You’ve implemented a voluntary carbon tax. Now, how do you allocate your “tax revenue”? Let the fun begin!
Published July 28, 2023
In two previous Perspectives we’ve discussed a voluntary carbon tax. A voluntary carbon tax is a self-imposed mechanism where companies charge a fixed rate per tonne of emissions and set the cash aside accordingly. For more, check out Part 1 and Part 2.
Today, we discuss what to do with the “tax revenue”.
While the creativity here is boundless, we find companies typically allocate money to two general types of initiatives:
Direct initiatives
Indirect initiatives
Direct Initiatives:
The most common way to spend your tax revenue is on direct emissions reductions or removals. These actions are tangible and create compelling narratives:
Measurement and Monitoring:
When faced with a cost for each tonne of emissions produced, employees will want to ensure they are measuring those emissions accurately and monitoring equipment for any leaks or inefficiencies.
There are ways to do this with increasing accuracy and efficiency, such as aerial emission-detecting fly-overs for large field assets, on-site continuous leak monitoring, and hand-held GHG detection meters. But all these improvements cost money... but, now, you can fund them from your tax revenue. This information can be used two-fold: first to stop leaks faster and second, to improve decision making. With better data, better insights; with better insights, better decisions.
Reduction Initiatives
You can also drive emission reduction initiatives within your company. The tax revenue can be earmarked for projects and initiatives that directly contribute to reducing emissions, such as:
Renewable energy sources (e.g., solar panels on the roof)
Fuel-efficiency in transportation (e.g., EVs or EV chargers)
Energy-efficient machinery and buildings
Waste and pollution reductions
Circular (recycled) products and materials
Employee and consumer programs
By doing so, you can tailor these custom initiatives to what your business requires. You can not only mitigate any harmful environmental effects of your operations but also set an example for your industry peers.
Offsets
There may be times it's cheaper for someone else to remove emissions from the atmosphere than it is for you to stop producing them. Fund that.
Be rigorous about quality to ensure you are maximizing value – there are a lot of low-quality credits designed to check a box at a low cost.
Because you’re allocating dollars, not trying to claim as many credits as possible, your incentive is get the most bang for your buck – that is, high-value credits. Securing high-value credits is optimal, and Sky Harvest is a pioneer in this space. We call it "Carbon 2.0". We ensure that each credit issued equates to the cost of one tonne of emissions. And while it sounds crazy, we’re the only developer that puts multiple tonnes of carbon into each credit to ensure that promise. For more information on Carbon 2.0, check out this perspective.
Renewable Energy Credits (“RECs”):
Another avenue where you can utilize your tax revenue is by purchasing renewable energy credits (RECs). A REC is a market-based instrument that represents the rights of one megawatt-hour of renewable electricity generation.
These credits can offset your electricity emissions (Scope 2).
Supply Chain Management
The demand for environmentally conscious products and services is on the rise, fueled by consumer preferences and increasingly regulatory requirements. You can tap into this growing market by:
Selecting low emission suppliers/partners
Partner with suppliers to lower emissions
Fund your partners’ reduction initiatives
Share your voluntary carbon tax approach and encourage them to adopt it
Sustainable supply chain management is not merely a trend but a necessity for companies striving to reduce Scope 3 emissions in a rapidly changing business landscape.
Indirect Initiatives
Your tax revenue also opens a world of possibilities to effect change beyond direct impacts.
Donating to Non-profit Climate Advocates
One avenue for indirect impact is by partnering or donating to non-profit advocacies.
By partnering with reputable non-profits, you can amplify their efforts to influence policymakers and advocate for sustainable policies and climate action. The revenue can be used to fund research, education, and lobbying activities, enabling non-profits to drive meaningful change on a broader scale.
Giving Green is a guide for businesses to make more effective climate giving decisions. They use evidence-based advice on how to fight climate change.
They advise donating directly to recommended nonprofits such as: Clean Air Task Force, Evergreen Collaborative, the Good Energy Collective, among others. Supporting Think Tanks:
Another indirect impact is donating to a climate-focused think tank.
Think tanks play a crucial role in researching and developing innovative solutions and systems for resolving climate change. These focus on developing cutting-edge technologies and providing policy recommendations to governments and industries. By sponsoring a think tank, your company can contribute to the generation of new ideas and policy recommendations that can accelerate the transition to a low-carbon economy. Backing Campaign Donations
Campaign donations are often a contentious topic, but your company can use its voluntary carbon tax revenue to support politicians or specific legislation that champion climate action.
Hey, we’d be remiss not to mention this option. Do with it what you will. Investing in Climate Tech
Lastly, companies can use their revenue to make investments in climate tech startups and companies that are developing innovative technologies to combat climate change.
By investing in these ventures, companies can not only drive technological advancements that address climate change, but also gain access to cutting-edge solutions for reducing emissions. These startups and technology companies could be working on renewable energy, biofuels, carbon capture, or other sustainable solutions to help reduce emissions.
This not only supports the growth of the clean technology sector but can generate financial returns that grow your future pool of available tax revenue to allocate to climate impact.
Paving the Way for the Future:
While these are just a few ideas, the possibilities don’t stop there. Involve your employees in the decision-making process. This can be a boon to your company's culture and help spread the word about your impact beyond the company's walls.
Most of all, enjoy the process of giving back. You’ve made the important decision to implement a voluntary carbon tax and you’ve done the work to implement it. So, take a breath and enjoy the chance to give back.