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Internal Carbon Pricing: Policy Framework and Case Studies

Carbon Pricing

This report seeks to address the question of how an organization should design and implement an internal carbon charge. Internal carbon pricing is a powerful tool the private sector can employ to reduce carbon emissions.

While policy tools and guidance exist for carbon pricing at the national level, it is not clear how implementation might differ in a business environment or another setting. Our project seeks to supplement the growing carbon-pricing literature, given the promise of internal carbon-charge programs in addressing climate change.

Carbon pricing works to shift the cost of carbon from increased healthcare costs and exacerbated environmental damage to payment at the source of pollution. By doing so, it incentivizes carbon-emissions reductions and carbon-efficient development.

Corporations’ internal carbon pricing attempts to correct the incentive structure that underpins consumption choices related to greenhouse gas emissions.

Internal carbon pricing allows companies to assess the financial implications of their carbon emissions and encourage increased energy efficiency. To date, around 1,400 companies have reported implementing or planning carbon prices to regulate their carbon emissions.

Corporations can act collectively with governments to reach the goal of decarbonization.

To provide guidance on designing internal carbon-charge programs, we provide two core contributions:

  1. a policy framework of key decisions
  2. lessons learned from an examination of case studies on Yale University, Microsoft, Société Générale, Delta, and QANTAS Airlines in the context of our policy framework

These contributions support the use of this policy framework for companies, organizations, and policymakers. We also provide a supplementary theoretical framework and model for evaluating a carbon-charge program in the appendix.

Additionally, we state that the secondary effects of paired taxes and investment subsidies, when considered as a single instrument, could prove cost-effective for internalizing the two market failures associated with climate change: accounting for both the carbon emissions and the cleantech revenues.

Further work and thought, however, is necessary to properly frame this insight in the context of contemporary economic literature on this subject.

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