One way to sell a tax on carbon: Cut other taxes

We need jobs to keep the economy going. We need companies to create those jobs. We don’t need carbon pollution. 

So why tax the things we need, like jobs, with a payroll tax? Why not tax carbon instead?

That, said Nigel Topping, CEO of the We Mean Business Coalition, is one conversation gaining traction and beginning to lead to a consensus about the benefits of carbon pricing.

“I talk with a lot of Republicans. They say we need fiscal reform. We should not be taxing things we need,” he said in an interview with GreenBiz during the Climate Action 2016 summit in Washington, D.C. “Why do we tax jobs? Why don’t we tax things we don’t want?”

As of May, executives from 1,000 companies have stated they want a price on carbon, agreeing to take actions with the the Carbon Pricing Leadership Coalition organized by the World Bank. 

Moreover, according to CDP which tracks corporate sustainability action through self-reported surveys, about 900 companies are using or soon will implement an internal price on carbon in their accounting, using it for such things as planning capital expenditures and manage risk. That’s double the number of companies signed on in September.

Conversations about carbon pricing are happening with increasing frequency among business executives and among government leaders in Europe, the U.S., Canada, indeed around the world as interest in driving investment in a low-carbon economy mounts.

The Chinese government is building a cap and trade system. Chile has one. Brazil, Russia and Thailand are all developing them. The European Union is talking about mechamisms to raise prices in its carbon trading system.

Even among U.S. lawmakers, once unmentionable ideas are surfacing, Topping said. The key: marrying the concept of carbon taxes with existing economic policy priorities.

“I’m talking to some Republicans who say we should have a $35 a ton (tax) in America,” he said. “If we recycled half of that, we could reduce corporate tax rates from 35 percent to 25 percent.”

Um, really? Who? Voters or representatives? I ask.

“Representatives. They probably don’t want to talk about this until after the election” of a new president in November, he chuckled. 

Internal pricing reflects future planning

It may be that the 947 companies assigning an internal price on carbon is the most intriguing and significant front in the march toward more robust carbon markets. 

By accounting for a carbon price in operations, for example adding $10 a ton for the carbon emissions produced by business travel or by using electricity from a coal burning utility, companies are finding uncovered costs that may grow or be more apparent in the future.

They are using the internal carbon pricing “to steer their cap ex(penditures) away from high carbon and towards low carbon” and to “manage risks,” Topping said.

“And the majority of companies are using a price of $40 or more” for internal accounting purposes, he said, although there are instances of companies such as Microsoft using single-digit fees.

The significance of that is it indicates a widespread belief that carbon pricing policies are inevitable. In the U.S., the Regional Greenhouse Gas Initiative of New England states and New York, Maryland and Delaware have a cap and trade program for utility emissions and then California’s cap and trade program is for all industries. New York wants to join it; Quebec already has.

But none of these existing carbon pricing programs prices carbon anywhere near $40 a ton. British Columbia’s tax is $30 a ton — which it instituted while reducing income taxes. And British Columbia’s economy, like that of California’s, is flourishing.

Why $40?

“A lot of industries have very long capital life cycles,” Topping said, and this price indicates where they think things are going. “So California is $12 now but will go up by inflation plus 3 percent a year so will be over $30 by 2025. If you’re investing for 25 years you need to make an assumption about what the price it going to be over the life” of the investment. He said frequently, the internal carbon price is used as a criteria in “big capital decisions.”

Sometimes the internal pricing drives R&D investment strategy. Innovations in low carbon technologies are all over Silicon Valley and with good reason: We Mean Business, using International Energy Agency calculations, stated the actions promised in the Paris Agreement, collectively, represent a $13.5 trillion market for energy efficiency and low carbon technologies over the next decade and a half.

Business is hungry to pursue that market.

“The significance of 1,000 companies is it sends a signal to policy makers,” Topping said. “Policy making theory 101 is that all businesses are against all regulations, always, especially taxes. But in private conversations with business leaders talking to policy makers, you have business leaders consistently saying, basically, ‘Read my lips: I am saying we want you to tax us. You have to do this. It is the only way we can make this transition.'”

Businesses, he added, are saying, “We have the investment power, the innovation power, but you have to put us on the sort of fiscal track which will allow us to use our capital and sills to drive the economy in the direction we all know it has to go in.”