A private market solution to climate change is preferable to bureaucratic schemes. The difference is the approach towards human behavior—Push vs. Pull. The government tends to under perform in achieving authentic consumer buy-in. France’s imposed carbon tax on fuel created the Yellow Vest revolt, literal riots in the streets of Paris (an embarrassment to the creators of the Paris Accord). Lawmakers took notice and backed down. The lesson: central planners should be wary of threatening consumers’ earning & purchasing power. The carbon push failed.
Carbon emissions arise from an aggregate of consumers making rational short term decisions (such as driving a safe, comfortable car to a high paying job). The more carbon we emit, the better off we are, individually. Consumers have become naturally pitted against the environment. What if there was with a structure to become personally better off by reducing their carbon footprint by the energy industry using a Pull approach?
Private Market Solution
The be an alternative to a carbon tax, the private market solution will need to verifiably carbon offset each barrel of petroleum consumed. The challenge is that fuel has thin margins, and consumers are price sensitive. Fuel costs must ultimately stay equal to less than retail to have the required Pull. The second challenge is engagement. The private market solution will need to delight the consumer and keep engagement higher than energy companies traditional have. Millennials—with their $1.5 Trillion purchasing power, are hyper eco-conscious, variable in appetite, and concerned about climate (see Deloitte Millennial Survey 2018). Most families and small businesses rely on affordable fuel to sustain a livelihood; they need real solutions as well.
It’s possible to overcome the fuel margin issue by allowing consumers to be part of the oil-to-fuel value chain as a co-operative participant. Also, significant value can be negotiated by way of merchant value discounts in exchange for fuel (like airline miles or fuel cards) thereby enhancing the users’ relative purchasing power.
The solution must help convert consumers into engaged citizens regarding climate. Crowdfunding platforms have shown that by empowering users to decide which project to send a micropayment to helps build awareness and deepen levels of engagement. Compare this to consumer sentiment on the use of tax proceeds.
It’s imperative to encourage consumers to take positive action on climate that also benefits them individually. The private market could deliver fuel cost savings while providing consumers with engaging choices about where to direct carbon offset funds (e.g., a reforestation project, or a solar installation on the consumer’s rooftop). Whatever the solution the private market creates, it must have a tangible incentive Pull that can reduce carbon emissions.