Guide
Internal carbon pricing that actually changes capex
Most internal carbon prices are decorative. Here's how to design one that moves investment decisions.
An internal carbon price only matters if it changes a decision someone was about to make.
Shadow price or internal fee?
- A shadow price is applied in investment appraisal. It changes which projects clear the hurdle rate but moves no money.
- An internal fee charges business units for their emissions and funds reductions. It changes behaviour, but needs real governance.
Set the level from a reason, not a benchmark
Reference the carbon prices you expect to face, your marginal abatement costs, or the price needed to make your target levers pay back. Write down which.
Escalate over the asset's life
A flat price understates the cost of long-lived assets. Use a rising price path that matches the asset's lifetime.
Put it where decisions happen
Build the price into the capex template and the investment committee pack. If it lives only in the sustainability report, it won't change anything.
Check it's working
Track how many projects changed ranking or design because of the price. If the answer is none, the price is too low or applied too late.