What is Internal Carbon Pricing and how it is being used within business to tackle carbon emissions

by the Spherics Team
by
Duncan Oswald
Get your copy of :
Download
31
March
2022

What is Internal Carbon Pricing?

Internal carbon pricing is the practice of attaching a financial cost to greenhouse gas emissions. It is used by many companies as a way of integrating climate transition risk into everyday business decisions. By attaching a price to carbon, the emissions associated with business operations, activities and purchases become more than just another figure with no context, which ought to be reduced but is usually ignored and over-ruled in favour of profit. They become a clear and immediate financial cost, to be weighed with other costs against revenue, to determine profit. 

Why do large businesses adopt an Internal Carbon Pricing methodology?

Corporations exist to be profitable (or put another way, if they are not profitable, they do not exist), so using this language to describe the cost of business activities and decisions is powerful, but it is also useful: applying a cost to the emissions associated with every activity or purchase gives businesses visibility of their impact in a language that everyone understands, allowing decisions to be influenced and actions to be targeted. 

Using cost as a proxy for emissions has another advantage: the exchange rate can be altered. As time runs out to take meaningful action on climate, the cost of emissions increases, making it more “expensive” to continue high-emission activities and purchases. 

Carbon pricing also has the advantage that it summarises in a single measure a whole lot of different factors, including direct taxation, regulation, levies, tariffs etc. All of these have the effect of making higher emission products and activities more expensive, and this is all folded in to the carbon price.

How does Internal Carbon Pricing  work?

This is perhaps best summarised in the Network for Greening the Financial System (NGFS) Scenario Planning Tool, which is used by most major international banking institutions, including the Bank of England. 

The figure below shows the projected carbon price out to 2050. These figures show businesses how much they should factor in climate costs to take account of policy, regulation, taxation and similar pressures. It is akin to factoring in forecast interest rates when making investment decisions: a best guess might not be right, but it is more sensible than just saying you don’t know, and assuming they will be zero. 

Source: Preliminary analysis for the updated NGFS Climate Scenarios (via Bank of England)

So how does these figures apply to your business? - an Example 

Let’s take a run of the mill example; say Sainsbury’s. In their most recent CDP submission, covering the period from March 2020 to February 2021, total emissions were estimated at 34,183,661 tonnes CO2e, and they reported £356m in profit. Now, that was hardly an ordinary year, and their profits projections have doubled in the year since; also, 40% of those emissions are from use of products, which we’ll let them off. Even so, if we use the Bank of England’s average carbon price (adjusted for inflation and exchange rates), then their current balance of emissions and profit would make Sainsbury’s loss-making in 2023. 

As a headline indicator of how well most businesses are dealing with the climate emergency this feels about right, and it gives some insight into the extent to which the business model is sustainable (at least in a limited, climate-only context). But the real value of the practice is the insights available from more detailed analysis: Sainsbury’s sell over 23,000 product lines, sourced globally from over 1,400 suppliers. Knowing that this is not sustainable is not terribly helpful, but knowing the profitability and carbon debt of each product line gives the business clarity to visualise emissions and prioritise decarbonisation action (spoiler alert: it’s the meat aisle).

How can Spherics help make Internal Carbon Pricing possible in your business?

Carbon pricing is a sophisticated tool for managing climate transition risks, and for navigating businesses on course to net zero, but its use is not widespread, and that is largely because it is difficult to calculate, requiring either internal or external expert support. Some large businesses use it in major investment decisions, but it is just not practical in everyday life, as most businesses lack the time, resources and expertise.

Spherics changes all that: our automated carbon accounting methodology links to existing accounting data to calculate your carbon footprint in real time. Emissions from every transaction are calculated automatically, and can be translated directly into a financial carbon debt, in real time. This allows Spherics users to see the climate impact of their activities alongside the financial impact, in the same units, giving them world class climate impact visualisation every day.

Contact

References

Get your copy of :
Download

What is Internal Carbon Pricing and how it is being used within business to tackle carbon emissions

by the Spherics Team
by
Duncan Oswald
Get your copy of :
Download
31
March
2022

What is Internal Carbon Pricing?

Internal carbon pricing is the practice of attaching a financial cost to greenhouse gas emissions. It is used by many companies as a way of integrating climate transition risk into everyday business decisions. By attaching a price to carbon, the emissions associated with business operations, activities and purchases become more than just another figure with no context, which ought to be reduced but is usually ignored and over-ruled in favour of profit. They become a clear and immediate financial cost, to be weighed with other costs against revenue, to determine profit. 

Why do large businesses adopt an Internal Carbon Pricing methodology?

Corporations exist to be profitable (or put another way, if they are not profitable, they do not exist), so using this language to describe the cost of business activities and decisions is powerful, but it is also useful: applying a cost to the emissions associated with every activity or purchase gives businesses visibility of their impact in a language that everyone understands, allowing decisions to be influenced and actions to be targeted. 

