Financial solution Stock for Carbon for Public Companies with Negative Emissions Goals.
Technical solutions achieving negative CO2 emissions are numerous and are being demonstrated at small scale. Scaling up these technologies to “move the needle” on atmospheric CO2 is far more challenging. And paying for those scaled-up efforts with a “tax on carbon” could induce massive negative economic impacts. According to Professor Klaus Lachner, including legacy emissions, the total CO2 to be removed by 2100 is estimated at 3,200 gigatons. Even at a tax of just $100 per ton, this is incredibly expensive – $320 trillion! Clearly, this level of tax will devastate the global economy – much higher prices, reduced demand, fewer jobs, stunted growth, and more poverty. A different, non-tax-based, carbon dioxide removal (CDR) funding mechanism must be found, enabling massive sequestration without cratering the global economy. Here we introduce and discuss our proposal Stock For Carbon1.
Imposing a tax on carbon remains a favorite method of policymakers and many economists, to reduce CO2 emissions from fossil fuels and limit warming to no more than 2 degrees C. – the 2015 Paris Climate Accord goal. Even if implemented globally and soon, such a tax would not address legacy CO2 emissions, which already have increased atmospheric levels measured in parts-per-million (ppm) to 420 ppm from pre-industrial levels around 275 ppm.
Including both legacy CO2 emissions and future emissions assuming gradual phase-out of fossil fuels, Professor Klaus Lachner from Arizona State University has estimated the global annual CO2 removal necessary to restore a stable climate at 40 gigatons per year for the next 80 years, a total of 3,200 total gigatons (one gigaton is one billion tons). Even at the yet-to-be-imposed rate of $100 per ton removed, this amount of $320 trillion likely is far greater than government-imposed carbon taxes or other similar fees. A new funding approach is needed.
We, therefore, propose Stock For Carbon (S4C), under which public companies can fund their negative emissions efforts and pay in listed common stock, not cash. S4C maintains corporate working capital, business growth, and jobs. Shareholders are initially diluted but the markets now are reallocating funds to companies with higher sustainability ratings, driving up the stock price and market capitalization (shares issued multiplied by stock price), thereby improving investor ROI.
Stock for Carbon is better than a government-imposed tax on carbon for several reasons:
- Assigns a stock-market-based value to the removed tons of CO2, specific to the corporation’s CO2 footprint, rather than an arbitrary economy-wide government-imposed value of CO2.
- Spans the global operations of the corporation, avoiding issues with different CO2 prices across political jurisdictions.
- The corporation has paid nothing until now, meaning its balance sheet is overstated by its CO2 “free ride”. Paying in stock rebalances the balance sheet, CO2-wise.
- The corporate subscriber can select its own “net-zero” ambition year (e.g., 2030, 2040, 2050, etc.). This sets up a “race to the top” amongst public corporations to gain bragging rights as the most sustainable within their peer group. To solve the climate crisis, ambition matters!
- The contract is directly between the corporate CO2 emitter and the negative emissions CO2 “remover” – eliminating intermediaries and reducing transaction costs.
- As a direct contract, Stock for Carbon can be implemented as soon as the emitter and remover reach an agreement. No need to wait for a global political agreement.
- The tons sequestered are owned and “retired” by the subscribing corporation. Not being fungible (tradeable) further reduces transaction complexity.
- The Stock for Carbon arithmetic is straightforward: determine the cost of tons to be sequestered each year and divide by stock price to determine shares issued to the technology provider, which then sells shares as expenses are incurred.
- Solves the political dilemma posed by carbon taxes: namely, when the price per ton of CO2 is high enough to significantly reduce carbon emissions, the economic outcome is reduced income, loss of jobs, and backlash against the high tax resulting in those politicians who supported the tax being voted out of office and replaced with low-carbon-tax proponents. The likely outcome is oscillating, politicized tax rates.
- Taps into the public equity markets, which globally are a multiple of 20x corporate annual net income. The top ten stock markets comprise 30,000 corporations with a market cap of over $75 trillion.
- Optionally can include excess per capita CO2 emissions of corporate employees (and their dependents) to achieve true global sustainability. By accounting for excess personal CO2 emissions above sustainable consumption, achieves de-consumerization without scaling back lifestyles.
Below we summarize several case studies for ten public corporations across the tech, food, industrial, consumer goods, retail, and utility sectors.
In this analysis, we assigned three levels of corporate ambition: net-zero CO2 in 2030 (High Ambition), 2040 (Medium Ambition), and 2050 (Low Ambition).
