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  • Writer's pictureNga Pham

Internal carbon pricing: where are we?

With more and more jurisdictions around the world putting a price on carbon, companies are under increasing pressure to incorporate the cost of carbon into their internal accounting and long-term strategy planning.

Companies use internal carbon prices for various purposes – including business planning, project valuation for capital expenditure decisions, applying a carbon levy to business air travel, and internal allocation of costs to fund investments in energy efficiency and other carbon reduction initiatives. While most companies use internal carbon pricing for all capital expenditure decisions, some mention using it for only marginal projects. Some have also reported using models that allow them to integrate carbon-related costs into traditional financial capital budgeting metrics.

Yet according to an international survey conducted in 2020, only 19 Australian companies were on a list of almost 700 companies worldwide that reported using an internal carbon price.

And of the few Australian companies that did price carbon internally, the median price they reported – $US20.7 (around A$30) – was significantly lower than the global median of US$27 per tonne of carbon dioxide equivalent (CO2e).

The survey was conducted by CDP, a not-for-profit organisation that runs a global disclosure system to assist investors, companies and governments to manage their environmental impacts. The large disparities between countries on the level of corporate internal carbon pricing are illustrated below on Chart 1.

Chart of Median Corporate Internal Carbon Price by Country
Chart 1: Corporate internal carbon price around the world reported in 2020 (by CDP)

There were still large gaps between the average carbon prices set internally by corporates and the target range of US$50 to $100 suggested by the High-Level Commission on Carbon Prices (2017), and the US$75 target for 2030 of the International Monetary Fund.

Now that the Australian Government has made a commitment to net-zero emission by 2050, it is hoped that more Australian companies will consider pricing carbon emissions internally. Despite another 12 Australian companies reporting considering an internal carbon price in the next two years, it is still a very modest number - noting that our analysis did not cover companies that were not included in the Climate Change Survey 2020 of the CDP database. Companies that ignore the cost of carbon risk underestimating the impact of climate change on their businesses. But unless the government’s pledge is translated into a real plan to make corporate Australia account for its emission costs, Australian companies may remain laggards on this front for years to come.

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