PUTTING A PRICE ON CARBON
The state of internal carbon pricing bycorporates globally

CDP Report 2021

CONTENTS

03

About the report

04

Key Findings

06

Internal carbon pricing

09

The Price Itself

09

The dimensions of an effective internal carbon price

10

Objectives of internal carbon pricing

12

Using an internal carbon price to manage risk

12

Effectiveness of a price

14

Type of price and business influence (depth)

15

Height of price

16

Variance of price17

GHG emissions coverage

18

Carbon pricing regulation

22

ANNEX Types of internal carbon pricing and prices used: 2020

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© 2021 CDP Worldwide. All rights reserved.

ABOUT THE REPORTThis report provides an update on corporate use of internalcarbon pricing globally and developments in carbon pricing
regulation, informed by over 5,900 corporate disclosures to
CDP in 2020
This incorporates relevant information derived fromrecommendations of the Task Force on Climate-related
Financial Disclosures (TCFD), with which the annual CDP
investor request for disclosure information is aligned. The
last CDP report on this subject was published in 2017.
CDP is the largest repository of information on how carbon
pricing is viewed and used by public companies, with datacollected every year since 2014. In 2020, CDP collectedcarbon pricing data from over 5,900 companies, which is
explored in this report.

Over

5,900

companies reported
carbon pricing data to
CDP in 2020

3

KEY FINDINGS

1

CDP’s latest data from 2020 shows an 80% increase in the number ofcompanies planning or using an internal carbon price in just five years
With more than 2,000 companies now disclosing current or planned used of internal carbon
pricing to CDP. The combined market capitalization of these companies now exceeds US$27
trillion, a significant increase from $7 trillion at the time of CDP’s most recent report in 2017.

2
3

Nearly half (226) of the world’s 500 biggest companies by market capitalization
are now putting a price on carbon or planning to do so within the next two years, more thandoubling the number from our last report in 2017.

11 of the 13 industries included in the analysis reported an increase in theshare of companies using or planning internal carbon pricing between 2019and 2020:{ The highest growth in this respect was in financial services, which increased 6.2% year on year
{ The power and fossil fuel industries have consistently had the highest proportion of companies

currently using or planning to use an internal carbon price since 2018. Likewise, power andfossil fuel companies are also the most regulated industries based on CDP data.
{ The manufacturing industry accounted for over one third of all companies disclosing the useor planned use of an internal carbon price in 2020. However, despite strong growth, in 2020
only 29% of manufacturing companies currently price or expect to price carbon in the next two
years, the third lowest rate amongst industries and falls short of the overall average.

4

Almost all regions reported an increase in the number of companies setting acarbon price or planning to price carbon since 2018
Asia saw the largest absolute increase in the total number of companies using an internal carbon
price or planning to use a price. European domiciled companies ranked second, and North
America ranked third. Despite the lowest number of companies coming from Africa, this region
has the highest proportion using or planning to use, primarily driven by the tax in South Africa.

5

Overall, most companies use internal carbon pricing to achieve one or more ofthree key objectives
The most commonly cited reasons were driving low-carbon investment, driving energy efficiency,
and changing internal behavior, while identify and seize low-carbon opportunities, navigate GHG
regulations and stress test investments were also flagged as objectives by companies.

6

Internal carbon pricing goes hand in hand with emissions reduction activities
CDP data indicates a correlation between the companies putting a price on carbon and thosetaking other strategic actions to integrate climate change issues into their business strategy as ameans to reduce risk, such as by setting a science-based target (SBT) or sourcing more energy
from renewables.

7
8

Shadow pricing is the most common type of internal carbon price5 in 10 companies disclosed the use of a shadow price in 2020 and has consistently been
the most common type of price utilized since CDP started requesting information on internalcarbon pricing. In 2020, 90% of companies with an internal carbon price disclosed that itcovered their direct (scope 1) emissions.

CDP’s analysis found that the median internal carbon price disclosed bycompanies in 2020 was US$25 per metric ton of CO2e
However, with more countries bringing in carbon pricing regulation, and carbon prices soaring
to all-time highs in the EU emissions trading scheme (EU ETS) this year (rising to over €40 /US$44.80 in March), it is clear that corporations need to up the carbon prices they are currently
accounting for internally.

9

CDP data also suggests that more than double the number of companies
use evolutionary prices which adjust over time in comparison to static prices
This suggests that corporates worldwide may be preparing for greater risks from their carbon
emissions in the years to come.

10

Companies increasingly report their exposure to carbon pricing
regulation systems
1,113 companies disclosed to CDP that they are subject to carbon regulations, and an
additional 717 companies expect such regulation within the next three years. 425 companies
disclosing to CDP identify being exposed to the EU ETS, the most common system identified
by companies, a 5% increase since 2019. Japan’s carbon tax was the second most reported
regulation companies disclosed being subjected to. The fastest growing regulation by
percentage is the South Africa carbon tax – implemented in 2019, 46 companies disclosed
their exposure to the carbon tax, a 318% increase in comparison to 2019. There is a direct
correlation between this and the proportion of companies using or planning to use an internalcarbon price.

