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Top U.S. Companies, Following Government Lead, Are Pricing Carbon

The five biggest oil companies are assuming that carbon can be emitted only at a price

2 min read
Top U.S. Companies, Following Government Lead, Are Pricing Carbon
Photo: David Parsons/Getty Images

The lead story in yesterday’s New York Timesreported the somewhat startling news that “more than two dozen of the nation’s biggest corporations, including the five major oil companies, are planning their future growth on the expectation that the government will force them to pay a price for carbon pollution as a way to control global warming.” The Times tended to focus on what it took to be the political implications of its news, and treated its discovery as further evidence of a growing split between the Republican Party’s business-oriented establishment, which tends to go with the flow, and its much more obstructive Tea Party base.

The Times report is weaker in elucidating the immediate implications of corporate carbon pricing for future business and technology. The one concrete example it provides of how carbon pricing affects long-term corporate planning is ExxonMobil’s getting into the U.S. natural gas business in a big way Because natural gas is somewhat less carbon-intense than oil (and of course much less than coal), in a future where the cost of carbon emissions is factored into fossil fuel prices gas will be even cheaper relative to oil than it otherwise would be.

But the implications of corporate carbon pricing are much broader than just that limited example might suggest: If the nation's biggest companies are betting that they will have to pay a price for emitting carbon in the not-too-distant future, that probably means that much of the investor community is increasingly operating on the same assumption. So, in turn developers of all low-carbon, zero-carbon, and energy conservation technologies—from wind and solar generation to green building techniques and demand-response software applications—should be getting a boost.

The Times might have mentioned that the U.S. government already sets a price on carbon. Corporate planners undoubtedly have an eye on the government's methodology and probably adopt schedules for estimated future carbon costs that are quite similar to the government’s. According to a fact sheet from the U.S. Environmental Protection Agencies, EPA and other Federal agencies such as the transportation department take what they call the “social cost of carbon” into account in various of their rule-making proceedings. Estimated future carbon costs are spelled out in schedules, which are used to calculate the benefits from, say, making cars more fuel-efficient or coal-fired power plants less polluting.

A “technical support document” issued last May by the U.S. government’s Interagency Working Group on the Social Cost of Carbon, Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis -- Under Executive Order 12866, describes the conceptual framework and methodology in more detail.

Photo: David Parsons/Getty Images

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