More than 2,000 companies, worth more than $27tn in market capitalisation, either already have or are planning to set an internal price on carbon within two years, according to the global environment impact disclosure group CDP.
Internal carbon prices — a cost per metric ton of carbon dioxide equivalent — can be factored into capital spending or research and development costs by organisations as part of decision making.
The prices can be hypothetical, where no money is spent, but the company calculates an additional cost based on the carbon intensity of the investment, with the objective being to encourage low-carbon spending. Some companies, including Microsoft, require departments to “pay” an internal fee based on the emissions they generate.
“What you’re trying to do is trigger a different investment decision,” said Nicolette Bartlett, the CDP’s global director of climate change. Depending on the price, what it covers, and how much importance a company attributes to the calculation, it can be very or not at all influential.
Fees are likely to be “most influential”, since they represent an internal “tax,” she added.
The CDP said the number of companies that factored the cost of carbon into their business plans, or were planning to do so within two years, had increased by 80 per cent in five years. They included carmaker Volvo, oil major Shell and retailer Next, and 226 of the top 500 companies by market value in the FTSE Global All Cap Index.
The median internal carbon price disclosed to the CDP by companies in 2020 was $25 per metric ton of CO2 equivalent. That is considerably lower than the current price of allowances traded under the EU’s Emissions Trading Scheme, which reached a record high of more than $40 this year.
But Bartlett said there was too much focus on the price itself, rather than on “the influence it has on decision making.”
“The strategy companies have around it is more important than the number they use.” A high carbon price was not guaranteed to effect change, she added.
Companies that were anticipating a regulatory price on carbon were more likely to have set a price, the CDP found. But many companies likely to be affected by regulation were still not pricing the carbon problem.
Some EU companies in particular “are potentially underestimating the speed of change that that system is undergoing,” said Bartlett.