RELEASE: CAP Report Says Government Should Follow Lead of Private Sector and Assume a Proxy Price on Carbon When Evaluating Energy Infrastructure
Washington, D.C. — The world is pivoting toward clean energy as it unites to fight climate change. This creates both financial risks and opportunities: Some projects will become increasingly economical while others become increasingly costly or noncompetitive.
Many companies are therefore assuming a price on carbon as they evaluate the financial viability of potential long-term investments. This practice, which the Center for American Progress refers to as proxy pricing, helps companies avoid stranded assets that would have to be retired before the end of their useful lives in a low-carbon future.
The Center for American Progress has released a report calling for federal and state governments to adopt the private-sector practice of proxy carbon pricing in decisions regarding long-term investments. The report specifically focuses on permitting decisions for energy infrastructure—such as oil pipelines and power plants—and how a proxy carbon price could figure in assessments of financial viability.
“Governmental use of proxy carbon pricing would help prepare the U.S. economy for the global low-carbon shift,” said Gwynne Taraska, Associate Director of Energy Policy at CAP. “It would also help government officials make decisions that would set the foundation for the country to meet its long-term climate goals.”
CAP’s proposal is unique in part because it concentrates not on the environmental assessments of proposed projects but on the financial assessments. “An individual project may have a somewhat negligible emissions impact, given that projects drive climate change cumulatively rather than singly,” said Alison Cassady, Director of Domestic Energy Policy at CAP. “But proxy pricing could be one tool that government officials use to determine whether a project makes sense in the context of a future with stricter carbon constraints.”
The report proposes that Congress enact legislation that requires federal agencies with responsibility for permitting energy infrastructure projects to use a proxy carbon price to inform their decisions. In the absence of legislation, which is unlikely in the current congressional environment, the Obama administration or its successor should issue an executive order requiring federal agencies to use a proxy price when making decisions about infrastructure projects, the viability of which may be compromised in a carbon-constrained future.
For more information on this topic or to speak with an expert, contact Tom Caiazza at firstname.lastname@example.org or 202.481.7141.