11

Companies can use an internal carbon price to plan for carbon
pricing regulation
Companies that expect carbon pricing regulation are five times more likely to use an internal
price on carbon than companies that do not. In contrast, over 3,000 companies disclosed to
CDP that they do not expect to face regulation on the price of emissions within three years
and do not foresee such regulation as a substantive risk – of which just 14% use or plan toimplement an internal carbon price within two years.

12

A surprising number of companies are not disclosing current or impending
carbon regulation as a substantive risk to their investors
Despite 1,830 companies disclosing that they currently face or expect carbon pricing
regulation, 60% (over 1,100) of these companies did not identify this regulation as a substantive
risk to their stakeholders in their CDP disclosure – highlighting a potential gap in informationthat investors should explore.

5

INTERNAL CARBON PRICING

CDP’s latest data on internal carbon pricing from 2020 shows continued growth worldwide.
Since 2018, we have seen a 43% increase with 853 companies now disclosing that they
currently use an internal price on carbon.
The number of companies disclosing plans to implement within two
years has increased 63% year on year over the same period, now
totaling 1,159. Combined, more than one third of companies that
responded to CDP’s internal carbon pricing questions in 2020 are
either currently or planning to use an internal price on carbon, an
increase of 2.8% from 2018 and 11% since 2015.1.
The first report CDP published on internal carbon pricing in 2014
revealed that 150 companies across the world were employing thistool to assess and manage carbon-related risks . CDP’s latest datafrom 2020 shows an 80% increase in just five years, with more than
2,000 companies now disclosing current or planned used of internalcarbon pricing to CDP. The combined market capitalization of thesecompanies now exceeds US$27 trillion3, a significant increase from
US$7trillion at the time of CDP’s most recent report in 2017.
There are now more than 225 of the 500 biggest companies bymarket cap4 putting a price on carbon or planning to do so within thenext two years, more than doubling the number from 2017.

Growth of internal carbon pricing
2250
1159

2000
915

1750
1500

782

711

732

1250

583

1000
750
500
250

150
435

517

607

594

699

853

2015

2016

2017

2018

2019

2020

0
2014

Yes

No, but we anticipate doing so in the next two years

Internal carbon pricing by numbers: 2020

3,573

1,159
26.6% increase from 2019
Companies planning to pricewithin two years

853
22% increase from 2019
Not pricing

1.
2.
3.
4.

Companies currently pricing

CDP’s climate change questionnaire was updated in 2018 to incorporate a specific module on carbon pricing. The carbon pricing questions were included only in the full questionnaire, whichsignificantly changed the sample size of companies receiving the question between 2017 and 2018
Note that CDP’s 2014 data did not include companies planning to implement carbon pricing
According to Bloomberg financial data. Note that more than 100 companies are excluded due to data availability
The top 500 companies in the FTSE Global All Cap Index

Carbon pricing activity by industry
Despite the power industry seeing a decline between 2019 and 2020,
it has consistently had the highest proportion of companies currently
using or planning use of internal carbon pricing since 2018. In 2020,
over two thirds of power companies that were asked5 about their useof carbon pricing are currently using or planning to adopt an internalcarbon price within two years. Over two thirds of fossil fuel companies
stated the same. The industry average was 36%.

11 of the 13 industries included in the analysis experienced anincrease in the share of companies using or planning internal carbon
pricing between 2019 and 2020. The highest growth in this respect
was in financial services, which increased 6.2% year on year. This is anotable shift from 2018 to 2019 where only 4 of the 13 industries saw
a percentage increase.

Share of companies pricing or planning to price carbon: 2018-2020
100%
77.5%
74.1%

75.0%

80%

71.2%

67.0%
66.0%

60%

52.4%
46.2%
39.7%

43.4%

40%

32.8%

35.5%

32.4%

46.3%
45.7%
40.6%

40.2%

39.1%

37.6%
31.7%
28.1%

30.8% 28.9%
27.9%

27.2% 31.0%
26.2%

37.2%
36.4% 33.5%
33.5%

29.4%
28.7%
25.5%

38.8%

36.1%
26.9% 27.3%
23.6%

20%

2018

In 2020,
manufacturingaccounted forover one thirdof all companies
disclosing on theirinternal carbon
pricing activity

5.

2019

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2020

The manufacturing industry has by far thelargest group of companies responding to
CDP’s climate change questionnaire. In 2020,
manufacturing accounted for over one third of
all companies disclosing on their internal carbon
pricing activity with 605 companies disclosingthat they are currently using, or plan to use aninternal carbon price in the next two years. The
total number of companies in the manufacturingindustry planning or currently using an internalcarbon price has seen a strong year on year
increase since 2018. From 2018 to 2019 thenumber of manufacturing companies planningor using an internal price on carbon grew 58%,
with a further 31% of growth in 2020.

The manufacturing industry also experienced
the highest absolute growth year on year, with
167 more companies planning or using aninternal carbon price in 2019 compared to 2018,
and a further 144 companies doing so in 2020.
Overall, the industry accounted for nearly 40%
of all total growth from 2018 to 2020.
Despite this positive growth, there is stillmuch room to grow: in 2020 only 29% of
manufacturing companies currently price or
expect to price carbon within the next two
years, which is the third lowest rate amongindustries and falls short of the overall
average.

