An excerpt from a new book underscores the impact that pricing carbon will have on business operations and management strategy.

Within the next decade, $1 trillion (with a “t”) in carbon emission-reduction costs will hit our economy. The first edition of The Post-Carbon Economy prepares you to survive and thrive when these staggering costs hit your organization.

The primary assertion of The Post-Carbon Economy is that by putting a firm price on a ton of CO2 emissions, the economics of virtually every product and service changes, along with your ability to compete. For example, our back-of-the-envelope calculation shows that at the arbitrary price of $50 per ton of CO2e, the producer cost of a bottle of $6.00 retail-priced liquid detergent jumps by about 12 cents. That may not seem like much to you. But when the producer cost for the bottle is $2.00, that’s a 6 percent hike in production costs. Not trivial.

Right now we do not know what price the U.S. government will set on a ton of CO2 emissions. But we can make certain cost assumptions based on strong research. It is a fact that energy expenses in most manufacturing and service industries run about 2 percent of total costs. Production costs for manufacturers rise by between 1.0 percent and 2.5 percent for each incremental per-ton charge of $10. In some cases, that effectively doubles the cost of the company’s energy. For service businesses, the total cost increases are less, 0.5 percent to 1.0 percent. Yet there are some wild exceptions, including cement makers, who suffer a steep 13 percent increase for each $10/ton. We do know that the U.S. government’s proposed cap-and-trade programs will involve free allowances of some portion of companies’ carbon caps. Resources for the Future calculations show that free allowances of about 15 percent of a firm’s emissions from fossil fuel and electricity use will be sufficient to avoid adverse impacts on shareholder value.

Our argument in The Post-Carbon Economy hinges on four interrelated observations. First, when carbon emissions costs are priced by the U.S. government, putting them on par with capital and energy and labor costs, the economics of our businesses and lives are changed forever, and our economy goes post-carbon.

Second, your ability to compete in the Post-Carbon Economy will largely hinge on how carbon efficient you are, since one way or another, these new carbon emission costs will undoubtedly enter your business as well as that of your competitors here and abroad.

Third, your best hope to find your way to carbon efficiency is to switch from a traditional allocation-based costing regime to activity-based costing with a focus on carbon-what we call “Activity Based Carbon Costing” or ABCC.

And fourth, since you already manage your business by processes, the best way for you to manage to compete on carbon efficiency is by managing each of your seven major business processes most carbon efficiently.

Here is the Post-Carbon Economy in one sentence: Once carbon is priced, your carbon efficiency will determine your competitiveness, ABCC will be your secret weapon, and a business process orientation will keep you managing to your optimal carbon competitive advantage.

There are 7 key business areas that forever change once carbon emissions are priced.
1. Corporate Facilities & Data Centers
2. Finance & Accounting
3. Human Resources
4. Customer-Facing Functions: Sales, Marketing, Distribution & Service
5. Product Design, Research & Development
6. Manufacturing Including Supply Chain
7. Energy Procurement & Generation

Click here to read details about each business process, and visit www.postcarboneconomybook.com to find out how to contribute your  company’s case studies to the second edition of The Post Carbon Economy.

This article is an excerpt from The Post Carbon Economy by Amit Chatterjee, CEO and founder of Hara Software,  and Jay Whitehead, president and publisher of CRO Magazine.

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