Putting a price on carbon is becoming the new normal for major multinationals, with almost 1,400 companies factoring an internal carbon price into business plans, according to a new report from CDP. This represents an eight-fold leap in take up in the last four years, compared to just 150 companies in 2014, and includes more than 100 Fortune Global 500 companies with collective annual revenues of US$7 trillion.
The research shows that more than three-quarters of the energy and utilities sectors’ market cap is currently pricing carbon internally, including US industry heavyweights such as National Grid, Exelon Corporation and PG&E Corporation. Over half of the materials and telecommunications sectors also intend to use an internal carbon price as early as 2019.
Regionally, China is ramping up Asia Pacific progress, with companies such as China Vanke, Shanghai Electric and China Mobile helping to nearly double the number of companies internalizing a carbon price since 2015 (from 54 to 102). China’s plans to roll out the largest emissions trading system in the world by the end of 2017 is likely to send a ripple across regional and global markets, with the expectation that up to a quarter of global carbon emissions will soon be covered by a carbon price.
The Rise of
Internal Carbon Pricing
New Metrics '17.****Despite current uncertainty around environmental regulation, US companies are bucking the trend with 96 companies disclosing they are now using an internal carbon price, up from 29 in 2014, with an additional 142 planning to implement one by 2019. California also extended its emissions quota system (cap-and-trade) to 2030 with an overwhelming majority vote.
Other regions and countries recording a rise in carbon pricing include:
- Canada: Since the government introduced regional carbon pricing systems, Ontario will see US$1.5 billion in clean investments enabling Canada to reach its 2030 climate goal;
- Latin America: Chile, Columbia, Mexico and Peru committed to a green growth strategy and a carbon emissions market for the region in the future;
- Korea: South Korea already operates the first national Emissions Trading System in Asia and has recently published plans to tighten its system;
“Carbon pricing makes the invisible, visible,” said CDP CEO Paul Simpson. “We’re seeing a significant rise over last year in the use of companies pricing their own carbon pollution in China, Mexico, Japan, Canada and the US. Changing regulation is working on a global scale and in all regions we are seeing many businesses fast track the low-carbon transition into their business plans. The Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures' recommendations, Carbon Pricing Corridors and Science-Based Targets initiatives are driving greater transparency, information and governance. With this comes better management of risk and tracking of progress to a well below 2-degree world.”
Number of companies using/planning to use an internal price on carbon by region:
When discussing the role of the financial sector in delivering investment and mitigating climate risk, the CPLC has highlighted carbon pricing as one of “the most potent and efficient strategies” being used to reduce carbon emissions and transformational in the facilitation of the shift towards a low-carbon economy.
In 2017, over 40 national and 25 regional governments already put a price on carbon, covering about 15 percent of global greenhouse emissions. However, CDP has found that up to 800 companies may be vulnerable to the effects of this regulation as they disclose that they are still not using an internal carbon price despite these ongoing developments in carbon-pricing policies. Additionally, only 15 percent of companies who use an internal carbon price to stress test their investments disclose that they forecast future prices rising, which may concern some investors.
Mark Lewis, Managing Director and Head of European Utilities Equity Research at Barclays; and member of the Task Force on Climate-related Financial Disclosure, commented: “The key question for investors should be: How can we know that companies are actually factoring environmental risk into their mainstream business strategies? Pricing carbon should play a vital role in helping companies do this – the price level, while important, is not the only key aspect. There needs to be more transparency as to how a company actually uses the price and whether it is seen as an important part of business decision-making and forecasting. It is exciting to see CDP’s disclosure platform aligning itself with the Task Force’s recommendations and to see the tracking of internal carbon pricing develop even further. It is an area that analysts in the investment world will watch with interest.”
Efforts continue to help business stay up to speed on the carbon-pricing front. In August, Trucost, part of S&P Dow Jones Indices, launched its Corporate Carbon Pricing Tool to help companies keep pace with the ongoing developments and increasing investor demand. The tool is designed to help companies better understand the potential business case for more sustainable products and business models, such as prioritizing regional investment in ‘green’ technology, resource efficiency or different product strategies.
And earlier this year, CDP, on behalf of the We Mean Business coalition, convened a panel of utilities and investment leaders from across the G20 under the Carbon Pricing Corridors initiative — the world’s first industry-led initiative aimed at defining the carbon prices needed for the power sector to meet the goals of the Paris Agreement. In May, the group — which includes the chief executives and senior leaders from PGGM, Engie, Bank of America, Iberdrola, Yes Bank and Hermes Fund Managers — introduced the world’s first investment-grade carbon pricing system for the power sector — which accounts for one-quarter of global emissions. During the course of 2017, the initiative will expand its scope beyond the power sector to include other high-emitting sectors; over the next two years, the coalition will shape realistic prognoses of the range of investment-grade carbon prices needed to decarbonize electricity generation through 2020, 2025 and 2030.
 This figure represents number of companies disclosing to CDP – the research finds 1,389 global companies now using an internal carbon price
 Companies disclosed in 2017 that they are currently using an internal carbon price or are planning to do so