Bringing Shadow Carbon Pricing into the Light
By Julie Gorte
If you’re one of the 29 percent of Americans who oppose the Clean Power Plan, you’ve probably been told that taking any major action on climate change, whether it’s the EPA’s rules on carbon emissions from power plants, or something broader like putting a price on carbon emissions, will devastate businesses, kill jobs, and pull the economy into a tailspin.
It wouldn’t. Abundant evidence shows that cleaner electricity creates more jobs per dollar of investment than fossil fuels, and places that have implemented regulatory measures to reduce greenhouse gas emissions – notably, British Columbiaand the northeastern states participating in the Regional Greenhouse Gas Initiative (RGGI) –have done just fine.
It’s unchecked climate change that will hurt us. Warming of 5-6 degrees Celsius, the path we are on now if nothing is done, would put between $4-7 trillion in value at risk in the United States alone.
Moreover, some of the world’s biggest companies are actually ahead of the government and are prepared for significant action. And we’re not just talking about companies known for being environmentally friendly – we’re also talking about big oil firms, among others.
That’s a perfect reason why Congress should start working to pass a carbon tax – because if you think government should run like a business, a big part of that means planning for future risks.
More and more companies are now using carbon prices to do just that. In some cases – like oil companies – these so-called “shadow prices” are used to determine the sensitivity of the returns on prospective investments if carbon pricing mechanisms are implemented. In other cases – Microsoft or Ben and Jerry’s being two examples – funds are actually diverted to carbon reduction measures.
Businesses that find ways to reduce emissions throughout their operations often save money as a result, especially as the price of renewable electricity continues to fall. Internal carbon pricing is an easy way to ensure they’re factoring the costs of carbon emissions – and climate change – into everything they do, and cutting those costs as much as possible. Right now, the market is simply not accounting for the impact of greenhouse gases – what we call externalities, the costs or benefits of an action that, oftentimes, others have to deal with.
In fact, factoring environmental impact into corporate actions is just smart business. Recent research has shown that companies that use internal carbon prices and take action to reduce emissions intensity perform better financially.
Energy is a significant cost for any business. Why wouldn’t you want to invest in technologies to reduce those costs even more over the long term, and help avoid the economic threat from more severe weather events, higher energy or health care costs, or supply chain disruptions, all of which climate change makes more likely? A carbon tax would show companies that decarbonization is valuable.
While carbon pricing would be a significant shift, it also represents a golden opportunity to invest in the low-carbon economy. For example, we’ve already seen the price of solar panels plummet over the past decades, and the resultingjob growth in the industry. Why not take advantage of those trends, use them to power your operations, and save money over the long run?
More to the point, the experience of hundreds of companies already factoring carbon pricing into their budgets in one way or another shows that many businesses are ready for carbon pricing. A carbon tax would incentivize businesses to reduce emissions, and help avoid the economic catastrophe climate change represents.
This isn’t to say that just any pricing proposal would do. We need a price that is set high enough to truly reduce emissions and cover the entire economy. And we need to use that revenue to cut taxes for consumers or small businesses, support vulnerable communities, or invest in infrastructure – perspectives business groups like the American Sustainable Business Council also support.
All of this will help ensure that carbon pricing policies will have the biggest economic impact possible. Climate change is a threat, and we can’t afford to ignore it – but the idea that we have to choose between acting on it and spurring economic growth is a false choice. Businesses are already proving that.
Julie Gorte, Ph.D., is Senior Vice President for Sustainable Investing at Pax World Investments and is on the Board of Directors for the American Sustainable Business Council.
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