Carbon Pricing

Externalities

In economic terms, business ventures determine profitability from the balance of revenues and expenses. But some services that businesses consume are not directly accountable as expenses. Economists refer to such consumption of services without accounting as “externalities”. Many externalities are services provided by natural systems - supplies of clean water, air, and in-situ natural resources of various kinds. Other externalities can include social infrastructure - transportation systems, utilities, and various worker-support systems.

Internalization is a term of economics for (usually) governmental assignment of price to the business use of an erstwhile externality; a road-use tax or a per-gallon wastewater discharge fee, for example. A concept of climate change mitigation is to establish a price for carbon emissions in some fashion - to internalize the cost of creating carbon emissions so that economic forces can act to - not necessarily eliminate emissions - but optimize the market allocation of emissions based on cost (there is a market for gold, no matter how expensive).

Pricing

Approaches to carbon pricing include markets for carbon offsets, and carbon taxation. The common feature is a cost-per-ton to be charged for emitting carbon dioxide, or a cost-per-ton to be awarded for eliminating carbon dioxide from the atmosphere. Idealistically, one might suppose these costs could be equal - but the cost to emit has historically been zero, and the cost to remove has historically been quite expensive to achieve at will and verify. In the 2020s, the world is seeking to find an economic balance where the rate of human carbon dioxide emission will become balanced with the natural world’s capacity to remove carbon dioxide, combined with technological carbon dioxide removal - net-zero emission.

However the price of carbon cannot be based on net-zero emission - that is an understandable but arbitrary standard. The presence of historic emissions that persist in the atmosphere, and ongoing hard-to-eliminate emissions necessitate a carbon price that includes not just a balance between emission and removal, but an excess capacity for removal.

Complicating factors for establishing suitable pricing:
permanence
social justice
MRV
Additionality/Leakage

Steps toward pricing:
carbon tax proposals
market solutions to pricing
CDRLA
LECCLA