Carbon Pollution Pricing: Risk and Reward?

Companies are realizing that there is both an internal price and an opportunity when it comes to carbon pollution.

An odd juxtaposition, perhaps, but a white paper from CDP (formerly the Carbon Disclosure Project) North America makes the point that once a company establishes an “internal carbon price,” it can be used as an incentive and a core strategic planning tool.

“Many companies across the U.S. have come to recognize that there is a price associated with the carbon they emit and an economic opportunity in factoring a carbon price into their business model,” said Tom Carnac, president of CDP North America. “Companies view the establishment of an internal carbon price as both an evaluation of risk and a business opportunity if they take steps to limit carbon pollution before others do.”

Aha! Sort of like a race to the top from the pollution bottom!

The white paper says 29 publicly-traded companies based or operating in the U.S. disclosed an internal price on carbon pollution to CDP in 2013, detailing both the risk and potential business opportunity for early action by their companies. The prices range from $6-60 dollars, and exist at companies in various sectors of the economy, including energy, utilities, airlines, technology and the financial industry. Twenty-seven of the companies are listed in the S&P 500, while the other two (BP and Royal Dutch Shell) are foreign-based.

“Carbon pricing has become standard operating practice in business planning, in that the companies acknowledge the process of ongoing climate change—including extreme and unpredictable weather events—as a key relevant business factor for which they wish to be prepared,” the white paper says.

Preparedness includes the use of an internal carbon price, based on the assumption that addressing climate change will be both a business cost and a possible business opportunity no matter what regulatory framework the feds dream up to address climate change.

Thus the carbon price will emerge as a planning tool to “help identify revenue opportunities, risks, and as an incentive to drive maximum energy efficiencies to reduce costs and guide capital investment decisions.”

In their 2013 CDP filings, the Walt Disney Company notes a price of $10-20, Google $14 and Xcel Energy $20. ExxonMobil is assuming a cost of $60 per metric ton by 2030. BP currently uses $40 per metric ton. Royal Dutch Shell uses a price of $40 per ton. Other companies featured in the report include: Walmart Stores Inc., Delta Airlines, Microsoft and PG&E Corporation.

“While this additional cost is primarily seen as a risk, Walmart’s early action on emissions reductions represents a competitive advantage over other retailers that have not performed such projects,” Walmart said in its CDP disclosure. (Walmart is keeping its internal carbon price confidential.)

Similar statements were made by each company, including Wells Fargo Company. “The scope of our risk management procedures with regard to climate change risks and opportunities includes consideration of the impacts of regulation, customer behavior changes and needs, reputational risks, and weather risks within the next five years," Wells Fargo wrote.

The white paper concluded: “The widespread use of carbon pricing as a planning tool suggests that, despite the absence of global regulation of GHG emissions, mainstream businesses find the use of carbon pricing to be realistic, prudent and useful. Though many companies using an internal carbon price referred to potential increased costs should a carbon price become more formalized or mandatory, no company cited major business disruption as an effect of either achieving GHG reductions or planning for costs of carbon as regulatory regimes evolve.”

It does make sense for a company to know its internal carbon pollution price if it is planning to reduce GHG emissions, or setting reduction targets—especially in an atmosphere of mandatory cap-and-trade programs (as in Europe and Australia) or carbon taxes. A carbon price makes those emission reduction targets in sustainability reports more realistic.

[Image: CDP logo]