Continued Growth in Companies Using Internal Carbon Pricing in 2022
Exhibit: Companies Using or Planning to Implement an Internal Carbon Price, 2015-2022
Source: CDP and World Bank Group
Key Points: The number of companies using Internal Carbon Pricing (ICP) rose again in 2022 (to 1,200 of 8,400 surveyed). Most ICPs are too low to reflect accepted views of the societal cost of carbon, but having the mechanism is an important step — it drives developing the ability to assess carbon footprints and it can drive significant behavioral change.
An incremental 12% of companies surveyed using an internal carbon price in 2022. The World Bank Group, in its latest annual State and Trends of Carbon Pricing report, released in late May, includes information about companies’ Internal Carbon Pricing (ICP) policies and intentions in 2022. The World Bank gets this ICP information from an annual survey conducted by CDP (formerly the Carbon Disclosure Project). (The CDP’s last report on its survey was published in 2021 and assessed its 2020 survey results.) Of the 8,402 companies responding to CDP’s latest survey, 1,203 have ICP, up 12% from the year ago survey and up 40% from 2020. Further, another ~1,500 companies responded that they intend to implement ICP within the next two years. See Exhibit. Based on CDP’s earlier surveys, ~1/2 of the world’s 500 largest companies (by market capitalization) are putting a price on carbon.
Companies seeking to use ICP to change behavior and drive low carbon investment. The survey respondents indicated that the primary reason for having ICP is to spur low carbon investment and energy efficiency measures. A smaller number of respondents indicated that it was to help them navigate regulations at a business-unit level; approximately ½ of the companies with ICP are already subject to either a carbon tax or ETS and another 15% expect to be so within the next three years. In its earlier report, CDP cites that its data finds correlation between a company having ICP and “taking other strategic actions to integrate climate change issues into their business strategy.”
The ICP companies are using tends to be low, however. Although average or median ICP were not provided with this year’s results, in prior years’ reports, CDP has indicated the median ICP reported was $25-30/ton of CO2-equivalent. With that said, the reported ICP range is wide, with ~16% of reporting companies using an ICP below $10/ton (and some ICPs are pennies/ton) and ~10% reporting over $100/ton. As the World Bank report notes in its State and Trends report, it has been recommended that a carbon price of at least $40/ton be used to encourage behavior more consistent with limiting global warming to below 2º Celsius. This allows for the concern that the pricing isn’t motivating adequate behavioral change, although having an IPC at all brings an important awareness to companies’ investment and operating decisions.
The financial services sector leads in the number of companies with ICP; power and fossil fuel companies lead in the proportion of their sector having ICP. The World Bank report notes that the services industry leads sector groups with ICP in place, with >1/4 of total companies (i.e., >300 services companies surveyed have ICP), followed by the manufacturing sector and then materials. Within the services industry, the report notes the financial services is particularly well represented. This is consistent with anecdotal information, for example, of asset managers using carbon pricing as part of assessing risk of various portfolios.
As a proportion of the number of survey respondents within a given sector that have an ICP, the power and fossil fuel sectors have historically led. In the CDP’s last published results from its 2020 survey, for example, 71% of companies in the power sector had ICP, followed by 67% of companies in the fossil fuel sector and 52% of respondents in the financial services sector.
June 8, 2023