TOO COSTLY NOT TO PAY FOR CARBON?
That carbon emissions carry considerable external costs in collateral damage both to the environment and to the public is certainly not news, nor is the importance of equitably allocating those costs. Indeed, the World Bank, like many global entities, suggests putting an actual monetary price on carbon emissions in the form of a plain old tax, arguing, “A price on carbon helps shift the burden for the damage back to those who are responsible for it, and who can reduce it…In this way, the overall environmental goal is achieved in the most flexible and least-cost way to society.”
Greg Barker of the Carbon Pricing Leadership Coalition, speaking at the COP26 conference last November, reported to CNBC that 69 countries had implemented such a levy ranging from $1 to $139 per metric ton, although the U.S. is not currently among them. Perhaps Congress fears the ramifications of an outright carbon tax on energy prices and the broader U.S. economy. However, by avoiding that bitter pill, it ironically could miss an opportunity for robust national growth.
Fortunately, individual states are free to experiment with their own mechanisms for enacting restitution for carbon emissions, and at least one has evidently been rewarded for its efforts. Since the inception in 2006 of its cap-and-trade program—whereby offending facilities trade credits and allowances to offset their polluting activities—California has enjoyed a steady decrease in emissions while both its population and its gross state product have soared, as shown in the chart below from the California Air Resources Board. The Environmental Defense Fund explains that, among other things, the program “is directly benefitting residents through climate investments from auction revenues, new clean energy jobs, and local air quality initiatives.”
Of course, not every state can be or even desires to be as ambitious as California, so it is commendable that, in a show of true American initiative, even private entities have implemented internal carbon-pricing programs. The CDP (formerly Carbon Disclosure Project) reported that more than 2,000 of the companies that it surveyed in 2020 either had implemented an internal carbon-pricing scheme or planned to do so by this year.
Increasingly, corporations realize that using this sort of economic trigger to indicate how much social cost they can alleviate demonstrates a commitment to environmental, social, and governance (ESG) concerns, broadening their appeal. Costs have traditionally been deemed something to avoid or minimize, but embracing the costs of carbon emissions may actually be one of the better decisions that a business can make.