers, and government leaders will be watching closely as the Regional Greenhouse Gas Initiative sells carbon credits Thursday in the first of a series of quarterly online auctions.
The cap-and-trade greenhouse gas reduction program, which aims to hold carbon dioxide emissions steady through 2014 and then gradually reduce them, is widely viewed as a model for future programs around the globe.
"With the leadership vacuum in Washington, it has fallen to the states to take the lead on combating climate change," said Richard Revesz, dean of the New York University School of Law and an expert on environmental law.
In July 2003, then-New York Gov. George Pataki brought together nine other governors to develop a regional strategy to limit carbon dioxide emissions from power plants. The bipartisan action followed President George W. Bush's rejection of greenhouse gas reduction goals set under a 1997 United Nations protocol reached in Kyoto, Japan.
Governors in Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Hampshire, Rhode Island, and Vermont joined Pataki in the coalition known as RGGI, or "Reggie." Other regional greenhouse gas coalitions, such as the Western Climate Initiative and the Midwestern Greenhouse Gas Accord, are in earlier stages of development.
Both John McCain and Barack Obama support cap-and-trade programs to reduce greenhouse gas emissions, seen as key contributors to global warming.
The approach is patterned after the acid rain-reducing program targeting sulfur dioxide that began with a New York law in 1984 and was expanded nationally with amendments to the Clean Air Act in 1990.
RGGI caps the total amount of carbon that power plants in the 10-state region can pump out of their smokestacks at the current level — 188 million tons (171 million metric tons). Electric power generators must pay for allowances covering the amount of carbon they emit and RGGI will provide a market-based auction and trading system where the generators can buy, sell and trade the emissions allowances.
The initiative will gradually reduce carbon going into the atmosphere by lowering the cap in several steps, until it is 10 percent below the current level in 2018. During that 10-year span, businesses will have to reduce their emissions. Those that can't, because of cost or technical hurdles, can buy allowances from companies that have achieved cleaner emissions.
Companies have a financial incentive to curb emissions because they won't have to buy as many credits and because they can sell any they don't need. The price of credits is likely to rise as the cap is lowered. That gives companies more incentive to curb emissions sooner rather than later so they can buy and use credits at a lower price and sell them at a profit.
In addition, generators can make up for a small percentage of their emissions by purchasing narrowly defined carbon offsets, such as investing in energy-efficient building technology or planting trees to absorb carbon from the atmosphere.
The overall goal is to give utilities an economic incentive, rather than a regulatory mandate, to burn less coal, fuel oil and natural gas, while at the same time making carbon-free energy alternatives such as wind and solar power more economically attractive.
While power plants account for only a third of the carbon dioxide generated in the region, they're the easiest source to regulate because their emissions are already monitored in other pollution programs, said Peter Iwanowicz, director of the state Department of Environmental Conservation's Climate Change Office.
Eventually, the program may be expanded to include sources such as industry and transportation, Iwanowicz said.
Some business and utility leaders have urged the states to hold off until a national plan is developed.
The Business Council of New York State warns that the regional plan could harm the power supply and system reliability while increasing energy prices that are already 52 percent higher than the national average for commercial customers.
Research conducted by RGGI projects the typical New York residential customer will see an increase of 78 cents per month. But the Independent Power Producers of New York, an industry group, says the cost assumptions used by RGGI are outdated and inaccurate.
Not all energy generators oppose the plan.
"We're very much in favor of a national cap-and-trade system for reducing carbon emissions because we believe climate change is real and that it requires a national, and really international, solution," said Don McCloskey, environmental policy manager for Public Service Enterprise Group, a power generator in Newark, New Jersey.
While other carbon-curtailing programs have been proposed, including a carbon tax, McCloskey said PSEG supports cap-and-trade because it allows companies to use their ingenuity and knowledge of markets to achieve environmental goals.
He noted that while steep price increases were predicted when a similar program was launched to curb acid rain-causing sulfur dioxide emissions, the worst fears didn't come to pass.
The three-hour auction will be conducted online among previously approved bidders. At the end, bids in the system will be used to determine a clearing price based on supply versus demand.
Proceeds of the auctions are to be invested in programs to increase energy efficiency, support non-carbon-generating renewable energy sources such as wind and solar, and develop carbon abatement technologies.
