By Grace Fernandez, MEM/MBA ’23
This article was written in response to a seminar given by Vanessa Miler-Fels, Director of Energy Innovation and Impact at Microsoft, in an EDGE Seminar at Duke University’s Fuqua School of Business in Fall 2021. This article voices one student’s perspective and does not necessarily represent the views of either Duke University or the seminar speaker.
There is a direct correlation between the increase in carbon emissions and the rise in global temperatures since the Industrial Revolution. While there are many harmful greenhouse gases (GHG) that contribute to global warming, carbon dioxide (CO2) is the most prevalent one in the atmosphere; it is a particularly dangerous GHG because of its ability to absorb solar energy and trap heat in the air. The next few decades are critical if we are to stop the most dangerous impacts of global warming, so the extreme reduction of CO2 emissions is essential. While there are many solutions that need to carried out, implementing an appropriately priced universal carbon tax is a simple yet effective tactic to reduce carbon emissions.
Very few companies will voluntarily drastically reduce their carbon emissions. Therefore, it was groundbreaking when a company as large and influential as Microsoft pledged not only to be carbon negative by 2030 but also to remove all historical carbon emissions by 2050. Many companies are pledging to reduce their carbon emissions and are doing so via nature-based solutions like planting trees. However, Microsoft has been vocal about how these offsets are insufficient responses to the urgent need to reduce carbon emissions. That is why Microsoft committed to investing $1 billion+ in the development of carbon reduction and removal technologies as a means to reaching the company’s carbon negative commitment.
Vanessa Miler-Fels, the Director of Energy Innovation and Impact at Microsoft, joined our EDGE seminar this week to discuss Microsoft’s approach to meeting its carbon commitment. Vanessa emphasized that Microsoft supports a carbon tax and shared that the company has levied an internal carbon tax since 2012. Microsoft charges each business unit for the carbon emissions it produces, and the carbon tax expanded in 2020 to include scope 3 emissions. Microsoft is being especially proactive and taking great ownership in its contribution to global warming. But we cannot expect all companies, especially those who are the largest emitters, to willfully become net zero carbon emitters or even commit to removing historical emissions. Therefore, the implementation of a carbon tax is the simplest solution with the largest impact on reducing carbon emissions.
Over the past few decades, more and more countries around the world have adopted some form of a carbon tax. However, the prices assigned to carbon have been inadequate and in turn the taxes have failed to be as impactful in curbing carbon emissions. There are many barriers in the way of setting an appropriate carbon tax. Firstly, consumers are vocal about their dissatisfaction with rising energy prices. Companies will surely not internalize the carbon tax and will pass it along to consumers in the form of higher prices for goods and services. Regardless of political affiliation, most people will not be happy with higher prices. Politicians will need to remain strong and united in support of a carbon tax. Their focus must be on the long-term environmental impact and not the short-term economical impact and anger of their constituents. This of course is easier said than done and it will be all too easy for a politician to campaign on a platform opposing a carbon tax. However, Canada’s carbon tax model serves as a good example of how countries can satisfy constituents by refunding a majority of carbon taxes to its citizens.
Secondly, a carbon tax not only needs to be priced high enough to curb carbon-emitting behavior, but it also needs to be universally enforced. Countries that do currently have a carbon tax have wide ranging prices associated with carbon. Sweden has the highest carbon tax rate in Europe at $137/mtCO2e while Poland has the lowest rate at $0.08/mtCO2e. According to a 2017 report by the International Bank for Reconstruction and Development titled ‘Report of the High-Level Commission on Carbon Prices,’ a universal carbon tax of $50-100/mtCO2e by 2030 is necessary to limit the rise in temperature to 1.5°C set during the Paris Agreement.
It is extremely difficult to assess the effectiveness of current carbon taxes because of many mitigating factors including tax exemptions for certain industries, inconsistencies in pricing across countries, and the overall newness of the carbon tax. However, in its simplest form, a carbon tax should work to help reduce carbon emissions. Like most climate solutions, the carbon tax brings skepticism and opposition, but the result of not moving swiftly on these solutions will be catastrophic to our environment. While investments in renewable energy and improvements in energy efficiencies across products and systems is critical, the introduction of a carbon tax needs to occur simultaneously to radically curb carbon-emitting processes. At its core, a carbon tax is nothing ground-breaking, but its impact can be profound.
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