Corporate Carbon Tax: The Impact On Business

A corporate carbon tax is looming on the horizon. This is what businesses need to know to prepare.

Stef Vervaet
Sustainable Business Consultant
October 4, 2022

The reality of corporate carbon taxes is now looming large on the horizon. 18 European countries have already implemented carbon taxes and others are likely to follow suit. If you’re not sure what that will entail, or the consequences for your business, let’s take a closer look.

Our estimates show that a carbon tax levied on all energy-related carbon emissions at a rate of $50 per metric ton and an annual growth rate of 5 per cent would generate $1.87 trillion in additional federal revenue over the next 10 years.

What is a corporate carbon tax?

We know that emissions of greenhouse gases including carbon dioxide, nitrous oxide, and methane are changing the Earth’s climate. These changes include more extreme weather events like flooding or heat waves as well as rising sea levels and changing rainfall patterns.

The idea of a corporate carbon tax is that these emissions are taxed, which places the burden more heavily on those energy-intensive industries. By putting a price on emissions, there’s additional encouragement for businesses to continue cutting these. Carbon taxes are applied to different products like coal and refrigerants depending on the levels of greenhouse gases they emit.

Carbon taxes place an additional fee on these products, for example, $25/metric ton of CO2 equivalent. The idea is that there’s a financial incentive for companies to reduce their greenhouse gas emissions, by taking real effective measures rather than purchasing carbon credits.

The funds raised by carbon taxes could be used by governments for a range of different purposes including:

  • Financially encourage energy efficiency
  • Investing in own renewable energy projects to take the place of fossil fuels
  • Offsetting the environmental impacts of emissions
  • Investing in carbon capture projects
  • Lowering corporate or individual taxes
  • Reducing the budget deficit
  • Improving climate resilience
  • And more...

It’s also possible that some countries may decide to introduce carbon tax policies that offer credits for activities that decrease the levels of greenhouse gases in our environment.

At Futureproofed, we’re convinced that a corporate carbon tax is looming on the horizon. We want to be the first to give our views on the probable pricing and - even more importantly - the potential outcomes for businesses.

Impact of a carbon tax on corporations

So how will these carbon taxes impact businesses and corporations? Financial implications include the rising costs of any goods or services associated with high emissions of greenhouse gases. Businesses in carbon-intensive industries will see higher costs. These may be absorbed or passed onto the customer.

Planning to consider the impact of a carbon tax on your business includes thinking about:

  • New investments. When deciding on new investments, knowing the potential effect of a carbon tax on different energy sources can help you decide between switching to a fleet of electric vehicles or continuing to use fossil fuels. Switching to an electric fleet may come with a significant initial investment but over time the impact of a carbon tax is likely to be far less.
  • Risk management. The regulated prices of carbon can change quickly, so it can be a good idea to use Internal Carbon Pricing (ICP) to forecast how carbon taxes may affect your business both now and in the future. You may decide to set three different prices to allow for a range of scenarios. As well as using the expected price of a carbon tax as your base rate, many businesses also choose to forecast an optimistic rate (with a lower price) and a pessimistic rate (with a higher price). Before you can calculate any estimates using your ICP, you’ll need to know your company’s carbon footprint.
  • Strategy. When you’re looking at long-term strategies for your business, considering the potential carbon tax being placed on certain goods and services can help you make the best decisions. You may want to move towards integrating more recycled or renewable products into your supply chain, and doing so can reduce your overall costs because these products will potentially be less energy-intensive to produce and sit in a lower carbon tax bracket as a result.

What a corporate carbon tax means for your business

It is estimated that a corporate carbon tax will look something like this:

For a business that generates between 1-10 tons of carbon emissions per employee (as an example, office sector services often produce 1 ton, while industries like manufacturing, food or processing are usually more like 10 tons and more per employee) you’ll likely be looking at a carbon tax of €10-50 per ton/year.

Just as most businesses now work with a financial bookkeeper to track your profit and loss, it’s a good idea to think of integrating carbon footprint “bookkeeping” into your business plan.

This will help you better anticipate the financial implications of a carbon tax so you can be prepared for whatever the future holds.

Introducing Futureproofed

Historically, calculating the full carbon footprint of a business required collecting detailed information on the source emissions generated by a company. This not only includes things like company offices and vehicles but also those emissions generated through the supply chain.

This is often pretty data-heavy and usually requires a specialist consultant to complete. The results are not easy to distribute and often rely on extensive Excel spreadsheets.

Futureproofed can help streamline your CO2 management helping you to quickly collect data, analyse and report on your emissions as well as forecasting.

Accurately being able to calculate your carbon footprint allows you to reduce costs, anticipate risk, drive innovation, and create brand value. By creating a tool based on robust scientific data combined with easy data collection, we’ve simplified the process so that you can concentrate on turning your plans into actions.

By taking action, you can keep your profits as high as possible. Make the smart investment of Futureproofed, for maximum 1/10th of the carbon tax risk.


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