Not all the companies that respond to CDP’s climate change questionnaire receive the full questionnaire. Companies using the minimum tier questionnaire do not receive the carbon pricing module
questions. In 2020, 5,927 companies disclosed to the full CDP climate change questionnaire

7Carbon pricing activity by region

796

Asian companies
are using orplanning aninternal price on
carbon in 2020

All regions except Africa experienced anincrease in the total number of companies
pricing or planning to price carbon since 2018,with Latin America showing the smallest (3.4%)
and Oceania showing the greatest percentage(45%) increases.
The most notable growth comes from Asia which
has continued its rapid growth as previously
demonstrated in CDP’s report from 2017. The
region ranked first among all regions with 796
companies using or planning an internal priceon carbon in 2020. In China, the total number ofcompanies using or planning an internal price on
carbon increased by over 27% since 2019.

661

Europeancompanies

are pricing in 2019or planning to do
so within two years

that the U.S. saw the second highest absolute
number of companies using or planning aninternal carbon price, behind only China. However,with companies based in the U.S. being thelargest overall proportion of companies reporting
to CDP, we see much room for improvement intheir implementation of an internal carbon priceas only 20% of companies there currently use orintend to set an internal carbon price.

Internal carbon pricing increased 39.5% in Europe
since 2019. Leading among individual countries
are the UK, France, Germany, Spain, and Italy.
In total, 661 European companies are pricing in2020 or planning to do so within two years.

Africa, the smallest proportion of the sample byregion saw a 14% drop between 2018 and 2019,
but a rise back to just short of 2018 levels in 2020
– the drop in African companies using or planning
an internal carbon price was due to companies
no longer responding to CDP rather than achange in the implementation of an internalcarbon price. Notably however, 59% of companies
headquartered in South Africa reported the useor planned use of a price on carbon - the highest
proportion of any country6.

North America ranks third, with corporates basedin the United States (U.S.) making up over 73% of
all North American companies using or planning
an internal carbon price in 2020. It is worth noting

France, Taiwan and Turkey all saw over half of
responding companies disclosing the use, orplanned implementation of an internal carbon
price.

Growth of internal carbon pricing by region: 2018-2020
900

796

800
661

651

700

600
474
500
264

400

200
44
100

38

43

42

42

61

67

89

320

359

455

433

92

0
AfricaOceania

Latin America

Companies pricing or planning to price carbon in 2018
Companies pricing or planning to price carbon in 2020

6.

North America

EuropeCompanies pricing or planning to price carbon in 2019

Only countries with 50 or more companies receiving CDP’s full climate change questionnaire were included in these statistics

Asia

Share of companies using or planning to price carbon: 2018-2020
100%

80%

53.7%
60%

50%
46.9%

44.9%
38.5%

37.8%

35.6%

30.7%

40%
21.8%

22.6%

27.6%
22.3%

39.3%

39.7%

34.7%

39.1%

38.9%

25.3%

20%

0
AfricaOceania

Latin America

Companies pricing or planning to price carbon in 2018
Companies pricing or planning to price carbon in 2020

North America

In the following section we will explore key considerations a company
needs to explore to develop an effective internal carbon price.

7.

Asia

Companies pricing or planning to price carbon in 2019

THE PRICE ITSELF
THE DIMENSIONS OF AN
EFFECTIVE INTERNALCARBON PRICE
In implementing an effective internal carbon price, four
dimensions7 should be considered: price level (height), GHG
emissions coverage (width), influence (depth), and time. All thedecisions a company will take in each of these dimensions will flowfrom the objective(s) they are seeking to achieve in implementing
this tool. The impact of this tool should also be regularly reviewed
and evaluated to improve over time.

EuropeHeightCarbonprice level

Time

Development
journey

WidthGHG
emissionscoverage

How-to guide to corporate internal carbon pricing: CDP & Navigant - https://www.cdp.net/en/reports/downloads/2740
Internal carbon pricing for low-carbon finance: CDP & Navigant - https://www.cdp.net/en/reports/downloads/4655

Depth

Business
influence9

THE PRICE ITSELFOBJECTIVES OF INTERNAL CARBON PRICING
An internal carbon price can used by companies to achieve many objectives. In fact, over
six in every ten companies that use internal carbon pricing cited three or more objectives.
Though there is a clear relationship between using an internal price on carbon andpreparing for potential regulation, companies that implement internal carbon pricing also
do so for other reasons.
Overall, most companies use internal carbon pricing to achieve one ormore of three key objectives: driving low-carbon investment, driving
energy efficiency, and changing internal behavior.

CDP data shows only a small number of companies using an internalcarbon price for supplier engagement.

