The Cost of Carbon
The concept of zero-cost emissions is behind every corner of our global economy: from single-use plastics, to our reliance on transportation systems running on fossil fuels, to fast fashion, and waste removal systems built on networks of landfills.
Given that the science now shows emissions were never actually free —and in fact emitting excess greenhouse gases (GHG) may cost us our planet — the most straightforward policy to incentivize the right kind of sustainable change across the entire global economy is to set a price for carbon; that is, tax emissions. By establishing a cost of emissions, everyone from individuals to industries, will be forced to reconsider their operations, catalyzing a demand for, and shift to, renewable and sustainable business and manufacturing practices.
While many countries have already built in carbon pricing policies-- we don’t have any sort of global consensus, and the major emitters continue to do so without penalty. What follows is an exploration of a carbon pricing policy and some of the roadblocks to its adoption.
First, to level-set on mechanics: scientists agree that climate change has been caused by an excess of GHG emissions in the atmosphere, warming the planet at a tremendous rate, and disrupting the existing ecosystem that has thus far allowed for life to exist on this planet. Of all the GHG, carbon dioxide is both the most prevalent and the most potent, as carbon remains in the atmosphere for hundreds of years. So — incredibly — much of the carbon dioxide that is currently warming our planet is from the Industrial Revolution.
Carbon dioxide is a byproduct of all sorts activities, from the types of food we eat and clothes we wear, to how we get around. For example, a plane flight from LA to NY generates an average of 135 tons of CO2 as it burns jet fuel across the country. CO2 output is exponential: for every gallon of jet fuel burned, about three pounds of CO2 is produced. A nerdy chemistry refresher:
It is generally agreed that there is an excess of two trillion tons of carbon in the Earth’s atmosphere, the byproduct of the growth of a global economy that never had to think about the cost of emissions. For a long time we did not fully understand the consequences of designing a world around zero-cost emissions; this is most evident in our consumer habits. We went from societies who owned a few pieces of clothing, and mended them until they fell off our backs, to owning hundreds of items, and throwing them in landfills when they went out of fashion. We went from eating what produce we could find in season, to having bananas shipped from Brazil and apples from South Africa all year-round. Our global supply chains, financial systems, and governments are all predicated on the fact that there has been no cost to emit and inject GHG into our atmosphere.
Now that we know these behaviors are threatening to destroy life on this planet, is imperative to develop policies to mitigate such consequences. We cannot simply operate business as usual: warming the planet beyond 1.5 degrees centigrade would unleash disastrous outcomes, from widespread food shortages, extended heat waves, loss of coastal areas, and mega-storms.
A carbon tax is the most straightforward policy because it gets to the heart of the issue: it forces those who emit the most to change their behavior in order to avoid inordinate costs. To create a carbon tax, we need to first develop the price for carbon. Price estimates have ranged everywhere from a few dollars a ton to $400/ton. Some policy models have prices that are completely arbitrary.
Recently there has been a wave of companies committing to going carbon-neutral; that is, committing to remove as much GHG from the atmosphere as their business operations emit — Google has actually been carbon-neutral since 2017 — but to date, the only real way to do this is by buying offsets, and that price is well below the expected market rate. Individual consumers can also buy offsets; again here the price per ton is a lot lower than what economists would expect to create any kind of real disruption in the market.
Why has it been so hard to agree on the price of carbon? Because it could bankrupt entire companies, and, in some cases, industries. Imagine if ExxonMobil had to pay $100/ton for all of the carbon they emitted as a company (from 2005–18, ExxonMobil emitted an average of 127MM metric tons per year; at a price of $100/ton, the cost of just thirteen years of emissions, therefore, would be $165B. For reference, the company’s current market cap is $183B).*
Similarly for the US agricultural sector, where most farmers are already receiving heavy government subsidies just to stay in business, or the airline sector — perpetually operating on thin margins — a high price for carbon could put many companies out of business, while destroying entire cities and the communities that rely on those businesses. That said, the US Secretary of Agriculture recently acknowledged the need for a carbon price, and some airlines have jumped on the carbon-neutral bandwagon. A recent announcement from Delta said it will spend $1B over the next ten years to go carbon neutral. Since Delta currently emits 40 million tons/year, that comes to a price of $2.50 per ton. While that won’t be nearly enough, it is indeed a start.
A carbon pricing policy is therefore a simple tool to adjust the market, but because of its disruptive potential, could have adverse outcomes for those involved in heavy emission industries and businesses. Everyone, from policymakers to individuals, is going to have to decide if we are willing to go through the the pain of reorganizing our economy to be carbon-neutral now, or wait until the tumultuous effects of climate change force our hand. The problem with waiting is it may be far too late once the greatest effects are realized.
I do want to end with some positivity, however, because, despite all of the doomsday predictions out there all, it’s important to understand that a net-zero economy is possible. One of the key mechanisms to reach net zero global emissions by 2050 will be to deploy carbon capture technology at wide scale. Carbon capture technology removes carbon from the atmosphere and stores it permanently (in the ground, or offshore, below the seabed). The technology has advanced so much that there is already a natural gas power plant prototype that has zero emissions, with the only byproduct being fresh water. Employing this technology in the industrial sector, responsible for 40% of global emissions, is a strong way to significantly start decarbonizing the global economy. Greater global policy support for widespread use and development of this technology (in the US, 45Q) is one way to nudge the conversation of pricing carbon forward.
See further resources on Carbon Removal.
*Price as of March 9, 2020 11 AM; “market cap” or market capitalization, is the product of a company’s shares outstanding multiplied by the share price, and is used as a measure of a company’s valuation. With the recent dramatic drop in the price of oil, and subsequent decrease in share price, ExxonMobil’s valuation has been hit hard, losing $17B so far. Given such a high correlation to commodity price volatility, going carbon-neutral may appeal much more to some oil and gas executives today!
