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Measure & Report  ·  1.1.3

Internal Carbon Pricing

An internal carbon price (ICP) is a tool that assigns a monetary value to GHG emissions within an organization to embed carbon cost into business decisions, capital allocation, and incentive structures. ICPs take two primary forms: a shadow price (used in investment analysis but no money changes hands) and an internal fee (where actual funds are levied and redistributed). CDP data shows companies with ICPs outperform peers on emissions reduction.

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Self-Assessment

Select where your organization currently operates and where you want to get to. There is no obligation to reach "Leading Org." — choose the target that is right for your business context and investment capacity.

📍 Current Level
🎯 Target Level
Select your current and target levels above to map your assessment on this initiative.
Fundamental
Market Standard
Above Average
Leading Org.

Technology

  • Shadow carbon price applied to major capital investment analysis to screen projects for carbon exposure
  • Carbon price set at a single enterprise-wide rate (typically $25–50/tonne CO₂e as a starting point)

Process

  • Defining the purpose and scope of the ICP: investment screening only, or broader operational decisions
  • Selecting an appropriate shadow price level benchmarked against regulatory forecasts and peer practice
  • Training finance and capital planning teams to apply the carbon price in project NPV and IRR calculations

Financing

  • No actual cash transfer at the shadow price stage — purely an analytical tool
  • ICP design and training costs absorbed within sustainability and finance team budgets

Technology

  • Fundamental Technologies +
  • Internal carbon fee levied on business units based on their reported Scope 1 and 2 emissions
  • Carbon fee revenue pooled into a central sustainability or clean energy fund for reinvestment

Process

  • Expanding ICP scope to cover all Scope 1 and 2 emissions across business units and facilities
  • Establishing a governance structure: who sets the price, how it escalates over time, and who oversees the fund
  • Reporting ICP rate, total revenue collected, and fund deployment in sustainability disclosures

Financing

  • Internal fee rate set to be meaningful but not punitive — typically $25–100/tonne — reviewed annually
  • Central fund deployed to highest-ROI decarbonization projects identified through capital planning process

Technology

  • Market Standard Technologies +
  • ICP extended to cover material Scope 3 categories — applying a carbon cost to procurement and logistics decisions
  • Dynamic carbon price that escalates on a pre-committed schedule aligned with SBTi carbon budget pathway
  • Carbon price integrated into ERP and procurement systems, surfacing cost at point of purchasing decision

Process

  • Linking ICP revenue allocation to verified emissions reductions, creating accountability for fund deployment
  • Incorporating ICP into executive and business unit performance scorecards and compensation structures
  • Benchmarking ICP rate against external carbon prices (EU ETS, RGGI, voluntary markets) annually

Financing

  • ICP fund allocation reviewed by sustainability committee with board-level oversight
  • ICP rate set at or above the social cost of carbon (SCC) — typically $100–200/tonne — for credible signaling

Technology

  • Above Average Technologies +
  • Enterprise-wide ICP covering Scope 1, 2, and all material Scope 3 categories embedded in all business systems
  • Real-time carbon cost dashboard giving business units live visibility into their carbon spend and trajectory

Process

  • ICP fully integrated into strategic planning, M&A analysis, and product pricing decisions
  • Publishing ICP rate, methodology, governance, and fund deployment with full transparency in annual report
  • Advocating for strong external carbon pricing policy, reinforcing alignment between internal and external price signals

Financing

  • ICP rate set at $200+/tonne, creating material financial incentive for business units to decarbonize
  • ICP fund large enough to self-finance the majority of the company's annual decarbonization capital program

Related Pathways

← All Pathways 5.1.1 Emissions Inventory 5.1.2 Scope 3 Value Chain Mapping 5.2.3 Target Setting