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Kate O.

Jul 17, 2015
12:03

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It should be noted that on July 13, 2015, Ms. Adele Morris, one of the judges, published this item: http://www.brookings.edu/blogs/planetpolicy/posts/2015/07/13-carbon-footprint-governement-shadow-prive-morris. "Why the federal government should shadow price carbon."

Elizabeth Fisher

Aug 1, 2015
12:52

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Most companies who do shadow pricing have continued on with Business as Usual. For example Shell's $80/ton shadow price still allows for drilling in the Arctic. Virtually all the big polluters have a shadow price and here we are. What would cause change? Perhaps an Early Reduction Credit, as was afforded in the Clean Air Act Amendments of 1990 could be a carrot that would work for carbon as well. In that program, companies who voluntarily reduced emissions early on were given an extended deadline for having to install MACT (Maximum Achievable Control Technology) on their toxic air emissions sources, even if that early reduction was not as much as what would have resulted with MACT. The principal applied was like the time value of money... it was the time value of emissions reduction.

Kate O.

Sep 4, 2015
02:12

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Great question, lizfisher. As a start, I would dispute 1) your premise that the "big polluters" constitute "most companies" as well as 2) the implied assertion that shadow pricing has long been widespread (or at least in existence) in the private sector with no change in the political status quo.

On the first point, it should be noted that different industries are preparing in different ways for the effects of climate change (e.g., altering production site decisions) and/or policy-driven carbon pricing (e.g., factoring in current or potential future carbon prices, depending on jurisdiction). The Coca-Colas and Googles of the world are not the Exxons and BPs. Why is that important? One reason is that we want to support more of the kinds of reforms that, for example, Microsoft has taken to curb its internal emissions. Another reason hinges on the broader advantages of fracturing a monolithic corporate sector for mobilization and political strategy purposes. (The proposal points to other benefits, as well as the Microsoft case study.)

On the second point, shadow pricing does not yet appear to be widespread, or at least publicly disclosed; as the Carbon Disclosure Project surveys of companies (example report) showed, the practice is far from universal. (That said, those CDP reports focused on voluntarily disclosed information, so it's possible that more companies have quietly instituted shadow pricing. However, there are benefits to compelling public disclosure - such as creating public commitments and pressure points that outside advocacy groups can leverage.) The question "why bother trying when it's business as usual" might also be addressed to proponents of proposals such as the many carbon fee & dividend or some other revenue neutral plan -- variations of which have long been out there.

As to some of the benefits of promoting shadow pricing in the private sector, I will just include what one of the contest judges wrote on the topic in July:

http://www.brookings.edu/blogs/planetpolicy/posts/2015/07/13-carbon-footprint-governement-shadow-prive-morris

Why would companies do this? Economists widely argue that imposing a price on greenhouse gas emissions, such as through a tax on the carbon content of fossil fuels, is a crucial measure to control the growing risk of global climatic disruption. Carbon shadow pricing is an explicit way to anticipate such future policies and avoid stranded or inefficiently allocated capital. By analyzing capital expenditures and other important corporate plans with an eye to future regulatory or tax conditions, firms can manage the economic risk of a carbon-constrained future and assure shareholders and the SEC they are appropriately forward-thinking. This is particularly important for companies that invest in energy-intensive long-lived facilities such as power plants and oil refineries. Second, shadow pricing is a concrete way to signal to investors and the public that a firm takes its commitment to climate change mitigation seriously. It can also induce more consistently cost-effective abatement than alternative approaches such as targets for renewable energy procurement or internal energy efficiency standards.

[....]

Second, the government could use the process by which it develops its shadow pricing policy to catalyze an even broader public discussion. Although hard to quantify, the spillover potential of the federal government’s leadership could be substantial as it would raise the profile of shadow pricing, provide practical approaches that other entities can adopt, and further prove the principle that carbon pricing can cost effectively reduce emissions. At the very least, the policy would draw the attention of the firms that receive the over $500 billion in federal contracts annually. With thoughtful stakeholder outreach, the impact could be even broader.

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