Chevrolet buying carbon credits: How the carmaker just showed a carbon tax could work.

A Carbon Tax Won’t Happen Anytime Soon. Why Is Chevrolet Volunteering to Pay One?

A Carbon Tax Won’t Happen Anytime Soon. Why Is Chevrolet Volunteering to Pay One?

Moneybox
Commentary about business and finance.
Nov. 19 2014 4:22 PM

Emission Statement

A carbon tax won’t happen anytime soon. Chevrolet just proved it should.

General Motors cars are displayed at the Sierra Chevrolet.
Ride, and breathe, easy: Chevrolet is buying carbon credits that amount to taking 5,000 cars off the road.

Photo by David McNew/Getty Images

Imagine if President Obama announced a new law that would tax the pollution that companies created, and then used that money to pay poor farmers to sequester carbon dioxide from the atmosphere. We’d probably end up with a political firefight even messier than the ongoing battles over the Affordable Care Act.

Thankfully for fans of carbon pollution, there isn’t enough political will in Washington to bring about such a system anytime soon. But this week, Chevrolet and the Department of Agriculture quietly proved that such a regime is possible—and that it can be both good for the environment and possibly beneficial to the bottom line of one of the country’s largest corporations.

On Monday, GM subsidiary Chevrolet announced a new partnership with the USDA and several nonprofits to voluntarily purchase enough carbon credits to reduce the company’s carbon dioxide output by 39,000 tons, the equivalent of taking 5,000 cars off the road.

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GM readily concedes that the deal, part of its four-year green initiative, is partially about buffing the company’s image. “No auto company had ever used climate change and carbon credits to engage in a discussion on a very important issue that a large portion of America cares about,” says David Tulauskas, GM's director of sustainability and the program manager for Chevrolet's carbon reduction initiative. “Chevy helps build baseball diamonds in communities, but so do other companies. ... This is taking a new approach to strengthening the brand.”

The company will reduce carbon by paying landowners to sequester it—a process of pulling carbon out of the air and burying it in the ground. Farmers and ranchers in the Prairie Pothole Region of North Dakota will be paid to keep their property free of row crops like corn and soy, which require a lot of carbon to produce, and require intensive tiling, which can release even more carbon. Instead, they’ll keep their land in “perpetual easement.” They’ll be allowed to grow low-energy crops like hay, but will be required to plant trees and other plants that help capture carbon.

While this is the first time a company has bought into the USDA’s carbon capture program, the idea has been in the works since 2011. One of the biggest challenges was figuring out how to measure the amount of carbon being captured on farms, and how to compensate landowners fairly for that carbon.

In 2011 the USDA gave a $161,000 grant to Ducks Unlimited, a conservation nonprofit that focuses on saving ducks and other waterfowl, to develop a way to accurately track how much carbon is being sequestered on a given farm in the Pothole Prairie Region. (Ducks Unlimited is also concerned about preserving land there for ducks, not just carbon.) That system is the first of its kind, and it’s important because it provides a template for how the government can measure carbon sequestration and pay people for doing it.

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“With high commodity prices, it can be economically attractive for farmers and ranchers to plant row crops on marginal agricultural lands,” Adam Chambers, a scientist at the USDA’s Natural Resources Conservation Service, recently said. So instead of doing that, Chambers said, “Basically, you’re farming carbon while running a normal diversified agricultural operation.”

While the structure of the USDA program has been in the works for a while, the Chevy deal is first time a company has purchased the credits. By buying carbon offsets, Chevy is acknowledging that CO2 is an externality that should be remediated. If getting a large company that emits a lot of carbon to pay people in exchange for reducing carbon sounds familiar, that’s because it should: What Chevy, the USDA, and their nonprofit partners have done is essentially implement an opt-in cap-and-trade program. Chevy is doing it voluntarily. A true cap-and-trade system would do it by force.

While a national cap-and-trade program has proved politically toxic in the last few years, the Chevy deal could be a sign of things to come. The company has committed $40 million to reduce its output of CO2 by 8 million tons in the coming five years. Of course, $40 million is piddly for a company that’s part of a corporation that made $1.4 billion last quarter. But it may be a sign that, at least for profitable companies, carbon offsets aren’t the job killers that congressional Republicans have made them out to be.

Chevy isn’t the only company to voluntarily reduce carbon output recently, though it’s the first to work with the federal government to do it. Microsoft, Disney, and Shell have each set internal carbon prices, capping emissions and charging divisions that exceed those caps.

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Taking those green steps isn’t just about PR (though it’s part of it). Tulauskas says GM has factored global warming into the company’s business plans, and in the past has supported national initiatives to address climate change. “Whether it’s cap-and-trade program or a carbon tax, we need as a nation to have to start having a conversation about this,” he says.

Analysts believe companies like Disney and Chevy are seeing signs that a federally or even internationally mandated carbon tax is a real possibility and are adjusting their corporate cultures to lessen the blow to their bottom lines when it happens.

“It’s going way beyond corporate responsibility,” says Peter Weisberg, a program manager at the Climate Trust, an Oregon-based nonprofit that helped broker the USDA deal. “In a way, it’s preparing for a future when a carbon price is pretty much inevitable.”

That inevitability may be pretty far down the line, though, considering recent events in Washington.

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When voters elected a Republican Senate majority this month, they also killed most chances of a carbon tax or cap-and-trade system passing the upper chamber. Oklahoma Sen. James Inhofe, a fierce defender of climate change denialism, will now likely chair the Environment and Public Works Committee.

Inhofe has written a book called The Greatest Hoax: How the Global Warming Conspiracy Threatens Your Future. He’s called a carbon levy “the greatest tax increase in American history” and has called supporters of cap-and-trade “Hollywood elitists [and] extremist environmentalists.”

Even before the midterms, cap-and-trade was a politically tough issue. Obama campaigned in 2008 on implementing a cap-and-trade program, but so far, all his attempts have failed. Most recently, in September, Obama pushed for 74 other nations to sign a global carbon tax declaration, but failed to get the U.S. to sign.

That may mean pricing carbon will be left up to smaller entities—corporations, but also municipalities.

California just recently celebrated the two-year anniversary of its cap-and-trade system. The state’s program is cheap, charging only $11.50 per ton of carbon emitted beyond what permits allow for (the federal “social cost of carbon” index puts the true cost of a ton of carbon closer to $40). And California has been giving away most of its permits for free anyway. But the program has still raised $2.27 billion in just two years.

In an era of shrinking state budgets (even in Inhofe’s home state), the infusion of cash promised by a tax on carbon, like the infusion of cash promised by taxing weed, might be the most convincing argument for politicians who’d rather not think about global warming at all.

As Chevy has shown, companies are already starting to realize that carbon has a cost that’s currently not being accounted for. Now it’s just up to politicians to realize the same thing. “To solve climate change, voluntary measures aren’t going to be enough,” Weisberg says. “Climate change is the biggest market failure we’ve faced.”