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- 9.4 Evaluate the Feasibility of Internally Putting a Price on Carbon
- 2015 Illinois Climate Action Plan (iCAP)
- 9. Financing
Key Objective: 9.4 Evaluate the Feasibility of Internally Putting a Price on Carbon
At present, our economic environment allows us to add CO2 to the atmosphere with no financial penalty, even though doing so imposes costs on the global community in the form of climate change, increased frequency of severe weather events, sea level rise, and so forth. The EPA estimates that the “social cost of carbon (SCC)” may be as high as $61 per ton of CO2, and the Intergovernmental Panel on Climate Change has stated that it is “very likely that [SCC] underestimates” the damages of CO2. Our current market system treats these costs as “externalities” that are free to the polluter, a situation that has been characterized as “the greatest market failure the world has ever seen.” It seems likely that this situation will change in the future through the imposition of a carbon cap or carbon taxes, if the global community is to tackle the unacceptably high rate of CO2 emissions.
In December 2014, a report was released that indicated that 29 leading American companies (including Bank of America, Delta Air, Dow Chemical, Exxon Mobil, Google, Microsoft, and Walt Disney) have adopted an internal price for carbon emissions. These corporations have done this not because they are under any regulatory obligation to do so, but rather in anticipation of a carbon tax, to ensure that their business processes appropriately take the costs of carbon emissions into account. The adopted prices that have been disclosed range from $6-7/ton (Microsoft) to $60-80/ton (Exxon Mobil). In some cases, companies have simply implemented a shadow accounting system for carbon pricing; in others, companies actually tax themselves and use the proceeds to purchase carbon offsets.
The academic sector is also beginning to consider internal carbon pricing. Perhaps the most notable example is Cornell, where the president’s climate action acceleration working group has formally recommended implementing a carbon charge on utility bills in the $20-30/ton range.
Our campus could evaluate the feasibility of implementing an internal price on carbon, perhaps with a system similar to that proposed at Cornell. Doing so would provide a direct economic signal to all units producing emissions, and would help drive our campus towards carbon neutrality in advance of future regulatory burdens. For example, at present there is no cost associated with the CO2 emissions from the combustion of coal and gas at Abbott Power Plant; as a result, the campus has no economic incentive to shift towards renewable energy sources (unless they happen to be less expensive). Having an internal price on carbon emissions would help to tip the balance in decision-making in favor of renewable energy, thereby helping to avoid future regulatory costs associated with emissions. The funds generated by an internal carbon price could be earmarked for projects that would reduce our greenhouse gas emissions and/or for the purchase of carbon offsets.
The decision of whether and how to adopt an internal price for carbon will be a complicated one. A detailed study by campus experts, drawing on expertise of corporate partners and other universities, could be conducted to determine what implementation would make the most sense for our campus.
 Stern Review of the Economics of Climate Change, http://www.wwf.se/source.php/1169158/Stern%20Summary_of_Conclusions.pdf