What if companies had to pay for the problems their carbon emissions cause? Their profits would plunge, according to new estimates, possibly wiping out trillions in financial gains.
These results, spelled out in a recent study in the journal Science, are based on analysis of almost 15,000 publicly-traded companies around the world. To calculate how much each ton of carbon emissions ends up costing society, economists used the Environmental Protection Agency’s estimate of $190 per ton.
For all of those companies combined, the damage would run into the trillions of dollars, Christian Leuz, a coauthor of the study and a business professor at the University of Chicago, told the Associated Press. The researchers only included direct emissions from companies, not “downstream” emissions related to the products they sell. (So emissions from the operations needed to build cars would count; the pollution that comes out of its tailpipe wouldn’t.)
They found that the cost of damage surpassed profits for highly polluting industries, including energy, utilities, transportation, and materials manufacturers — a group that accounted for 89 percent of the total. Researchers didn’t name any specific companies.
The study arrives during a summer when the costs of climate change are coming clearly into view, as historic flooding, deadly wildfires, and frequent heat waves have rattled the United States. The administrator of the Federal Emergency Management Agency warned last week that the pace of disasters has been so frequent that it’s running out of cash. And the economic consequences of climate change go beyond emergency response: Extreme heat is believed to cost the U.S. economy billions in lost productivity every year.
But even as the toll of carbon emissions becomes apparent, governments around the world are pouring more money into support for fossil fuel companies than ever before. Last year, subsidies for oil, coal, and natural gas reached a record high of $7 trillion, according to a report out Thursday from the International Monetary Fund, which works out to $13 million every minute. That’s nearly double what the world spends on education and equal to roughly 7 percent of global economic output. Subsidies often come in the form of tax breaks intended to keep people’s gas prices and energy bills low, but they come with huge costs, slowing the shift to a cleaner economy.
The economists behind the new study of corporate emissions make the case that forcing companies to disclose their greenhouse gas pollution is a start toward decreasing emissions. Some governments are starting to move toward this approach: The European Union adopted rules earlier this year that will require companies to disclose their emissions, following a similar move by the U.K. government in 2022. It’s an approach also being considered by the U.S. Securities and Exchange Commission and California lawmakers.
There’s some evidence that such disclosures could prompt companies to reduce emissions. One study found that contamination levels dropped after fracking companies were forced to disclose their pollution, and that these kinds of regulations enabled more public pressure on corporations.
“Put plainly,” the study concludes, “it is difficult to imagine a successful approach to the climate challenge that does not have widespread mandatory disclosure as its foundation.”
Good article. Climate “externalities” should not be a thing. Polluters should bear the true costs. Subsidies are way too far in the other direction.