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TransAlta Corp. CEO Steve Snyder expects to go to his board in mid-2011 for final approval of a $1.4-billion project to capture carbon dioxide emissions from its jointly owned, newly commissioned Keephills 3 coal-fired power station and bury those emissions permanently under ground.

There is no profit to be gained from the Pioneer carbon-capture-and-storage (CCS) project, which TransAlta is undertaking with Edmonton-based Capital Power, the Alberta and federal governments, and other corporate partners. Instead, the Calgary-based power producer hopes the commercial-scale demonstration project will drive down the cost of CCS technology, and pave the way for the continued use of coal in what it expects will be a carbon-constrained world.

TransAlta is still betting that North American governments will respond to the threat of climate change by putting a price on carbon, either through a cap-and-trade system, a tax or regulatory limits on emissions. However, in the absence of aggressive government regulations, the business case for investing more than $1-billion in the CCS vanishes. And prospects for government action have dimmed considerably – at least in the short term.

International climate talks in Cancun this week appear to be foundering on the rocks of national self-interest and the governments' preoccupation with the twin crises of rising debt and chronic unemployment. The big gains by Republicans in the mid-term elections – including taking control of the House of Representatives – present new political obstacles to the Obama administration's intention to impose national regulations on emitters. And without clear progress in the United States, the Harper government will not pursue aggressive new climate policies.

Given that uncertainty, business leaders will have to face up to the need to reassess their assumptions about future carbon costs.

With the shift in the political winds, "there is more certainty that there will not be a carbon price for the foreseeable future in the U.S.," says Divya Reddy, climate change analyst at Eurasia Group, a Washington-based political risk consultant.

"Given that the U.S. has not imposed a cap, it becomes harder for other countries to unilaterally impose one due to competitiveness issues. I'd expect to see more climate policy backsliding globally."

Many businesses will hunker down and make the "safe bet" investments like energy efficiency and natural-gas-fired power for utilities, she said.

But corporate strategists still need to play the long game. There are no certainties. But rather than be lulled into complacency by the current political impasse, they need to plan for the high probability that they will facing rising carbon-related costs over the medium to longer term.

Even in the short term, many consumer-oriented companies are capitalizing on the marketing power of sustainability commitments. And that effort is being felt through the global supply chain, all the way back to producers of commodities like oil and coal. At the same time, states and provinces are implementing a patchwork of climate policies that will affect businesses.

In Cancun this past weekend, scores of global business leaders gathered to talk about strategy in a "carbon-constrained world," despite the increasing likelihood of stalemate at the political level. Executives from Dow Chemical Co., Bank of Nova Scotia, 3M Co., Nike Inc. and Coca-Cola Co. met to give out environmental awards and discuss their actions to drive energy efficiency, demand sustainability strategies from suppliers, reduce their use of water and oil, and finance efforts to reduce emissions and adapt to climate change impacts.

The upbeat mood among business people is a stark contrast to the gloom and tension surrounding the official negotiations. In awarding "Gigatonne" prizes at a dinner at Cancun's Ritz-Carleton Hotel on Saturday night, Virgin Group founder Sir Richard Branson urged the global politicians to embrace sustainable environmental policies that provide incentives to business to invest.

"The world's leaders need to embrace the fact that there does not need to be a tradeoff between the economy and the environment," he said.

Capital investment is a long-term venture, with the typical industrial plant or office building lasting 40 years or more. Unless the vast majority of the world's climate scientists are completely mistaken about the impact of rising concentrations of greenhouse gases in the atmosphere, the smart bet is that the cost of carbon emissions will rise in North America. It will just take longer to than had been expected as recently as two or three years ago.

And carbon constraints translate into costly adjustments for energy-intensive producers like refineries, utilities and oil sands companies, and rising electricity and fuel prices for energy consumers.

Business groups from the Canadian Council on Chief Executives, which represents large firms, to the more broad-based Canadian Manufacturers & Exporters, have urged corporate planners to factor into their planning the likelihood of rising carbon costs over the long term.

That's the calculation behind TransAlta's ongoing commitment to the Pioneer CCS project, says Don Wharton, the company vice-president for sustainability. The partners expect it will cost about $90 a tonne to capture CO2 from the Keephills plant, a figure they hope to cut in half through technological improvements.

Mr. Wharton says TransAlta is now assuming carbon costs will be $40 to $50 a tonne by 2025, making CCS a good bet for coal-fired power plants. That will require governments to impose carbon regulations, he conceded.

While the odds have shifted, it's a long-term bet that all but the most entrenched climate skeptics are still prepared to make.

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