by Brian Isom, Research Manager; Hayden Hubbard
Posted May 31, 2019 In Scholar Commentary

This article was originally posted on the Medium publication The Benchmark

In the months since Congresswoman Alexandra Ocasio-Cortez released the Green New Deal (GND), Democratic presidential hopefuls have been promoting their own climate proposals. Some have thrown their full support behind the Green New Deal, while others like former Representative Beto O’Rourke have unveiled plans that take a more measured approach than the GND. O’Rourke has been both praised and lambasted for his $5 trillion plan to reduce US emissions to net-zero by 2050.

It shouldn’t be a surprise that climate change is getting so much attention leading up to the 2020 election race. It was a key issue for the Obama administration and has been a major controversy for the Trump administration. California’s incredibly destructive wildfire season last year was blamed by many on changes in weather patterns caused by climate change, and the same is currently happening for the record-breaking number of tornadoes the Midwest has experienced this May.

Climate change has become a key issue for many US voters. Discussions surrounding climate change often paint CO2 reduction as a do-or-die scenario that policymakers must solve immediately or face catastrophic consequences. Nearly 60% of Americans believe climate change is currently affecting their local community, and nearly two-thirds of Americans believe the government is not doing enough. Our popular understanding of this issue is pretty grim.

But there is a positive story to tell that is, unfortunately, grabbing far fewer headlines. Companies are working every day to reduce their carbon emissions. Why? Does it save them money? Or, do they and their shareholders just care a lot about the environment? Turns out, it is probably both. More importantly, recent research indicates that the trend is moving in the right direction.

A growing body of research indicates that industry leaders are becoming increasingly responsive to climate change. These companies are taking action to reduce emissions not because of regulatory requirements (the U.S. has no national regulation on corporate CO2 emissions) but because it makes economic sense. This is a crucial part of the efforts to reduce emissions.

In April, Microsoft released an announcement that they were going to nearly double their internal carbon fee. This fee was self-imposed by Microsoft in 2012 as a sustainability initiative and a means to hold their various divisions accountable for their carbon emissions.

Google and Apple have developed smart systems to cool their energy-intensive server rooms. Google has seen an average energy savings of 30 percent after turning control of their server cooling over to their own AI, which uses machine learning to understand and anticipate cooling needs in advance. Apple has been using ambient cool air for years for their cooling needs. During hot months when that isn’t sufficient, they run refrigeration systems to chill water during times of low electricity demand in order to save on costs, but also to put less strain on generators during peak-demand hours.

Many other large U.S. corporations are so concerned over the economic consequences of climate change that they have established internal pricing programs to hold themselves accountable for their CO2 emissions. As of 2017, these companies represented 15% of the total U.S. market (by market capitalization) and include industry leaders like Microsoft, Alphabet Inc., and Goldman Sachs. By 2019, the number of companies internally pricing carbon is expected to more than double.

Why would these companies charge themselves for their own emissions? New research from the Center for Growth and Opportunity at Utah State University found that the top two reasons companies internally price carbon are investor relations and increased efficiency. The figure below, which comes from the report, is a breakdown of the main reasons reported by the companies in the study for internally pricing carbon.

Moreover, national surveys have shown that the majority of U.S. consumers feel corporations have a responsibility to adopt green behaviors and are willing to pay more for green products. Internally pricing carbon can play a major role in conveying a firm’s environmental responsibility to customers and signaling environmental awareness to investors.

Internally pricing carbon can also help motivate firms to be more efficient by reducing emissions, which in turn can reduce costs. For instance, internal carbon pricing often affects corporate cost-benefit decisions like whether or not to shut down a coal plant or make a supply chain less carbon intensive. Not only does this make a company more environmentally friendly, but it can also make a company more profitable in the long run.

Americans are correct to believe that governments worldwide have failed to reduce global CO2 emissions through standards and regulations for almost 30 years. But there is a good story to be told. The private sector has set ambitious goals and made huge strides in just the last five years. With more and more companies internally pricing carbon and committing to reduce emissions, policymakers should recognize the private sector’s vital role in addressing climate change.

The full report from the Center for Growth and Opportunity can be found here.

CGO scholars and fellows frequently comment on a variety of topics for the popular press. The views expressed therein are those of the authors and do not necessarily reflect the views of the Center for Growth and Opportunity or the views of Utah State University.