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World Bank says more firms turning to carbon pricing for investment decisions

Out-Law News | 13 Aug 2014 | 12:15 pm | 2 min. read

The use of an internal ‘shadow price’ on carbon is being used by a number of international businesses to help guide their investment decisions and identify opportunities, according to a report by the World Bank.

The bank said business leaders understand that climate change “can have real economic impact, and that their current business models may not be profitable” in a world which is 4 degrees celsius warmer. Firms also “see opportunity in innovating for a cleaner future”, the bank said.

The bank said transparency and sustainability are also important for investors and a price on carbon “helps bring to light the risk of stranded assets and connects the damages caused by burning fossil fuels to their sources, costs that are rarely reflected in stock prices today”.

According to the bank several companies, including multinationals Google, Walmart and Shell, have started using a shadow price on greenhouse gas (GHG) emissions in their investment planning “to help avoid risks and find opportunities that can increase energy and resource efficiency, reduce emissions, and give them a competitive edge”.

The bank said that while an internal price on carbon used by proactive leaders “won’tmove an entire industry to more efficient practices... a sector or economy-wide price on carbon emissions will”.

The bank said: “In about 40 countries and more than 20 cities, states and provinces, these companies and others also work with a formal price on emissions that is set or planned for entire sectors or economies through carbon taxes or carbon markets. That price on carbon, as it frequently referred to, sends a consistent economic signal that investing in cleaner, low-carbon growth can pay off for everyone.”

More than 250 companies have backed a statement circulated by the World Bank Group and partners including the World Economic Forum, UN Global Compact, and the Prince of Wales’s Corporate Leaders Group, encouraging governments to explore carbon pricing methods and set their own predictable price on carbon. The statement said “pricing carbon is inevitable if we are to produce a package of effective and cost-efficient policies to support scaled up mitigation”.

According to the bank, as of 2014 about 40 national and more than 20 sub-national jurisdictions have already implemented or scheduled emissions trading schemes or carbon taxes. Together, these jurisdictions account for more than 22% of global emissions, the bank said. “Many more countries and jurisdictions are advancing preparation for pricing carbon. Together, these represent almost half of GHG emissions.”

The bank said: “In addition to encouraging investment in low-carbon generation, a carbon price also provides investors an incentive to pursue other low-carbon activities, such as tilting portfolios away from high-carbon investments, as they have a clearer view of the economic cost of holding high-carbon assets.”

Corporate use of carbon prices (CDP), launched in 2000 and formerly known as the Carbon Disclosure Project, said that more than 100 companies worldwide (10-page / 1MB PDF) in 2013 “publicly disclosed that they already use carbon pricing as a tool to manage the risks and opportunities to their current operations and future profitability”.

CDP reports that over 100 global companies incorporate the cost of carbon into their capital decision-making processes, with “shadow prices” ranging from $6 to $60 per tonne (3-page / 224 KB PDF).