Novartis is a Swiss global healthcare company active in more than 150 countries worldwide. In 2018, Novartis announced an environmental sustainability strategy which includes the goal to become carbon neutral in their own operations by 2025. As part this commitment, Novartis have set a target to reduce the entirety of their Scope 1 and 2 (market-based) emissions by 2025 compared to 2016 baseline emissions.
Novartis apply a static shadow price of USD $100 per metric ton on all Scope 1 and 2 emissions for new projects with a value greater than USD $20 million, “in line with revised estimates of the real cost of carbon over the next decade.” Their internal price on carbon helps Novartis meet stakeholder expectations, change internal behavior, drive energy efficiency and low-carbon investment, stress test investments, and identify and seize low-carbon opportunities.
Integrating a carbon price into investment decisions “helps [Novartis] identify projects that will most cost-effectively reduce GHG emissions. This shadow price of carbon [has] informed consideration and approval of long-term renewable power purchase agreements and efficiency investments being processed internally.”
Mars, a family-owned business based in McLean, Virginia, operates in more than 80 countries globally. They are committed to “investing in the long-term future of their own business and the planet.” Further to this commitment, Mars have set emissions reductions targets that aim to reduce Scope 1, 2 (market based), and 3 emissions by two thirds by 2050 compared to a 2015 baseline.
Mars applies an implicit carbon price of USD $30 for each metric ton of carbon emitted in all emissions scopes. Mars has modeled two time horizons—to 2025 and 2040—as well as different elements of their value chain (e.g. sourcing, operations, logistics), to determine the impact of carbon pricing on each business segment. For each element of the value chain, Mars assessed the likelihood and level of taxation that they would be responsible for. The objectives of the carbon tax for Mars include changing internal behavior and driving low-carbon investment.
In 2019, Mars created the ‘Sustainable in a Generation Plan’ and made a USD $1 billion investment in sustainability. “Avoiding future carbon taxes formed part of the business case” for this plan, which was “critical in securing sign-off for the Plan and investment from the Mars Leadership Team and Board.” The Plan “involves significant shifts in some aspects of [Mars’] business, such as investment in long-term renewable energy contracts and changes to the way [they] source raw materials to reduce emissions in the agricultural supply chain” and an internal price on carbon helps to drive this necessary shift.
Westpac Banking Corporation is one of the four major banking organisations in Australia and one of the largest banking organisations in New Zealand. As part of Westpac's commitments from their 2017 Climate Change Position Statement and 2020 Action Plan, they have set emissions reduction target to reduce Scope 1 and 2 (location-based) emissions nine percent from 2016 baseline by 2020.
Westpac apply a range of implicit carbon prices (up to AUD435) for the purposes of climate change scenario analysis on its business and institutional lending portfolio. Their internal research “modelled three scenarios and examined the impact of a carbon price ranging $ AUD29 – 435 over short, medium, and long-term horizons. This analysis has given Westpac a clearer understanding of growth prospects for sectors of the Australian economy and its role in actively supporting Australia’s transition to a low carbon economy.” Additionally, “this process helped inform [their] approach to transitional risks including the policy, legal, technology and financial impacts related to climate change, as well as the business implications of physical risks such as changes in climate patterns and extreme weather events.”
Westpac “have also developed additional criteria for customers in the energy sector, including specific published requirements for electricity generation and thermal coal, and the agribusiness sector given their potential contribution to global greenhouse gas emissions” and “will continue to expand the scope of this work to ensure [they] support customers across a wider range of climate-affected sectors and to respond to the wide range of community concerns on climate change.”
Infosys Limited is a “next-generation digital services and consulting firm” based in India and operating in 45 countries worldwide. Since 2011, Infosys have been implementing a fully funded program to reach carbon neutrality and have made a public commitment to become carbon neutral by Fiscal Year 2020. Infosys recognized the risks associated with climate change early on and was the first Information Technology company to declare a goal of becoming carbon neutral at the United Nations.
As one method of achieving their targets, Infosys use an implicit price on carbon across Scope 1, 2, and 3 emissions that is differentiated by region, business unit or type of decision. After initially implementing a carbon price of $10.50 per metric ton in fiscal year 2017, Infosys has revised the price to $14.25 per metric ton for fiscal year 2019. Their current price is a “weighted average of the price of carbon under the energy efficiency, renewable energy, and emission offset levers.”