Investors weigh risks of not fighting climate change
By Emma Byrne and Fiona Harvey in London
Published: September 22 2008 03:00
Investors are using information on companies' carbon dioxide emissions to manage their portfolios, according to an annual survey of the world's leading businesses.
The Carbon Disclosure Project (CDP), backed by hundreds of institutional investors, asks the world's biggest companies to report their greenhouse gas emissions. This year, almost two-thirds of the 385 institutional investors behind the project, whose findings are published today, said they used the survey to identify companies not adequately addressing climate change.
The Axa Group, for instance, said: "In terms of investment policy, companies which are ill-prepared for more stringent environmental regulation may face unexpected new expenses and decreasing ability to sustain their returns and share price."
The investors are basing their decisions on the belief that emissions will be more closely regulated around the world in future, giving companies that already manage their emissions a competitive advantage. They are also weighing other factors, such as the risk that companies may face future litigation, and the possible illeffects of climate change, such as floods and storms.
Paul Dickinson, chief executive of the CDP, said: "[The survey is] effectively an audit of climate-change risk. Over 1,500 companies have gone through that process this year, with 77 per cent of the Global 500 responding. Whilst it's hard to evaluate definitively, the CDP is likely to have had a pivotal role in developing consciousness of those risks."
This year's report found that companies were starting to manage environmental risk at board level. Of the 383 groups that responded to the Global 500 survey, nearly two-thirds said they had an executive with overall responsibility for climate-change management, compared with half of respondents in 2007, and most had put in place some risk management measures to prepare for climate change.
Companies in all sectors said that uncertainty about future regulation was a stumbling block. Arcelor Mittal told the survey: "There is significant risk in the lack of predictability in climate-change regulation."
Another survey, by McKinsey and the UK government-funded Carbon Trust, found that companies were failing to respond adequately to the need to reduce emissions.
Tom Delay, chief executive of the Carbon Trust, said: "Our findings show that we are not on the path to a low-carbon economy. This is something that will impact on all investors - it will have a damaging effect on shareholder value. Shareholders should be demanding that the companies they invest in address these issues."
Copyright The Financial Times Limited 2008
Published: September 22 2008 03:00
Investors are using information on companies' carbon dioxide emissions to manage their portfolios, according to an annual survey of the world's leading businesses.
The Carbon Disclosure Project (CDP), backed by hundreds of institutional investors, asks the world's biggest companies to report their greenhouse gas emissions. This year, almost two-thirds of the 385 institutional investors behind the project, whose findings are published today, said they used the survey to identify companies not adequately addressing climate change.
The Axa Group, for instance, said: "In terms of investment policy, companies which are ill-prepared for more stringent environmental regulation may face unexpected new expenses and decreasing ability to sustain their returns and share price."
The investors are basing their decisions on the belief that emissions will be more closely regulated around the world in future, giving companies that already manage their emissions a competitive advantage. They are also weighing other factors, such as the risk that companies may face future litigation, and the possible illeffects of climate change, such as floods and storms.
Paul Dickinson, chief executive of the CDP, said: "[The survey is] effectively an audit of climate-change risk. Over 1,500 companies have gone through that process this year, with 77 per cent of the Global 500 responding. Whilst it's hard to evaluate definitively, the CDP is likely to have had a pivotal role in developing consciousness of those risks."
This year's report found that companies were starting to manage environmental risk at board level. Of the 383 groups that responded to the Global 500 survey, nearly two-thirds said they had an executive with overall responsibility for climate-change management, compared with half of respondents in 2007, and most had put in place some risk management measures to prepare for climate change.
Companies in all sectors said that uncertainty about future regulation was a stumbling block. Arcelor Mittal told the survey: "There is significant risk in the lack of predictability in climate-change regulation."
Another survey, by McKinsey and the UK government-funded Carbon Trust, found that companies were failing to respond adequately to the need to reduce emissions.
Tom Delay, chief executive of the Carbon Trust, said: "Our findings show that we are not on the path to a low-carbon economy. This is something that will impact on all investors - it will have a damaging effect on shareholder value. Shareholders should be demanding that the companies they invest in address these issues."
