According to the Carbon Disclosure Project (CDP), more than 1,200 companies worldwide have adopted internal carbon pricing to date, with an annual growth rate of over 10%. The key driver behind this rapid increase is the recognition of internal carbon pricing as an important assessment item by the Task Force on Climate-Related Financial Disclosures (TCFD). As a result, companies will be required to produce not only annual financial reports, but also the TCFD. Unlike sustainability reports, the TCFD emphasizes risk quantification and its linkage with financial performance. Given the potential adoption of TCFD by companies, the implementation of internal carbon pricing will be necessary.

Why should businesses adopt internal carbon pricing?

Internal carbon pricing has been recognized as an important assessment tool for three reasons. Firstly, it serves as a reference for investment decision-making, often through the introduction of “implicit pricing” or “shadow pricing.”For example, companies can calculate the average cost per unit of carbon reduction based on past carbon reduction projects to establish an implicit price. When the cost of a carbon reduction initiative falls below the implicit price, it indicates that the company is encouraged to invest, and conversely, the investment should be put on hold. Taking Astellas as an example, its Irish factory proposed an investment plan to build its own wind turbine in 2011, which was p