(C11.3a) Provide details of how your organization uses an internal price on carbon.
Question dependencies
This question only appears if you select “Yes” in response to C11.3.
Change from last year
No change
Rationale
Investors have requested data on why and how internal carbon pricing is used as a tool to assess and manage carbon-related risks and opportunities within a business’ operations, supply chain, and investments. This information can help an investor gauge the efficacy of a company’s application of the carbon price in terms of meeting its objectives.
Connection to other frameworks
2018 RobecoSAM Corporate Sustainability Assessment (DJSI)
Internal carbon pricing
Response options
Please complete the following table. You are able to add rows by using the “Add Row” button at the bottom of the table.
| Objective for implementing an internal carbon price | GHG Scope | Application | Actual price(s) used (Currency /metric ton) | Variance of price(s) used | Type of internal carbon price | Impact & implication |
|---|---|---|---|---|---|---|
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Select all that apply:
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Corporate structure that price is applied to (i.e. business units, corporate divisions, facilities) Text field [maximum 1,000 characters]
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Numerical field [enter a number from 0-99,999,999,999 using a maximum of 2 decimal places and no commas] |
Text field [maximum 2,400 characters] |
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Text field [maximum 2,400 characters] |
[Add Row]
Requested content
Objective for implementing an internal carbon price (column 1)
- Select your company’s objective(s) for implementing an internal carbon price. In many cases, companies report multiple objectives – particularly as developments occur that require a readjustment of their pricing approach to maximize its effectiveness.
- The available options reflect the most common objectives that companies disclose to CDP; this list is not exhaustive and you can specify other objectives by selecting “Other, please specify.”
- If you select “Other, please specify,” provide a label for the Objective for implementing an internal carbon price.
GHG Scope (column 2)
- Identify the Scope(s) of emissions covered by the internal carbon pricing mechanism. An effective internal carbon price is one that incentivizes a company to reduce greenhouse gas emissions throughout their value chain and to integrate low-carbon activities into their operations.
- Ideally companies will consider their impact beyond just Scope 1 and 2 emissions to address risks and opportunities associated with their Scope 3 emissions as well, such as in sourcing and procurement decisions (upstream) and R&D decisions regarding innovation in the market (downstream).
Application (column 3)
- Disclose the part(s) of the business decision-making process that the internal carbon pricing mechanism applies to, and the degree of influence it has on business decisions (i.e. to what degree does a company enforce the use of the price?). The steps and depth at which an internal carbon price will be applied in the business decision-making process will vary by company.
- Commonly disclosed applications include decisions regarding capital expenditure, operations, procurement, product and R&D, and remuneration.
Actual price(s) used (Currency/metric ton) (column 4)
- Disclose the carbon price level(s).
- The currency used here should match the currency selected in C0.4.
Variance of price(s) used (column 5)
- For companies using internal carbon pricing in stress-testing or scenario analysis, it is particularly important to disclose assumptions made about how price(s) would develop over time; the geographic and economic scope of application; whether the price is applied across the entire company or to specific business units or decisions, and whether a uniform or differentiated price is used.
- Common approaches to pricing are outlined below:
- Uniform pricing: a single price that is applied throughout the company independent of geography, business unit, or type of decision
- Differentiated pricing: a price that varies by region, business unit or type of decision
- Static pricing: a price that is constant over time
- Evolutionary pricing: a price that develops over time
Type of internal carbon price (column 6)
- Identify the type(s) of internal carbon pricing mechanism your companies utilize. Common ‘types’ of internal carbon pricing approaches have emerged in recent years and are commonly referenced in corporate disclosure. Definitions are outlined below and with illustrative examples of application approaches.
- Most companies utilize a shadow price – attaching a hypothetical cost of carbon to each ton of CO2e – as a tool to reveal hidden risks and opportunities throughout its operations and supply chain and to support strategic decision-making related to future capital investments.
- Some companies with emissions reduction or renewable energy targets calculate their ‘implicit carbon price’ by dividing the cost of abatement/procurement by the tons of CO2e abated. This calculation helps quantify the capital investments required to meet climate-related targets and is frequently used as a benchmark for implementing a more strategic internal carbon price.
- Internal fee mechanisms take this approach a step further by charging responsible business units for their carbon emissions. These programs frequently reinvest the collected revenue back into clean technologies and other activities that help transition the entire company towards lower-carbon operations and investments. Some companies establish an internal trading mechanism – allowing the business units to trade allocated carbon credits.
- Some companies utilize the voluntary carbon markets to offset their emissions – internalizing this cost per ton of CO2e.
- If you select “Other, please specify,” provide a label for the Type of internal carbon price.
Impact & implication (column 7)
- Provide a company-specific description of how your organization uses internal price on carbon:
- Disclose how/if the internal carbon price has impacted your business (i.e. has it revealed material risk or impacted business decisions?) Upon implementing a carbon price, it is important for a company to review its impact against its original intentions to refine its approach to better meet future goals.
- For companies deliberately implementing an internal carbon price as a tool to achieve a climate-related goal: has there been a tangible impact? Has the tool shifted investments toward energy efficiency measures, low-carbon initiatives, energy purchases, or product offerings?
- If the internal carbon price has not impacted your business in any way, it is equally important to explain why – are there specific challenges associated with your current mechanism? Are carbon-related risks immaterial or already managed?
