Cut Carbon as Cap-and-Trade Looms: Retailer

MICHAEL GARRY

INDIAN WELLS, Calif. — In anticipation of federal legislation that will establish a cap-and-trade system to reduce the production of greenhouse gas emissions, food retailers should assess their carbon footprint and their level of energy efficiency, said a Safeway executive.

“While you're waiting for legislation to come, you'll want to see where you are,” advised Cathy Ikeuchi, manager of energy operations for Safeway, Pleasanton, Calif., in a presentation here last week during the Food Marketing Institute's Energy & Technical Services Conference. “Do you need to establish more energy efficiency? Do you want to invest in energy technology or solar and wind energy? You'll want to be prepared.”

It's a recommendation that Safeway itself followed by joining the Chicago Climate Exchange (CCX) and carefully monitoring its energy efficiency, she noted.

A cap-and-trade system is part of the American Clean Energy and Security Act of 2009 (HR 2454), sponsored by Reps. Henry Waxman, D-Calif., and Ed Markey, D-Mass. It was passed in the House of Representatives in July and is currently before the Senate.

“We don't know that it will pass this year, but it will probably pass next year,” said Ikeuchi. “Whether or not you believe it is needed, and whether or not you agree with the proposed legislation, legislation is going to happen.”

Ikeuchi also referred to a slew of regional programs that address greenhouse gas emissions, including the Western Climate Initiative, the Midwestern Governors Greenhouse Gas Reduction Accord, the Regional Greenhouse Gas Initiative (RGGI) and the California Global Warming Solutions Act of 2006.

RGGI, which encompasses 10 Northeastern and Mid-Atlantic states, launched in January, but applies to only the power sector. The other programs are pending. They would all be superseded by a new federal law.

The Waxman-Markey bill would apply to facilities that produce at least 25,000 metric tons of carbon dioxide annually. It would establish a cap-and-trade program to reduce greenhouse gas emissions to 17% below 2005 levels by 2020 and to 83% below 2005 levels by 2050.

ESTABLISHING A BASELINE

To better understand its own carbon footprint and efficiency goals, Safeway joined the voluntary CCX in 2006, becoming the only North American retailer to do so — a status it still holds. As a CCX member, Safeway has legally bound itself to carbon reduction.

“We joined CCX because we want to know where we're going,” said Ikeuchi. “You measure your baseline [of carbon emissions] first so you know what type of efficiencies you need to put in place.” Becoming a member of CCX has also helped Safeway to “better understand how cap-and-trade works,” she said. “The method used by CCX may be adopted by future regulations.”

Moreover, Safeway is accumulating carbon credit that “may have value in a regulated market,” Ikeuchi said. “This is a way we can make money and reinvest it in sustainability programs.” She pointed out that adding a monetary value to an energy-efficiency project can help a company “get the project approved.”

Safeway has yet to execute any cap-and-trade deals through CCX, Ikeuchi noted, adding that the company is still deciding on how to proceed in the current carbon market.

Carbon offset energy-saving projects are another option retailers can explore, said Ikeuchi. “But they have to be something more than business as usual.”

One energy executive attending the FMI Energy Conference, Ray Agah, director of engineering for Save Mart, Modesto, Calif., was skeptical about a cap-and-trade system. “You would spend a lot and make a little,” he said. “How is that going to work in a low-margin business like the grocery business?”

Ikeuchi acknowledged that a cap-and-trade program has raised concerns about market manipulation, the possibility of windfall profits for some businesses and the potential for some companies to “buy their way out of compliance.” But she supported the program's overall goal of allowing companies that can't yet afford to invest in carbon reduction to purchase less-expensive allowances from other companies “rather than close their doors.”

She is opposed to a carbon tax, which she said would not guarantee environmental change “because everyone might just pay the tax rather than reduce [emissions].”

SURPASSING ITS GOAL

Safeway's commitment to CCX has been to reduce its carbon footprint by at least 39,000 tons, or 1.5%, per year from 2008 through 2011, for a total of 6% in all, using 2000 as a baseline, when Safeway produced about 2.65 million tons of carbon dioxide.

One of the largest contributions that supermarkets make to global warming is through refrigeration leaks, something that Safeway has just embarked upon tracking, said Ikeuchi. CFC refrigerants will be regulated in the new federal legislation.

In its 2008 audit, conducted by the Financial Industry Regulatory Authority (FINRA), Washington, Safeway discovered that it already surpassed its goal, reducing emissions by 11%, Ikeuchi said. FINRA's audit process, she added, was extremely rigorous, requiring “a year's worth of invoices.”

The company was able to achieve its carbon reduction in a number of ways, including investing in solar and wind energy, installing energy-efficient lighting and energy management systems in stores, improving the efficiency of its trucking fleet and making strategic electricity purchases.

Safeway would not have been able to invest in sustainable projects, said Ikeuchi, without “customer choice” — or the ability to purchase electricity and natural gas from third-party alternatives to utilities.