Carbon Pricing: The Economic Future
By Julia Renner, Programs Fellow
Carbon emissions carry a hefty cost. The warming caused by emissions disrupts natural systems, leads to sea level rise, and contributes to an increase in catastrophic weather events like hurricanes, floods, and fires. Social costs include health problems and the pushing of people dependent on natural resources into poverty. And emissions have economic impacts including lost profits from the disruption of supply chains and depletion of resources due to climate change and natural disasters.
One option for businesses of all sizes to take action is to implement an internal carbon price, which translates the external ecological, social, and economic costs of carbon emissions into a concretely defined, internal economic cost.
What are my options?
Businesses have several options for how to work a carbon cost into their operations.
A shadow pricing strategy adds the assumed cost of the carbon emissions from a project to the profitability projections, allowing you to test-run projects under the variety of carbon pricing and capping scenarios that may define the future as more governments and organizations implement mandated carbon pricing and caps.
Assigning an internal price to carbon involves determining a fixed cost per metric ton of emissions so that the cost can be incorporated into profit-and-loss calculations. This provides an incentive for your business to be creative in making emissions cutbacks.
When you assign an internal fee involving reinvestment, departments within your business are charged based on emissions and the resultant fees are used to invest in clean technology and carbon reduction projects.
Social and financial perks
An internal carbon fee may seem like an unnecessary financial burden to impose on your business. But carbon emissions carry costs whether or not businesses opt to take action on them. Placing an internal fee on emissions distinguishes your business as socially and ecologically conscious, willing to take responsibility for the very real impacts of your emissions.
An internal carbon fee still has economic advantages, the most powerful of which is the ability to future-proof your business against the uncertain future of carbon taxes, fees, and caps. By voluntarily implementing an internal carbon fee before it becomes mandatory, you gain resilience, flexibility, and experience.
In implementing an internal carbon fee, you become a leader for your community, bringing external policy issues into your business and turning yourself into a role model for sustainability. You provide a market signal and become a resource for other local businesses.
There are numerous resources available for businesses that want to start placing an internal price on carbon. CABA’s Member Action Guidebook is designed to help businesses quantify and understand their carbon emissions footprint, and give them concrete tools to implement an internal carbon fee. For example, our bSPaRK tool allows businesses to achieve measurable results in sustainability performance across several categories, helping reduce their climate impact while also improving their bottom line.
The Carbon Disclosure Project brings together companies committed to placing a fee on carbon as members of their Carbon Pricing Champions team. Participating companies, in addition to implementing a carbon fee, act as public advocates for carbon pricing and publish reports detailing their work.
We Mean Business is a collective of 596 companies that have made 1,030 commitments to climate action. They mobilize to reach ambitious carbon reduction targets, target meaningful legislation, and form influential partnerships with investors and political entities.
For more information on how to begin your business’s journey towards sustainability and carbon neutrality, contact CABA.
About the author: Julia is a senior at Northeastern University, majoring in environmental science with concentrations in marine and conservation science and a minor in English. She has previously worked as a Commonwealth Wind Fellow at Massachusetts Clean Energy Center and conducted ecological research at Northeastern University’s Marine Science Center and the Martin Ryan Marine Science Institute in Galway, Ireland. Julia is interested in climate policy, carbon pricing, and climate adaptation and resilience. In her free time she can be found outside running, biking, scuba diving, and spending time on the seashores around Boston.