Internal carbon pricing: companies take the lead

Faced with the tightening of national regulations on CO2 emissions, major companies say they are ready to implement an internal carbon price of between €30 and €150 per tonne, an amount that would enable them to switch to green investments.

Global warming: the 1.5°C threshold crossed as early as 2030

Last August, the Intergovernmental Panel on Climate Change (IPCC) published the first part of its report "AR6 Climate Change 2021: The Physical Science Basis", dedicated to the scientific understanding of climate systems and climate change. The forecasts are very pessimistic and damning. Indeed, the report anticipates a global temperature rise of 1.5°C as early as 2030, 10 years earlier than the last forecast. Of the five scenarios studied by the IPCC, the most pessimistic forecasts global warming of between 3.3 and 5.7°C.

According to a number of experts, every citizen can do his or her bit to reduce his or her carbon footprint. However, most of the work will have to be done by the most polluting industries. In a report published in 2018, the IPCC estimated the investment needed to curb climate disruption at $2.4 trillion a year until 2035. Driven by investors, some companies have pledged to contribute to the global effort to combat this scourge.

Setting an internal carbon price

Companies have decided to help pay the astronomical bill for climate change by buying CO2 emission allowances. However, in the face of this system, which is struggling to prove its worth in Europe, many have adopted another 100% voluntary approach, which consists of setting a price on their own emissions. Questioned on the subject by the Institut Montaigne as part of a recent study published in November 2021 entitled "Internal carbon pricing: a timely solution for companies", companies say they are ready to introduce an internal carbon price ranging from 30 to 150 euros per tonne.

Another study by the international NGO CDP reveals that, in 2017, 782 companies said they wanted to use this system and 607 said they had already taken the plunge, i.e. 8 times more than in 2013. Today, 2,000 companies worldwide want to implement it if they haven't already.

These growing initiatives reflect the fact that investors are paying increasing attention to the financial consequences of climate change risk, and are helping to open the eyes of companies, particularly large international groups. This mechanism also enables players to adapt to the carbon regulations and pricing applicable in the countries where they operate, since today, almost a quarter of global CO2 emissions are covered by an explicit carbon price (carbon tax or allowance market) instituted by a state, city, province or region. Despite this, setting an internal carbon price is not without risk for companies, who may see the financial profitability of their investments impacted over time.