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Surprise: many companies already have internal/shadow carbon pricing! Here's how to use leverage more carrots & sticks to make it universal.


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Summary

To the surprise of many policymakers, numerous companies already use internal or "shadow" carbon prices. They are not the carbon taxes or emissions trading systems that first come to mind when discussing carbon pricing, but they nonetheless attempt to capture the external costs of carbon pollution. According to one survey of businesses around the world and news accounts, these companies are using internal carbon prices as a tool for evaluating investment choices, funding sustainable practices, encouraging money-saving efficiencies, and spurring innovation within their operations.                                                                     

That is, a significant portion of the corporate private sector is already preparing for the global policy-driven transition to a low-carbon economy, which will bring with it changes to the legal, regulatory, and broader social landscape that will affect their bottom line. Although many companies continue to call for governmental action to establish certainty and stability through a formal, national carbon pricing system, those with footholds in the U.S. are not waiting for Uncle Sam either.

These internal carbon pricing systems are a promising development, one that we can and should promote. Doing so will also increase the demand for governmental action as a way to reconcile the different pricing schemes, stabilize the overall field, and ease the transition to legislatively-required carbon pricing systems.

My proposal would do just that—spurring the adoption of carbon pricing throughout the private sector—by leveraging political and financial incentives that do not necessarily hinge on congressional action. These possible steps include business coalitions promoting the practice and its money-making potential throughout the private sector, elected leaders using their executive authorities, influential figures using their bully pulpits, and state leaders putting state corporate subsidies on the table as carrots and sticks.


What actions do you propose?

I. Background

The corporate private sector has already begun to prepare for the global policy-driven transition to a low-carbon economy, which will bring with it changes to the legal, regulatory, and broader social landscape that will affect their bottom line. A key development is that internal or "shadow" carbon prices are already well underway in many companies as a tool for evaluating investment choices, funding sustainable management practices, encouraging money-saving efficiencies, and spurring innovation within their operations.

Microsoft, for example, has instituted a novel carbon-fee-chargeback model that charges an internal fee to its business groups responsible for carbon emissions associated with their use of Microsoft data centers, software development labs, offices, and business air travel. The money is then put towards offsetting those emissions through renewable energy and offset projects. As another example, the Bank of Montreal has long been monetizing the value of carbon-emissions savings (based on an internally established price of carbon) and including the benefits in all their energy-related business cases.

These internal carbon pricing systems are a promising development, one that we can and should encourage, support, and spread. They are no substitute for a legislatively-driven carbon pricing system, of course, but nonetheless they are an important step towards getting businesses to lower their carbon footprint. Moreover, it will increase the demand for governmental action as the different pricing schemes flower, which will magnify the need for a standardized system; stabilize the overall field; and ease the transition to carbon pricing established through legislation.

II. The Proposal

This proposal calls for doing just that: spurring the spread of carbon pricing throughout the private sector. The strategy is to look harder for the carrots and sticks to use and leverage what political and financial incentives are available, especially those that do not hinge on Congress enacting widely-supportable legislation.

The possible steps include the following:

  • Business coalitions promoting the practice and its money-making potential throughout the private sector.
  • Shareholder actions by institutional investors, such as pension funds, calling on public companies to implement their own pricing schemes (as well as follow SEC requirements to disclose their climate risks).
  • The Administration examining relevant statutory authorities to determine what executive actions may be taken in order to prioritize and advantage companies with sensible internal carbon pricing systems. Example benefits could be prioritization during a regulatory review process or a scoring advantage in the governmental grantmaking or contracting process. The Administration should then take those actions, in collaboration with outside players to build broad political support.
  • Elected leaders at state and local levels of government using their executive authorities to take similar actions.
  • State lawmakers putting state corporate subsidies on the table as carrots and sticks. (A comprehensive state-by-state subsidies tracker is available at http://www.goodjobsfirst.org/subsidy-tracker. As it shows, many major corporations receive generous state subsidies, providing state officials with negotiating chips—especially those in states with political environments more conducive to such action.)
  • Elected leaders at all levels of government and influential validators, particularly business leaders, using their bully pulpits to place promote the practice and amplify the message.

 

Through a coordinated and sustained push, we could take the movement mainstream and bring much of the rest of the corporate private sector onboard. As more companies disclose their wide-ranging carbon prices, policymakers and outside stakeholders would also benefit from the added information as they craft legislative and regulatory proposals.

That said, implementing the proposal would face challenges. As the CDP survey of companies reported, some of the respondents stated that they expect policy-driven carbon pricing systems to increase their business operating costs. Thus the practice itself could heighten awareness of similar concerns, potentially undermining broad political support. However, it is very likely that those concerns already are or would independently get on their radars, whether or not they implement internal carbon prices. Examples of financial and political benefits enjoyed by other companies can also be put on the "pro" side of the ledger of their cost-benefit analyses.

Another potential challenge is simple resistance by the rest of the private sector, which might have not implemented carbon pricing schemes—or do not wish to publicly discuss them—for reasons that cannot be overcome through the outlined carrots and sticks. However, it likely that the trend of more and more companies joining this movement will continue on, which will also help identify the reasons for the pockets of resistance and thus strategies for overcoming them.


Who will take these actions?

Coalition of key business leaders—including influential entrepreneurs, company executives, small business owners, scholars, economists, and pundits— would promote to their community and the media the virtues of carbon pricing, its potential to drive performance and create opportunity, and best practices.

