Morning Star is probably one of the most important companies you have never heard of. They harvest tomatoes and turn them into products and ingredients used in foods all over the world. As well as process tomatoes, however, the firm’s operations also produce a lot of carbon dioxide:
“The Morning Star Company’s three plants in California emit roughly 200,000 metric tons of carbon dioxide into the atmosphere each year — about the same amount as the Pacific Island nation of Palau — as they turn tomatoes into ketchup, spaghetti sauce and juice used by millions of consumers around the world. Beginning Jan. 1, under the terms of a groundbreaking California environmental law known as AB 32, Morning Star and 350 other companies statewide will begin paying for those emissions, which trap heat and contribute to global warming.”
The Californian legislation, Assembly Bill 32: Global Warming Solutions Act (http://www.arb.ca.gov/cc/ab32/ab32.htm), was passed in 2006, but came into effect on January 1. It commits California to reducing its carbon emissions to 1990 levels by 2020 and empowers the California Air Resources Board to find means of achieving that goal. One way is to begin charging firms for the carbon their processes emit into the atmosphere (the foundation for a statewide cap-and-trade scheme). While firms in California have had time to prepare for this, they are understandably concerned:
“About 600 facilities with hefty emissions are covered by the Global Warming Solutions Act of 2006. Oil refiners, electric utilities and cement makers, whose greenhouse-gas output totals in the millions of metric tons annually, are the biggest. But overall, dozens of industries are affected.”
The financial implications of the legislation for firms are not yet clear. For Morning Star, however, it is going to be a significant amount of money:
“The rules are relatively simple for producers like Morning Star. At the end of 2014, they must present state-issued allowances — one per metric ton of emissions — for the greenhouse gases they emitted in 2013. For the 200,000 metric tons of carbon dioxide emitted annually by Morning Star’s three plants, the company is being awarded about 192,500 free allowances the first year; the company must buy the remainder on the open market. In the first allowance auction in November, the allowance price settled at $10.09 a ton, meaning in the first year Morning Star has to pay roughly $75,000 to cover its emissions. But over the next five years, the number of free allowances will decrease sharply to encourage further emissions cuts. At current rates, that means Morning Star will have to buy 100,000 allowances for both 2017 and 2018, by which time the prices may have doubled or tripled in an open market. The company estimates the law will cost it an extra $20 million over the next seven years.”
At present, Morning Star plans to pass those costs onto customers.
Take care
David
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
Weighing Costs and Competition
By Felicity Barringer
December 25, 2012
The New York Times
Late Edition – Final
B1
