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4 Corporate Carbon Pricing Do’s and Don’ts

There has never been a better time to ask: what are you doing to price carbon?

Hundreds of companies are now pricing carbon, and hundreds more expect to in the next couple years. An internal price on carbon is emerging as a useful tool for integrating climate change considerations—specifically the value of reducing carbon dioxide and other greenhouse gases (GHGs)—in business decisions.

A new Executive Guide to Carbon Pricing Leadership looks closer at how companies are doing this, drawing insights from dozens of business leaders. WRI worked with Duke University and UN Global Compact to interview, survey and consult members of the Business & Investor Working Group on Carbon Pricing and many others. The research showed that carbon pricing can look very different depending on the type of company, context and objectives.

Companies that informed the new Executive Guide highlighted several pitfalls to avoid and successes to build on as other companies design their own carbon pricing programs:

Don’t: Assume all companies are going to have a similar or comparable carbon price.

Do: Recognize that companies put a price on carbon in different ways and for different purposes.

As tempting as it may be to compare one company’s carbon price to another’s, the first step should be clarifying objectives and approaches. One company may be most interested in carbon pricing as a tool for preparing for current or future national, regional or local regulations. It might use a “shadow price” to represent costs associated with reducing GHG emissions in its operations or value chain, as Statoil, Eskom and Novartis are doing. Another company, meanwhile, may be using a carbon price to collect internal funds to help achieve its GHG reduction targets, as Microsoft and Ben & Jerry’s are doing. That company might have an internal tax or fee to support projects that reduce GHGs in its operations or supply chain. These different objectives and approaches to carbon pricing mean that the price a company will use can be very different.

Don’t: Try to predict a market price for carbon.

Do: Focus on goals and impact.

A good starting point is a science-based GHG reduction target, which means setting an emissions reduction goal in line with what the science says is necessary to limit global warming to 2 degrees C and prevent the worst impacts of climate change. Companies like Novartis and BT are using carbon pricing as a tool to help achieve such targets.

Don’t: Try to solve all the challenges up front with a complex carbon pricing program.

Do: Find a simple, strategic starting point.

Companies that have had success with carbon pricing are learning by doing. Even those that have been pricing carbon for more than 10 years are actively updating their approach. Many companies are starting by linking carbon pricing with strategic growth priorities, like low-carbon products and services, as Royal DSM, Braskem and SUEZ environnement are doing.

Don’t: Assume you need to follow existing carbon pricing models.

Do: Leave room for innovation and creativity.

Consider novel approaches that create and align incentives. Companies are exploring creative options, such as taxing marketing budgets to fund research and development pipelines or integrating a carbon price into annual revenue targets.

Most importantly, do find ways to share your experience. Some insights and learning may be sources of competitive advantages, but many companies are sharing their experiences in the new Executive Guide and in UN Global Compact’s Business & Investors working group. They are also sharing insights with governments, for example as part of the Carbon Pricing Leadership Coalition.

The more shared learning, the greater the chances are that those hundreds of companies pricing carbon can do so with positive impacts for the climate and their bottom lines.


Have a creative approach to carbon pricing? Confronting a challenging obstacle to carbon pricing? Want to connect with other companies who are pricing carbon? Email emetzger@wri.org and join the conversation on Twitter (#PriceOnCarbon) to share your story, ideas or questions.

Comments

Nice summary and good list of considerations. However, to advance the 'state of the art' the industry will have to eventually converge on some 'best practices' and common, more repeatable approaches to move beyond the 'pioneer' stage so other 'follower' companies can more easily implement as well. Also, some guidelines on how specific pricing mechanisms are calculated would be helpful.

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