Copyright The Financial Times Limited 2008
EDF takeover of British Energy set to be signed off this week
Terry Macalister
The Guardian,
Monday September 22 2008
Lawyers for British Energy and EDF of France were completing the final paperwork on a £12.4bn merger last night amid hopes that the formal deal can be fully signed off and announced to the London stockmarket as early as tomorrow.
The move will hasten the government's nuclear revolution as EDF wants to use some of British Energy's sites to build a new generation of atomic power stations. The French company is expected to hand back some BE land so that the government can auction it off to others wanting to construct plants.
Previous attempts to complete a takeover of the UK's nuclear power generator foundered on BE shareholder discontent but Invesco and other minority investors have been brought on side by improved terms. They are being offered either cash or a mixture of cash and contingent value rights (CVRs).
EDF has raised its initial offer of 765p a share by 9p to 774p, but is also offering an alternative of 700p and some CVRs. These are used as a mechanism by which shareholders of an acquired company can receive additional benefits if a specified event occurs. In the case of British Energy, Invesco believes there will be further increases in electricity prices.
Neither BE nor EDF were willing to comment last night, but industry sources said a successful deal had been tied up, leaving the formal agreement and announcement only awaiting the legal work. "It [the transaction] will happen this week," said a source, although others said previous hiccups meant nothing should be taken for granted.
Dungeness in Kent and Bradwell in Essex are believed to be two of the facilities that EDF is willing to transfer to its rivals via an auction.
Both E.ON and RWE of Germany have indicated a willingness to build new stations. E.ON has already secured an agreement with National Grid about building new power lines from the Oldbury nuclear plant in Gloucestershire.
The site is one of three - along with Wylfa in Anglesey and Bradwell - said by the Nuclear Decommissioning Authority to be up for sale after discussions with interested buyers.
Part of Bradwell is owned by British Energy and part by the NDA, the government agency responsible for decommissioning all the UK's nuclear sites.
The Guardian,
Monday September 22 2008
Lawyers for British Energy and EDF of France were completing the final paperwork on a £12.4bn merger last night amid hopes that the formal deal can be fully signed off and announced to the London stockmarket as early as tomorrow.
The move will hasten the government's nuclear revolution as EDF wants to use some of British Energy's sites to build a new generation of atomic power stations. The French company is expected to hand back some BE land so that the government can auction it off to others wanting to construct plants.
Previous attempts to complete a takeover of the UK's nuclear power generator foundered on BE shareholder discontent but Invesco and other minority investors have been brought on side by improved terms. They are being offered either cash or a mixture of cash and contingent value rights (CVRs).
EDF has raised its initial offer of 765p a share by 9p to 774p, but is also offering an alternative of 700p and some CVRs. These are used as a mechanism by which shareholders of an acquired company can receive additional benefits if a specified event occurs. In the case of British Energy, Invesco believes there will be further increases in electricity prices.
Neither BE nor EDF were willing to comment last night, but industry sources said a successful deal had been tied up, leaving the formal agreement and announcement only awaiting the legal work. "It [the transaction] will happen this week," said a source, although others said previous hiccups meant nothing should be taken for granted.
Dungeness in Kent and Bradwell in Essex are believed to be two of the facilities that EDF is willing to transfer to its rivals via an auction.
Both E.ON and RWE of Germany have indicated a willingness to build new stations. E.ON has already secured an agreement with National Grid about building new power lines from the Oldbury nuclear plant in Gloucestershire.
The site is one of three - along with Wylfa in Anglesey and Bradwell - said by the Nuclear Decommissioning Authority to be up for sale after discussions with interested buyers.
Part of Bradwell is owned by British Energy and part by the NDA, the government agency responsible for decommissioning all the UK's nuclear sites.
British Energy set for fresh bid
Published Date: 22 September 2008
FRENCH power giant EDF was yesterday said to be on the verge of tabling an improved £12.4 billion offer for nuclear power group East Kilbride-based British Energy.
The deal, which could be unveiled this week, is said to be worth 774p a share, 9p higher than the offer made in July.Opposition from major shareholders, such as investment groups Invesco and M&G, scuppered the original deal.There were fears that it undervalued British Energy at a time when the value of energy assets was rising.
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