Carbon Pricing: Tool to combat climate change
By Anirban Ghosh, Mahindra's Chief Sustainability Officer
On November 4th, 2016 we as a global community achieved what was considered unattainable -a consensus among 195 countries to keep planetary warming to below 20 Celsius. This is a gigantic task and every stakeholder has a role to play. The entire global community has to embark on a low-carbon path. You can see what adds up to your carbon footprint in the attached graphic on the Carbon Footprint of Human Lifestyle.
As you can see, even the most mundane and indispensable actions create a carbon footprint. Corporations face a similar dilemma. Even if everybody wants to reduce their carbon footprint to help achieve the 20C it is unlikely to happen unless a lot of help comes our way. One of the tools to enable choosing low carbon options is by using a carbon price.
The Government can levy a carbon price on fossil fuels to enable the shift to renewable energy. A corporation can use the carbon price mechanism to ensure that, when confronted with a choice, it chooses the more responsible environment friendly option. Carbon prices, when used judiciously, can trigger a low carbon lifestyle path.
Carbon prices come in various forms as can be seen in the graphic on “Types of Carbon Pricing – Businesses”. They can involve actual investments (Real), enable choice of the lower carbon footprint option without any actual cash investment (Shadow), they can be applicable within the company (internal), applicable to a wider community (external), declared to the world (explicit), used within the business but not recognized as a carbon price / not declared to the world (implicit).
The “Real” carbon price may be defined as the value of all investments made and initiatives taken to reduce the carbon footprint of the corporation. A simple approach to calculating this is to add all the investments in energy efficient solutions, renewable energy sources, in bio-fuel & gas, to reduce energy emissions and in forest conservation and regard it as a carbon price on the company.
The active quest to reduce carbon footprint spurs innovation, reduces cost and leads to redirection of resources towards low carbon options. It also has the potential to influence the search for new revenue streams in the future.
In India, Mahindra & Mahindra became the first Indian company to announce an internal carbon price of USD 10 per ton of carbon emitted. Mahindra & Mahindra Ltd. (Mahindra), a utility vehicle and farm solutions provider, is the flagship company of the Mahindra Group. It has committed to reduce its carbon intensity by 25% until 2019 against base year 2016 and the investments through the carbon pricing mechanism will help it achieve its goal.
The decision on the carbon price involved an understanding of the carbon price that was embedded in the national economy through taxes on fossil fuels and regulatory obligations. Along with an understanding of what it would cost to move to 100% renewable energy and an a scan of what were accepted carbon prices across the world, the company arrived at $10 per ton of carbon emitted as an appropriate carbon price for now. The desire to use the tool of carbon pricing led to the discovery that an implicit carbon price of about $7 was embedded in the business and the company scaled up its ambition by declaring a $10 carbon price.
The process of adopting and implementing a carbon price involved extensive consultations between experts, senior management and individuals who would play a key role in implementing the carbon price. There were workshops, dialogues, webinars and other forms of engagement which helped the company get clarity on possibilities and process. Key partners in this capability building journey include the Carbon Pricing Leadership Coalition, World Resources Institute and the Environmental Defence Fund.
Mahindra made the carbon price commitment on 7th October, 2016. It is in its first full financial year of investments post the announcement. Capital budgeting for green projects has been completed and the company is on course to meet its commitment. Going forward the company will use “shadow” carbon prices along with the “real” price announced as they play a complementary role in bringing down the carbon footprint of the business.
The company has partnered, learnt and implemented a carbon price. In an effort to give back Mahindra is happy to share its perspective and experience to enable other corporations to enhance their competitiveness by using the tool of carbon pricing appropriately. The Carbon Primer on the CPLC website is a good place to start for someone trying to unravel the mystery of carbon pricing.
Anirban has worked with the USD 19 billion Mahindra Group since 1999 where he is currently the Group’s Chief Sustainability Officer. He leads the strategy and implementation of the Group’s sustainability drive. He has shaped Mahindra’s award winning sustainability framework and has been acknowledged as “Distinguished Chief Sustainability Officer”
Anirban has held roles in Sales, Marketing and Strategy in Mahindra’s farm business and has been the President of Mahindra USA. He has created strategies leading to Mahindra becoming the largest tractor company in the world and expanding beyond farm equipment into the entire agricultural value chain. He has also led an impactful project in which the income of 20,000 rural Indians more than doubled in 5 years.
Anirban has served on the committees of many Industry Associations in India and USA, including the Board of the Association of Equipment Manufacturers, USA. He has been a guest lecturer at business schools in India and enjoys music, travelling, cricket and tennis.