The annual carbon fee is set through an in-depth process that considers academic research, existing corporate practices, carbon market benchmarks, stakeholder input, and the results of internal modeling. This work informs to the carbon fee that determines each certified entity’s Climate Transition Budget.
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Here, we summarize the modeling work that shows how the fee fits into a science-aligned reduction pathway. Such a pathway requires businesses to make a 50% reduction in GHGs below 2019 levels by 2030 (see resources from the Exponential Roadmap on The Carbon Law). This equates to a reduction rate of 5-10% per year.
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The cost to achieve this rate of reduction differs between companies, and can range from < $0/tCO2e (meaning a change saves money), to hundreds of dollars per tonne. EDF provides estimates that deep emission cuts are achievable within an upper bound cost of $250/tonne.
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Using this $250/tonne as a maximum, and assuming that abatement costs will rise over time as new emissions cuts become harder to achieve, we modeled the total cost to reduce 5-10% of a typical company’s emissions per year, and averaged that total cost across existing emissions. This calculation gave us a conservative estimate for the total budget per tonne of existing emissions to achieve a science-based reduction each year. The modeling is summarized in this chart, where the red bars show the minimum carbon fee, the blue line shows the average reduction cost per tonne, and the beige area shows the trend of total emissions.
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The results of this modeling showed that a starting fee of $15 per tonne — applied across all cradle-to-customer emissions — supports a climate transition budget that is aligned with the goal of meeting companies’ science-aligned reduction targets.