The New Insider Trading: Environmental Markets within the Firm

Sarah Light

Global climate change is the most pressing environmental problem of our time. This fact has led legal scholars and policymakers to debate the relative environmental effectiveness, efficiency, and justice of different public policy instruments such as carbon taxes, cap-and-trade systems, and prescriptive regulation. Such scholarship tends to assume that the government is the key (or only) player setting and enforcing environmental standards against private firms, which are regulatory targets.

In a recent article, entitled, The New Insider Trading: Environmental Markets within the Firm,[1] (available here) I challenge these assumptions through a close examination of British Petroleum’s (BP’s) use of a private carbon emissions trading scheme and Microsoft’s use of a private carbon fee. I argue that this new “insider trading” should be considered as part of an expanded toolkit of options to address climate change. However, some caution is warranted when evaluating these forms of private environmental governance along various normative dimensions to ensure that they are not merely greenwashing. This argument fits within an emerging literature recognizing and assessing the role that private actors, including business firms and non-governmental organizations, may play to address environmental problems like climate change.[2]

In 1998, BP’s CEO announced publicly that BP would reduce its carbon emissions by ten percent (compared to a 1990 baseline) by 2010. To achieve this goal, BP created an internal emissions trading system. By 2002, BP terminated the program, having met its goal eight years ahead of schedule. BP adopted its emissions trading system for several reasons, including to develop expertise in emissions trading in anticipation of future public regulation, to reduce emissions at zero net cost to the firm in light of the firm’s decentralized structure, and to enhance its reputation – particularly at a time when many of its peer energy firms were continuing to oppose climate legislation vociferously worldwide. In creating its emissions trading system, BP faced many of the same challenges that public regulators face, including how high to set the cap, how to distribute permits/allocations among business units, how to enforce the trading rules, and how to set up the trading system.[3]

More recently, in 2012, Microsoft announced its intention to become “net zero” or carbon neutral in certain aspects of its business, including data centers, software development labs, offices, and employee business air travel.[4] To achieve this goal, Microsoft has implemented a tax-like private “carbon fee” on the emissions generated in these activities. Like BP, Microsoft faces many of the same issues that public regulators face in designing a carbon tax, including setting the right “price,” determining the scope of the program, and determining how to administer and enforce the program to ensure compliance by managers. In Microsoft’s case, the firm has touted publicly the benefits of adopting an internal carbon fee—which it still employs – in part because of strategic synergies with its software and cloud computing business. For example, if other firms adopted a carbon fee like Microsoft’s, Microsoft contends that they could reduce emissions by by transferring data to Microsoft’s cloud computing system or by using Microsoft cloud-based software to monitor and report emissions.[5]

Other private actors are now considering carbon charges and fees. For example, on April 20, 2015, Yale University’s Presidential Carbon Charge Task Force issued a report recommending that Yale adopt an internal carbon pricing system, with the charge set at the social cost of carbon, to properly align incentives for decision makers to reduce their energy use and carbon emissions.[6] The President and Provost of the University reported that Yale would begin with a pilot project. The full report of the Task Force is available here.

Such private environmental governance could potentially have a significant impact to reduce greenhouse gas emissions, and that the impact could be global in scope. For example, BP’s global carbon footprint arising from its onsite activities and purchased electricity is comparatively larger than that of sixteen states.[7] Indeed, according to data reported by firms to the CDP (formerly known as the Carbon Disclosure Project), the top fifty reporting business firms accounted for approximately three-quarters of all emissions in 2013.[8] These firms have some degree of control over the reduction of emissions globally – when individual nation-states lack the jurisdiction to reach global emissions. In addition, public regulators and private firms may benefit from dialogue over issues of design in ways that improve the effectiveness or justice of climate policy and practice. Finally, I argue that private emissions trading and carbon taxes send an expressive message – that everyone, including the private sector, has an obligation to take action to address climate change. In the absence of a single “magic bullet” to combat climate change, action by multiple actors – public and private – may be the best option.


[1] 34 Stan. Envtl. L.J. 3 (2015).

[2] Michael P. Vandenbergh, Private Environmental Governance, 99 Cornell L. Rev. 129, 133 (2013) (arguing that private environmental governance should be recognized as a form of law); Sarah E. Light & Eric W. Orts, Parallels in Public and Private Environmental Governance, 5 Mich. J. Envtl. & Admin. L. (forthcoming 2015) (arguing that public and private actors employ parallel forms of the primary categories of instruments to address environmental problems, including prescription, property rights, market approaches, tradable permits, informational governance, procurement and insurance).

[3] Light, supra note 1, at 31-41.

[4] Tamara “TJ” DiCaprio, Microsoft Corp., Becoming Carbon Neutral: How Microsoft is Striving to Become Leaner, Greener, and More Accountable (2012), available at; Tamara “TJ” DiCaprio, Microsoft Corp., The Carbon Fee: Theory and Practice (2013), available at

[5] See Carbon Fee, supra note 4, at 15, 36 (recommending Microsoft cloud-based software to monitor and report emissions; discussing increased efficiency of using cloud computing).


[7] BP Sustainability Review 2013 8 (2013), available at; CO2 Emissions from Fossil Fuel Combustion (2014), available at

[8] CDP Global 500 Climate Change Report 2013 8, 56 (2013), available at Sixteen American firms make the list of top fifty emitters of greenhouse gases (in alphabetical order): Air Products & Chemicals, American Electric Power, Apache, AT&T, Chevron, ConocoPhillips, Devon Energy, Dow Chemical, Duke Energy, E.I. du Pont de Nemours, Exelon, ExxonMobil, FedEx, Occidental Petroleum, Praxair, and Wal-Mart.

The preceding post comes to us from Sarah Light, Assistant Professor of Legal Studies and Business Ethics at the University of Pennsylvania, Wharton School. The post is based on her recent article entitled “The New Insider Trading: Environmental Markets within the Firm”, which is available here.