Why the Carbon Tax Makes Sense and How to Gain a Competitive Edge From it

Written by Moritz Bühner // January 21, 2012 3 Comments

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Instead of hoping that your lobbyist negotiates another carbon tax exemption for your industry, you could be preparing your business for the low-carbon era. A decisive competitive edge can be expected for those businesses that begin managing and thus professionally reducing their carbon emissions now, rather than maintaining outdated oil age thinking – read how to do this here. Furthermore, get an introduction to the carbon tax, how high we can expect it to go, and why you should invest in green technology.

In order to reward companies that employ low carbon technology, the carbon tax is inevitable. From an environmental point of view, it is more than obvious that its introduction makes sense. The US-based Carbon Tax Center identifies some reasons:

Very large and rapid reductions in the United States’ and other nations’ carbon emissions are essential to avoid runaway climate change and avert the resulting severe weather events, inundation of coastal areas, spread of diseases, failure of agriculture and water supplies, infrastructure destruction, forced migrations, political upheavals and international conflicts.

Adding to this, there are many economists, who have declared themselves to be in favor of it. One of them is William Nordhaus from Yale University. In his paper, Carbon Taxes to Move Toward Fiscal Sustainability, he states:

[The carbon tax] is virtually the only tax under consideration that will increase economic efficiency because it reduces the output of an undesirable activity (carbon dioxide emissions).
Every other tax that is under discussion will reduce economic efficiency.

Carbon Tax Yes, But How High?

Even though most expect the carbon tax to come, and there is a whole list of countries that are close to introducing it in one form or another, there is still wide disagreement on the amount of the tax. Nordhaus put it like this:

Depending on the model and the objective, the optimal global carbon tax in current prices in 2015 would be between $12 and $25 per ton of carbon dioxide. The appropriate tax should rise about 6 percent per year in real or inflation-corrected terms to reflect the increasing cost of future emissions.

Avoiding the Green Paradox

Detailed studies have been conducted on how these expectations affect the willingness of decision makers to increase green investments, e.g. by Michael Hoel at the University of Oslo. Mentioning all his findings would be excessive, but an article dealing with carbon taxation cannot do without mentioning the green paradox. The green paradox (introduced by Hans-Werner Sinn), as Ottmar Edenhofer and Matthias Kalkuhl described it, is the phenomenon of “fast increasing carbon taxes [accelerating] global warming”. How is that possible? Well, “if [the carbon taxes] start at a low level (…), resource owners increase near-term extraction in fear of higher future taxation.” According to Edenhofer and Kalkuhl, avoiding this effect can easily be achieved by adjusting the tax properly.

60% of Sustainable Investments Pay Back in Three Years or Less

However, this is not today’s topic. Much rather, I would like to give you an insight into what professional carbon management looks like. Kathy Nieland, responsible for Sustainable Business Solutions at PricewaterhouseCoopers, reckons that “proactive steps to sustain one’s business over time will ultimately yield positive returns” and specified that “over 60 percent of projects [offer] payback in three years or less”. In her article, How Companies Gain Strategic Advantage by Managing Carbon, she also explains why activity moving toward a sustainable economy and economic growth correlate positively.

Not Enough: Carbon “Management” in a Spreadsheet

You may think that assessing emissions in a spreadsheet would be enough. Paul Baier from GreenBiz.com clarifies why it’s not:

The major problems of spreadsheets include:
• Lack of proper documentation and audit trails
• Propensity for errors, especially without proper cell protection, and lack of validation and
testing of spreadsheet formulas and macros
• Difficulties in reconciling year-to-year data sets
• Poor tools for creating and enforcing data ownership, including global standards for asset
types and energy usage
• Inability to generate real-time reports and read-only views across the organization
• Difficulties in obtaining ad-hoc reports and analyses for numerous internal and external
stakeholders
• Difficulties in managing and sharing large files

Carbon Management in the Food Sector

To find out what professional carbon management tools are capable of, take a look at an article by Carlos Naranjo, a chemical engineer and carbon consultant in Colombia. At knowtheflow, he describes his findings in the food sector, employing the Umberto for Carbon Footprint carbon management tool. He determined that, “The largest share of carbon emissions is provided by direct emissions from the use of fuels in numerous processes inside the company.”

Standards – Managing Carbon Consistently and Transparent

A clear benefit of sophisticated carbon management is the possibility of complying with international standards. Alexander Scheibner, in this knowtheflow article, wrote in reference to the introduction of a new GHG protocol standard:

Standardized approaches [...] enable companies to prepare a true and fair scope 3 GHG inventory which offers the identification of cost-effective processes low in emissions.

Whether you are in favor of the carbon tax or not, I hope to have given you reasons enough to employ professional carbon management in your company.

Article image edited by Moritz Bühner, based on this picture by Phil Roeder and the amazing WP ZOOM developer icon set.

Tags:

carbon management

carbon tax

corporate carbon footprint

green paradox

post oil age

sustainability

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