Climate change advocacy groups and grassroots organizations would work with the business community to support this initiative and hold it accountable to broader climate change goals. They would, for example, provide policy expertise and analysis, messaging, and political support.

Institutional investors, such as pension funds, would engage in shareholder actions to pressure or compel public companies to implement their own pricing schemes.

The federal government should examine relevant statutory authorities to determine what executive actions may be taken in order to prioritize and advantage companies with sensible internal carbon pricing systems, such as prioritization during a regulatory review process or a scoring advantage in the awarding of governmental grants or contracts. The Administration should then take those actions, in collaboration with outside players to build broad political support.

Elected leaders at state and local levels of government should use their executive authorities in similar fashion as the federal officials.

State lawmakers may put state corporate subsidies on the table as carrots and sticks, e.g., threaten to cut existing subsidies if recipients do not comply. (A comprehensive state-by-state subsidies tracker is available athttp://www.goodjobsfirst.org/subsidy-trackerAs it shows, many major corporations receive generous state subsidies, providing state officials with negotiating chips—especially those in states with more favorable political environments.)

Elected leaders at all levels of government and influential validators, particularly business leaders, can use their bully pulpits to place promote the practice and amplify the message.


What challenges will be faced in implementing this proposal and how will they be overcome?

(Given that the webform restricts this section to 200 characters, it is addressed in the main proposal section.)


How much will emissions be reduced or sequestered vs. business as usual levels?

It would be difficult to quantify the potential savings in carbon pollution for several reasons, including the diversity of voluntary, private sector carbon pricing programs underway and the choice of some companies not to fully disclose their activities.

We do, however, know that some of the carbon pricing programs are clearly designed to curb emissions, such as Microsoft's carbon-fee-chargeback model that charges an internal fee to its business groups responsible for carbon emissions associated with their use of Microsoft data centers, software development labs, offices, and business air travel. The money is then put towards offsetting those emissions through investments in renewable energy and offset projects. As another example, the Bank of Montreal monetizes the value of carbon-emissions savings (based on an internally established price of carbon) and includes the benefits as part of every energy-related business case.


What are other key benefits?

The proposal's other key benefits include stimulating climate-friendly and socially responsible innovations in business operations or technical expertise that can be replicated by other companies; easing the sector's transition to policy-driven carbon pricing systems; and deepening the expectation throughout the sector that climate change mitigation and eliminating pollution is good for business—not just the socially desirable strategy that will garner kudos from the public and elected officials.

That said, the ultimate purpose of this proposal is political, even as these voluntary, internal carbon prices used by the corporate sector help curb emissions in themselves. It represents a new focus on a strategy to build support within the corporate sector for a national carbon pricing system (carbon taxes or emissions trading systems).


What are the proposal’s costs?

The financial costs borne by the business members of the coalition would likely be minimal, especially if they are already outspoken advocates of carbon pricing. Individual company expenses would depend on numerous factors, including the scope of actions taken and the nature of the company's products.


Time line

5-15 years: Building coalition and developing plans; implementing the initiative; and pushing more companies to formulate and institute their own carbon pricing systems. The coalition will continue working to build support and spur the voluntary adoption of carbon pricing throughout the corporate sector. Ideally, by the end of this time period, the U.S. government (as well as state and local governments) and nations around the world will have also begun to institute the policy-driven carbon pricing models that many companies are now seeking.

15-50 years: Adjust the strategy to help companies transition to a standardized legislatively-driven carbon pricing system, rather than each following their individual systems.


Related proposals

(None.)


References

World Bank, "What Is Carbon Pricing?", accessed June 13, 2015,http://www.worldbank.org/en/programs/pricing-carbon

World Bank, "Testing carbon pricing in Brazil: 20 companies join an innovative simulation," Dec. 10, 2014,http://blogs.worldbank.org/climatechange/testing-carbon-pricing-brazil-20-companies-join-innovative-simulation

CDP, "Global corporate use of carbon pricing," accessed June 13, 2015,https://www.cdp.net/CDPResults/global-price-on-carbon-report-2014.pdf

"Big corporates leading the way on climate change with carbon pricing," The Guardian, Sept. 15, 2014,http://www.theguardian.com/sustainable-business/2014/sep/15/businesses-ahead-governments-climate-change-carbon-pricing

"CEOs of 43 Companies, Including Allianz, Call for Action on Climate Change," Insurance Journal, Apr. 17, 2015,http://www.insurancejournal.com/news/international/2015/04/17/364818.htm

Center for Climate and Energy Solutions, "Taking action on climate change is good business strategy,: Jan. 30, 2015,http://www.c2es.org/blog/yej/taking-action-climate-change-good-business-strategy

Ceres, "Investors push SEC to require stronger climate risk disclosure by fossil fuel companies," Apr. 17, 2015,http://www.ceres.org/press/press-releases/investors-push-sec-to-require-stronger-climate-risk-disclosure-by-fossil-fuel-companies

Ceres, "Major U.S. Companies Call for Climate Change Action," Sept. 19, 2013,http://www.ceres.org/press/press-releases/major-u.s.-companies-call-for-climate-change-action

"Most U.S. Companies Ignoring SEC Rule to Disclose Climate Risks," Inside Climate News, Sept. 19, 2013,http://insideclimatenews.org/news/20130919/most-us-companies-ignoring-sec-rule-disclose-climate-risks