Internal Carbon Pricing

Practical guidelines to set up a carbon price by the United Nations:

1) Internal price on carbon as a management tool: By introducing an internal carbon price, companies can identify climate risks and opportunities and drive their transformation to a low-emission business model. This can also make the company more resilient if a mandatory external carbon pricing scheme comes into force.

2) Individual design of carbon prices: Companies should clearly define the objectives they are pursuing when introducing an internal carbon price. This determines how well internal carbon pricing should be embedded in business decisions, how widely it should be applied across business units and emission scopes, and how high the price level should be set. The introduction of a carbon price can also be structured dynamically, through a gradual increase in coverage or regular price rises.

3) Carbon price levels: When introducing an internal carbon price, practitioners need to clarify whether this should be aligned with an external source (damage costs, or, e.g. a carbon price complying with the Paris Agreement 2°C goal) or an internal pricing mechanism (including mitigation costs in achieving a climate target).

4) Requirements: In addition to the support of the executive management, introducing an internal price on carbon requires a reliable inventory of GHG emissions. The tonnes CO2 listed in the GHG inventory provide the basis for pricing and thus for the management of emission reductions.