Skip to main content

Policy Matters

How to build business support for a price on carbon

Recently protestors held massive demonstrations in New York City surrounding the United Nations Climate Summit 2014. The goal of the summit was to mobilize the international community in preparation for next year's climate meeting in Paris, and protestors wanted to show their support for strong action to reverse climate change.

Meanwhile, many in the business community — who tend not to rally in the streets — are coalescing around a program to price carbon put forward by of all players, the World Bank.

Pricing carbon may be legislation non grata in Congress, but much of the rest of the world has taken a different tack. According to the World Bank's Pricing Carbon program, close to 40 nations and more than 20 sub-national jurisdictions have implemented or are preparing to implement a price on carbon or an emissions trading program. That includes places such as Boulder, Colorado, where voters renewed their city's carbon tax in 2012.

Best of all, hundreds of businesses, including energy giants such as GDF Suez and groups like the American Sustainable Business Council, have joined on to the World Bank's statement in support of a price on carbon. Many more have included a "shadow price" [PDF] on carbon in their investment decisions, essentially showing they understand climate change will affect their operations in the future, regardless of what governments do (or don't do).

What does all of this mean? It means that, despite the hysterical claims that pricing carbon would be devastating to the business community, more and more companies have seen the writing on the wall: Climate change is real, and a price on carbon is one of the best ways to stop it.

Creative carbon pricing

For one, a price on carbon would be the simplest way to cut carbon emissions. For all the good the Environmental Protection Agency's proposed rules on power plants will do, states will have a lot of work to figure out how they'll comply, and their plans will not all be the same. That would not be the case with a price on carbon: for each ton of carbon, a fee gets paid. Simple as that.

And it is powered by a fundamental economic principle: Adding costs to something means people use it less.

Take smoking. After the federal cigarette tax jumped 62 cents a pack in 2009, the number of smokers dropped by three million over three years. The same principle would apply to carbon.

What of the economic arguments against pricing carbon? As is often the case, theories abound. But the evidence suggests that fears are overblown, especially if it is combined with other intelligent economic policies.

For example, the Canadian province of British Columbia elected to cut other taxes when they levied a price on carbon in 2008. As a result, fuel use plummeted, and its GDP grew faster than the rest of the country's.

As is often the case, the devil is in the details. We could follow British Columbia and cut other taxes, particularly making use of options to avoid burdening already-vulnerable Americans , such as increasing earned income tax credits or offsetting sales taxes. Another alternative would be to use the money for investment in infrastructure, clean energy, or other priorities. That could do a great deal for job creation, which remains stubbornly slow. One idea, investing the funds in research and development, can even be popular among Republicans.

The bottom line is that there are so many variables that can be brought into this discussion. Just saying we need to price carbon is only the first step; figuring out the details, including the actual price and where the money would go, is the important part — and that's a discussion we will continue to have.

Nevertheless, we know pricing carbon can actually provide an economic boost, depending on how it's implemented. And that's before taking into account all of the dangers climate change poses to the economy — such as rising health care and energy costs, infrastructure damage and coastal flooding — that a price on carbon could help alleviate.

If events in New York have shown anything, it's that there's a great desire among a lot of people to see action on climate change. And if the past few years in British Columbia have proved anything, it's that this action can be good for the economy, not just the planet.

Now is the time for business owners to get engaged: Sign the World Bank statement,submit a comment in support of the EPA's carbon rules and join the UN's Business Leadership on Pricing Carbon initiative.

And that's just the start. The toughest opposition to addressing climate change stems from the fear that we can't afford it, that it will be bad for business. The best people to prove that wrong are business owners.

Top image of smokestacks burning money by milo827 via Shutterstock.

More on this topic