Emission Impossible: Let’s Talk Carbon Pricing
Currently in the climate ecosystem, many are frustrated. Successful exits aren’t happening, funds and companies are finding it hard to raise, legacy industries aren’t changing quickly enough, and we are nowhere near our climate goals. It isn’t going as well as we need it to, and I am certainly one of many in the frustrated camp.
However, I think all these issues are because of one thing that makes no sense… at least theoretically. The USA has no price on carbon. We are not making companies and people pay for the additional costs they are passing down to everyone else by polluting. There is a massive and consequential negative externality — the cost of global warming — that is not currently being accounted for in the price of products that emit GHGs.
Because of the conservative nature of a carbon price policy, as it still relies on market dynamics, conservative think tanks and economists have been advocates of a price on carbon solution for years. However, the Pigouvian style tax has gone nowhere in US politics largely because conservative law makers still question the validity of climate change.
I know when it comes to buying products, we cannot expect people to make decisions based on climate change. Products need to be better, cheaper, or faster, tastier, etc. This is a huge challenge for startups. For example, we expect green steel made from hydrogen, a totally new thing that has never been done before at scale, to compete with an industry that has been around for decades? The whole point of supporting hydrogen derived steel is because it has no emissions. So we support the creation of it but won’t help the product sell in the market? We are asking for it to fail!
And the same goes for everything else! Chemicals, energy, transportation, cement, the list of examples is endless. We are expecting all of these brand-new technologies and companies to outcompete industries that have been around for years on price? Do we seriously expect that to work?
In being around venture capitalists and new technologies in my role here at FWP, I have the privilege of hearing from people investing in these areas. One constant sentiment is something along the lines of — good bless the people who are our the first customers. Buying xyz at the current price is like doing the lord’s work. It keeps these businesses afloat and helps them reach scale. I agree, folks buying these products at very high prices are incredible. We need adoption of new products to get the price decreases we’ve seen in solar, wind, and batteries to decarbonize the whole economy. I just wish we had a fair market that didn’t make it so hard on ourselves to get these customers.
Isaac Eskind — Impact Associate
Gov. Hochul has brought congestion pricing to NYC. This is another example of a Pigouvian tax, so maybe the idea will pick up steam! Read more about NYC congestion pricing here: https://congestionreliefzone.mta.info/
Our world in data has a tremendous amount of resources on a price on carbon: https://ourworldindata.org/carbon-pricing
There are a few policies through which countries can put a price on carbon:
- Carbon tax: this is a levy that is applied to the production of greenhouse gas emissions directly or fuels that emit these gases when they’re burned. This means goods and services which emit more greenhouse gases in their production will have a higher tax.
- Emissions trading system: this is sometimes called a ‘cap and trade’ system. Here, the carbon price changes over time. A maximum level of pollution (a ‘cap’) is defined and manufacturers need licenses to emit greenhouse gases. How expensive these licenses are is determined by a trading system. The price of a license increases as emissions approach the cap.
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