Contractual Carbon Fees: A Proposal
26 Pages Posted: 29 Jan 2021 Last revised: 5 Oct 2021
Date Written: 2020
This article proposes the ‘contractual carbon fee’ as a novel governance instrument to guide non-state climate change mitigation efforts. At its core, the contractual carbon fee is a privatized carbon tax: one contracting party agrees to pay a fee on its greenhouse gas (GHG) emissions, while another agrees to enforce the commitment to pay the contractual carbon fee. The enforcing party may recover unpaid carbon fees through a stipulated remedy clause. This instrument increases the credibility of a firm’s environmental commitments and helps fill gaps in environmental governance. Due to its binding nature, the contractual carbon fee holds non-state actors accountable for their GHG emissions goals and targets. This article provides advice on how to draft an enforceable contractual carbon fee under Canadian common law and further argues that the contractual carbon fee may be beneficial to self-interested economic actors. Indeed, a contractual carbon fee can help reduce a firm’s GHG emissions, lead to marginal cost savings, help finance green investments, and mitigate climate-related risks.
Keywords: Contractual Carbon Fee, Carbon Tax, Private Environmental Governance, Climate Policy, Penalty Clause, Liquidated Damages
Suggested Citation: Suggested Citation