What does the Social Cost of Carbon mean for your business?

In the past few months, via recommendations from groups like the EPA, as shown in this article, the US government has established a 2% discount rate for the social cost of carbon.

• As background, a lower discount rate assigns more value to the harm that will come in future years and to future generations if climate change and carbon emissions are not addressed.
• London School of Economics economist Nicolas Stern, in 2006, assigned a discount rate of 1.4%, and the Trump administration, from 2016 – 2019, assigned a discount rate of 7%. In effect, Stern was saying, ‘We need to protect our children and their children’ and the cost is roughly $400 per metric ton of CO2 and Trump was saying, ‘I want to focus on today’ and the future cost is $1 per metric ton of CO2.
• You need to decide which view you are more comfortable with.

How does this translate to your business?

• At a 2% discount rate, the social cost of carbon is $190 per metric ton of CO2.
• As a rule of thumb, if your business rents office space and you are in the services arena (ie, you are not a heavy energy using manufacturer, or distributor or agricultural business), you are probably generating approximately 10 metric tons of carbon per full time employee, or $1900 in social carbon cost per employee. If you have 10 employees, and we use this rule of thumb, you are generating $19,000 in social carbon cost in 2023.

How do you turn this into a win?

• You will be hearing a lot about sustainability and carbon neutrality in 2023 and future years. The less we do today, the more someone else will be forced to do in future years.
• The good news is consumers want you to act and will reward those businesses that can prove they are part of the solution.
• Like all things, knowing where you are allows you to better decide where you are going. Formally quantifying your company’s carbon footprint gives you a starting point.
• If you then reduce your company’s carbon footprint, you are helping! Thank you!
• If you also want to turn this cost into a profit, you will need to convince consumers that you really did the things you say you did. To do that, you need to become environmentally certified sustainable and later, certified carbon neutral.
• If the above is of interest, follow the recommendations in this PPP.