The discussion of a specific topic is increasingly highlighted: carbon pricing. The issue has already been discussed over the last few years, but the urgency that climate risks indicate has made the debate stand out.
In this post we will explain what carbon pricing is about and how important it can be in revolutionizing the way we produce, influencing everything from large to small businesses. Understand!
What is carbon pricing
Pricing carbon means assigning a cost to the impacts generated by the amount of emissions arising from the production of inputs, manufacturing, distribution and consumption of products.
The idea is that gas emissions will no longer be a cost for all of humanity and will only be attributed to those who actually emit them. As it does not currently have a determined value, carbon is not considered in business economic planning.
From the moment it is priced, the picture changes. Emitting less carbon, in addition to all its environmental and social importance, means lower expenses for your company.
The two forms of pricing
There are basically two well-developed carbon pricing schemes: emissions trading (cap and trade) and taxation.
In both cases, the idea is to create a continuous process, in which companies seek to develop technologies to reduce their carbon emission costs.
Understand how they would work:
Emissions trading (cap and trade)
In this option, a certificate is sent to companies with a previously agreed limit for the amount of emissions. These certificates can be traded on a market called the Emissions Trading System (ETS).
Companies that issue quantities lower than those foreseen in the document will be able to negotiate their certificates on the market with other companies. Thus, the amount of emissions will be fixed, always respecting the established limits, and the carbon price will be defined by transactions.
From this implementation, companies could:
- – reduce excess emissions by adopting technological options for reduction;
- – reduce emissions until it is profitable;
- – acquire certificates to cover emissions that exceed their allowance, which would depend on the decision of other companies.
Taxation
This system works like a tax. The government sets a fixed price on each unit the company issues. The calculation of the value of the rate aims to reduce emissions to a sustainable level, in which the temperature increase does not exceed 2ºC. Taxation is paid directly to the government.
In this case, the carbon price would be fixed. Furthermore, the amount of emissions would be variable. Some companies could choose to continue paying the fee, without it hampering their finances.
Imagining this scenario, it would be up to companies to decide between:
- – continue issuing the same quantity without giving up paying more tax;
- – reduce emissions and reduce taxation costs.
From the moment that reducing a ton of carbon internally becomes more expensive than paying a unit fee, the company can choose to pay the fee.
Why your company should prepare to deal with carbon pricing
Brazil has enormous potential to stand out in a low-carbon economy. The country has a greater capacity to generate solar energy and other renewable sources than practically all other nations in the world.
Therefore, a carbon pricing mechanism here would stimulate a great push to take advantage of this sustainable energy potential.
Noting that valuation is a global trend, companies and financial institutions that have this perception will be able to stand out in the future.
To give you an idea, many countries, including the United States, have already adopted carbon pricing policies.
