CDP Climate Change 2022 Reporting Guidance

(C11.3) Does your organization use an internal price on carbon?

Change from last year

No change

Rationale

Internal carbon pricing has emerged as a multifaceted tool that supports companies in assessing climate-related risks and opportunities. Investors want to know more about organizations who attribute a monetary value to these risks and translate them into a uniform metric.

Response options

Select one of the following options:

• Yes
• No, but we anticipate doing so in the next two years
• No, and we don’t anticipate doing so in the next two years

Additional information

• Internal carbon price: The number of companies embedding an internal carbon price into their business strategies is growing. This growth is steady across all sectors and regions; largely driven by the parallel development of regulations that directly or indirectly price carbon and the increasing pressure from shareholders and customers for companies to adequately manage their climate-related risks.

The three main reasons for internal carbon pricing are outlined below:

- Managing risks: Companies internalize the existing, expected or potential price of carbon – from an ETS, carbon tax, or implicit carbon pricing policy – to assess its risk exposure to regulations that affect the cost of emitting CO₂e.
- Identifying opportunities: Companies also use an internal carbon price as a tool to reveal potential opportunities that may emerge in the transition to the low-carbon economy. As policy and legal, market, technological and reputational factors shift, they also present opportunities for companies to seize. When used as a generic proxy in this way, an internal carbon price can help guide strategic decisions, such as low-carbon R&D to create the products and services of the future.
- Transitioning to low-carbon activities: A smaller number of organizations deliberately use an internal carbon price to drive emissions reductions and incentivize low-carbon activities – such as energy efficiency investments, clean energy, development of green products/services – in order to facilitate a company-wide low-carbon transition. This includes companies who utilize voluntary carbon markets to offset their emissions, although increasingly the focus has been on driving down emissions within the company.

For more information, please read the following documents:

• How-To Guide to Corporate Internal Carbon Pricing: Four dimensions to best practice approaches. Ecofys, The Generation Foundation and CDP, 2017.
• Putting a price on carbon: The state of internal carbon pricing by corporates globally. CDP, 2021.
• CDP’s Carbon Pricing web page