So, how do you implement a voluntary carbon tax within your company?
The short answer is that it’s easy.
Published July 28, 2023
There are four steps to take:
Measure your emissions
Choose a carbon price
Communicate to stakeholders
Step 1: Measure Your Emissions
The first step to accurately implement a voluntary carbon tax is to measure emissions within your business. This will require gathering data from various sources across your company, such as energy consumption records or production processes. The most common framework for this is the Greenhouse Gas Protocol which provides a guide for your emissions inventory. You’ll have to make a few decisions like where you draw the boundaries of your footprint. For example, Scope 1 and Scope 2 emissions are the most common targets for voluntary carbon taxes. Scope 1 emissions refer to direct emissions from sources owned or controlled by your company, while Scope 2 encompasses indirect emissions from purchased electricity. Some companies also include Scope 3 emissions from their value chain.
Furthermore, there are a myriad of consultants, including Sky Harvest, that can help you measure and map your emissions.
Step 2: Choose a Carbon Price
Secondly, you must decide an appropriate carbon price for your company. There is no consensus on the “correct” price – in fact, companies may choose prices that vary across a wide spectrum. The most important thing is to pick a price – any price – because the only wrong price is $0!
Here are some benchmarks that may help inform your decision:
Keep in mind, the price you set will determine how incentivized your workforce is to manage emissions. To ease the transition, many opt to start with a lower price initially that escalates over time.
Step 3: Obtain approvals
Before communicating the program more broadly, you’ll need to obtain approval for the program through the proper channels, typically management and/or board approval. Present a compelling case that highlights the financial and reputational benefits of emission reductions. Emphasize the alignment of the carbon tax with your company’s sustainability strategy, long-term growth plans, and stakeholder interests. You’ll want to showcase the work you’ve done creating your emissions footprint and selecting a carbon price. Most importantly highlight the unique benefits of a voluntary carbon tax, featured below.
Step 4: Communicate to stakeholders
Assuming you have proper management and/or board approval, it’s time to roll out the program. Effective communication is vital.
The first set of stakeholders is your employees. Engage your employees in the process by communicating the reasons, goals, and methodology behind the carbon tax. Show them how it should change their daily behavior. Show them the low-hanging fruit and how it can benefit them. And encourage employees to provide feedback and suggestions for reducing emissions. This will cultivate a sense of ownership and collective responsibility.
Perhaps the most important set of employees to engage is the accounting department who will execute the tax. This can be as simple as a single ledger transaction performed annually (or as complicated as the accountants will want to make it!). Either way, it’s a critical part of the execution.
Beyond employees, think through the appropriate message to other stakeholders. Other stakeholders include customers, suppliers/partners, investors, lenders, and the communities in which your business operates. This message and the channel through which you deliver the message are highly specific to your business, but your communications or marketing experts will be good partners to bring into the process here.
With that done, your voluntary carbon tax is implemented – congratulations!
A Voluntary Carbon Tax’s Numerous and Unique Benefits
Implementing a voluntary carbon tax within your business can yield additional benefits.
Any effective sustainability program will create company-wide benefits:
Align brand with customer values
Increase sales and share-of-wallet with customers
Hire and retain talent
Relieve ESG pressure from shareholders
Improve borrowing capacity
Anticipate and prepare for future regulation
A voluntary carbon tax also has two additional, unique benefits:
Easy to Implement: Its compatibility with traditional financial metrics ensures buy-in at all levels of your business. Achieving buy-in at all levels from the board to management to front-line employees is essential for successful implementation because it fosters a sense of shared responsibility towards reducing carbon emissions, in proportion to the cost of the emissions. Any operator knows how hard it is to achieve such buy-in across an organization. The benefit of the carbon tax is that it does so elegantly, through existing incentive structures.
“Tax revenue” allocation: Because of the “tax revenue,” your company now has a pool of cash it can spend on climate impact – directly or indirectly, internally, or externally. Again, for more ideas on how to allocate this, check out our Perspective: With "Tax Revenue" Companies have Limitless Possibilities to Effect Change (Part 3).
Embracing voluntary carbon taxation sends a powerful message – one that resonates across all stakeholders. It sets companies apart from competitors by showcasing genuine, smart, and creative efforts to mitigate climate change while fostering transparency in reporting practices. Let us know how we can help!