Shadow Carbon Price
A shadow carbon price is a hypothetical cost applied to carbon emissions within internal decision-making processes, without actual financial transfers, to guide low-carbon investment choices.
What is Shadow Carbon Price?
A shadow carbon price is the most common form of internal carbon pricing. It is a notional cost per tonne of CO₂e that organisations include in capital investment appraisals, procurement decisions, and strategic planning — without actual money changing hands. The purpose is to make the climate cost of emissions visible in financial analysis.
For example, when comparing two equipment options, adding the shadow carbon price to the higher-emission option’s total cost of ownership may reverse the financial preference. This ensures that climate considerations are systematically integrated into business decisions rather than treated as an afterthought.
Shadow carbon pricing is distinct from an internal carbon fee, where business units actually pay for their emissions. The shadow approach is simpler to implement, requires no organisational restructuring, and can be applied immediately to project appraisals.
Practical Examples
A logistics company applies a £100/tCO₂e shadow price when comparing diesel and electric trucks, making the EV fleet option financially preferable over a 7-year ownership period.
A bank includes a shadow carbon price in its credit risk assessment for fossil fuel lending, increasing the perceived risk of high-carbon projects.
A property investor uses a £75/tCO₂e shadow price in development appraisals, favouring low-carbon building designs and materials.
How Climatise Helps
Climatise provides the emissions data at a project, site, and activity level needed to apply shadow carbon pricing to investment decisions and procurement processes.
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