More than eight-fold leap over four years in global companies pricing carbon into business plans
Putting a price on carbon is becoming the new normal for major multinationals with almost 1,400 companies1 factoring an internal carbon price into business plans. This represents an eight-fold leap in take up in the last four years, compared to just 150 companies in 2014, and includes more than 100 Fortune Global 500 companies with collective annual revenues of US$7 trillion2.
The research from CDP, a non-profit global environmental disclosure platform that in 2013 released the first report on internal carbon pricing results, 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 as early as 2019.
Regionally, China is ramping up 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 by the end of 2017 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 current uncertainty around environmental regulation, 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. California also extended its emissions quota system (cap-and-trade) to 2030 with an overwhelming majority vote.
Other regions and countries recording a rise in carbon pricing include:
- Canada: Since the government introduced regional carbon pricing systems, Ontario will see US$1.5 billion in clean investments enabling Canada to reach its 2030 climate goal;
- Latin America: Chile, Columbia, Mexico and Peru committed to a green growth strategy and a carbon emissions market for the region in the future;
- Korea: South Korea already operates the first national Emissions Trading System in Asia and has recently published plans to tighten its system;
“Carbon pricing makes the invisible, visible”, says Paul Simpson, CEO of CDP. “We’re 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.”
Number of companies using / planning to use an internal price on carbon by region:
*These are the total number of companies already using an internal carbon price, or planning to use one by 2019.
In 2017, over 40 national and 25 regional governments already put a price on carbon covering about 15% of global greenhouse emissions. However, CDP finds that up to 800 companies 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.
Mark Lewis, Managing Director, Head of European Utilities Equity Research, Barclays; Member of the Task Force on Climate-related Financial Disclosure, commented:
“The key question for investors should be: how can we know that companies are actually factoring environmental risk into their mainstream business strategies? Pricing carbon should play a vital role in helping companies do this – the price level, while important, is not the only key aspect. There needs to be more transparency as to how a company actually uses the price and whether it is seen as an important part of business decision-making and forecasting. It is exciting to see CDP’s disclosure platform aligning itself with the Task Force’s recommendations and to see the tracking of internal carbon pricing develop even further. It is an area that analysts in the investment world will watch with interest.”