Carbon dioxide is a byproduct of burning fossil fuels, oil, and natural gasses. It's one of the main greenhouse gasses caused by human activity and makes up the largest portion of emissions emitted into our atmosphere. The EPA reports that as of 2019, carbon dioxide has taken up nearly 80% of total greenhouse gas emissions. It also reports that industry and transportation are the top producers of CO2. Many companies within these industries want to make a change toward cleaner energy, but it can be tricky to determine how. To help companies understand the best ways to reduce future emissions, government figures and policymakers have to view CO2 emissions from an economic standpoint. There are several ways carbon can be used as a commodity. For one, viewing carbon through an economic lens helps us better determine CO2’s effects on the economy. It can also be used to help lower a company’s carbon footprint, and encourage consumers to seek out more eco-friendly solutions.
Carbon dioxide is a byproduct of burning fossil fuels, oil, and natural gasses. It's one of the main greenhouse gasses caused by human activity and makes up the largest portion of emissions emitted into our atmosphere. The EPA reports that as of 2019, carbon dioxide has taken up nearly 80% of total greenhouse gas emissions. It also reports that industry and transportation are the top producers of CO2. Many companies within these industries want to make a change toward cleaner energy, but it can be tricky to determine how. To help companies understand the best ways to reduce future emissions, government figures and policymakers have to view CO2 emissions from an economic standpoint. There are several ways carbon can be used as a commodity. For one, viewing carbon through an economic lens helps us better determine CO2’s effects on the economy. It can also be used to help lower a company’s carbon footprint, and encourage consumers to seek out more eco-friendly solutions.
What Is The Social Cost of Carbon?
As corporations and industries rely on the use of fossil fuels, they are capable of producing large amounts of greenhouse gasses. However, it can be difficult for a company to fully understand how they’re producing these emissions, and how they’re affecting the environment. This is where the social cost of carbon becomes a beneficial tool in shaping cleaner industries.
The social cost of carbon, or SCC, is a monetary estimate of the damages caused by one additional ton of greenhouse gas emissions. By expressing this estimate as a dollar amount, it allows policymakers to view carbon emissions economically. As a result, companies and government organizations can take the environment into account when making investments.
How is the social cost of carbon measured and applied? The SCC can be used to determine the costs and benefits of implementing certain policies, and how these policies will affect climate change. Specialized computer models have calculated the cost of carbon in a four-step formula. First, certain factors like population growth and economical changes are assessed to help predict the number of future emissions. Next, a model is formed of how the climate is expected to respond to those future emissions. This information is then used to determine how these changes will affect the economy. Finally, a discount rate is applied, in which the costs and benefits of a policy are weighed, to see if the policy is effective in reducing emissions while keeping costs low. If the discount rate is high, less money is invested into the policy, meaning it could still require funding in the future. Conversely, if the rate is low, more money is invested into the policy upfront.
At first glance, it may seem like a crash course in economics, but this video by Resources for the Future provides further explanation for how the SCC is applied in policymaking.
What are carbon credits and how do companies use them?
Carbon credits are a type of incentive created for industries with the overall goal of lowering greenhouse gas emissions. The hope is that by utilizing carbon credits, industries will be more inclined to develop technologies that create fewer emissions. Specifically, a ‘credit’ is a certificate or permit given to a company. Each credit allows the company to emit up to one ton of carbon dioxide. To put that number further into perspective, the Environmental Defense Fund estimates you’d have to drive 2,400 miles to produce one ton of CO2.
Carbon credits are part of an economic system called emissions trading. This complex system allows companies to buy and sell carbon credits with one another through cap-and-trade programs. Essentially governments set a ‘cap’ or a limit on the amount of credits companies can use. Because the cap fluctuates over time, companies need to use their carbon credits strategically, by either buying more credits or auctioning off unused ones. If a company exceeds the cap, producing more emissions than allotted, it could be fined as a penalty. If the company has excess carbon credits in their ‘allowance’, it can put them up on the market for others to purchase or trade. As the cap continues to be lowered, companies are encouraged to seek out more emission-reducing solutions.
Cap-and-trade programs are currently being utilized throughout several countries. The European Emissions Trading System is the first of these programs and remains as one of the largest systems in operation. When utilized correctly, cap-and-trade programs can certainly make a difference. The 1990 Clean Air Act is an example of how companies succeeded in reducing their emissions through these types of programs. As a result, environmental issues like acid rain rapidly declined.
Where do EV credits come from? What are they for?
Transportation is one of the top producers of greenhouse gas emissions. Most vehicles burn fuel and create exhaust, which is then released into our atmosphere. Electric vehicles are beneficial to the environment because, unlike other vehicles, they don't produce emissions. As the popularity of electric vehicles continues to grow several US states and countries are forming incentives to those purchasing them, in hopes of cutting down emissions. To further encourage the use of electric cars, some governments are issuing electric vehicle credits, or EV credits to new car buyers.
Basically, when a consumer purchases a new electric vehicle, the US federal government can offer them tax credit up to $7,500. The amount of EV credit received depends on the model and size of the car, along with the car’s battery capacity. This credit can later be claimed on a federal tax return when filing taxes for the year the vehicle was purchased.
If you own an electric vehicle and want to claim EV tax credits, there are several restrictions that apply for you to keep in mind. You can view specific vehicle incentives in your state here. The US Department of Energy has also provided this list of electric vehicles eligible and their values in EV tax credit.
We tend to think of how greenhouse gasses directly affect the environment, and we don’t often view them through an economic lens. We can do our part to reduce emissions, but if larger companies jump on board, it can help us reach great strides in fighting climate change. By reframing carbon as a commodity, policymakers might have found an effective way to help companies follow the path toward becoming carbon-neutral.