Using cost as a proxy for emissions has another advantage: the exchange rate can be altered. As time runs out to take meaningful action on climate, the cost of emissions increases, making it more “expensive” to continue high-emission activities and purchases. 

Carbon pricing also has the advantage that it summarises in a single measure a whole lot of different factors, including direct taxation, regulation, levies, tariffs etc. All of these have the effect of making higher emission products and activities more expensive, and this is all folded in to the carbon price.

How does Internal Carbon Pricing  work?

This is perhaps best summarised in the Network for Greening the Financial System (NGFS) Scenario Planning Tool, which is used by most major international banking institutions, including the Bank of England. 

The figure below shows the projected carbon price out to 2050. These figures show businesses how much they should factor in climate costs to take account of policy, regulation, taxation and similar pressures. It is akin to factoring in forecast interest rates when making investment decisions: a best guess might not be right, but it is more sensible than just saying you don’t know, and assuming they will be zero. 

Source: Preliminary analysis for the updated NGFS Climate Scenarios (via Bank of England)

So how does these figures apply to your business? - an Example 

Let’s take a run of the mill example; say Sainsbury’s. In their most recent CDP submission, covering the period from March 2020 to February 2021, total emissions were estimated at 34,183,661 tonnes CO2e, and they reported £356m in profit. Now, that was hardly an ordinary year, and their profits projections have doubled in the year since; also, 40% of those emissions are from use of products, which we’ll let them off. Even so, if we use the Bank of England’s average carbon price (adjusted for inflation and exchange rates), then their current balance of emissions and profit would make Sainsbury’s loss-making in 2023. 

As a headline indicator of how well most businesses are dealing with the climate emergency this feels about right, and it gives some insight into the extent to which the business model is sustainable (at least in a limited, climate-only context). But the real value of the practice is the insights available from more detailed analysis: Sainsbury’s sell over 23,000 product lines, sourced globally from over 1,400 suppliers. Knowing that this is not sustainable is not terribly helpful, but knowing the profitability and carbon debt of each product line gives the business clarity to visualise emissions and prioritise decarbonisation action (spoiler alert: it’s the meat aisle).

How can Spherics help make Internal Carbon Pricing possible in your business?

Carbon pricing is a sophisticated tool for managing climate transition risks, and for navigating businesses on course to net zero, but its use is not widespread, and that is largely because it is difficult to calculate, requiring either internal or external expert support. Some large businesses use it in major investment decisions, but it is just not practical in everyday life, as most businesses lack the time, resources and expertise.

Spherics changes all that: our automated carbon accounting methodology links to existing accounting data to calculate your carbon footprint in real time. Emissions from every transaction are calculated automatically, and can be translated directly into a financial carbon debt, in real time. This allows Spherics users to see the climate impact of their activities alongside the financial impact, in the same units, giving them world class climate impact visualisation every day.

Contact

References

Get your copy of :
Download

What is Internal Carbon Pricing and how it is being used within business to tackle carbon emissions

by the Spherics Team

The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.

A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!

Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.

What is Internal Carbon Pricing?

Internal carbon pricing is the practice of attaching a financial cost to greenhouse gas emissions. It is used by many companies as a way of integrating climate transition risk into everyday business decisions. By attaching a price to carbon, the emissions associated with business operations, activities and purchases become more than just another figure with no context, which ought to be reduced but is usually ignored and over-ruled in favour of profit. They become a clear and immediate financial cost, to be weighed with other costs against revenue, to determine profit. 

Why do large businesses adopt an Internal Carbon Pricing methodology?

Corporations exist to be profitable (or put another way, if they are not profitable, they do not exist), so using this language to describe the cost of business activities and decisions is powerful, but it is also useful: applying a cost to the emissions associated with every activity or purchase gives businesses visibility of their impact in a language that everyone understands, allowing decisions to be influenced and actions to be targeted. 

Using cost as a proxy for emissions has another advantage: the exchange rate can be altered. As time runs out to take meaningful action on climate, the cost of emissions increases, making it more “expensive” to continue high-emission activities and purchases. 

Carbon pricing also has the advantage that it summarises in a single measure a whole lot of different factors, including direct taxation, regulation, levies, tariffs etc. All of these have the effect of making higher emission products and activities more expensive, and this is all folded in to the carbon price.

How does Internal Carbon Pricing  work?

This is perhaps best summarised in the Network for Greening the Financial System (NGFS) Scenario Planning Tool, which is used by most major international banking institutions, including the Bank of England. 

The figure below shows the projected carbon price out to 2050. These figures show businesses how much they should factor in climate costs to take account of policy, regulation, taxation and similar pressures. It is akin to factoring in forecast interest rates when making investment decisions: a best guess might not be right, but it is more sensible than just saying you don’t know, and assuming they will be zero. 

