Appropriate Pricing Carbon Levels Playing Field, Reduces Energy Use

by | Sep 18, 2013

It’s back to school time, and that can only mean one thing in the business world—budget planning for next year. As I pour over spreadsheets, analyzing the viability of existing offerings and future opportunities, my marauding mind makes its way to the topic of our nation’s balance sheet and the clear lack of environmental externalities contained therein.

If sustainability metrics continue to be divorced from the way we measure our country’s GDP and ongoing financial viability, we will put ourselves out of business. And, despite how difficult this may be to accept, there is only one clear solution—appropriately pricing carbon.

In our ever-evolving global economy, countries that place a price on carbon will win for two reasons: first, because they will level the playing field for sustainable companies, green lifestyle choices, and clean energy sources, thereby reducing energy use, saving quickly diminishing water resources, and decreasing overall operating costs; and, second, because they will invite, enable, and embrace further sustainability innovation.

There are a variety of carbon pricing programs employed today by enterprising (or perhaps just intelligent) countries and municipalities across the globe. The most commonly accepted approaches include mandates (which require businesses and individuals to meet certain efficiency standards or utilize specific renewable energy sources) and tax incentives (which generally include accelerated depreciation, credits, or exemptions for the purchase of items such as hybrid cars, renewable energy systems, and energy efficient products.)

Other approaches are more controversial, such as cap-and-trade programs, which set limits on the total amount of emissions allowed in a particular jurisdiction, and then enable emitters to trade or sell their surplus to others. While the efficacy (and ethicality) of cap-and-trade systems is still under scrutiny, they do allow emitters the flexibility to minimize costs either through direct compliance or by paying others to do so.

Perhaps the most heated debate in the US is around a straight carbon tax, which is applied to all greenhouse gasses in an effort to control and mitigate the effects of climate change. Carbon tax enthusiasts emphasize the ease of administration and predicable costs of this approach. Critics are dubious about the effectiveness of carbon taxes on emission reductions relative to the financial burden.

To find examples of successful carbon pricing programs, we need to look no further than California and Colorado. California, the world’s 9th largest economy and second largest carbon market, has implemented a cap-and-trade market that is forecasted to reduce carbon emissions by 16% between 2013 and 2020.

In 2007, Boulder, Colorado instituted the first energy tax in the country imposed by a municipal government with the sole purpose of mitigating the effects of climate change. The tax is paid for by residents and businesses, collected by the energy provider, and then remitted to the municipal government. City officials estimate that the tax has generated $1.34M, which will be used by the Public Benefits Fund to support clean energy efficiency and transportation projects. It’s important to note, however, that the direct affect of the carbon tax on pollution reduction is undocumented.

Australia and British Columbia also have implemented carbon taxes. Australia’s system, implemented in 2012, targets the country’s worst emitters (500 largest businesses emitting more than 25,000 tons of CO2 annually) and does not include residences. Reports show a clear and direct link between the tax and decreased carbon emissions.

British Columbia instituted a carbon tax in 2009, in which the government returns all revenues to taxpayers through personal and corporate income tax. This system effectively taxes pollution while stimulating the economy. The tax has led to a 15% decline in petroleum fuel consumption (projected to decrease to 33% by 2030) and a corresponding reduction in emissions. Simultaneously, British Columbia’s economy has outpaced the rest of Canada and the US.

Oregon and Washington are exploring ‘tax-and-shift’ system, modeled after British Columbia’s program, which would tax carbon emissions while reducing corporate and personal income tax rates. According to a study conducted by Portland State University, the program is expected to generate $1 billion a year in new revenues in Oregon alone.

From Australia to Scandinavia to Japan, countries around the globe are finding creative solutions to price carbon, create positive sustainability incentives, and generate revenues that are allocated towards clean energy projects and enabling technology. I suspect that groundbreaking progress in the US will be made not at the Federal level, but rather by pioneering states like California, Oregon and Washington. I, for one, will be looking to the West Coast for solutions that will finally allow us to balance our books and include the environment in our bottom line results.

Sara is the Co-Founder and CEO of Green Builder Media. An experienced entrepreneur, investor, and sustainability consultant, Sara specializes in developing companies that are simultaneously sustainable and profitable. Sara is a former venture capitalist and has participated in a portion of the life cycle (from funding to exit) of over 20 companies. Sara graduated Cum Laude from Dartmouth College and holds an MBA in entrepreneurship and finance from the University of Colorado. This article was reprinted with permission from Green Builder Media.

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