US federal and state government agencies should apply a proxy carbon price when making energy infrastructure decisions to make sure projects are viable, according to the Center for American Progress think-tank.
“The Center for American Progress proposes that federal agencies and state governments adopt the private-sector practice of proxy carbon pricing when evaluating long-term government decisions and investments,” it said in a report released Monday.
“This practice would apply to decision-making with respect to both direct government action, such as investment in transportation infrastructure, and indirect government action, such as permitting.”
Using a proxy carbon price entails pricing a cost of future greenhouse gas emissions into projects that will run for decades, even if no such mandatory price exists at the time of implementation.
A report released last year by the non-profit CDP revealed that by 2017, more than 1,000 private companies worldwide will apply shadow carbon pricing when making long-term investment decisions.
But for governments such as the federal US administration that have not yet adopted the practice, this might increase the risk that new energy infrastructure will end up financially or environmentally unviable.
SIDE-STEPPING CONGRESS
“In the long term – although a specific time horizon is impossible to predict – it is reasonable to expect congressional inaction to give way to legislation that establishes a national carbon price,” said the Center for American Progress report.
The think-tank proposed that the price could be based on the social cost of carbon, which is already estimated by the US government’s executive branch and for 2015 ranged from $11-$105 per tonne of CO2e, depending on the discount rate and the projected severity of climate effects.
Alternatively, it suggested that a price could be set in line with the estimated cost of meeting the US’ long-term emission targets or the cost of achieving the 2C goal in the Paris Agreement.
The International Energy Agency has estimated that a carbon price of $140 per tonne in 2040 would be consistent with achieving the 2C target.
While Congress ideally should enact legislation that would obligate government agencies to implement proxy carbon pricing, that is not a realistic expectation in the short term, the report said, due to both houses being controlled by the Republican Party.
Instead, the Center urged the Obama administration or its successor to issue an executive order requiring federal agencies to include a proxy CO2 cost to their decision-making processes.
It also said state agencies such as public utility commissions should update their regulations to require project proponents to include such a price.
By Stian Reklev – stian@carbon-pulse.com
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