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How Do Companies Put a Price on Carbon?

What do Microsoft, Statoil and Ben & Jerry’s have in common?

They are among the hundreds of companies with an internal price on carbon. According to a CDP report released this week, more than 430 companies are now pricing carbon internally—nearly three times as many as last year. And some 580 additional companies expect to price carbon within the next two years.

If you work for one of these companies, you and colleagues may be asking questions like: What is it my CEO or Board of Directors needs to know about carbon pricing? What does corporate leadership on carbon pricing look like? What can we learn from other companies?

These are questions that companies themselves are helping to answer in a new Executive Guide to Carbon Pricing Leadership. WRI and the UN’s Caring for Climate initiative, together with Duke University, interviewed more than a dozen business leaders and surveyed nearly 100 others to understand challenges and opportunities related to corporate carbon pricing.

We are releasing the draft guide today with an open call for input and examples. It is an opportunity to inform and learn from the actions that other companies are taking to price carbon, including lessons such as:

Companies can price carbon to help achieve science-based greenhouse gas (GHG) targets.

Carbon pricing is a tool for reducing risks, costs and GHG emissions. Companies can use it to help drive the investments required to reduce global emissions enough to limit warming to 2 degrees C, thus minimizing business risks associated with the more catastrophic impacts of climate change.

Companies that are pricing carbon can set ambition and measure success based on whether their price puts them on track to reduce emissions at the pace and scale that science demands. Likewise, companies like General Mills, Nestlé and Honda—which have already committed to set science-based GHG reduction targets—can use a price on carbon as part of their strategies to meet such goals. (For more, see the Science-Based Targets initiative and We Mean Business.)

Companies can be responsible, constructive advocates for national carbon-pricing policies.

Most companies—or their suppliers—have operations in one of approximately 40 countries and 20 subnational jurisdictions where a carbon price is, or soon will be, a part of doing business. The growing number of carbon-pricing laws presents an opportunity for companies to advocate for clarity in future regulations and the costs attached to carbon so it will be easier to plan and prioritize investments in new equipment, facilities, products and services.

Business leaders should take a responsible approach to encourage heads of state, ministers, agencies or regulatory bodies to set strong, clear policies that in turn create strong, clear price signals. They can also engage their trade associations, which wield immense political influence, and ensure these groups’ positions do not conflict with companies’ own interests.

Companies can share progress and examples of challenges or successes.

Hundreds of companies are now reporting via CDP that they are pricing carbon. They have an opportunity in those and other public reports to explain how they are using carbon pricing to reduce risks and GHG emissions. This is something investors and other stakeholders want to hear.

Similarly, one thing we have heard consistently from executives across all sectors and geographies is that they are anxious to hear more from their counterparts. They welcome any stories, strategies, questions and answers that other companies can offer on carbon pricing.

The draft Executive Guide to Carbon Pricing Leadership is an opportunity to share those experiences and draw insights for your own efforts. The draft is open for public comment through October 30, and a final version will be released ahead of the climate summit in Paris this December.

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