Objectives for internal carbon pricing: 2020
100%
90%
80%
70%
60%
50%
40%
30%

61.0%

58.4%

55.2%
42.7%

20%

41.7%
31.4%

10%

26.5%
9.9%

9.5%

Supplier
engagement

Other

0%
Drive lowDrive energy
carbon investment efficiency

Change internal
Identify andNavigate GHG
behavior
seize low-carbon regulations
Share of companies disclosing objective

Corporate climate disclosures from 2020 reveal several trends
related to the objectives of internal carbon pricing. Driving low-carbon
investment is the most cited objective by companies currently
pricing carbon, with 60% of all respondents to CDP’s carbon pricing
questions explicitly mentioning it as an objective. This marks a 15%
increase in comparison to 2019

Stakeholder
expectations

Stress test
investment

Share of companies not disclosing objective

for each large investment, two business cases have to bepresented. One with an internal carbon price of 50 €/t CO2e,and one with the real carbon price (which tends to be much
lower or even zero depending on the region).
Koninklijke DSM’s climate change disclosure notes

The second most cited objective is to drive energy efficiency. 58% of
responders highlighted energy efficiency, a 40% increase in comparison
to 2019. French automobile manufacturer Renault, for example, hasused its internal carbon price to [shift] investments toward energy
efficiency measures and product offerings and to promote
investment in energy efficiency [at its] manufacturing plants.

Changing internal behavior is cited as an objective in more thanhalf of all companies, but many company disclosures lack explicit
references to how they are tackling this, or its impact. However, India
based Tata Consumer Products observed that behavioral change
at the manager level [as] managers are now aware of [the] cost [of]carbon, energy or fuel costs.

Companies also mentioned renewable energy in 18% of all responses. Korean electronics firm Samsung stated in its disclosure:

When reviewing the installation of on-site solar PV, we have reviewed the internal carbon price in calculating thepayback period. In this case, the payback period reflecting the internal carbon price was shorter than the calculationof the power saving cost, which had a positive effect on the policy decision.
Samsung, Korean electronics firm

However, we see a shift in the objectives disclosed based on whether
a company identifies that it faces or expects emissions regulation,or if it does not. While the top three objectives remain the same, therates at which they are disclosed differ. Companies that do not faceor expect regulation are more likely to use internal carbon pricing tochange internal behavior, meet stakeholder expectations and engage
suppliers. Understandably, they are much less likely to use an internalcarbon price to navigate GHG regulations.

Objectives for internal carbon pricing based on current or expected emissions regulation: 2020
100%
90%
80%
70%
60%

65.5%
54.6%

58.4%
57.4%

59.0%
52.6%

48.3%

50%

43.4%
41.5%
34.4%

40%
26.8%

28.4%

30%

28.7%
21.9%
13.7%

20%

9.1%

8.5%

9.3%

10%
0%
Drive lowDrive energy
carbon investment efficiency

Change internal
Identify andNavigate GHG
behavior
seize low-carbon regulations

Stakeholder
expectations

Stress test
investment

Supplier
engagement

Other% of companies stating objective that disclose current or expected emissions regulation% of companies stating objective that DID NOT disclose current or expected emissions regulation

11

THE PRICE ITSELF
USING AN INTERNAL CARBON PRICE TO
MANAGE RISKInternal carbon pricing is used by companies to address the external risk of an increase in
the price of emissions. This is most clear among the group of companies that both identify
the external risk of their emissions being priced and already face related regulations or
expect to within three years: 75% of these 727 companies already are or plan to use internalcarbon pricing within two years.
This more than doubles the rate of 33% of current or planned internalcarbon pricing use among the 5,900+ companies who received thequestion in 2020 regardless of what risks they identified.
More than 41% of all companies currently implementing internalcarbon pricing disclosed to CDP that one objective of the price is to“navigate GHG regulations.” While emissions regulations comprise
more than a price on GHGs, this further illustrates the use of internalcarbon pricing to prepare for and manage regulation on emissions
prices.

1,312
Companies disclosing the risk of carbon pricing
mechanisms that will impact their direct
operations or supply chain

727
Of those 1,312 companies (55%) also disclose
they are currently subject to carbon pricing
regulation or expect to be within three years

351
Of those 727 companies (48%) are currently
implementing an internal price on carbon

196
Additional companies (27%) plan to put an internal
price on carbon within two years

EFFECTIVENESS OF A PRICE
Implementing an internal carbon price into corporate strategy and thedecision-making process should not be the end goal for a business it is critical to evaluate the ultimate impact of carbon pricing.
The evaluation of the impact of carbon pricing should relate directly
to the objectives of the price as initially applied. For example,
companies should ask: have our low-carbon investment or energy
efficiency investments increased? Have we successfully changed
internal behavior? If so, how? If not, how can we adapt our strategy
the next time around?
Crucially, effectiveness in achieving business objectives throughinternal carbon pricing is not guaranteed based on a successful oneoff evaluation. Pricing must be consistently monitored and adapted inline with external as well as internal developments. Even if pricing has
succeeded in facilitating objectives, companies should consider how
8.
9.

they want to evolve their objectives and perhaps increase ambition
for what they aim to achieve.
CDP data indicates a clear correlation between the companies
putting a price on carbon and those taking other strategic actions
to integrate climate change issues into their business strategy as ameans to reduce risk.
For example, a higher percentage of companies currently
implementing an internal carbon price have adopted a sciencebased target, set at least one emissions reduction target covering
100% of emissions in scope 8, source more of their energy fromrenewables, and have identified climate-related opportunities.
Furthermore, over 86% of companies in CDP’s 2020 corporate A
List 9 for climate change are already pricing carbon internally or plan
to do so within two years.

