As the world increasingly puts a price on carbon, so do many forward-looking organisations. An internal carbon price can help organisations better align their commercial and climate goals and guide their decarbonisation decisions. We discuss the risks, opportunities and key considerations when setting an internal carbon price.
The world is increasingly putting a price on carbon. Doing so is essential to us reaching our collective science-based goal to limit global warming to 1.5 degrees. It helps us reflect the cost of inaction in economic terms and therefore encourage behaviour change.
International treaties are being translated to national emission regulation policies. Many large emitters are legally bound to act, a growing number of businesses are taking voluntary action.
And the landscape is always changing. The European Union’s introduction of the Carbon Border Adjustment Mechanism (CBAM), a tariff on carbon-intensive imports, being just one recent example.
It’s not surprising, therefore, that organisations are increasingly setting their own internal carbon price. And using it as a tool to help guide decarbonisation decisions.
Doing so helps businesses better align their commercial and climate goals and reduce transitional and regulatory climate risks. A business that can see and report its emissions position in financial terms has a clear incentive to continuously improve it.
Around one third of companies globally have implemented an internal carbon price or plan to do so in the near future, and this number is expected to grow.
In this article we cover:
An internal carbon price is a theoretical monetary value an organisation assigns to each tonne of carbon or other greenhouse gas (GHG) emissions it emits or avoids.
This value is determined based on the organisation and the environment within which it operates. It can be based on external factors such as the current or expected price of a particular carbon or emissions unit, or internal factors such as the organisation’s decarbonisation goals.
There are two main ways to use a carbon price, with some companies using a mix of both methods:
Whatever the method of implementation, an internal carbon price links climate and commercial decision making in a powerful way and serves as a business planning and change management tool.
As such, it helps businesses to:
Around one third of global companies have or plan to implement an internal carbon price with this number expected to grow. Recent studies indicate that sectors with the highest rate of adoption are energy (50% of companies), materials (39%), tech media and telecom (38%) and industrials (38%).
There are several organisational drivers supporting the uptake of an internal carbon price as a decarbonisation tool.
These may be seen as risks or opportunities and include:
Setting your internal carbon price is a complex process and unique to your organisation. Before you determine the value, you need to be clear on your:
And while there is no one-size-fits all approach when setting the value of your internal carbon price, here are some key points to consider:
As the world increasingly puts a price on carbon, so do many forward-looking organisations. An internal carbon price can help organisations better align their commercial and climate goals and guide their decarbonisation decisions.
But there is no one-size-fits all approach. The right internal carbon price model will support your decarbonisation strategy and be aligned with your industry norms and relevant regulatory frameworks.
Internal carbon price: What it is, why it matters, and what to consider