Cultural considerations of the carbon tax – what it means for entrepreneurship

The amount of carbon in the atmosphere has increased from its historical average of 275 parts per million to about 400 parts per million – and this number is rising by about 2 parts per million every year. Most scientists are now confirm the hypothesis  that number is higher than any time seen in the recorded history of our planet—and we’re already beginning to see disastrous impacts on people and places all over the world. Now climate scientists have revised the highest safe level of CO2 to 350 parts per million. Yet, very little coordinated action seems to be targeted at tackling the Earth’s most pressing issue (for instance, Australia scraps carbon tax early (morningstaronline.co.uk).

Recently, Planet Money, an excellent podcast on economics, posted a recent episode on a carbon tax plan to ‘fix’ global warming.(Episode 472: The One-Page Plan To Fix Global Warming). According to economists, a carbon tax would raise the price of carbon intensive products and services to match its full environmental costs, which to this point is artificially low. This promotes the incentives of individuals to find new ways to reduce their carbon usage, and increase their tax bill by an average of a $1 USD per day. Interestingly though at the end of the year, low emitting people, I suppose lower income too, would see most of these taxes paid back to them in the form of a refund.

I want to take this a step further and deconstruct the carbon tax, how it changes incentives, what the implication are for entrepreneurs trying build new start-ups that have both environmental and commercial goals, and what larger lessons can be learned about entrepreneurship in the process.

First, the carbon tax is a ‘rule’ – it doesn’t exist physically but only in our collective minds and made real through our actions. Therefore, we can call it fully socially constructed (an the debate is fierce). If introduced, a cultural consideration of the carbon tax would work like this: As we begin to understand the rule (availability of knowledge) and where it applies (accessibility), then will we start to see all economic actors starting to respond differently. As the podcast explains, the price of carbon based products and services will increase due to companies raising prices to offset the new costs – costs that would have now been capturing the full environmental costs of carbon. Yet, since the ‘rule’ doesn’t physically exist, it has little ability in of itself to change behavior of people unless there is some mechanism to disseminate knowledge that the rule exists and that it will be enforced. That mechanism is what we call the (large and small) media and word of mouth.

A large part over the battle for a carbon tax is to capture what ‘knowledge’ should be promoted. Here, we can view ‘knowledge’ as culturally produced through debate via youtube videos, newspapers, blogs (such as this) and the like. Just as in cultural discussions regarding women’s, civil, and gay rights have led to ideas and opinion, some more well argued than others, we see this playing out today in our everyday lives.

Upon introduction, enforcement is the otherside of the ‘rule’ of a carbon tax – it does incorporate resources as it takes man-power and equipment to monitor and enforce the new rule. Thus, it takes a certain amount of power to bend others to your will. Fortunately for most people, we have lent our representative  power to democratic governments that balance power.

Why is a carbon tax even necessary? Do we need another tax? Isn’t this just big government?

Yes, in this case a carbon tax is necessary and here’s why. Most proponents of a carbon tax will start by stating we need to save the natural environment, which isn’t necessarily untrue but it is poor argument for a carbon tax. Instead, a carbon tax and refund scheme is a way to change incentives by altering what sociologists call ‘structure’ or the form and shape of behavior. Since carbon emissions are harmful in the aggregate, they demand action in the aggregate. But each individual cannot readily monitor their own small contribution. This makes it difficult to persuade a complex society to alter behavior through typical cultural pressure, especially when time is of the essence. In certain sub-cultures that place considerable value on the natural environment, a carbon tax is not necessary as they are willing to purchase carbon free products and services. However, since they represent such a small proportion of people, their actions have little over all effect on the environment and cannot support enough demand to create a competitive business environment.

A carbon tax and refund scheme is a strong form of institutional power that can drastically alter individual behavior. But rather than this be ‘big government’ being wasteful, we should see this as a move towards equality, just like successful women’s rights, civil rights, and gay rights in the recent past. A social movement that moves towards equality breaks down another nature/culture barrier, which has only increased our freedom.

However, a carbon tax has very little chance of passing in the USA. Why? The main political discussions that are playing out all over the world now represent the power differences between politics and incumbent industry. Politicians seem to place more value at the moment on keeping the status quo to appease industry and the public. Social movements (like 350.org)  play a critical role of mobilizing support to change perceptions of appropriateness of fossil fuels.

If the battle can be won, and a carbon tax installed, this would have profound implications for environmental entrepreneurs (people blending environmental and commercial values). As people learn of the new ‘rule’ their knowledge and ability to reflect on the changes allows for new activation. Some well positioned or motivated individuals will see new opportunities resulting from cultural change and promotes new ways of producing emission free energy, and products and services with a low carbon impact.

Coming full circle, as entrepreneurs under the new regime begin to take small chunks out of current markets and replace them with more socially valuable products and services, they add value to an economy. The positive feedback begins as more investment and more entrepreneurs enter into competition, driving down the costs of emission free products and services and adding economic growth.

Reflecting upon the processes of entrepreneurship taking this holistic cultural view, we see that entrepreneurship is a response, as opposed to technological solutionism,  to changing cultural beliefs and preferences in how we value the natural environment. Just as leaders of social movements rally support for environmental ideals, entrepreneurs can rally support of commercial interests. Their actions close the loop and bring profound cultural and technological change to society. Though, sustainability standards will become necessary to ensure that dirty fossil fuels are not replaced with other forms of environmental degradation.

So, get out there and support your local environmental group and let’s see a world wide tax on carbon and a movement towards valuing the natural environment!

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