Companies implement internal carbon prices to help address strategic objectives and priorities. In reflection of this, different GHG emissions are in scope (direct, scope 1 emissions, indirect scope2, and/or scope 3 emissions)
CDP’s A List showcases the companies leading on environmental transparency and action, based on their annual disclosure through CDP’s climate change questionnaires. Thousands of companies disclose through CDP at the request of investors and corporate buyers

Correlation between internal carbon pricing and other climate actions: 2020
2018

2019

2020

Companies(%) taking
actionthat arecurrently
using ICP10

Companies(%) taking
actionthat areplanning to
implementan ICP
within two
years

Companies(%) taking
action thatare notplanning touse an ICP

Companies(%) taking
actionthat arecurrently
using ICP

Companies(%) taking
actionthat areplanning to
implementan ICP
within two
years

Companies(%) taking
action thatare notplanning touse an ICP

Companies(%) taking
actionthat arecurrently
using ICP

Companies(%) taking
actionthat areplanning to
implementan ICP
within two
years

Companies(%) taking
action thatare notplanning touse an ICP

594

711

2,681

699

915

3,071

853

1,159

3,573

Adopt a target
approved by the
Science-Based
Targets initiative(SBTi)

67 (11.3%)

33 (4.6%)25 (0.9%)109 (15.6%)

51 (5.7%)

49 (1.6%)

209 (24.5%)

130 (11.2%)

93 (2.6%)

Use dedicated R&D
funding as a method
to drive investment
in emissions
reduction activities

144 (24.2%)

117 (16.5%)

136 (5.1%)

178 (25.5%)

121 (13.2%)

157 (5.1%)

230 (27.0%)

157 (13.6%)

176 (4.9%)

Set an absoluteemissions reduction
target that cover
100 percent ofemissions in scope

269 (45.3%)

243 (34.2%)

516 (19.2%)

318 (45.5%)245 (26.8%)

245 (7.9%)

488 (57.2%)

426 (36.8%)

716 (20%)

Renewable energy
procurement asshare of total

16.2%

14.9%

14.1%

17.7%

16.8%

14.0%

19.5%

19.3%

18.5%

Identify any climaterelated opportunities
that can befinancially realized  

551 (92.8%)590 (83.0%)

1,606 (59.9%)666 (95.3%)

757 (82.7%)

1,804 (58.7%)

810 (95.0%)

949 (81.9%)

2,151 (60.2%)

Identify
climate-related
opportunities
related todevelopment and/or expansion of lowemission goods andservices

298 (50.2%)

252 (35.4%)

551 (20.6%)385 (55.1%)

299 (32.7%)590 (19.2%)

447 (52.4%)

380 (32.8%)

667 (18.7%)

Identify
climate-related
opportunities
related todevelopment of
new products andservices throughR&D and innovation

135 (22.7%)

127 (12.9%)298 (11.1%)

164 (23.9%)

155 (17.0%)

337 (11.0%)

218 (25.6%)

206 (17.8%)

389 (10.9%)

Develop low-carbon
products

320 (53.9%)273 (38.4%)

531 (19.8%)

390 (55.8%)358 (39.1%)

615 (20%)491 (57.6%)

435 (37.5%)

763 (21.6%)

Verify Scope 1
emissions via thirdparty mechanism

533 (89.8%)471 (66.8%)

948 (36.3%)

632 (90.4%)501 (54.8%)980 (31.9%)759 (89.1%)

604 (52.1%)

997 (27.9%)

Integrate climaterelated issues intobusiness strategy

591 (99.5%)

670 (94.2%)

2,064 (77.0%)

696 (99.6%)875 (95.6%)

2,329 (75.7%)

843 (98.9%)1114 (96.1%)

2,778 (77.8%)

ActionCompanies in group

10. Internal carbon pricing (ICP)

13

THE PRICE ITSELF
TYPE OF PRICE AND BUSINESS INFLUENCE(DEPTH)When implementing an internal carbon price, a company must decide the type it intends
to use. and the degree of influence it will have on its decision making. Critically, the way inwhich the shadow price is used impacts the influence the price has.
It's degree of influence can range from being included qualitatively,
embedded in cost calculations as a financial indicator, or being a criteria
in business decisions, with the latter of course showing the strongest
level of influence. A shadow price is the most common type disclosed

through CDP, with 5 in 10 companies that disclosed an internal carbon
price in 2020 using shadow pricing. This has consistently been themost common type of price utilized since CDP started requesting
information on internal carbon pricing from companies.

Types of internal carbon price used: 2020
100%

80%

60%

40%

50.8%
20%
19.3%

15.0%

8.6%

6.8%

2.0%

Offsets

Other

Internal trading0%
Shadow price

Implicit priceInternal fee% of companies using ICP type

Each type of price can be used to drive impact in an organisation.
For example, a shadow price mechanism can be used in investment
decisions, but no actual financial flows are generated – a shadow
price is most commonly used in CAPEX decisions but can also
be used in R&D and procurement decisions. On the other hand,an internal fee mechanism approach will result in actual financial
flows by imposing an internal fee on GHG emissions which can beapplied to operational decisions – the revenue from the fee can thenbe used to establish a low-carbon fund or be re-distributed in thecompany. An example of this practice can be seen at Microsoft.

