Corporate accounting for the cost of carbon is rising, with the number of companies using or planning to use an internal carbon price increasing 80% over the last five years .
Of nearly 6,000 companies surveyed on carbon pricing in 2020, more than 2,000 – representing over US$27 trillion in market capitalisation – disclosed that they currently use an internal carbon price or plan to implement one within the next two years. The latest research from CDP – a non-profit environmental disclosure organisation – shows that nearly half of the world’s 500 biggest companies are now factoring this type of carbon accounting into their business plans.
CDP’s analysis found that the median internal carbon price disclosed by companies in 2020 was US$25 per metric ton of CO2e, with companies in Asia and Europe implementing the highest average price of US$28. However, with more countries bringing in carbon pricing regulation, and carbon prices soaring to all-time highs in the EU emissions trading scheme this year, rising to over €40 (US$44.80) in March, corporations need to up the carbon prices they are currently accounting for internally.
11 out of the 13 sectors covered – including fossil fuels, manufacturing and financial services – saw an increase in the share of companies using or planning for an internal carbon price between 2019 and 2020. This is a notable shift from 2018 to 2019 where only 4 of the 13 industries saw an increase. Internal carbon pricing is most common in the power industry with 56% of companies currently using internal carbon pricing and 15% planning to implement this within the next two years.
The research covered 5,952 corporates from 84 countries. All regions – bar Africa – saw an increase in the number of companies already using or planning to use an internal carbon price since 2018, with the largest absolute increase in Asia. In the region, China – which launched the world’s largest emissions trading scheme this year – saw a significant yearly increase with 27% more companies saying they currently use or plan to use an internal carbon price from 2019 to 2020.
The data demonstrates a correlation between companies setting an internal carbon price and taking other actions to reduce emissions, with a higher percentage of the companies currently implementing an internal carbon price also setting comprehensive emissions reduction targets or using more renewable energy.
In terms of why companies use internal carbon pricing, 60% of all respondents flagged driving low carbon investment as a key reason (a 15% increase from 2019), while improving energy efficiency and changing internal behaviour were also highlighted as objectives.