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Opinion: The Business Case for Tackling Climate Change

By Kyle E. Thomas

Date:

“We should address climate change but in a way that’s not economically harmful and doesn’t involve more government regulation.” How many of us have expressed or heard sentiments similar to these when it comes to addressing human-caused climate change? And from those of us in the business community, particularly those who are responsible for keeping people employed, those feelings are very understandable.

Many business owners and managers retain a healthy skepticism about government-imposed regulations to address climate change and the word “tax” retains a stigma as a drag on the economy and employment. 

On the flip side of that coin, however, and what is not often recognized, is that the costs of human-caused climate change already represent a “tax” on us in the form of government payouts for disaster relief and resilience. This tax is applied to U.S. taxpayers regardless of income level and relative contribution to the problem. 

Two recent reports address the costs of climate action and inaction. The 2014 report “Risky Business: The Economic Risks of Climate Change to the United States” was prepared by the Risky Business Project founded by Michael Bloomberg, Henry Paulson, and Thomas Steyer. The analysis used a conventional risk-assessment approach to determine the range of potential consequences for each region of the U.S. and stated that “[t]he U.S. economy faces significant risks from unabated climate change” and that “every year of inaction serves to broaden and deepen those risks.” The authors conclude that if we continue on our current path, many regions of the U.S. face the prospect of serious economic effects from climate change.

While most of the economic impacts studied by “Risky Business” on the Northeast region of the U.S. will be incurred by wealthier coastal areas in the form of storm surges and flooding, examples exist in our region as well, such as the recent blue-green algae outbreaks in Central New York lakes that have resulted in beach closures and potentially the construction of costly water-treatment systems.

The second report is a 2015 Citibank analysis of the economic costs and benefits of a low-carbon future. The report considered two scenarios: “inaction,” which involves continuing on a business-as-usual path, and an “action” scenario which involves transitioning to a low-carbon energy mix.

The Citibank report found that the investment costs for the two scenarios are almost identical. In fact, because of savings due to reduced fuel costs and increased energy efficiency, the action scenario is actually a bit less expensive than the inaction scenario.

So, given that action on climate has been shown to be justified from an economic standpoint, what should such action look like? It seems reasonable to assume that from the business community’s standpoint it should satisfy the following criteria:

1. Effectiveness: the policy should be demonstrably effective in reducing greenhouse-gas emissions to levels no longer harmful;

2. Not economically harmful: the policy should negatively impact the economy to the least extent possible;

3. Not burdensome to businesses: the policy should involve a minimum of government intrusion into business practices and the marketplace, and not impact negatively economic growth or employment;

4. Equitable and non-selective: the policy should maintain a “level playing field” in the marketplace, neither picking winner nor losers in the energy space nor putting domestic enterprises at a competitive disadvantage with foreign competition not subject to similar policies. 

Much more than other policies such as government regulation or direct subsidies for low(er)-emitting sources of energy, a carbon tax satisfies these criteria.

1.  A carbon tax is effective. Much debate often seems to exist about the effectiveness of carbon taxes. But experience has shown that a properly designed carbon tax will reduce greenhouse-gas emissions. Canada’s province of British Columbia implemented a carbon tax in 2008 and studies have shown that British Columbians’ use of petroleum fuels (subject to the tax) has dropped by 15.1 percent — and by 16.4 percent compared to the rest of Canada since adoption of the tax. 

The Carbon Tax Center, Regional Economic Modeling Inc. (REMI), and others have projected the effects of the hypothetical implementation of carbon-tax scenarios in the U.S.

2. A carbon tax can actually benefit the economy. Depending on how the revenue is distributed, carbon taxes could result in economic growth and increased jobs. 

3. A carbon tax would be the least burdensome to enact and enforce than any other policy. By simply applying a carbon tax “upstream” at the place where fossil fuels enter the market, the measure would be administered by the U.S. Treasury as any other tax would be. There would be no costs to businesses or the government associated with monitoring and compliance ordinarily associated with traditional regulations-based approaches to environmental protection. 

4. A  carbon tax would be applied equitably and non-discriminately at the source, based solely on the CO2 (or CO2 equivalents) generated when burned. The policy provides a consistent price signal to deter the use of fossil fuels based on their warming potential that is completely transparent allowing no opportunity for specific industries to procure exemptions or other preferential treatment from the government under the policy. A border adjustment associated with the carbon tax would protect domestic manufacturers from competitors located in countries that have not implemented similar measures. 

The economic consequences of the recent hurricanes Harvey, Irma, and Maria, as well as the surge in wildfires in California, illustrate the hidden carbon tax borne by all tax payers resulting from climate-triggered disasters. Why not adopt a carbon tax that introduces the proper price signals and incentives in the marketplace that will mitigate future climate change? It would be a prudent business decision.                      

Kyle E. Thomas, P.E. is the principal engineer at Natural Systems Engineering in Syracuse and is the group leader for the Syracuse Chapter of the Citizens’ Climate Lobby. Contact him at kthomas@naturalsystemsengineering.com.