More companies are incorporating internal carbon pricing to prepare for a low-carbon economy, according to research complied by CDP. But many large firms, including some noted for high rates of carbon emissions, have yet to do so. These companies could eventually find themselves at a disadvantage as their competitors become more efficient, and resilient, through transforming their business models and investing in clean-energy technologies. As a result, those companies falling behind on this practice could be putting their investors at risk.
Overall, the trend on imposing an internal price on carbon is a positive one. Of the companies responding to CDP's survey, 1,249 said they had an internal carbon price in place, a 23 percent increase from 2015. And almost 150 of those companies told CDP they incorporated the carbon price deep within their operations and long-term strategic plans.
The general feedback provided to CDP was that such policies help companies move beyond the ability to achieve their emissions-reduction targets. A carbon price also sparks incentives for companies to shift their resources to low-carbon activities, make the business case for new research and development projects, and pinpoint hidden risks and opportunities throughout their operations and even supply chains.
Just look at Microsoft. Four years ago, the software giant announced it would adopt an internal carbon price in order to become carbon neutral. Last year, Microsoft scored plenty of buzz when it claimed such internal measures saved the company at least $10 million annually. But execs insist this is about more than saving money and reducing inefficiencies: The carbon price arguably instilled a culture of environmental responsibility and innovation throughout the company. The U.N. Framework Convention on Climate Change (UNFCCC), which organizes the annual COP climate talks, described Microsoft’s carbon price as a model that is “simple, repeatable and scalable.”
Microsoft in turn has funneled those internal carbon fees to support investments in energy efficiency programs, investments in renewables and carbon offset projects in 16 nations to help those societies prepare for a low-carbon economy.
For those who still insist that taking on policies to address climate change such as an internal price on carbon is a business killer, they should study Microsoft’s stock price. Trading in the low $30 range four years ago, Microsoft shares are now trading at over $57 as of press time. The company has become more efficient and improved its reputation amongst its stakeholders, and has been doing so while pleasing its shareholders when they open their brokerage statements.
Other multinational companies that have aggressive carbon pricing mechanisms, and show measurable results, include the utility company SUEZ, Novartis, Nissan and the French multinational manufacturer Saint-Gobain.
And one trend that should give a wake-up call to the U.S. energy and utilities sectors is that worldwide, these industries had the highest rate of companies reporting that disclosed some degree of a carbon pricing procedure. For example, the French utility multinational Engie revealed that last year, its internal carbon pricing led the company to decide against investing in new coal projects. The company believes now that more countries will turn away from coal-fired plants as countries and businesses increasingly adopt some form of a carbon price or tax.
Despite this progress, CDP insists that much work lies ahead. Only about one in five companies that responded to the NGO’s survey said they currently have a carbon pricing plan in place. And while many companies have said they will adopt such a policy in the next few years, at least 500 said they had no plans to do so.
To be fair, we are still in the wild west of carbon pricing. Determining the value of carbon is a pesky task, akin to the current struggle society has with the pricing of water. CDP revealed that the companies’ pricing of carbon is all over the map, ranging from less than $1 to over $800 a ton. Some countries, such as South Korea and Canada, see more consistency in how companies price carbon, as regulations are already in place that mandate how it should be valued. In the U.S. and Europe, however, there is a much wider variance in how carbon is priced. Getting in the way of a more standard price is transparency: CDP said only 30 percent of the companies surveyed revealed the exact price used in their accounting procedures.
Here in the U.S., companies are leading the charge as a Congress more preoccupied with political grandstanding than having a debate over the merits of having such a nationwide policy, which would be enforced by the Securities and Exchange Commission (SEC). Public companies that implement a carbon price would provide more verifiable and transparent information to investors, instead of the vague climate change risks that the SEC required several years ago but until recently was shy when it came to enforcement. Even ExxonMobil has an internal carbon price ($80 per ton), and has insisted that the U.S. government set a revenue-neutral carbon tax – although its funding of politicians who are stridently against such a policy indicate the company’s intentions are otherwise.
Image credit: Todd A. Bishop/Flickr
Leon Kaye has written for TriplePundit since 2010, and became its Executive Editor in 2018. He's based in Fresno, CA, from where he happily explores California’s stellar Central Coast and the national parks in the Sierra Nevadas. He's lived in South Korea, the United Arab Emirates and Uruguay, and has traveled to over 70 countries. He's an alum of the University of Maryland, Baltimore County and the University of Southern California.