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Carbon Pricing Gains Popularity with Governments, Businesses

Pricing carbon isn’t just a subject for economics symposia anymore.

Thirty-nine countries now have legislation requiring that businesses pay for the carbon dioxide they emit, and many more national and sub-national governments have carbon-pricing policies on the table. Hundreds of businesses—even those in the energy sector—are also voicing support for carbon pricing.

Here’s a look at how what was just a theoretical concept a few years ago has blossomed into real climate action around the globe.

Countries Put a Price on Carbon

When the Kyoto Protocol was signed in 1997, there were only 54 laws and policies in place related to limiting greenhouse gas (GHG) emissions or developing a framework for confronting climate change. In the past 18 years, the number of these laws has doubled every four or five years—there are now 804 laws worldwide aimed at limiting emissions.

Carbon taxes are a growing part of this international climate action. In 2014, Chile became the first South American country to pass carbon tax legislation, targeting emissions from the nation’s large thermal power plants, which contribute about 55 percent of the country’s total GHG emissions. On January 1, 2015, South Korea’s cap-and-trade program went into effect, officially joining the European emissions-trading system and Chinese pilot emissions-trading programs as one of the largest carbon markets in the world.

With these recent policies, nearly 40 nations representing 22 percent of global carbon emissions have implemented or plan to implement a carbon-pricing mechanism. Turkey, Thailand and Brazil are among the many other countries and sub-national entities considering a carbon tax or cap-and-trade policy.

Companies Call for a Predictable Carbon Price

The international business community is also seeing the value of a carbon tax. More than 1,000 businesses joined 74 countries and 23 sub-national jurisdictions at the 2014 U.N. Climate Summit to vocalize support for putting a price on carbon, including powerhouses like Nestlé, Unilever and Nokia. They made clear that pricing carbon is not only good for the climate, but it is also good for business, as it is among the most efficient and cost-effective ways to reduce emissions.

Even some of the world’s largest energy suppliers are now supporting carbon pricing. In May, six of Europe’s biggest oil and gas companies, including BP and Royal Dutch Shell, signed a letter to world leaders formally requesting an explicit price on carbon, arguing that carbon pricing would lead to greater efficiency and consistency across the energy market. Eldar Sætre, the President and CEO of Norway’s international oil and gas company, StatOil, calls carbon pricing an “efficient and effective way to stimulate investments in technology … and to cut emissions that cause global warming.”

While no American energy companies signed on to the letter, Exxon-Mobil spokesman Richard Keil recently declared that a revenue-neutral carbon tax could be a predictable policy tool to address carbon emissions. Chevron and ConocoPhillips’ spokespeople have suggested that market-based mechanisms for confronting climate change can encourage competition and maintain cost-effectiveness for businesses.

Many companies have even begun to incorporate aninternal price on carbon into their long-term corporate decision-making. ExxonMobil uses $60 per metric ton, BP uses $40 per metric ton and Google uses $14 per metric ton of carbon when conducting internal cost-benefit analyses.

Shareholders Demand Better

Actions by the business community may have been inspired by the increasing demand for private sector action on climate change. Shareholders submitted nearly 900 resolutions to U.S. public companies for this year’s annual meetings—about half of them focused on environmental and social topics. Of these, about 40 percent related to energy use and climate change.

In response to consumer and shareholder demand for climate-conscious behavior, many business leaders have taken action to reduce their companies’ emissions even in the absence of explicit legislation requiring them to do so. The Carbon Disclosure Project (CDP) has helped shareholders coordinate with businesses to enhance accountability and disclose and reduce emissions.

Fostering a Low Carbon Economy

It makes sense that carbon pricing is gaining momentum. WRI’s recent report, Seeing is Believing, explains that tackling climate change and fostering economic growth are not mutually exclusive and can, in fact, be mutually reinforcing. Putting a price on carbon can help curb emissions and support economic prosperity by increasing government revenue, reducing federal deficits and lowering personal and corporate income taxes. No wonder businesses, governments and shareholders are jumping on the carbon-pricing bandwagon—it just makes economic and environmental sense.

For more information on carbon pricing, visit Putting a Price on Carbon: A Handbook for U.S. Policy Makers.

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