Sustainability, Clean Energy, Recycling & ESG

The most significant item worth discussing today is yesterday’s news that the API is likely to support a carbon pricing mechanism in the US. We will have more on this in our ESG and climate piece tomorrow. This is not a game-changer in itself, but it opens the door for one. Imposing a cost on emissions, whether a direct tax or a trading mechanism, as in Europe (but hopefully better managed in the early stages), will likely drive real change and significant investment, as it has done in Europe. The devil will be in the details and how many loopholes are attached to any regulation. For example, the chemical and energy industries are likely to lobby hard for no carbon taxes on exports for fear of losing competitiveness.

Souce: https://ember-climate.org/data/carbon-price-viewer/ 

The only way to grant this without causing the ability to exploit it would be to impose import taxes on like-for-like materials and materials made from the exempt polymers and chemicals. Otherwise, we would make US manufacturing less competitive. As a simple example, if we let a US polymer producer sell material to an Asian hard goods maker, who then exported the hard goods to the US, that exporter would have a competitive edge over a US-based producer paying higher prices because of a carbon tax. The EU is already discussing carbon-based import taxes to level the competitive playing field and while this is going to be complex to enforce, it will be necessary.

Otherwise, a carbon tax will help with the relative affordability of EVs and fuel cells, as well as Wind and solar power investments. It could also help with driving carbon capture investment – something we believe is critical and was covered in detail in our weekly ESG and Climate report last week - Let’s Get Together: Aligning Climate and Business Economics