Carbon pricing making the invisible, visible

Putting a price on carbon is becoming the new normal for major multinationals. Now almost 1,400 companies are factoring an internal carbon price into business plans. This is an eight-fold leap in take up in the last four years and includes more than 100 Fortune Global 500 companies with annual revenues of US$7 trillion.

Energy sector leading the way

Our research 'Putting a price on Carbon' out today shows more than three-quarters of the energy and utilities sectors’ market cap is currently pricing carbon internally, including industry heavyweights such as National Grid, EDF, Exelon Corporation, PG&E Corporation and E.ON SE. Over half of the materials and telecommunications sectors also intend to use an internal carbon price by early 2019.

Towards a new global norm

China is leading Asia Pacific progress with the number of companies internalizing a carbon price nearly doubling from 54 to 102 since 2015 including China Vanke, Shanghai Electric and China Mobile. China’s plans to roll out the largest emissions trading system in the world from the end of 2017 [PS1] is likely to send a ripple across regional and global markets, with the expectation that up to a quarter of global carbon emissions will soon be covered by a carbon price.

Despite this week’s announcement from the US administration on the Clean Power Plan, US companies are bucking the trend with 96 companies disclosing they are now using an internal carbon price, up from 29 in 2014, with an additional 142 planning to implement one by 2019. Perhaps they are prudently planning beyond this political cycle. California also extended its emissions quota system (cap-and-trade) to 2030 with an overwhelming majority vote, sending a clear signal to the 5th[PS2] largest economy in the world.

Still more to be done

In 2017, over 40 national and 25 regional governments already put a price on carbon covering about 15% of global greenhouse emissions. However, up to 800 companies operating in these regions [PS3] may be vulnerable to the effects of this regulation as they disclose that they are still not using an internal carbon price despite these ongoing developments in carbon pricing policies. Additionally, only 15% of companies who use an internal carbon price to stress test their investments disclose that they forecast future prices rising, which may concern some investors given some policy signals that indicate prices rises over time.

Race to fast track carbon future

Why wouldn't a company want to take advantage of looking into the future and fast tracking that into their current business strategy? Not doing so could lead to a build up of hidden risk. Since we launched the very first carbon pricing report in 2013 we have seen real progress. We are seeing a significant rise over last year in the use of companies pricing their own carbon pollution in China, Mexico, Japan, Canada and the US. Changing regulation is working on a global scale and in all regions we are seeing many businesses fast track the low carbon transition into their business plans. The Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures' recommendations, Carbon Pricing Corridors, and Science Based Targets initiatives are driving greater transparency, information and governance. With this comes better management of risk and tracking of progress to a well below 2-degree world. This level of transparency is something companies, investors and the world wants to see and our data shows the global business system is increasingly delivering.

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