Groups factor cost of carbon into business plans

The number of international companies using an internal carbon price in their business planning rose sharply last year as boards and investors pushed managers to assess risks associated with climate change.

There are 607 big companies using some kind of carbon price assumption to inform strategic decisions, up 17 per cent from 2016, according to public filings compiled by CDP, a group that collects and analyses data on greenhouse gas emissions.

A further 782 companies said they were planning to use an internal carbon price by 2019.

The increase was particularly noticeable in China, where the number of groups reporting they were using or planning to use an internal carbon price rose 40 per cent to 102.

Companies that use an internal carbon price when developing strategies and making investments will assess as less attractive projects that result in higher emissions.

Paula DiPerna, a special adviser to CDP, said the risk of tougher rules on greenhouse gas emissions was often a reason to build carbon price assumptions into decision-making.

“If you think there is going to be significant regulation of carbon, then you have to be ready,” she said.

The use of internal carbon prices is widespread among the biggest oil, gas and electricity companies, CDP found. More than half the energy companies and two-thirds of the utilities that report their greenhouse gas emissions report that they are, or will soon be, using carbon price assumptions in their strategic planning.

Some of the fastest growth in the adoption of such prices has come in sectors such as financial services and consumer goods, though.

Indian conglomerate Mahindra & Mahindra, for example, said in October last year that it would use an internal carbon price of $10 a tonne, to “help accelerate innovation and drive our investments in energy efficient and renewable technologies”.

Companies that incorporate carbon prices in their planning do not necessarily expect that there will be a formal price on emissions, but use the assumption as a proxy for other possible regulations on greenhouse gas emissions.

ExxonMobil says it uses a “proxy cost” of carbon “to help model the potential impacts of a broad mosaic of future [greenhouse gas] policies”. That proxy cost is assumed to rise by 2040 to $80 a tonne of carbon dioxide in developed countries, and to $35 a tonne in the better-off emerging economies.

Large investors have become increasingly active in persuading companies to improve their reporting of climate risks, regardless of short-term policy shifts. Governments still play a critical role, however. There has been a surge of interest in carbon prices in China among companies and investors, helped by the government’s plan to introduce a national carbon market by the end of the year.

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