In the evolving landscape of corporate sustainability, internal carbon pricing has emerged as a pivotal instrument for driving decarbonisation and aligning business operations with global climate objectives. Setting an internal carbon price (ICP) involves assigning a monetary value to greenhouse gas emissions before they have been emitted, thereby internalising the external costs of carbon pollution. ICPs represent a shift toward a proactive strategy where carbon becomes a core business consideration rather than an afterthought, enabling them to genuinely shape strategic decision-making and lead to tangible emissions reductions. They have become a widely recognised tool for managing climate risk, incentivising low-carbon investment and preparing for emerging regulatory requirements.
However, over time it has become clear that not all ICPs are effective – they are often set at a level that is not consistent with net zero transition pathways. To address this need, the authors of this report provide the first comprehensive framework for implementing net zero-aligned internal carbon pricing, based on five foundational principles. ICPs should be:
- Climate compatible;
- Contextual;
- Clear;
- Committed; and
- Catalytic.
This report was written by Ben Field (Patch), Lizzy Coad (BCG) and Injy Johnstone (Oxford Net Zero), with contributions from Bee Hui Yeh (Patch) and Anastasia Kouvela (BCG).
