Cap-and-trade is a key component of President Obama’s proposed budget, and although Congress is currently reviewing the budget, steps are being taken that make cap-and-trade almost inevitable.  Earlier this week, news came out that the Environmental Protection Agency (EPA) sent the White House a proposed finding that carbon dioxide is a danger to public health.   If this finding is approved by the White House Office of Management and Budget, it could open the door for the EPA to control emissions of carbon dioxide and other greenhouse gases under the Clean Air Act.

The EPA earlier this month also proposed a system for reporting emissions of carbon dioxide and other greenhouse gases.  According to the EPA press release:

• “The new reporting requirements would apply to suppliers of fossil fuel and industrial chemicals, manufacturers of motor vehicles and engines, as well as large direct emitters of greenhouse gases with emissions equal to or greater than a threshold of 25,000 metric tons per year.”
• “The direct emission sources covered under the reporting requirement would include energy intensive sectors such as cement production, iron and steel production, and electricity generation, among others.”
• “The first annual report would be submitted to EPA in 2011 for the calendar year 2010, except for vehicle and engine manufacturers, which would begin reporting for model year 2011.”
• “EPA estimates that the expected cost to comply with the reporting requirements to the private sector would be $160 million for the first year. In subsequent years, the annualized costs for the private sector would be $127 million.”

Cap-and-trade also has global trade implications.  A couple of weeks ago, Energy Secretary Steven Chu suggested the possibility of instituting a “carbon tariff” on countries (e.g., China) that do not mandate greenhouse gas emission reductions.  Not surprising, Li Gao, China’s top climate change negotiator, thinks such a tariff would be a “disaster” that could trigger a trade war.  In short, the prospect of a carbon tariff compounds the trade concerns already sparked by “Buy American” and the current NAFTA dispute with Mexico.

Back in January, in a piece I wrote on IBM’s “green” consulting service, I said that when it comes to designing “green” supply chains, I thought companies were still in the “crawling” phase.  Well, based on everything that’s transpired over the past few weeks, I now think that companies need to start “walking” soon or they’ll risk falling behind.

The road to cap-and-trade is quickly being paved, and it’ll arrive at your doorstep sooner than you think.  If you haven’t been considering the implications of cap-and-trade on your supply chain, you better get started.