US Companies Do Greenhouse Gas Damage Equal To 18.5% Of Profits, Study Shows

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Corporate bottom lines would look much different if they had to pay for the damage they do to the environment with greenhouse gas emissions, a study has found.

For every dollar that U.S. companies make in profits, greenhouse gas emissions cause 18.5 cents worth of damage, according to an analysis by Michael Greenstone, a professor of economics at the University of Chicago, published in the science journal Nature on Thursday.

American companies would fare better than most, with U.S. carbon damage accounting for 44% of profits globally. The amount varies significantly between companies and industries: In the U.S. energy sector, carbon emissions damage equals 382.9% of profits.

The study, which took data from 15,000 firms, sheds light on what would happen if publicly traded companies were required to disclose their greenhouse gas emissions along with the financial details they currently have to include in their registration statements and reports—a change proposed by the Securities and Exchange Commission last year.

“One rationale is that disclosure will provide information on material risks to investors, making it evident which firms are most exposed to future climate policies,” Greenstone wrote. “In addition, some believe that reporting will galvanize pressure from companies’ key stakeholders (e.g., customers and employees), leading them to voluntarily reduce their emissions.”

The paper sidesteps the thorny question of who, exactly, would have to pay for those emissions if a carbon tax were imposed and to what extent the companies themselves are responsible versus their customers.

A carbon tax is a type of penalty that businesses in 35 states must pay for excessive greenhouse gas emissions. The tax is usually levied per ton of greenhouse gas emitted.

“With existing datasets, it is not possible to determine who bears the costs or to divide responsibility for these damages between firms and consumers,” he wrote.

Greenstein’s paper is the latest attempt to put a price tag on the enormous social costs of climate change. Gasses produced by burning gasoline, oil, coal, and natural gas for electricity and transportation are warming the atmosphere, worsening the chances of severe weather, and threatening to render parts of the earth uninhabitable for humans in the future, among many other potentially catastrophic effects, studies have shown.

The idea that shareholders should consider the environmental impact of the companies they invest in rather than pursuing profits with no regard for damage to everyone else has met with pushback from Republican lawmakers. Conservative members of Congress have proposed legislation to restrict financial companies from incorporating Environmental Social Governance considerations into their decision making.

Science. "Mandatory disclosure would reveal corporate carbon damages."

Securities and Exchange Commission. "SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors."

House Financial Services Committee. "Committee Republicans Introduce Measures to Combat the Influence of ESG Initiatives in America’s Financial System."