Carbon Basics (Part 2): Factoring Carbon Into Business Decisions

Our customers often ask how they can factor carbon emissions into their day-to-day decisions. Which project is greener? Which supplier should I choose? What transportation method should I use?

The answer, for some of the biggest companies, is simple — put a price on carbon emissions. This is how companies ranging fromMicrosoft, to Exxon Mobil have begun to address the cost of CO2 emissions.

How do you put a price on carbon? Some economist choose to measure in terms of the equivalent damage that one tonne of green house gases causes when released to the atmosphere. This is called the “social cost of carbon” and encompasses things like infrastructure costs for dealing with severe weather and agricultural events. Estimates vary, but you can find a price of approximately $50 per tonne here.

Once you have set a suitable carbon price, you can start to analyze suppliers in terms of their relative “carbon intensity” — i.e. how many tonnes of green house gases are released for every $1000 you spend on that company. The result is a dollar figure that you can factor in to your normal cost analysis.

Take an example.

You are a considering buying services from a new supplier who charges $1000, and has an intensity of 0.40 tonnes of CO2 / $1000 spent.

That means spending $1000 will result in 0.40 tonnes of CO2 (and other green house gases) being released to the atmosphere.

At a carbon price of $50, this is equivalent to $20 of CO2 damage.

The net cost of buying from your supplier can now be budgeted as$1020.

The power of a carbon price is that it puts things in perspective, by putting it in the language of price.

By putting emissions in price terms, you can give yourself an “apples to apples” comparison of the trade-offs that you face when choosing greener options. So whether it’s a small project, or a large new investment, you have the tools you need to understand and optimize the impact of your decisions.

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