Our fee is paid by each division in our business based on its carbon emissions, and the funds are used to pay forsustainability improvements. By charging business groups based on the emissions they generate, we help to drive
efficiency initiatives and innovation across our business. The carbon fee affects investment decisions by providing
an incentive, the financial justification, and in some cases the funds for climate-related energy and technology
innovation. The fee also helps drive culture change by raising internal awareness of the environmental implicationsof our business and establishing an expectation for environmental and climate responsibility within the company.
MicrosoftTHE PRICE ITSELFHEIGHT OF PRICE
Companies that
disclosed figures
greater than

After sufficient data cleaning and converting to US$, our analysis
identifies the median price disclosed by companies in 2020 as
US$25 per metric ton of carbon dioxide equivalent (CO2e).

US$200Please see the annex at the end of this report for detailed
information on the prices disclosed to CDP broken down byindustry, region, GHGs in scope and price type.

that they were using
an implicit carbon
price in 2020

In 2020, a significant proportion of companies
that disclosed figures greater than US$200
identified that they were using an implicit
carbon price. An implicit price is calculated
retroactively and is based on how much it costs
a company to implement projects linked to

identified

emissions reductions such as the purchasing of
renewable energy or energy efficiency projects.
Unfortunately, a large proportion of companies
disclosing these higher figures did not provide
sufficient quantitative information to validate thefigures and so were excluded from the analysis.

15

THE PRICE ITSELFVARIANCE OF PRICE
Many companies use different prices in different circumstances i.e. the price varies bycharacteristics of the business unit to which it is applied (e.g. geographic location, risk
exposure) and it may evolve over time – what is known as variance.
Variance reflects the idea that the application of internal carbon pricing
is unique to each business. For example, uniform pricing reflects asingle price applied throughout the business while differentiated pricing
may vary based on geographic location, business unit or decision type,taking into account the specific needs of each.

CDP data suggests that a greater number of companies reportingon variance use a uniform price as opposed to a differentiated orvariable price. 17.7% of disclosing companies with usable responses11
mentioned using uniform pricing, compared to 6.8% of companies
explicitly stating a differentiated pricing strategy.

Danone, the French food and beverage company has implemented an ambitious static and uniform price and notes in its disclosure:

The internal price of carbon implemented by Danone […] is uniform and static, meaning a single price is applied
throughout the company independent of geography and business unit, and constant over time. Danone updated
its internal price of carbon and decided to set it at a relatively high level, 35€/t to internalize potential future costsof carbon in [the] long term. It enables the management to arbitrate between different options, to choose the mostvirtuous and efficient ones to achieve the goals of Danone's Climate Policy.
Danone, French food and beverage company

Rather than establishing a company-wide price on carbon, Sony
Corporation uses a differentiated price which is “decided andreviewed separately for each business unit, according totheir business condition and status, such as the degree ofenvironmental impact, energy pricing, business size, budget andmanagement status.”

CDP data also indicates a trend towards evolutionary pricing, which
adjusts over time compared to static pricing which remains constant.
More than double the number of companies explicitly disclosed an
evolutionary price compared to those disclosing a static or constantprice. This suggests that companies are preparing for increased
carbon-related risks over time.

In its 2020 climate change disclosure to CDP, Delta airlines stated the use of

Evolutionary pricing that assumes the cost of carbon increases with time. Various sources are used to do sensitivity
analysis around this: published information on future cost of carbon (IEA), analysis on supply and demand of offsets
or other instruments.
Delta Airlines

11. Some companies do not provide sufficient information in the disclosure to categorise their price according to its varianceTHE PRICE ITSELF
GHG EMISSIONS COVERAGE

In 2020, nearly90%of companies

with an internal carbon
price disclosed direct(scope 1) emissions
being covered

The width of an effective carbon price is based on the GHG
emissions covered by the internal carbon price. Best practice in
GHG coverage means that there should be a value chain approach,growing to cover all material sources of GHG emissions.
Since CDP first started asking companies to disclose on their useof internal carbon pricing, we have seen consistent coverage ofdirect (scope 1) GHG emissions. In 2020, over 89% of companies
disclosing data on their internal carbon price identified scope 1
being covered. In comparison to 2018, there has also been an
increase of 70 companies taking a value chain approach withinternal carbon prices covering direct and indirect value chain(scope 1, 2 and 3) emissions.

17

CARBON PRICING REGULATIONTRENDS FROM CORPORATE DISCLOSURES
More than 1,100 companies disclosed to CDP that they are currently subject to regulationon the price of emissions.
An additional 717 companies expect such regulation within three years. 60% of companies
that were asked this question by CDP disclosed that they do not currently face or expect toface such regulation within three years.
Carbon pricing regulation by numbers: 2020

3,465

1,113
5.5% increase from 2019
Companies currently subject
to regulation717
20.7% increase from 2019
Not expecting regulation

Companies expecting regulation
within three years

Across the globe, there are now 64 carbon pricing initiatives inplace or scheduled for implementation, covering 12 gigatons
CO2e, representing over 22% of global GHG emissions12. In 2020,
companies disclosed to CDP that they were subject to 57 different
regulatory schemes worldwide.

