This is an analysis of obligations under the currently proposed US cap and trade legislation. There is a potential for this legislation to be enacted in late 2009. Compliance would be required as early as 2012.

Breakdown of covered entities (for first compliance phase)

• Utilities
• Petroleum Refining
• Cement/Lime manufacturing
• Acid/Ammonia Production
• Aluminum Production

What makes you a covered entity under a US Cap and Trade program?

Phase One: Covered in 2012  66.2 percent of total US emissions during this phase.                                                         

• All electric power generators (downstream)
• Natural gas liquids-, petroleum and coal-based liquid fuel producers and importers (upstream) whose products, when combusted, emit over 25,000 tonnes annually.
• Producers and importers of non-HFC fluorinated gases (upstream)
• Geologic storage sites

Phase Two: Added to coverage in 2014  75.7 percent of total US emissions during this phase.

• Industrial sources (downstream) that annually emit 25,000 tonnes or more, not including emissions from petroleum and biomass combustion; plus all sources (regardless of size) in select energy intensive sectors (e.g., glass, ceramics).

Phase Three: Added to coverage in 2016:  84.5 percent of total US emissions during this phase.

• Natural gas Local Distribution Companies (LDCs) (midstream) that deliver more than 460,000,000 cubic feet of gas annually to non-covered entities. Emissions that result from sales are regulated with measures to prevent double counting.

Questions you and your management team should address:

• Do you understand your long-term exposure to energy commodities and how environmental regulations effect those prices?
• Do you understand your exposure to increased power prices from the GHG emissions from natural gas combustion in power plants which represent the marginal price of power in most of the United States.
• Do you understand your exposure to increased power prices from renewable energy floor MWh production requirements under a federal renewable energy standard which requires utilities to meet a required percentage of their power generation with renewable energy?
• Have you explored how to hedge this price exposure? 
• How many carbon allowances will our firm receive, and how do we best manage these assets?
• How can our firm bank, borrow or trade our carbon allowances? What is the best strategy given our current and future emissions?  Do we do this with or without interest obligations?
• How can we utilize carbon offset credits to meet our obligation?
• How do we ensure that these get offset credits are eligable toward our compliance obligations?
• How do you plan on implementing the mandatory reporting requirements needed to comply with this legislation?

All of these questions will inevitably lead you to the categorization and valuation of your carbon assets and liabilities.

Carbon Asset development and management

As a covered entity you know you have carbon liabilities but, an equally important question is whether you have any carbon assets. GCS fully grasps the global push to reduce the carbon intensity of your industry and fully understands existing carbon reducing protocols that can be applied to your operation. GCS will help you identify these opportunities and define the right strategy to develop these assets.

Beginning to developing these assets now can accomplish a number of goals:

• Carbon offset projects can be claimed as "early action" and reduce carbon liability
• Possible repurposing of waste streams into biomass, biogas, or biofuel energy feedstocks
• Investing in self generation capabilities can not only hedge future power prices, but also reduce tipping fees

Carbon Liability Management

Navigating compliance reporting requirements and related processes and procedures will require experience and up-to-date market information. The penalties associated with non-compliance should further motivate your organization to account for your emissions and develop strategies for mitigating this risk.

GCS closely tracks both the global carbon markets and proposed U.S. legislation, and can develop a roadmap for your organization to employ to cost effectively mitigate your carbon liabilities and monetize your carbon assets.