Global environmental services company Suez uses an internal carbon price to drive investment in low-carbon technologies such as energy-efficient water pumps.
Meanwhile IT giant Microsoft used its carbon fee fund to support, among other low-carbon projects. The fee, paid by business units across the company, funds internal efficiency upgrades, power purchase agreements and green power instruments, carbon offset projects, and supply chain engagement. It also saves Microsoft more than $10 million per year.
These are two examples of how a growing number of multi-national companies are using internal carbon pricing to invest in low-carbon technologies and product offerings while also saving money, according to research by climate change disclosure nonprofit CDP.
The report, released at Climate Week 2016 in New York City, says more than 1,200 companies — a 23 percent increase from 2015 — disclose to CDP that they either plan to or currently place an internal price on carbon. Of these, more than 140 are taking carbon pricing one step further and embedding the practice within their business strategies and operations.
Nissan, for example, uses an internal price on carbon in its capital allocation process. “GHG emissions reduction is one of the most crucial parameters in Nissan’s investment plan selection process. Proposals are compared and selected based on carbon emissions reduction per unit cost of investment, as well as the energy reduction potential, measured with an internal price of carbon,” the automaker disclosed to CDP’s climate questionnaire.
French banking group Societe Generale, which implemented an internal carbon tax in 2011, says it uses the fee to fund 119 internal environmental initiatives such as green building and waste reduction. Over three years these projects have saved EUR 13 million on overhead annually and 4,700 metric tones per year of CO2 equivalent.
“Internal carbon pricing is a way of seeing things that are otherwise hidden in business terms of dollars and sense,” CDP special advisor Paula DiPerna said in an interview. “High carbon is a very dark cave and the business benefit of using a carbon price is you have an illumination of the future, you illuminate the high cost of high carbon and the hidden benefits of low carbon. Every kind of emission, regardless of the source, is carrying a hidden cost that can be in terms of risk, mitigation, higher insurance premiums, whatever. So if you can eliminate that cost, you have a significant business benefit.”
CDP says 30 percent of companies disclosed the price(s) they use, and these range from less than a dollar to more than $800.
Microsoft, which recently won an EPA climate leadership award for its carbon fee and other efforts that helped it achieve carbon neutrality, has a carbon fee fund of about $20 million for this fiscal year.
In an earlier interview, Tamara ‘TJ’ DiCaprio, Microsoft’s senior director of environmental sustainability, said the company calculates its internal price on carbon based on investments in “green” initiatives.
“We carefully track and analyze the carbon emissions from our operations in more than 100 countries,” DiCaprio said. “We then total the investments in efficiency, renewable energy and carbon offset community projects to reach our carbon neutral commitment. The total cost of our investments divided by our carbon emissions footprint provides Microsoft with its annual price on carbon. For the current fiscal year, the carbon fee fund is approximately $20 million.”
In 2013 Microsoft published its carbon fee playbook, an overview on how it implemented its internal carbon price that includes a five-step process to guide other companies on how to put it into action at their own businesses.
The flip side is that while 370 companies in 14 high-emitting industries say they are adopting carbon pricing, more than 500 say they have no such plans. About 400 of these companies are headquartered in countries that are considering, or have already implemented a price on carbon, the report says.
DiPerna points to the European Union and California’s cap-and-trade programs, as well as China’s cap-and-trade set to launch in 2017, making China the biggest carbon market in the world.
“Companies that are global in nature, if they’re not applying a carbon price it means they are not cognizant of emerging regulations and existing regulations in the rest of the world and they are also not taking the Paris climate agreement seriously,” DiPerna said. “If you haven’t set a carbon price you have to assume that your business model bay not be fit for a climate-constrained world. Your business horizon is too short and your vision is probably too narrow. Companies that ignore carbon pricing do so at their own peril.”
