The federal and state governments should take a page out of industry’s playbook and adopt a “proxy” or “shadow” price on carbon, the Center for American Progress said in a report issued Monday. “This practice would apply to decision-making with respect to both direct government action, such as investment in transportation infrastructure, and indirect government action, such as permitting,” the report says.
The use of a shadow carbon price, an assumed internal carbon price used to assess investment decisions, has become more common in industry. “By evaluating these investments through the lens of a carbon price, companies can avoid stranded assets that they would have to retire before the end of their useful lives and mark as a loss on their balance sheets,” the report explains.
To ensure that taxpayer dollars are not funneled into projects that will become stranded assets in a carbon-constrained world, governments should also adopt a proxy carbon price, according to the report. “If a fossil fuel investment becomes stranded due to carbon constraints in the future, it will do more than harm the investor’s bottom line. Unwise commitments to carbon-intensive energy infrastructure could leave the broader U.S. economy unable to adapt quickly in a world that needs to limit warming to 2 degrees Celsius above preindustrial levels—the generally recognized ceiling above which climate change could be catastrophic,” the document states.
