4 Ways Companies Can Price Carbon: Lessons from India That Can Work Anywhere
The Indian government has adopted some of the world’s most ambitious renewable energy targets, which are a centerpiece of its strategy to address climate change.
The Indian government has adopted some of the world’s most ambitious renewable energy targets, which are a centerpiece of its strategy to address climate change. Now, 40 Indian companies are joining the national effort by setting a price on their internal carbon emissions, which can facilitate greener decision-making. For these companies, setting an internal carbon price is a significant departure from business as usual, but it reflects a global trend. According to CDP, 1,389 firms around the world were pricing or planning to price carbon internally across their operations or value chains last year.
4 Ways for Businesses to Price Carbon
Shadow pricing: the shadow price is applied to project emissions of future investments. Companies attach a notional value to carbon emissions in order to assess the risks of business investments.
Internal carbon tax or fee: carbon tax is applied on current emissions. A company charges itself a fee for each ton of carbon emissions that it generates, creating an internal fund.
Internal cap and trade: This approach sets an upper limit on total emissions from all business activities. The company creates an allowance for each ton of carbon emitted, and business units can buy, sell or trade any excess allowances amongst each other.
Implicit carbon price: This is calculated based on how much it costs a company to implement emissions reduction projects, such as renewable energy purchases or energy-efficiency upgrades. An implicit price is calculated retroactively, after a company achieves its desired emissions cuts.
Preparing for a Low-Carbon Future
Under the 2015 Paris Agreement, India committed to generating at least 40 percent of its electricity from non-fossil sources and decreasing the emissions intensity of its GDP by 33 to 35 percent by 2030. It has set ambitious renewable energy targets and has promoted energy efficiency. But India has also prioritized socioeconomic development, so it is likely that absolute emissions will rise despite these commitments. Private companies can be key players in helping to curb India’s GHG emissions, and they have demonstrated their interest in helping the Indian government move toward climate action.
Source:World Resources Institute
Picture credit to:C Rayban
