Carbon pricing is a highly adaptable mechanism designed to make organisations price in the cost of their carbon dioxide (CO2) emissions to their financial decisions and encourage emission reductions. It effectively brings the cost of the environmental damage caused by greenhouse gas emissions back to the emitter.
Many organisations are starting to build a carbon price into their business operations and investment decisions as a way to prepare for a low-carbon future and divert investments from carbon-intensive activities.
Carbon pricing can take different shapes and forms; there is no one-size-fits-all formula which makes the mechanism flex across different industries and organisations. The most widely used approaches by business are internal carbon pricing (ICP) and include hypothetical cost of carbon, offsetting and internal carbon taxes or levies.
ICP is a fast-growing trend. In 2020, some 5,900 companies reported carbon pricing data, while research by the Carbon Disclosure Project (CDP) showed the number of companies using or planning to use ICP has increased by 80% in the past five years.
But how can internal carbon pricing support your net zero journey?