We then calculated the total investment needed to achieve those ambitions, based on the projected economics of our ocean wave-powered Autonomous Upwelling Pump (AUP) technology (further described in our paper in the technical section of this publication). The AUP works by upwelling nutrients from 500m depth to the sunlit upper ocean, triggering natural blooms of phytoplankton which absorb CO2 and send it to the deep sea for centuries. Other benefits accrue – as phytoplankton are the base of the ocean food chain, this directly supports fish, seabirds and marine mammals; phytoplankton provide half the oxygen we breath; and the upwelling of deep water helps cool the upper ocean – all these benefits acting to restore the ocean ecosystem.
The first question to be answered is: for all ten corporations and considering 2030, 2040, or 2050 net-zero levels of ambition, is a tax more or less expensive than the AUP technology, assuming various tax rates such as $100, $200, or $300 per ton removed?
We find that in all cases, the tax is more expensive:
The second question is: assuming the AUP technology is adopted, which companies can afford to pay cash, or more likely pay in stock to preserve their working capital? To answer this, we first calculated the percentage of cash on hand (in most cases year-end 2020) consumed by the total AUP investment. We then calculated shareholder dilution under the Stock for Carbon funding alternative by dividing the total investment by market capitalization. This value is analogous to shareholder breakeven – if the market cap increases by this percentage, shareholders get their money back.
Table 2 below ranks these companies according to ratio of the investment needed to achieve net-zero CO2 emissions, their 12/31/2020 cash on hand. The higher ratios suggest the company is less likely to pay in cash, with greater need to preserve its cash for working capital. Column headings are described in more detail below:
- Company and sector.
- Annual scope 1, scope 2, and if available, scope 3 CO2 emissions from an internet search.
- Ambition years to achieve net-zero CO2 – 2030, 2040, or 2050.
- Investment needed to achieve net-zero in 2030, 2040, or 2050.
- Company market capitalization.
- Shareholder dilution if the company elects to use Stock for Carbon rather than pay in cash. If the stock price increases by these percentages, shareholders reach breakeven.
- Prior years’ CO2 emissions removed by 2050. This is attributable to our AUP’s continuing to operate beyond the selected ambition year. We call this the “free ride” – the investment is recovered, but the benefits continue far into the future.
- Square kilometers of open ocean restored by the AUP’s based on two AUP’s per square kilometer.
- Effect on company’s cash on hand 12/31/2020 if it paid in cash rather than using Stock for Carbon.
- Cost per ton of CO2 removed for 2030, 2040, or 2050 given the AUP’s continue to operate at least to 2050.
In this analysis we compare the investment in AUP’s needed to achieve net-zero CO2 emissions in 2030, 2040, or 2050 for ten public-listed corporations across different economic sectors.
The 2030 net-zero year requires a faster scale-up of AUP’s than 2040, in turn, 2040 faster scale-up than 2050.
Even though the unit price per AUP is higher for 2030, the cost per ton removed to achieve net-zero is lowest, at around $11.50 per ton. For 2040 the cost per ton removed comes in about $14-$18 per ton, and for 2050 the cost is much higher, ranging up to $42 per ton removed.
For each company, selecting net-zero by 2030 has the most significant long-term benefits in terms of additional CO2 removed as the AUP’s continue to operate at least to 2050 – in the case of BASF, over 4.4 billion additional tons removed. In effect, selecting 2030 as the net-zero year results in removing CO2 emitted many years before 2021. Similarly, this more aggressive approach helps restore much larger swaths of open ocean – in the case of BASF, 429,000 square kilometers (an area about equal to California).
Whether the company could pay in cash or take advantage of Stock for Carbon is impacted by the economic sector – with American Electric Power (AEP) most likely to utilize Stock for Carbon since its cash on hand is relatively low compared to the investment needed to achieve net-zero CO2. Tech companies with more significant cash balances relative to CO2 emissions, like Google and Microsoft, are more likely to pay in cash to become net-zero CO2.
It is possible and affordable for most companies to remove their future and historical CO2 emissions. Adopting our AUP technology is far less expensive than even a low tax rate of $100 per ton CO2. The AUP cost ranges from $11 to $42 per ton removed, depending on the ambition (year to achieve net-zero). If any company’s operating cash balances are constrained, it can opt to pay in stock which has a zero-cash impact on the corporation.
1 TM patent pending.