The objectives of the carbon price are to change internal behavior, drive energy efficiency and low-carbon investment, and identify and seize low-carbon opportunities. Developing their own internal carbon pricing mechanism gave Infosys “deeper insights into the various pathways to reduce emissions and their relative merits and effectiveness.” Infosys also intend to use the internal carbon price “to sensitize various business units of their footprints.” They also retain the option of using the internal carbon price as a basis to internally raise funds from businesses or departments and use the funds for corporate emission reduction programs.
Nissan Motors is a global vehicle manufacturer active in more than 20 countries around the world. Nissan’s long-term ESG strategy includes goals meant to “manage the environmental impact caused by operations
and products.” As such, they have established an emissions reduction target of 50% reduction of Scope 1+2 (location-based) +3 (downstream) from 2000 baseline by 2050.
To drive energy efficiency in their manufacturing processes, Nissan have set an internal price on carbon for all Scope 1 and 2 emissions. Specifically, they attach ¥ 30,000 per metric ton of carbon using a hypothetical shadow price meant to reveal hidden costs and opportunities. Nissan use a range of carbon price between ¥ 5,000 to 80,000 across various types of projects.
Nissan consider greenhouse gas emissions reduction to be “one of the most crucial parameters in [their] investment selection process.” Therefore, all internal proposals are “compared and selected based on carbon emissions reduction per unit cost of investment, as well as the energy reduction potential, measured with [the] internal price of carbon.” Based on internal analysis, a part of which is the application of carbon price, “projects with large potential for CO2 reductions, relatively low investment cost and short ROI are prioritized.”
The use of a carbon price has allowed Nissan to make “great strides in reducing CO2 emissions and improving sustainability in its global corporate activities, while simultaneously increasing vehicle production and plant energy efficiency.”
CEMEX is one of the world’s largest cement companies. Operating for more than one hundred years from their headquarters in Mexico, they have business relations in more than 100 countries. As part of their environmental commitment, they have set an intensity emissions reduction target of 29 percent below 1990 baseline by 2030 in terms of metric tons CO2e per metric ton of cement produced.
CEMEX use a shadow price on carbon of USD $30 per metric ton on Scope 1 emissions. Globally, CEMEX affix a standard price but also use pricing variance (from $20 - 40 per metric ton in $5 increments) “to analyze the robustness of the decision.” For projects in the EU and California, CEMEX apply medium and long-term forecasts of prices which are updated quarterly. For countries with a carbon tax equivalent that is lower than their internal price (e.g. Colombia which uses $5 per metric ton), CEMEX includes the lower price to evaluate a baseline scenario.
The objectives of the price are to help navigate GHG regulations, change internal behavior, drive energy efficiency and low-carbon investment, stress test investments, and identify and seize low-carbon opportunities.
The internal price on carbon allows CEMEX to do the following:
• “Identify low-cost reduction opportunities as well as investment projects that are subject to increased risks under a scenario of external carbon pricing”;
• “Raise awareness among top and middle management for CEMEX' potential exposure to external carbon pricing (financial impact of the risk)”; and
• “Drive a culture of constantly reducing carbon footprint regardless of local regulation. Carbon prices based on external mechanisms (taxes, emissions trading) allow CEMEX to better evaluate the profitability of projects and strategies.”
Additionally, all of CEMEX’s projects in Mexico are evaluated considering the price of carbon even though the process emissions are not yet regulated. This allows CEMEX to understand the “total impact of an upcoming regulation through an ETS.”
Teck Resources Limited, based in Vancouver, Canada, and active throughout the Americas, is a diversified resource company committed to responsible mining and mineral development. The company believes that “climate change is real, it is directly influenced by human activity, and it requires decisive global action to address.” As such, they have established 2020 and 2030 emissions reductions targets of nine and 15 percent respectively from a 2010 baseline.
