What is it and why does it matter? By Katelyn Baxter 

The concept of ‘carbon as a currency’ is gaining traction in the energy industry and beyond. Understanding the implications of this concept is critical to achieving a sustainable future. By assigning a value to carbon emissions, carbon as a currency can incentivize companies and individuals to reduce their emissions and invest in low-carbon technologies and infrastructure.  

Carbon as a currency also drives investment in low-carbon technologies and infrastructure by creating new markets and incentives for reducing emissions. This can help accelerate the transition to a low-carbon economy and support the development of new technologies and business models. At the same time, it can impact everything from energy prices to supply chains to corporate sustainability strategies. Understanding these implications is critical for companies and organizations that want to stay ahead of the curve and position themselves for success in a low-carbon future. 

Benefits of embracing a carbon currency 

Beyond sustainability, what exactly does carbon as a currency mean? First and foremost, it is a key tool in addressing climate change, as it provides a mechanism for putting a price on carbon emissions. The carbon dioxide concentration is rising, with current levels of carbon dioxide roughly 45 percent higher than they were before the Industrial Revolution. Human activities – including the use of fossil fuels – serve as the biggest contributors to rising carbon emissions and climate change.  

Carbon emissions carry a social cost as well. An estimate of the economic damages caused by each additional ton of carbon dioxide released into the atmosphere is a measure of the long-term costs that society will bear because of climate change, including the impact on human health, agriculture, infrastructure, and ecosystems. There is debate as to the actual social cost of carbon, but current US policy indicates $51 per ton of emission. The Environmental Protection Agency has proposed to raise this figure to $190.  

Embracing carbon as a currency has numerous benefits. For instance, a carbon currency would create a financial incentive for companies and individuals to reduce their carbon emissions, as they would be able to earn credits for doing so. A carbon currency would also encourage the development of new technologies, practices, and green industries that reduce or remove carbon emissions. Consider carbon dioxide removals (CDRs), for example. CDRs are technologies or practices that remove carbon dioxide from the atmosphere, such as afforestation, reforestation, and direct air capture. They can play a vital role in a carbon currency system. In such a system, CDRs could offset emissions that cannot be reduced through other means. Industries, such as oil and gas, steel, and cement, for instance, are difficult to decarbonize. Companies in these sectors could purchase carbon credits from a CDR project to offset emissions which could not be avoided, reduced, or replaced. There are challenges associated with the use of CDRs in a carbon currency system, such as measurement, verification, and permanency, but doing so would create a financial incentive for the development and implementation of CDR technologies and practices. 

From a profit standpoint, carbon currency could generate revenue for governments, which could be used to fund climate mitigation and adaptation efforts. Sustainable business models are also emerging as novel CDR technologies are beginning to be commercialized. Environmentally speaking, a carbon currency could provide a common framework for countries to work together to address climate change, as they would be able to trade carbon credits with each other. Additionally, by reducing emissions and air pollution, a carbon currency could improve public health and reduce healthcare costs as well. 

Barriers to adoption

While carbon currency has the potential to be an effective tool for addressing climate change and promoting sustainable development, significant barriers to its implementation need to be addressed. For instance, the power of political will cannot be underestimated. In some countries, there is a lack of political support to directly address climate change. In addition, there are concerns that the economic impact may make some governments hesitant to implement a carbon currency. In the United States, for example, the Trump administration rolled back several environmental regulations in addition to withdrawing the United States from the Paris Agreement. While the Biden administration has reversed these two moves, some viewed the initial decisions of the previous administration as signaling a lack of political will to address climate change. Implementing a carbon currency would require a standardized accounting methodology and a reliable system to measure, verify, and track trading. This is difficult to employ and enforce, especially in regions with poor governance.  

In addition, not all countries feel equally responsible for the emissions already in the atmosphere or equally at risk of suffering the consequences of climate change. Implementing a standardized carbon currency would require international coordination, and countries’ diverging interests can make this difficult. In the United Nations’ climate negotiations countries have struggled to agree on a common approach to addressing climate change, with some nations arguing they should not be required to reduce their emissions if it would hamper their economic development. Resistance from carbon-intensive industries remain as well. Those that are heavily reliant on fossil fuels may resist the implementation of a carbon currency, as it would increase costs and cut into profits. In Australia, for example, the coal industry has vocally opposed the country’s carbon pricing model, arguing that it would harm the economy and cost jobs. Lack of public awareness and support is another ongoing issue, as much of society is not yet aware of the benefits of carbon currency.  

Understanding carbon as a currency is ultimately critical for anyone who wants to be part of the solution to climate change and the transition to a sustainable future. Through comprehension of this concept and its implications, individuals and organizations can take action to reduce their carbon footprint, invest in low-carbon technologies and infrastructure, and position themselves for success in a rapidly changing world.

For a list of the sources used in this article, please contact the editor. 

Katelyn Baxter 

Katelyn Baxter is a corporate strategy consultant and advisor. With almost 20 years of energy industry experience, and having held positions in various international locations, Katelyn brings her unique insights and perspectives to forming robust and implementable strategies that drive sustainable energy solutions. Katelyn is skilled in designing, leading, and implementing commercial and strategic growth, realignment and transformation initiatives that enhance profitability, boost decarbonization or balance risks. Connect with her here: www.linkedin.com/in/katelyn-baxter-24984681/