Source: Preliminary analysis for the updated NGFS Climate Scenarios (via Bank of England)

So how does these figures apply to your business? - an Example 

Let’s take a run of the mill example; say Sainsbury’s. In their most recent CDP submission, covering the period from March 2020 to February 2021, total emissions were estimated at 34,183,661 tonnes CO2e, and they reported £356m in profit. Now, that was hardly an ordinary year, and their profits projections have doubled in the year since; also, 40% of those emissions are from use of products, which we’ll let them off. Even so, if we use the Bank of England’s average carbon price (adjusted for inflation and exchange rates), then their current balance of emissions and profit would make Sainsbury’s loss-making in 2023. 

As a headline indicator of how well most businesses are dealing with the climate emergency this feels about right, and it gives some insight into the extent to which the business model is sustainable (at least in a limited, climate-only context). But the real value of the practice is the insights available from more detailed analysis: Sainsbury’s sell over 23,000 product lines, sourced globally from over 1,400 suppliers. Knowing that this is not sustainable is not terribly helpful, but knowing the profitability and carbon debt of each product line gives the business clarity to visualise emissions and prioritise decarbonisation action (spoiler alert: it’s the meat aisle).

How can Spherics help make Internal Carbon Pricing possible in your business?

Carbon pricing is a sophisticated tool for managing climate transition risks, and for navigating businesses on course to net zero, but its use is not widespread, and that is largely because it is difficult to calculate, requiring either internal or external expert support. Some large businesses use it in major investment decisions, but it is just not practical in everyday life, as most businesses lack the time, resources and expertise.

Spherics changes all that: our automated carbon accounting methodology links to existing accounting data to calculate your carbon footprint in real time. Emissions from every transaction are calculated automatically, and can be translated directly into a financial carbon debt, in real time. This allows Spherics users to see the climate impact of their activities alongside the financial impact, in the same units, giving them world class climate impact visualisation every day.

What is Internal Carbon Pricing and how it is being used within business to tackle carbon emissions

by the Spherics Team
by
Duncan Oswald
31
March
2022

What is Internal Carbon Pricing?

Internal carbon pricing is the practice of attaching a financial cost to greenhouse gas emissions. It is used by many companies as a way of integrating climate transition risk into everyday business decisions. By attaching a price to carbon, the emissions associated with business operations, activities and purchases become more than just another figure with no context, which ought to be reduced but is usually ignored and over-ruled in favour of profit. They become a clear and immediate financial cost, to be weighed with other costs against revenue, to determine profit. 

Why do large businesses adopt an Internal Carbon Pricing methodology?

Corporations exist to be profitable (or put another way, if they are not profitable, they do not exist), so using this language to describe the cost of business activities and decisions is powerful, but it is also useful: applying a cost to the emissions associated with every activity or purchase gives businesses visibility of their impact in a language that everyone understands, allowing decisions to be influenced and actions to be targeted. 

Using cost as a proxy for emissions has another advantage: the exchange rate can be altered. As time runs out to take meaningful action on climate, the cost of emissions increases, making it more “expensive” to continue high-emission activities and purchases. 

Carbon pricing also has the advantage that it summarises in a single measure a whole lot of different factors, including direct taxation, regulation, levies, tariffs etc. All of these have the effect of making higher emission products and activities more expensive, and this is all folded in to the carbon price.

How does Internal Carbon Pricing  work?

This is perhaps best summarised in the Network for Greening the Financial System (NGFS) Scenario Planning Tool, which is used by most major international banking institutions, including the Bank of England. 

The figure below shows the projected carbon price out to 2050. These figures show businesses how much they should factor in climate costs to take account of policy, regulation, taxation and similar pressures. It is akin to factoring in forecast interest rates when making investment decisions: a best guess might not be right, but it is more sensible than just saying you don’t know, and assuming they will be zero. 

Source: Preliminary analysis for the updated NGFS Climate Scenarios (via Bank of England)

So how does these figures apply to your business? - an Example 

Let’s take a run of the mill example; say Sainsbury’s. In their most recent CDP submission, covering the period from March 2020 to February 2021, total emissions were estimated at 34,183,661 tonnes CO2e, and they reported £356m in profit. Now, that was hardly an ordinary year, and their profits projections have doubled in the year since; also, 40% of those emissions are from use of products, which we’ll let them off. Even so, if we use the Bank of England’s average carbon price (adjusted for inflation and exchange rates), then their current balance of emissions and profit would make Sainsbury’s loss-making in 2023. 

As a headline indicator of how well most businesses are dealing with the climate emergency this feels about right, and it gives some insight into the extent to which the business model is sustainable (at least in a limited, climate-only context). But the real value of the practice is the insights available from more detailed analysis: Sainsbury’s sell over 23,000 product lines, sourced globally from over 1,400 suppliers. Knowing that this is not sustainable is not terribly helpful, but knowing the profitability and carbon debt of each product line gives the business clarity to visualise emissions and prioritise decarbonisation action (spoiler alert: it’s the meat aisle).

