Putting a price on carbon is good for business: CDP report

Clare Saxon Ghauri
27 June 2014

LONDON: America's top corporates are emedding carbon pricing at the heart of their strategies according to fresh research by CDP, which sheds light on the business world's increasing hunger for government to put a price on pollution.

Carbon pricing not only benefits the planet but businesses' bottom lines too, finds the white paper released today by CDP and a group of policymakers, investors and thought leaders.

As well as curbing climate risk and informing investors of such risks and related opportunities, carbon pricing also kindles business innovation, the experts reveal.

The research is flush with top executives’ individual experiences of pricing carbon inside their leading US corporates, which include American Electric Power (AEP)Disney, Exelon, Golman SachsMicrosoft and TD Bank.

Nick Akins, Chairman, AEP, says the major energy company uses an internal carbon price in its resource planning to gauge future risks, such as investments attached to surplus fossil fuel that cannot legally be burned, known as ‘stranded assets’.

Bob Litterman, Goldman Sachs’ former chairman for investment strategy agrees pricing carbon risk can avert stranded assets, so is ‘an obvious and urgent necessary step’ that must be addressed with solid government incentives. He writes: “Corporations in much of the world face an uncertain political environment in which there are no existing incentives to conserve on emissions, but in which such incentives are expected to be instituted at some point in the future. In this uncertain environment, corporations are forced to make assumptions about future emissions pricing in order to make decisions about which long-lived capital investments make sense.”

The corporate giants interviewed are reaping novel and compelling business advantages since pricing carbon, such as Exelon, one of America’s largest competitive power generators. In the CDP report an Exelon senior executive outlines how putting a price on carbon helped the company inform its 2020 goal to abate 17.5 million tons of greenhouse gas emissions a year, which it achieved well ahead of time in 2013.

Crucially, Microsoft says its ‘carbon fee model’ is a way to drive energy efficiency and technology innovation, because fees collected are used to support low carbon energy projects.

In a statement, Tom Carnac, President for North America, CDP, reiterates the report's findings that adopting a carbon price is a now a critical way to curb climate risk and future-proof business: "In the wake of the EPA’s Clean Power Plan announcement, understanding today’s policy context on carbon emissions and the upsides and downsides facing American corporations and communities has become critical aspect of business planning. Pricing that risk with a cost for carbon pollution is one way of addressing the significant financial impacts that face companies as a result of global warming".

CDP’s study follows on from a white paper it released late last year, detailing use of internal carbon pricing in S&P 500 companies. Standard & Poor's 500 is a stock market index based on 500 large companies listed on the NYSE or NASDAQ exchanges. This latest report digs deeper into this first report, exploring why the companies are pricing carbon, how their prices are calculated and what the implications are for investors, business and policymakers. 

Read Corporate use of carbon prices

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By Clare Saxon

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