Why constrain yourself? A cross-industry analysis of Internal Carbon Pricing in relation to the regulatory framework.

Abstract

This paper investigates the reasons that lead companies to introduce Internal Carbon Pricing as a way to internalize the impact of their GHG emissions in their processes. In order to do this, the usage of Internal Carbon Pricing (ICP) is observed across European industries and public carbon pricing policies. The analysis is based on the answers that organizations provided to the CDP 2021 Climate Change questionnaire, as well as insight from interviews held with some of the companies. This analysis found a strategic use of Internal Carbon Pricing, with varying goals behind its adoption across industries, depending on the degree of regulation they are subject to. Highly regulated and emission-intensive sectors use ICP as a means of evaluating and stress-testing their investments. In contrast, less regulated industries tend to use ICP as a way to meet stakeholder expectations and demonstrate their commitment to climate goals and efforts.