How do I set the right internal carbon price?

Consider three reference points: the current market price of carbon (UK ETS price, ~£40–70/tCO₂e), the social cost of carbon (£100–300/tCO₂e depending on methodology), and the cost implied by your reduction targets. Many companies set a price between £50 and £150/tCO₂e and review it annually.

Is internal carbon pricing mandatory?

No. Internal carbon pricing is a voluntary management tool. However, CDP asks about it in its disclosure questionnaire, the TCFD recommends scenario analysis that implies carbon pricing, and investors increasingly expect it as evidence of serious climate governance.

Internal Carbon Price

An internal carbon price is a monetary value assigned by an organisation to each tonne of CO₂e it emits, used to guide investment decisions and incentivise emission reductions.

What is Internal Carbon Price?

An internal carbon price creates a financial signal within an organisation that reflects the cost of carbon emissions. Companies typically set a price per tonne of CO₂e (commonly £30–£150/tCO₂e) and apply it in one of two ways: as a shadow price in capital investment appraisals (influencing project selection) or as an internal fee charged to business units (creating a revenue-neutral incentive for reduction).

The shadow price approach is more common. When evaluating two investment options — for example, a gas boiler versus a heat pump — adding the internal carbon price to the gas boiler’s lifecycle cost may tip the decision in favour of the heat pump. This internalises the externality of carbon emissions into standard financial decision-making.

Major companies including Microsoft, Unilever, and BP use internal carbon pricing. CDP reports that over 2,000 companies globally have adopted or plan to adopt internal carbon pricing. The price level should reflect the organisation’s climate ambition, the social cost of carbon, or anticipated regulatory carbon pricing.

Practical Examples

A manufacturer applies an internal carbon price of £80/tCO₂e when evaluating capital projects, causing a heat pump system to become financially preferable to a gas boiler replacement.

A financial services firm charges each department an internal carbon fee based on its share of company emissions, with the revenue funding energy efficiency improvements.

A property developer includes an internal carbon price of £120/tCO₂e in lifecycle cost assessments for new developments, driving selection of lower-carbon construction materials.

How Climatise Helps

Climatise quantifies emissions at a granular level — by site, department, or activity — providing the data needed to apply internal carbon pricing effectively and model the financial impact of emission reduction investments.

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