How much is a tonne of carbon? It’s something that has bugged me for years.
And this topic of carbon trading and pricing is the subject of this week’s episode, where I spoke to Maria Eugenia Filmanovic, co-founder of Abatable a company that helps navigate carbon markets.
Maria told me: “Carbon pricing is quite simple. There are really two main markets for carbon pricing; one is the compliance market.
“Where typically heavy polluters are often regulated to pay a price for their emissions and they can do that, whether it’s a kind of direct carbon tax and it’s really put on the number of emissions they have, or often in the context of some sort of allowances that they’re given to pollute up to a certain a cap. And if they produce more, they need to pay extra.
“Then there are additional sectors in the market, predominant technology companies, non-heavy polluters that are also engaging in this market purely on a voluntary basis.
“And they typically do that motivated by the corporate sustainability agenda and they often use concepts like internal cost of carbon, to kind of pre-set carbon prices that they kind of stick to, as part of their budget activities for decarbonisation.”
The problem with all these ideas for paying for carbon of course, stems from the value of carbon being different in different regions, depending on national legislation.
Added is the complexity of accounting for tonnes of CO2 equivalents. These include warming gases like methane.
“It’s very hard to quantify what is the price of a CO2 equivalent because there’s different activities that contribute to reducing emissions, as well as removing them. And often that is informed by the cost of the implementation.
“So it’s your capital expenditure in building a plant that sucks the CO2 out of the atmosphere, or the transport of that CO2 and it’s the cost of storage. All of that can be different across geographies, technologies. And with that comes essentially a cost structure of emission reduction activities. And when you think about regulatory regimes, right, when a country comes out and says, here’s a carbon tax, often they are informed by those cost structures.
“And where some of the opportunities are for carbon trading, what’s certainly emerging right now is where carbon taxes at a government level are ambitious enough and high enough, that provides the incentive for companies instead of paying the tax, to actually fund activities where the cost structure is lower than the carbon tax.
“So in that case, that creates a real incentive for real climate action that reduces and mitigates the CO2 equivalent of that company’s footprint.
“However, the problem we have today is that some of the carbon pricing regulatory levels are not ambitious enoughand so often there’s an incentive for the companies to default to pay the carbon tax relative to funding real actions on the ground.”
Listen to the whole podcast for Maria’s answer to this dilemma and where she thinks carbon taxes will go and if your business will soon have to cough up!
(This episode was recorded during COP29)
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