How your company can set an internal carbon price

Setting a robust internal price on carbon is among the most meaningful climate strategies available to companies. It’s also no small task. To be truly impactful, internal carbon prices (ICPs) require buy-in, from the C-suite on down, to embed the strategy into operations and retain the practice in the years ahead.

If that sounds daunting, the practice is backed up by case studies and peer-reviewed research. Some of the latest thinking was brought together in a report co-authored by BCG, Oxford Net Zero and Patch, a carbon markets platform. Here’s what the report had to say on some key areas of focus, along with additional resources to help start your company on its journey to an ICP.

Choosing the right pricing system

The headline numbers on carbon pricing sound encouraging: More than 1,700 companies from more than 50 countries told CDP that they used an ICP in 2024 — an almost 90 percent increase from 2021. But that figure lumps together many different kinds of ICP, some of which are more impactful than others.

For example, almost two-thirds of those companies used a “shadow ICP.” In this version, a notional cost is assigned to emissions but business units do not pay for the carbon they generate. This can help companies forecast the longer-term costs of emissions but will have a limited impact on short-term spending decisions. 

A “real ICP” involves levying a fee on every ton of carbon dioxide emitted and committing to use the funds on internal or external climate projects. If every part of the company has to factor the fee into its plans, change is likely to follow. Human resources, for example, may shift its thinking on remote working. All parts of the business will reevaluate air travel. And the big emission centers, such as operations and procurement, will have additional motivation to seek out low-carbon energy, goods and services.

Setting the price

It can be frustrating to hear that there’s no single right answer to this. Instead there are different methods for assigning a price, each valid in their own right. The flip side is that this gives companies the flexibility to tailor prices to the stage of their sustainability journey and the degree of control they have over different types of emissions.

Introducing a high price in Year 1 might derail the program, for example. In that case, the program could kick off by aligning prices with the cost of high-quality credits on the voluntary carbon market, which trade in the low tens of dollars. As the program becomes established, companies can graduate to more rigorous pricing mechanisms. These include pegging the price to the cost of credits on the European Union’s Emissions Trading Scheme (currently just under $80 per ton) or what governments judge to be the total economic cost of a ton of carbon (typically $100 to $300).

Prices can also vary by emissions scope. Because companies have less control over the value-chain emissions covered by Scope 3, a lower price might be justified. For Scopes 1 and 2 — direct energy use and electricity-related emissions — a higher price makes sense. The payment platform Klarna, for example, levies a $200 per ton fee on Scopes 1 and 2, alongside $100 for business travel and $10 for other Scope 3 categories.

Spending the funds

Here’s where it gets interesting. With funds amassed, companies can go shopping for projects. An obvious place to start is internal efforts that both reduce emissions and save money, such as energy efficiency upgrades, or tie in with sustainability goals. Autodesk, which levies $33 per ton on Scope 1, 2 and 3 emissions, has used the money to pay for rooftop solar and renewable energy certificates. At BCG, where fees start at $35 per ton, the company has used the funds to help it become one of the world’s largest buyers of durable carbon removal credits.

Involving employees in the spending decision can also boost buy-in. Microsoft, which set its ICP in 2012, has used the fees to pay for more than 60 employee-driven sustainability projects, from electric bike programs in Finland to energy management systems in Chile.

What to do next 

First movers such as Microsoft learned a lot from their early ICP programs, information that those newer to the idea can build upon. Here’s a reading list for aspiring ICPers:

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