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  Thomas Lyon

Power Companies Turn on the Greenwash

10/3/2007 --

Erb Institute study finds that about 60 percent of firms in the electric utilities industry are increasing greenhouse gas emissions even when they claim reductions.

ANN ARBOR, Mich.—Many companies that say they are reducing greenhouse gases are actually increasing emissions, says a Ross School professor.

"The problem is not that companies are lying but rather that they are taking advantage of lax and inconsistent reporting rules," says Thomas Lyon, professor of business economics and natural resources and director of the University of Michigan's Erb Institute for Global Sustainable Enterprise. "Until these reporting loopholes are closed, the registry runs the risk of merely being a greenwashing tool for companies worried about their image."

The registry to which Lyon refers is the U.S. Department of Energy's voluntary program to report reductions of greenhouse gases¿a registry created in accordance with section 1605b of the Energy Policy Act of 1992. Greenwash is the dissemination of misleading information by an organization to conceal its abuse of the environment in order to present a positive public image.

A new study by Lyon and U-M doctoral student Eun-Hee Kim finds that about 60 percent of companies that voluntarily participate in the Department of Energy program show increases in greenhouse gas emissions rather than decreases.

Surprisingly, the researchers found that nonparticipating companies tend to have decreased emissions over time, relative to a 1995 baseline.

The study compares eight years of data reported voluntarily to the Department of Energy registry by the electric utilities industry¿the sector that emits the greatest amount of greenhouse gases¿with the utilities' detailed fuel-use data required by the Federal Energy Regulatory Commission. By comparing the data reported to the registry with the data reported to FERC, Lyon and Kim were able to evaluate the reported greenhouse gas reductions against actual reductions. Of the 550 reports analyzed in the study, 323 had actual increases in emissions rather than decreases.

According to the study, examples of lax registry reporting rules include the ability of companies to choose whether to report reductions at the company level or the level of individual projects. In addition, voluntary reporters can select baseline emissions that are historical or hypothetical and, when historical, can choose any year between 1987 and 1990, or simply calculate an average of those years. Thus, participating companies are able to optimize their results without violating the reporting rules and criteria.

The researchers also say that the participating utilities tend to be large firms, both in terms of revenues and carbon dioxide emissions; have low capacity factors (i.e., utilization rates); face growing demand; and are more likely to be located in states with large numbers of environmental group members per capita.

On the other hand, nonparticipating firms¿whose greenhouse gas emissions were found to be decreasing¿face less external pressure from environmental groups, in part because they are smaller and not growing rapidly.

"Our research suggests that firms are more likely to participate when they have low-cost opportunities to cut emissions and the pressure to participate is higher," says Lyon, the Dow Professor of Sustainable Science, Technology and Commerce. "These companies did not hesitate to take advantage of the loose reporting rules, however. This proves that, without more rigorous requirements, when presented with the opportunity, companies will greenwash."

Lyon and Kim note that in response to criticism, the Department of Energy issued a revised set of guidelines for the voluntary program in 2006. Under the new rules, participants must now report companywide reductions rather than reporting on only the most favorable projects. Data reported under these new guidelines are still being tabulated and researchers do not yet have access to it.

While these changes will make it more difficult for companies to use voluntary reporting of greenhouse house gases as a form of greenwash, mandatory reporting with consistent standards across all companies is the only real solution to the problem, the researchers say.

For more information, contact:
Bernie DeGroat
Phone: (734) 936-1015 or 647-1847