By J Robert Gibson
10 March 2023

Stopping Earth’s long-term equilibrium temperature increasing requires global Net Zero emissions. We propose two Market Mechanisms incentivising companies and other Non-State Actors to:

1)Make their Products (Goods & Services) Net-Zero.

2)Substantiate their plans for making all their operations Net-Zero.

 

This paper is supported by a second paper detailing the five amendments to the GHG Protocol required to implement its proposals. This second paper responds to WBCSD & WRI’s request for the public’s views on amendments required to the GHG Protocol.

We hope the International Sustainability Standards Board (ISSB) will consider the proposals as it finalises its Climate Standard.

 

PROPOSAL 1:  Carbon-Added Cost (C-AC) Market Mechanism

Introduce C-AC using ‘Value Added Tax’ type accounting for the cost of Carbon Dioxide Removal (CDR) Credits offsetting carbon embodied in Products.

This is not a tax. Rather, it applies the ‘Polluter Pays Principle’ that those who cause carbon emissions to pay the cost of removing them:

1.It motivates companies, and other Non-State Actors (NSAs) to reduce the carbon intensity of their Products.

2.It motivates NSAs, and consumers, to purchase less carbon intense Products.

3.It raises money to pay for CDR Credits.

It can be implementation progressively:

1.Start with accounting for quantities. Then move to Shadow Pricing for the CDR cost. Then move to paying, say, 5% of the CDR Credits cost with this % increasing annually till 100% is reached.

2.Implement by industry sector starting with simple, carbon intense products such as cement, concrete, fertilizer, hydrogen and steel.

3.Implement initially in high income jurisdictions with, if necessary, Carbon Border Adjustment Mechanisms covering imports which do not bear the CDR Credit cost.

 

PROPOSAL 2: Carbon Net Zero Viability (C-NZV): Market Mechanism to cause substantive long-term planning for Net Zero

Many companies have committed to a year by which they will be Net Zero. Some plan to buy CDR Credits to offset their residual net emissions. Few, if any, have disclosed their estimate for the cost of these CDR Credits.

This proposal requires companies, and other NSAs, to consistently substantiate the economic viability of their pathway to net zero. Ideally, ISSB’s Climate Standard should include a default method for NSAs to substantiate they have an economically viable pathway to Net Zero by the year they have committed to.

This proposal is based on a framework proposed by a major pension fund at the 2022 Glasgow Climate Conference. It is a framework which helps NSAs identify operations which will have residual emissions requiring the purchase of CDR Credits to be Net Zero. We propose that for these ‘residual emissions’ NSAs must:

1.Estimate the sales price at which End Products they contribute to making must be sold to cover the cost of the CDR Credits.

2.Review the likely competitiveness of Products at this price and hence expected sales volume.

This requires NSAs to substantiate their plans for Net Zero. In doing so they will provide investors with better information on where to place their money.