The case for valuing carbon is growing louder (even though ‘tax’ is still a dirty word)

The case for valuing carbon is growing louder (even though ‘tax’ is still a dirty word)

In July, when Florida Congressman Carlos Curbelo introduced a bipartisan bill that proposed a fee on carbon emissions, the business world spoke up.

More than 30 companies — including automotive mammoth General Motors, apparel makers Gap and Levi Strauss, food giants Campbell Soup and Mars and energy bigwigs BP American and Shell — swiftly penned a letter (PDF) praising the Republican lawmaker’s "thoughtfulness."

While they stopped short of supporting the specific structure of Curbelo’s "MARKET CHOICE" legislation, which would raise more than $300 billion for infrastructure investments, these organizations recognized the proposal as "an opportunity for both parties to engage in substantive dialogue on the risks and opportunities posed by climate change, and to craft legislative solutions in many different areas of the United States."

Here’s the thing. As of 2004, barely 1 percent of the world’s carbon dioxide emissions were addressed by some sort of tax, trading system or pricing mechanism that reflect the "cost" on society or the environment. Today, almost 20 percent are covered (or soon will be) by one of these models, according to data discussed last week during the "Business Case for a Carbon Tax" forum, an affiliate event linked to the Global Climate Action Summit (GCAS).

Many American politicians have an aversion to the word "taxes" — after all, the United States was created on the back of a tax protest — but increasingly, economists and businesses are talking up fees on the production of carbon as one of the most practical ways to incentivize a wide range of industries to quickly reduce emissions. 

"Carbon taxes are raising revenues around the world," said Helen Mountford, director of economics for the World Resources Institute and program director for the New Climate Economy Initiative, during the GCAS event. "It’s also a major incentive to innovate."

Cashing in on climate change action

While a national version of such a scheme in the United States is far from inevitable, the lack of federal leadership is inspiring more states (such as Washington, although it fell short of its latest effort earlier this year) and regions to consider or adopt their own plans. Companies across a variety of industries such as ExxonMobil and Microsoft have established internal "prices" on carbon to reflect for the value of their emissions impact within the budgets and financial models for their business units. Neither company wants to be caught off-guard if this becomes a requirement in the future. The call for placing a price on carbon is louder in Europe, with big pension funds calling for action; companies such as Dutch chemicals company Royal DSM are preparing proactively.

"We need more certainty; we need to be able to plan for the future," said Mary Ellen Mika, director of global compliance and sustainability for United States-based furniture company Steelcase, which participated in the forum. "It’s not a good situation to be surprised." Addressing the need for a federal level policy, Mika said a "hodgepodge" of regulations would be difficult to manage.

"Right now, there is a national price, but we really don’t know what it is. There is a patch of policies. Having a clear signal would be advantageous," said Nick Schulz, director of stakeholder relations, public and government affairs for ExxonMobil, who also participated in the forum.

What would the ideal system look like? Plenty of organizations have plenty of suggestions.

One of the more intriguing proposals comes from the Climate Leadership Council, a bipartisan group behind the "Carbon Dividend" plan dreamed up by former Treasury Secretary James Baker and former Secretary of State George Shultz.

Their system would tax carbon starting at $40 per metric ton and rising over time, with "returns" going back to American families. The $40 number is considered to be on the high end of what's "politically feasible" in Washington. The idea is to get people comfortable with the idea and raise that amount over time. The council figures its plan would bring reductions of 32 percent — a far steeper curve than emissions cuts hoped for under the apparently doomed Clean Power Plan created by President Barack Obama. Its corporate supporters include GM, Johnson & Johnson, PepsiCo, Procter and Gamble, BP, ExxonMobile and Royal Dutch Shell.

Conversely, the Curbelo plan would set the price starting at $24 per metric ton. In a report issued last week, global policy forum OECD said many current taxes are too low to cut emissions to the levels suggested by the Paris Agreement. The suggestions vary wildly, from $1 to $7 per ton (a Trumpian vision [PDF]) to $50 per ton (the amount named in a Democratic proposal). Another new analysis suggests $237 per ton as the magic number.

"Pricing carbon correctly is a concrete and cost-effective way to slow climate change," said OECD Secretary-General Angel Burria in a statement. "We are wasting an opportunity to steer our economies along a low-carbon growth path and losing precious time with every day that passes." New initiatives that are about to take effect in China, Canada and France could help close the gap by providing more economic incentives to value and address emissions, the OECD reported.

Steve Hams, director of engagement for Business Climate Leaders (BCL), which organized the GCAS forum in partnership with consulting firm Richard Eidlin, said his organization considers the following "best first steps" as essential pieces of a framework for taking action:

  1. A fee of at least $15 on fossil fuels at the source, rising by $10 per ton over time
  2. A scheme to return the revenue to U.S. households
  3. A border adjustment that would be charged on goods imported from countries without an equivalent price on carbon

BCL is encouraging organizations to sign the Carbon Pricing Principles, which describe a preferred scenario for a nationwide system. Among the recommendations: that the price signal is "strong enough to reduce the need for future regulation of carbon emissions," that it "incentivizes comparable action by other nations" and that it preserves access to "reliable, affordable energy."

Many policies being floated in Washington, D.C., are conservative in nature and optimistic in their fiscal projections — with some suggesting it could infuse the U.S. economy with anywhere between $1 trillion and $2 trillion over the next decade, according to Alex Flint, executive director of the Alliance for Market Solutions. However, the proposals also have a regulatory pullback component, which many environmental groups fundamentally oppose.

Greg Bertelsen, senior vice president of the Climate Leadership Council, countered that view, noting that one of the most potentially impactful regulation passed in the last decade — the Clean Power Plan — has been caught up in a legal mess that has been a drag on the business world. This scenario is likely to be repeated at the local, stage and federal level as political control seesaws back and forth.

"The rules are never implemented, and it’s a lose for business because they never know what the policies will be," he said.

In contrast, a carbon tax framework would provide cover for Republicans that are waking up to the importance of having a position on climate change, notably those who are part of the bipartisan, two-year-old Climate Solutions Caucus. "This is something both parties want," Bertelsen said. "To the extent that the Republican Party wants to stay relevant with the millennial population, they need to pay attention."