Teck Resources uses an internal price on carbon with a value of CAD $50 per metric ton on all Scope 1 and 2 emissions. The price “varies by region, business unit or type of decision. Where a clear and certain carbon price is present, [they] incorporate that price and any known and/or planned changes to the carbon price. Where uncertainty exists, [they] conduct sensitivity analyses to better understand what […] exposure and risk are under different carbon pricing and regulatory scenarios.”
The implicit price on carbon is incorporated into capital and risk decision processes and works toward many objectives, including navigating emissions regulations, meeting stakeholder expectations, changing internal behavior, driving energy efficiency and low-carbon investment, and identifying and seizing low-carbon opportunities.
At Teck Resources Limited, “carbon pricing is integrated at multiple levels of decision making, ranging from annual operating budgets developed at the site level, to corporate decision making for large capital investments.” They “calculate and consider [their] carbon exposure in terms of absolute costs incurred on an annual basis and projected out to at least 2020. Where a clear and certain carbon price is present, [they] incorporate that price and any known and/or planned changes to the carbon price. Where uncertainty exists, [they] conduct sensitivity analyses to better understand what [their] exposure and risk are under different carbon pricing and regulatory scenarios.”
The use of an internal price on carbon has provided Teck Resources with two main benefits to date. The first is to influence which fuels are selected for their processes, which has sometimes been the reason they have used lower emissions sources. Secondly, by applying the price to major projects and testing for sensitivity, they are better able to understand any potential carbon cost exposure to large projects and therefore evaluate whether or not a lower-carbon alternative should be pursued.
Harmony Gold Mining Company Limited (Harmony) is one of the largest gold mining companies in South Africa and also active in Papua New Guinea. They have publicly “recognised that [their] activities have an inherent impact on surrounding communities and the natural environment, and that it is [their] responsibility to avoid, mitigate and manage such impacts.” Further to this, Harmony have set a target to reduce Scope 1 and 2 (location-based) emissions by 90 percent from 2015 levels by 2045.
Harmony apply a shadow price on all Scope 1 and 2 carbon emissions with the intent to navigate GHG regulations, meet stakeholder expectations, change internal behavior, drive energy efficiency and low-carbon investment, identify and seize low-carbon opportunities, and engage suppliers. They have defined their internal price of carbon of R48 per metric ton based on the expected carbon tax liabilities in South Africa. To accurately quantify impact, Harmony apply the internal price to all of facilities and operations, as well as to electricity consumption from the national grid.
The internal carbon pricing scheme helps Harmony to “quantify emissions impact in proportion to what the expected carbon tax liabilities will be in South Africa.” Harmony have “made use of their internal carbon price to calculate [through 2030] their potential cost increases so to prepare for the risks associated with the incoming carbon tax.” They also use the carbon price to prepare for any potential tax impact on the cost of electricity. Applying a carbon price in calculations has shown cost increases which “have informed Harmony’s energy efficiency drive as well as the company’s investment in renewable energy projects.”
Hyundai Engineering & Construction (E&C) is a Korea-based construction company. To contribute to Korea’s national emissions reduction goals aligned with the Paris Agreement and sector-specific reduction targets, Hyundai E&C have set emissions reductions targets to reduce Scope 1+2 (location-based) and Scope 3 (upstream) emissions 27.3% by 2030 and 52.4% by 2050 compared to 2015 baseline levels.
Hyundai E&C use both an internal fee and a shadow price on Scope 1 and 2 emissions. They currently are pricing carbon on a trial basis, with a figure of ₩ 46000 per metric ton based on the United States Environmental Protection Agency’s research related to the social costs of carbon. Hyundai E&C will update their carbon price in 2021 and then again every five years through 2050.
The carbon price is applied “mainly to energy-related facilities operated by domestic construction business unit.” When investing in domestic energy facilities, Hyundai E&C use the internal carbon prices in the decision-making procedure of the investment. Hyundai E&C can respond to the emerging regulations promptly by adopting the internal carbon price that is higher than the market price. Moreover, they can address the carbon price volatility. When making investment decisions in energy facilities, Hyundai E&C undertakes a cost-benefit analysis using the internal carbon price and the purchasing costs of carbon credits from the market.
By pricing carbon internally, Hyundai E&C aim to navigate GHG regulations, change internal behavior, drive energy efficiency and low-carbon investment, make investments decisions based on cost-benefit analyses.