How can Spherics help make Internal Carbon Pricing possible in your business?

Carbon pricing is a sophisticated tool for managing climate transition risks, and for navigating businesses on course to net zero, but its use is not widespread, and that is largely because it is difficult to calculate, requiring either internal or external expert support. Some large businesses use it in major investment decisions, but it is just not practical in everyday life, as most businesses lack the time, resources and expertise.

Spherics changes all that: our automated carbon accounting methodology links to existing accounting data to calculate your carbon footprint in real time. Emissions from every transaction are calculated automatically, and can be translated directly into a financial carbon debt, in real time. This allows Spherics users to see the climate impact of their activities alongside the financial impact, in the same units, giving them world class climate impact visualisation every day.

Contact

References

What is Internal Carbon Pricing and how it is being used within business to tackle carbon emissions

06 JULY 2021
Case study answers given by:

About:
Industry

Location

Company Size

What is Internal Carbon Pricing?

Internal carbon pricing is the practice of attaching a financial cost to greenhouse gas emissions. It is used by many companies as a way of integrating climate transition risk into everyday business decisions. By attaching a price to carbon, the emissions associated with business operations, activities and purchases become more than just another figure with no context, which ought to be reduced but is usually ignored and over-ruled in favour of profit. They become a clear and immediate financial cost, to be weighed with other costs against revenue, to determine profit. 

Why do large businesses adopt an Internal Carbon Pricing methodology?

Corporations exist to be profitable (or put another way, if they are not profitable, they do not exist), so using this language to describe the cost of business activities and decisions is powerful, but it is also useful: applying a cost to the emissions associated with every activity or purchase gives businesses visibility of their impact in a language that everyone understands, allowing decisions to be influenced and actions to be targeted. 

Using cost as a proxy for emissions has another advantage: the exchange rate can be altered. As time runs out to take meaningful action on climate, the cost of emissions increases, making it more “expensive” to continue high-emission activities and purchases. 

Carbon pricing also has the advantage that it summarises in a single measure a whole lot of different factors, including direct taxation, regulation, levies, tariffs etc. All of these have the effect of making higher emission products and activities more expensive, and this is all folded in to the carbon price.

How does Internal Carbon Pricing  work?

This is perhaps best summarised in the Network for Greening the Financial System (NGFS) Scenario Planning Tool, which is used by most major international banking institutions, including the Bank of England. 

The figure below shows the projected carbon price out to 2050. These figures show businesses how much they should factor in climate costs to take account of policy, regulation, taxation and similar pressures. It is akin to factoring in forecast interest rates when making investment decisions: a best guess might not be right, but it is more sensible than just saying you don’t know, and assuming they will be zero. 

Source: Preliminary analysis for the updated NGFS Climate Scenarios (via Bank of England)

So how does these figures apply to your business? - an Example 

Let’s take a run of the mill example; say Sainsbury’s. In their most recent CDP submission, covering the period from March 2020 to February 2021, total emissions were estimated at 34,183,661 tonnes CO2e, and they reported £356m in profit. Now, that was hardly an ordinary year, and their profits projections have doubled in the year since; also, 40% of those emissions are from use of products, which we’ll let them off. Even so, if we use the Bank of England’s average carbon price (adjusted for inflation and exchange rates), then their current balance of emissions and profit would make Sainsbury’s loss-making in 2023. 

As a headline indicator of how well most businesses are dealing with the climate emergency this feels about right, and it gives some insight into the extent to which the business model is sustainable (at least in a limited, climate-only context). But the real value of the practice is the insights available from more detailed analysis: Sainsbury’s sell over 23,000 product lines, sourced globally from over 1,400 suppliers. Knowing that this is not sustainable is not terribly helpful, but knowing the profitability and carbon debt of each product line gives the business clarity to visualise emissions and prioritise decarbonisation action (spoiler alert: it’s the meat aisle).

How can Spherics help make Internal Carbon Pricing possible in your business?

Carbon pricing is a sophisticated tool for managing climate transition risks, and for navigating businesses on course to net zero, but its use is not widespread, and that is largely because it is difficult to calculate, requiring either internal or external expert support. Some large businesses use it in major investment decisions, but it is just not practical in everyday life, as most businesses lack the time, resources and expertise.

Spherics changes all that: our automated carbon accounting methodology links to existing accounting data to calculate your carbon footprint in real time. Emissions from every transaction are calculated automatically, and can be translated directly into a financial carbon debt, in real time. This allows Spherics users to see the climate impact of their activities alongside the financial impact, in the same units, giving them world class climate impact visualisation every day.