Carbon emission regulatory regimes are coming soon in response to rising public pressure for action, according to experts from business and academia who spoke at the recent First Annual Conference-Workshop on Business and the Environment in Philadelphia, hosted by the Initiative for Global Environmental Leadership (”IGEL”), a new Wharton/Penn initiative.

Once seen as the job of government regulators and non-governmental organizations only, in today’s world we are seeing more and more that the biggest pressures to enact measures against greenhouse gas emissions are coming instead from “the community, banks and insurers,” said Patricia A. Calkins, vice president of environment, health and safety at Xerox, and a moderator one of the sessions. Some companies have been voluntarily making dramatic shifts to reduce their carbon footprint by choosing the more efficient Energy Star-rated products or, in the case of leading global toy maker Mattel, simply rearranging the types of inventories carried by each of its two distribution centers and by so doing, reaping a “huge reduction” in energy use. While cost-benefit analyses may play a part in some of these companies’ motivations, Eric Orts, founding director of IGEL, says that this is not always the case. Consumer pressure and worries about being targeted or labeled as a polluter have been moving companies to act.

While such voluntary measures can certainly make big contributions towards reducing CO2 emissions, conference participants emphasized that government regulation is necessary to achieve a more carbon-neutral world. Helen Howes, vice president of environment, health and safety for Exelon, an energy services provider headquartered in Chicago, noted at the conference that “[r]oughly one third of greenhouse gases come from utilities, and so utilities absolutely have to be regulated.” Another one third of greenhouse gases come from the transportation sector and the remaining third from industrial, commercial and residential sources, according to Howes, who called for government regulation of all greenhouse gas sources. Howes sees regulation as inevitable, and perhaps not too far off, as states have already begun enacting regulatory legislation, and all three presidential candidates have come out in favor of federal regulation.

The question that remains, therefore, is not whether to regulate CO2, but how. David Struhs, vice president of environmental affairs in the U.S. for International Paper, a Memphis-based maker of paper and packing and a former federal environmental regulator said that the U.S. has three options for regulation: (1) a quantity-based approach, meaning some form of cap system which would hold emissions at a specific level and then allocate allowances among industries and companies; (2) a cost-based or tax system, meaning the institution of a per-ton carbon tax, also called a “carbon penalty” and (3) a hybrid choice, meaning a cap system that uses an auction to make initial emission allocation. Struhs argued that the third choice would be the worst of both worlds by adding significant costs without lowering emissions much more than the alternatives. However, this hybrid strategy may be the most politically appealing model as it avoids the tough jobs of making allocations under a quantity-based system and imposing taxes directly under a cost-based system. The panel of experts also weighed in on which regulatory framework would be best for the U.S.

While the conference covered broader environmental issues and the challenges posed to business and policy-makers alike, the clear take-away was summed up best by Paul Kleindorfer, Wharton emeritus professor of operations and information management, who said “There’s no place to hide. The pressure is coming from all over.”

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