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“Carbon Pricing Makes The Invisible, Visible”: Paul Simpson, CEO, Carbon Disclosure Project

According to the report, more than 1,389 companies are disclosing to CDP their plans or current practice of putting a price on carbon emissions because they understand that carbon risk management is a business imperative

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On 24th October, Carbon Disclosure Project (CDP) released its Handbook for Carbon Pricing, called “Putting a Price on Carbon: A Handbook for Indian Companies”.

According to the report, more than 1,389 companies are disclosing to CDP their plans or current practice of putting a price on carbon emissions because they understand that carbon risk management is a business imperative.

“As companies prepare for the brave but uncertain future in the battle against climate change, CDP along with global partners are evolving several tools to help companies face the challenges. Of all the available tools, a price on carbon emissions is the only effective way the economy can internalize the otherwise invisible costs of greenhouse gas emissions”, said Damandeep Singh, Director of CDP India. “Internal carbon pricing is a key mechanism to help a company gauge whether its business strategy is sufficiently guarded against growing risk of climate disruptions while being sufficiently farsighted to take advantage of new business opportunities inherent in addressing climate change through innovative technologies and practices”, adds Singh.

The report provides a global perspective on carbon pricing as well as how Indian companies are responding to this trend, to take forward CDP’s mission of helping raise awareness of the environmental impact so that investors, companies, cities and governments can make the right choices/decisions, with a global disclosure system that has resulted in unparalleled engagement on environmental issues between investors, companies, cities, states and regions worldwide.

With a view that “introducing a carbon price is a critical part of the solution to reduce emissions, alongside other measures”, the report provides a policy overview from a global perspective, quoting the Paris Agreement which elucidates on “providing incentives for emission reduction activities, including tools, such as domestic policies and carbon pricing”. The report elaborates on two types of explicit pricing on carbon, which is Emissions Trading Scheme (ETS), sometimes referred to as a cap and trade system which caps the total level of greenhouse gas emissions and allows those industries with low emissions to sell their extra allowances to larger emitters, and carbon taxes which directly sets a price on carbon by defining a tax rate on greenhouse gas emissions or – more commonly – on the carbon content of fossil fuels.

The report also goes on to elucidate on the policy landscape in India, with reference to the Nationally Determined Contributions (NDCs) ratified by India. The report adds that even though India has “not established either an explicit domestic carbon pricing policy or emission trading market”, two types of policy instruments implemented over the years include domestic market mechanisms, such as the renewable energy certificates markets (REC) and energy efficiency certificate markets (PAT), and carbon pricing policies, such as carbon tax in the form of coal cess. The report elaborates on India’s experience with respect to international carbon markets, more specifically Clean Development Mechanism and Voluntary Carbon Market along with the relevance of deploying Internal Carbon Pricing mechanism by companies. Detailing on carbon pricing in the finance sector, the report goes on to describe public-private collaborations on carbon pricing such as Carbon Pricing Leadership Coalition and Carbon Pricing Corridors Initiative.

With respect to how companies are responding globally and in India, the report states that “for managing climate risk, companies are increasingly adopting an internal price on carbon.” In line with a proactive approach, this number has increased from 2 in 2015 to 8 in 2016 and 14 in 2017; in addition, another 26 have stated that they will incorporate carbon price in the next two years. Mahindra & Mahindra Limited and Infosys Limited are the first few trendsetters from India. By deploying internationally recognized business tools, these market leaders are also exchanging best practices with peer groups interested in embracing carbon pricing as an ambitious tool for climate action.  The report adds that “In India too, there is an impressive growth in the adoption of carbon pricing by companies: from 2 companies in 2015 to currently 1422 companies in 2017. A total of 27, 44 and 40 Indian companies responded in 2015, 2016 and 2017 respectively to CDP’s question on ICP and stated that they either have an ICP or intend to have one in place within next two years. In 2015, this number was 7% of total responding Indian companies, which grew to 18% in 2016 and 35% in 2017”

“Carbon pricing makes the invisible, visible”, says Paul Simpson, CEO of CDP. “We’re seeing a significant rise over last year in the use of companies pricing their own carbon pollution in China, Mexico, Japan, Canada and the US. Changing regulation is working on a global scale and in all regions, we are seeing many businesses fast-track the low carbon transition into their business plans. The Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures' recommendations, Carbon Pricing Corridors, and Science-Based Targets initiatives are driving greater transparency, information and governance. With this comes better management of risk and tracking of progress to a well below 2-degree world.”

Damandeep Singh, Director CDP India adds, “No sooner had the Chinese authorities announced setting up of carbon markets in several regions, CDP witnessed a 40% jump in companies reporting an Internal carbon price. With the Indian government too exploring regional carbon markets, it is only a matter of time till we see exponential growth here as well.”

The report goes on to describe the emerging best practices for internal carbon pricing, why companies are using an internal carbon price, how companies are approaching using the tool and the tools for embedding a price and designing and implementing an internal carbon pricing.

Tags assigned to this article:
carbon pricing Paul Simpson Carbon Disclosure Project