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Midwest Governor's Pact on Climate Change

Significant Opportunities for Wisconsin Businesses

November 20, 2007
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Wisconsin recently joined five other states in entering the Midwest Greenhouse Gas Reduction Accord, a copy of which can be viewed on the Midwest Governors Association page by clicking here . The most important element of this pact is the commitment to develop a cap-and-trade system for carbon emissions. This cap-and-trade system is to be set up over the next year and to be implemented by 2010.

Wisconsin businesses that become more energy efficient or pursue green energy projects may see significant financial gains under the terms of the accord, as the accord calls for the development of credits for those who work to reduce greenhouse gas emissions. Because these credits apply to past and present actions, Wisconsin businesses that act now may substantially generate valuable credits. Taking early action is especially important in light of the governor's pact, because the pact essentially assures that there will be a robust market for any carbon reductions through energy efficiency or green energy projects. In addition, it is highly likely that there will be credit for early action under the cap-and-trade system. This means that actions taken now will allow our clients to accumulate credits that may be sold for higher value as the cap-and-trade market matures.

These climate change opportunities are most important for businesses with high energy usage, such as larger industrial facilities (especially paper-related operations). However, commercial entities, as well as governmental entities, can obtain substantial financial benefits. Also, any businesses with a large retail presence may wish to consider this issue to enhance product marketing. Numerous larger consumer products and retail entities have pursued green marketing campaigns because they are very effective in driving sales and the competition is moving forward with this marketing strategy.
Wisconsin has valuable programs that provide free energy audits for utility customers and the opportunity for significant grants to help pay for energy reduction and green energy projects. Opportunities exist for businesses, governmental entities and individuals to reduce their costs and make a profit by reducing their energy usage and develop green energy projects. Many businesses and governmental entities are eligible to receive free energy evaluation assistance through Focus on Energy and, following a preliminary evaluation, may apply for grants for up to 20% of energy efficiency and green energy projects. These grants can amount to $250,000 per project per year, and up to $500,000 in total per year. These payments can be structured over time to maximize the amount received by our clients. These projects often result in quick and significant paybacks from reduced energy costs.

Conversely, businesses that continue or grow their energy usage and associated carbon footprint will not only face increased energy costs in the future, but also have to pay extra to purchase carbon credits. Thus, companies that get ahead on this issue and reduce their carbon profile both diminish their costs and increase future financial gains.

Emission reductions accomplished today may prove valuable in the future. Qualified greenhouse gas emission reductions credits outside the United States are trading at a premium in the overseas market based on Europe's cap-and-trade system. Wisconsin companies that act now to develop strategies to reduce their emissions should document these reductions and have them certified by professionals for future market trading. Also, contract documents must clearly define who has the right to emission reduction credits associated with customers, suppliers and sale or purchase of facilities. Companies that fail to consider these strategies lose out on both capturing future market value and making a positive environmental impact.

The members of the Godfrey & Kahn Environmental/Energy Strategy Team are well-versed on these developments. Members of our team include a representative of the Working Group of the Governor's Task Force on Climate Change and the former General Counsel of the Public Service Commission. For more information on any of the strategies mentioned in this e-mail, please contact any member of the Environmental/Energy Strategy Team at Godfrey & Kahn.

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