Of the 1,113 companies that disclosed current regulation on
carbon emissions in 2020, most reported regulation from just one
mechanism; 14.6% stated being subject to two regulatory schemes
and a further 12.6% said they are subject to more than two.

Number of regulations companies are exposed to: 2020

12.6%

2+
2
1

More than two regulations

14.6%

72.8%

Two regulations

12. World Bank Group, Carbon Pricing Dashboard - https://carbonpricingdashboard.worldbank.org/

One regulation

Since CDP’s last report in 2017, there have been notable changes incarbon pricing regulation. Germany, Austria, and Luxembourg havecommenced plans to price carbon in sectors not currently coveredby the EU ETS, and the EU’s Green New Deal with its commitment toreach carbon neutrality by 2050 has strengthened the case for wider
carbon pricing coverage. Mexico launched a national pilot ETS, thefirst emissions trading system in Latin America. We have also seen an
increase in the sectors and GHG emissions being covered by carbon
pricing regulation, and thresholds are being lowered to regulate morecompanies, including in Chile, Iceland, New Zealand, and Switzerland13.
There have also been significant developments in subnational
initiatives, notably in Canada’s provinces and territories, which are
now complemented by federal regulations. In the US, New Jersey
and Virginia joined the Regional Greenhouse Gas Initiative (RGGI) and

Pennsylvania intends to do so by 2022 at the earliest.
The EU ETS which now covers Norway, Iceland, and Liechtenstein in
addition to the 27 EU member nations, was cited more often than any
other regulation in 2020. 425 companies disclosing to CDP in 2020stated they are subject to this regulation, an increase of 5% since 2019.
The fastest growing regulation by percentage increase of companies
disclosing their exposure is the South Africa carbon tax, implemented
in 2019, which now covers 46 companies disclosing to CDP in 2020 –a 318% increase year-on-year.
The graph below shows the ten most disclosed carbon pricing
regulations that companies are subject to, and the percentagechange from 2019 to 2020.

Commonly disclosed carbon pricing regulations: 2020
500

350%
318.2%
425

400

280%

300

210%

172

200

140%

97
63

100

5.7%

10.3%
2.1%

8.6%

57

55

70%
46

46

15.0%

11.8%

33
10.0%

24
26.3%

Shenzhenpilot ETS

Shanghaipilot ETS

34.1%
0%

0
EU ETSJapan
carbon tax

Tokyo CaT

Korea ETS

California
CaT

Companies disclosing in 2020

BC
carbon tax

SaitamaETSSouth Africa
carbon tax

Percentage growth since 2019

Regulation and internal carbon pricing
In 2020, more than 3,000 companies disclosed to CDP that they do
not expect to face governmental regulation on the price of emissions
within three years and do not foresee carbon pricing regulation to
be a substantive risk. Just 14% of these companies use or plan toimplement an internal carbon price within two years. Therefore,
companies that disclose carbon pricing as a risk and face or expect
pricing regulation are five times more likely to use an internal carbon
price than those that do not.

CDP's analysis also notes that despite over 1,830 companies
disclosing current exposure or potential exposure to carbon pricing
regulation, 60% (over 1,100 companies) did not identify this regulation
as a substantive risk to their stakeholders. It's possible that carbon
regulation might not meet the thresholds set by these companies
to be considered a material risk - however it's a potential gap in
information that investors should explore at a company level.

39. CDP, CDSB, GRI, IIRC and SASB (2020): Statement of Intent to Work Together Towards Comprehensive Corporate Reporting. https://29kjwb3armds2g3gi4lq2sx1-wpengine.netdna-ssl.com/
13. World
Bank Group, State and Trends of Carbon Pricing 2020 - https://openknowledge.worldbank.org/handle/10986/33809
wp-content/uploads/Statement-of-Intent-to-Work-Together-Towards-Comprehensive-Corporate-Reporting.pdf

19

Emissions Trading Systems and Carbon taxes
Emissions Trading Systems (ETS), also known as cap-and-trade(CaT), establish a limit (cap) on emissions within a specific jurisdiction
which is reduced over time thereby reducing overall emissions.
This is a market-based approach allowing companies to buy andsell allowances (trade) equivalent to the total emissions cap, with afinancial incentive for companies to reduce emissions. Emissions
Trading Systems provide certainty about future emissions, but notabout the price of those emissions which will inevitably vary over time.
These schemes can apply across various levels. In 2020, the ETS
most often disclosed to CDP was the EU ETS. Other common
schemes reported to CDP were the Tokyo CaT, Korean national ETS,

and California Cap and Trade.
Carbon taxes are a direct cost levied by governments who set a pricethat companies must pay for each ton of GHG emissions emitted.
A carbon tax differs from an ETS in that it provides a higher level ofcertainty about cost but less certainty about the level of emission
reductions that will be achieved. The most common carbon tax as
disclosed to CDP is the Japan national carbon tax with over 170
companies reporting to CDP that they are subject to this regulation.
Two other frequently identified carbon taxes are the British Columbia
carbon tax in Canada and the South Africa carbon tax, which regulate
more than 50 and 45 of the disclosing companies respectively.

