More companies set internal prices to manage carbon risk


The 28th United Nations Climate Change Conference (COP28), which lasted for two weeks, has officially concluded. While the global carbon price is not set to be standardized, the concept of "carbon pricing" has begun to ferment. Governments and large corporations alike have established carbon pricing mechanisms. Reuters reported that the internal carbon pricing ranges widely, with prices per metric ton ranging from less than 1 USD to as high as 1600 USD.

The internal carbon price for high-carbon-emitting projects at the U.S. pharmaceutical giant Amgen is set at $1000 per metric ton. They also utilize an "investment evaluator" to determine whether to acquire carbon reduction equipment based on a higher carbon price. “Sustainability projects that cost more than traditional projects but are less than 1600 USD are considered reasonable for design, said spokesperson. 

Swedish automaker Volvo is testing the waters with a “shadow price”, set at 1000 krona per metric ton. This price is used to determine the production of car models and the selection of raw materials. Jonas Otterheim, the company's climate action lead, stated, "for example, it is crucial for the company to use renewable energy in aluminum production because its carbon emissions are less than one-fourth compared to traditional production methods."

(Photo: Volvo)

According to the European Union Emissions Trading System (ETS), the market carbon price is approximately 67 euros (about 72 USD) per metric ton. As EU regulations become more stringent, Volvo is recalculating the actual production costs of larger vehicles. Otterheim stated, "This truly changes our company's manufacturing plans because even though some car models may appear profitable, they come with penalties that other models do not encounter."

A study commissioned by Reuters and conducted by the nonprofit organization Carbon Disclosure Project (CDP) reveals that 20% of 5345 global companies disclosing climate-related operational information said that they implemented internal carbon pricing last year, up from 17% the year before. Additionally, 22% of the companies indicated that they plan to adopt internal carbon pricing within the next two years.

Taiwan company Delta Electronics revealed in a side event of COP28 that their internal carbon price is as high as 300 USD per metric ton. Shan-shan Guo, the company's Chief Brand Officer, stated that they have been promoting carbon pricing since 2014 to encourage different departments to actively reduce carbon emissions. In the first three years, they used shadow pricing to calculate the carbon cost, as carbon prices varied across different countries' facilities. It wasn't until 2017 that a unified global price of 50 USD per metric ton was established, and in 2021, the company raised it significantly to 300 USD. 

Shan-shan Guo (Left second) shared Delta's experience in implementing internal carbon pricing management mechanisms at COP28. (Photo: Delta)

She explained that the price is based on assessments from the Intergovernmental Panel on Climate Change (IPCC), and achieving such a carbon price level is necessary to limit global warming to 1.5 degrees Celsius. Delta Electronics relies on this carbon pricing mechanism, and in 2022, they achieved a 13.5% reduction in carbon emissions while experiencing a substantial 22% growth in revenue, reaching a historic high. This serves as a testament to the decoupling of corporate revenue growth and carbon emissions.

Various governments and international regulatory bodies also have their "expectations" for carbon price. The Biden administration sets the "social cost" of carbon at 200 USD per metric ton, while the International Monetary Fund (IMF) suggests that carbon price should be at least 85 USD by the end of 2030.

However, there is still disagreement among experts about what price will spur significant action by companies to cut emissions. Gunther Thallinger, a board member of the German insurance giant Allianz, stated that if there were a globally consistent carbon market, it should generate significant momentum for carbon reduction. However the current variation in prices is a problem, with some prices below 5 USD per ton. “I fear this is going in the direction of greenwashing”, he said. 

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