Microsoft leads the way with innovative carbon fee model

Editor's note: Tamara DiCaprio will be presenting a One Great Idea on Microsoft's carbon fee model at the GreenBiz Forum in New York (Feb. 19 to 21).

Last July, Microsoft implemented a carbon fee model for emissions that applies to data centers, software development labs, offices and air travel. Under the new plan, the internal cost for electricity use or air travel, for instance, now includes not only the price the business group pays for the service, but also the price it pays to offset the carbon emissions associated with it.

The fee for carbon emissions goes toward an investment fund that is used for a variety of efficiency, renewable energy and offset projects that help the company reach its set goal of becoming carbon neutral by the middle of the year, said TJ DiCaprio, senior director of environmental sustainability at Microsoft. She spoke with GreenBiz about the innovative model, its aims and the challenges involved with such an undertaking.

Alison Moodie: What are the key aims of the carbon fee initiative?

TD: The carbon fee model provides a needed path to integrate environmental priorities into our business planning structure — it's a practical example of aligning people, planet and profit. It represents an incentive for business groups to reduce their emissions: When the otherwise external cost of offsetting carbon emissions is included in a project financial analysis through the carbon fee, efficiency projects benefit. Ultimately, we hope this example of private sector environmental policy can play a role in influencing and driving public policy by demonstrating a new approach to managing carbon impact.

AM: It seems like an unusual plan. How did the idea for the platform come about, and is it based on any existing models?

TD: Microsoft understands that its business model supports the use of technology, which requires use of energy. The technology sector is responsible for 2 percent of global emissions, and is growing. As a result, Microsoft realized that the first step to demonstrate environmental responsibility was to be part of the solution. And that started with getting its own house in order, by driving efficiency across the organization and reducing net emissions. The most obvious way to do this was to include the cost of reducing emissions in our financial model. To do that we needed to put a price on carbon and cascade that cost across the business groups to integrated into their financial planning.

In addition, policy is playing an essential role in global efforts to contain and mitigate the effects of carbon emissions and associated climate change. To date, the majority of environmental policy has been implemented through the public sector — in particular, governmental regulations mandating that organizations report their carbon emissions and, on occasion, pay fees or taxes based on those emissions. However, private environmental policies are playing an increasing role, empowering organizations to demonstrate their commitment to environmental responsibility and embed environmental factors into their business planning.

While this may seem like an unusual approach in the private sector, we were inspired by a number of public policies around the world, including California's cap-and-trade program, Australia's Clean Energy Act and the European Union Emissions Trading System [EU ETS].