Regulation by industry
Fossil fuels and power companies report the highest rate of current or expected emissions regulation. This aligns with expected thinking, as
these activities are typically covered by carbon taxes and emissions trading systems like the EU ETS.
The hospitality industry has the lowest rate with less than one in five companies disclosing current or expected regulation.

Share of industry regulated: 2020
100%

80%

60%

40%

64.2%

20%
25.0%

34.6%

37.6%

63.9%

19.1%

48.4%
31.9%

35.7%

29.2%

37.4%

27.8%

17.4%

Share regulated or expecting within 3 years

Share not regulated or expecting regulation within 3 years

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Regulation by region
Among all regions, Africa has the highest share of companies
reporting or expecting regulation within three years. Note thatthree quarters of disclosing companies in Africa are based inSouth Africa which implemented a national carbon tax in June
2019.

North and Latin America have the lowest rates with around one
quarter of all companies facing or expecting regulation. The majorityof disclosures from North America come from the U.S. whichlacks federal emissions regulations and has a nascent, patchwork
assortment of state policies (e.g. RGGI).

Share of companies regulated by region: 2020
100%

80%

60%

40%
65.3%

39.3%

20%

33.5%
22.1%

24.0%

Latin America

North America

33.1%

0%
AfricaAsia

EuropeShare regulated or expecting within 3 years

Oceania

Share not regulated or expecting regulation within 3 years

21ANNEXTYPES OF INTERNAL CARBON PRICING AND
PRICES USED: 2020
Shadow pricing remains the most commonly used pricing type and has the highest medianvalue price.
While many companies employ multiple types of carbon pricing depending on their needs,
shadow pricing is most often used with over 5 in 10 companies implementing this pricing type.
A shadow price places a hypothetical cost of carbon to each ton of emissions as a tool toreveal hidden risks and opportunities in operations and supply chains, and to support strategic
decision-making related to future capital investments.
Prices on carbon vary based on emissions scope and type of price.
The table below shows the median14 price per ton converted to US

dollars. Apart from being the most common, shadow prices are thehighest dollar value of any price type.

GHG Scope

Implicit priceInternal fee

Internal trading

Offsets

Shadow priceScope 1$28

$23

Insufficient data15

$21

$25

Scope 2

$7

$64

Insufficient data

Insufficient data

$29

Scope 3

Insufficient data

$19

Insufficient data

Insufficient data

$49

Scope 1; Scope 2

$28

$22

$31

$2

$28

Scope 1; Scope 3

Insufficient data

Insufficient data

Insufficient data

Insufficient data

$25

Scope 1; Scope 2;
Scope 3$23

$11

Insufficient data

$7

$34

Price ranges by typePrice ranges by region

Price typeMedian price per
tonne (US$)

Maximum price per
tonne (US$)

RegionMedian Price USD

Max. Price USD

Implicit price

$27

$918

Africa$8$120Internal fee

$18

$532

Asia

$28

$918

Europe$28$532Internal trading

$27

$71
Latin America

$8

$100

North America

$23

$760

Oceania$17$297

Offsets$6$35

Shadow price

$28

$459

14. The median is used as CDP’s data show significant variability within each scope and price type
15. Insufficient data: fewer than five companies reported dataPrice ranges by industry

Industry

Median Price USD

Max. Price USD

Unique companies withusable data

Apparel

$82

$760

5

Biotech, health care
& pharma

$43

$918

22

Financial Services

$17

$297

105

Food, beverage &agriculture

$28

$177

40

Fossil Fuels

$28

$100

55

Hospitality

$16

$20

4

Infrastructure

$35

$383

32

Manufacturing

$28

$532

116

Materials

$28

$459

137

Other services

$20

$146

78

Power generation

$23

$112

77

Retail

$23

$135

42

Transportation
services

$20

$269

33

23

DISCLOSURE INSIGHT ACTION

For more information please contact:
Authors
Nicolette Bartlett
Interim Director
nicolette.bartlett@cdp.net
Tom Coleman
Project Manager, Climate Change
tom.coleman@cdp.net
Stephan Schmidt
Data analysis and report writing contributor
CDP Communications
Sarah Leatherbarrow
Senior Communications Manager
sarah.leatherbarrow@cdp.net

Special thanks:
Paula DiPerna
Special Advisor
paula.diperna@cdp.net
Tess Harris
Communications Consultant

CDP Worldwide
Level 460 Great Tower Street
London EC3R 5AD
Tel: +44 (0) 20 3818 3900
climate@cdp.net
www.cdp.net

About CDP
CDP is a global non-profit that drives companies and governments to reduce their greenhouse gas emissions, safeguard water resources andprotect forests. Voted number one climate research provider by investors and working with institutional investors with assets of over US$106
trillion, we leverage investor and buyer power to motivate companies to disclose and manage their environmental impacts. Over 9,600 companies
with over 50% of global market capitalization disclosed environmental data through CDP in 2020. This is in addition to the hundreds of cities,
states and regions who disclosed, making CDP’s platform one of the richest sources of information globally on how companies and governments
are driving environmental change. CDP is a founding member of the We Mean Business Coalition.

Visit https://cdp.net/en or follow us @CDP to find out more.

© CDP 2021 This briefing and all of the public responses from corporations are available for download from www.cdp.net