Pollution isn’t an unquantifiable phenomenon; its impact can be put into numbers. That’s the idea behind a carbon value, which we’ll explore in this next installment of our Sustainability Series.
What Is Carbon Value?
Also referred to as a carbon price or “cost of carbon,” a carbon value assigns a dollar amount to carbon emissions by quantifying the economic, environmental and societal effects. By putting a number on the impact of carbon, businesses can ensure their investment and operational decisions take into account the often-omitted implicit and explicit impact of carbon emissions. A carbon value can be set externally (e.g. regulatory body, market-driven mechanism) or calculated as an internal value that businesses use for investment decisions. In either case, positive or negative incremental carbon emissions will result.
External Carbon Values
A carbon tax can be placed on fossil fuels and items made via fossil fuels in order to discourage their use, while an emissions trading system (also known as cap-and-trade) places an upper limit on a nation’s carbon emissions. Companies look to secure permits that allow them to emit CO2 within a predetermined limit and can trade or sell any unused allotments to other participating companies. This structure serves as an effective CO2 reduction framework by creating a financial reward for companies that are cleaner than their required CO2 emissions threshold and a punitive measure for those that exceed their CO2 emissions allotment.
Internal Carbon Values
When there is no external carbon price or tax put in place by a regulatory body, companies are increasingly calculating their own price of carbon. As companies experience growing pressure from both internal and external stakeholders to take action on climate, internal carbon values are becoming more common. Companies may opt to leverage an internal value of carbon if there is external pressure from investors, consumers, employees or other key stakeholder groups. Some companies may also implement an internal carbon value in anticipation of eventual external regulation. An internal value of carbon can be an important tool for quantifying the company-specific financial value of avoiding CO2 emissions. Such attributes that a carbon value may try to capture include environmental, social, brand value and more. Once an internal value of carbon is calculated, companies can begin to incorporate the value/price into investment decision making. In practice, this may take the form of an added line in a capital project financial valuation model where the incremental increase or decrease in CO2 emissions resulting from the project in question is multiplied by the company’s respective internal value of carbon.
Calculating an Internal Carbon Value
The process for developing an internal value of carbon is one that companies undertake deliberately, often with a clear purpose and goal in mind. Companies may look to an internal carbon price as a tool when setting goals under the Science Based Targets initiative or as part of a broader renewables initiative, such as joining the RE100 and committing to powering their operations by 100% renewable energy. When identifying a specific value of carbon, the process may seem arduous and arbitrary, however, there are many tools and white papers available to businesses that can provide guidance and clarity to the process and purpose of valuing avoided carbon emissions. To name a few resources:
- Carbon Disclosure Project (“CDP”) Carbon Pricing Connect: The CDP has gathered internal carbon price data from hundreds of public and private companies throughout the world. Reporting companies detail their exact internal carbon price, and how they deploy the figure when making investment decisions.
- Carbon Value Analysis Tool (“CVAT”): Developed by the World Resources Institute, the CVAT assigns a dollar price to a company’s carbon emissions, helping to determine the effectiveness of a carbon-reduction project with impact to its internal rate of return. What’s more, CVAT can also examine the social cost of carbon.
- Interagency Working Group on Social Cost of Carbon, U.S. Govt: In 2015, the U.S. Government assembled an interagency task force to assess the social cost of carbon. The resulting coalition analysis captures important contextual background and methodology for valuing avoided carbon emissions.
What Is the Social Cost of Carbon?
Carbon’s social cost refers to the monetary impact that carbon emissions have on society. This includes the economic effects of weather and ecological events spurred and intensified by climate change: catastrophic storms, increasing sea levels, the proliferation of disease, food scarcity, and property loss. Though the current social cost of carbon is estimated at $50 of damage per metric ton of CO2, experts think it to be higher since there are other climate change consequences that the figure does not currently take into consideration. Nevertheless, assessing the social cost of carbon has affected positive change in the form of government regulation of the automotive industry and other areas with environmental impact.
How Can You Decrease Your Carbon Footprint?
Once you’ve determined your organization’s total emitted carbon cost, you can take steps to lower it by decreasing your carbon footprint in terms of both “scope 1” or direct emissions (those actually emitted on-site) and “scope 2” or indirect emissions (those emitted in connection to your site). You can start by making your buildings as energy efficient as possible by ensuring they are LEED-certified in regards to how they’re constructed and maintained. Even steps such as turning down the thermostat in the winter (or raising it in the summer) and asking employees to consider more sustainable transportation methods, including bicycling and scootering, carpooling and taking mass transit, can make a sizable difference. But perhaps the most beneficial and effective tactic is investing in clean, renewable energy, such as wind power and photovoltaic solar systems. In the case of the latter, trust EnterSolar as your provider of choice.
With over a decade in the industry, EnterSolar manages all aspects of solar projects — from development to execution to asset management. We work with a wide range of commercial clients, from large national brands such as Target and Amazon to local businesses with single sites. Our turnkey solar and energy storage solutions help lower energy costs, increase property value and meet sustainability goals while working with real estate owners and tenants to make the process as simple and seamless as possible. Contact us today for a free solar assessment.