Investors are now starting to put vital environmental data at the heart of their decision-making to understand and reduce risks, protect investments and seize opportunities. It has become more important than ever for organisations to not only disclose but also commit to actions that can lead to measurable positive impacts.
Setting an internal carbon price helps companies address climate risk and chart pathways to emissions reduction (ER) activities, says the report ‘Putting a Price on Carbon: A Handbook for Indian Companies’ published by CDP India in collaboration with TERI.
Companies, across all industries and geographies, have identified internal carbon pricing as an approach to building prudent buffers into their business models in preparation for a carbon-constrained future. The most sought-after benefits are that a company can use internal carbon pricing both as risk management tool and as part of its decarbonization strategy.
Here’s what Indian companies are doing according to the report.
Infosys is the first IT company in the world to make a commitment in the UN to become carbon neutral across all three scopes of emissions. Infosys states that its carbon price represents the cost to completely decarbonize under the carbon neutral commitment.
Infosys assessed its emissions profile across all scopes and significant geographies to understand the sources and the scale of its greenhouse gas emissions. Accordingly, Infosys developed a three-pathway strategy, consisting of energy efficiency, renewable energy and carbon offsets, to become carbon neutral. Infosys then derived an internal price of carbon based on the three pathways chosen and the corresponding cost of decarbonisation.
YES BANK intends to have an internal price on carbon in the next two years and views it as an important tool to defining future business decisions. The company states that an internal carbon price will help the bank learn and better assess its carbon liability in a macroeconomic scenario; optimise operations and de-risk investment decisions, select carbon free assets and practices to build portfolio resilience and achieve innovation. Thus, Yes Bank expects to be in a better position to support its clients in reducing their climate risks.
The methodology adopted is to estimate the green infrastructure investment required for its operation till 2025 to achieve the Bank’s ambitious emission intensity reduction target of 10% year-on-year and decide the price per ton of absolute carbon emission. The scope of coverage at the strategy level is the entire infrastructure and network management team and finance team managing internal assets spread across 950+ branches and 1650+ ATM network.
Shree Cement was the first Indian cement company to join WBCSD’s Cement Sustainability Initiative and is also a participant in CSI’s Low Carbon Technology Partnership Initiative (LCTPi) to advance towards a Low Carbon Economy. SCL anticipates that internal carbon pricing will supplement the company’s efforts towards fulfilling its contribution in LCTPi as well as aligning its operations and investment with the transition to a low carbon economy.
SCL states that ICP is a practical tool to devise financial modelling and pricing and provides a consistent and accurate mapping towards GHG emission reduction trends. SCL has calculated an implicit price on carbon as the cost associated with carbon emission during the manufacturing or production process, i.e. on the basis of carbon emission per tonne of cement and production cost of per tonne of cement, which amounts to US$2.2. per tonne of CO2e.
At Ambuja, triple bottom-line is the core strategy for sustainable business and achieving a competitive edge. The company is progressing in its goal of reducing 33% emissions intensity in 2020 over the base year 1990 and has achieved 29.7% reduction until 2016 over 1990.
Ambuja’s True Value project initiated in 2013, considers internal price of carbon and the company is in the process of aligning with the Lafarge Holcim’s approach on internal carbon pricing, thus normalizing the Group’s approach to Indian conditions and calculating the internal price of carbon for all their manufacturing locations. In 2016, the implicit internal price of carbon was US$ 29.41.
Essar Oil, a fully integrated oil and gas company owning India’s second largest single site refinery at Vadinar, Gujarat, states that the cost of carbon is one of the most important risks to the oil industry and an internal price on carbon is one of the tools to achieve their objective of risk mitigation and energy use optimization.
Essar Oil was one of the first Indian companies to voluntarily set an internal price on carbon. The process started in the year 2010, when Essar calculated an implicit price based on the certified emissions reduction (CER) price of the time, the implied cost of carbon on refinery gasoline and an external carbon price, and arrived at the value of US$15 per tonne of CO2e. The current scope of this price is the Vadinar facility, a 20 MMTPA facility.
Essar is currently using it as a shadow price to drive investment for low carbon options including renewables, natural gas and coal bed methane in its operations. Essar Oil is also using an internal carbon price to explore options, such as the diversification into new business opportunities.
Tata Chemicals is using an internal shadow price of $20/ton CO2 in its group company Tata Chemicals Europe for assessing its investment cases. It also pays for carbon emissions in a number of ways already via EU-ETS, Europe’s internal carbon market. UK also has a carbon tax known as Carbon Price Support. This tax applies to fossil fuel consumption related to the generation of electricity and is currently $4.04/MWh “non-good quality” electricity. Climate change taxes are also applied to waste products.
Tech Mahindra has built an internal tool for their facilities & finance procurement team for internal carbon price. Tech Mahindra is exploring opportunities to price internally, explicitly or create a shadow price to reduce their emissions and grow the pool of green investments. In 2016-17, the company had an internal spend of under $10 per ton of carbon to reduce our emissions for year 2016-17.
Mindtree intends to have an internal price on carbon in the next two years. Currently, the company is at a conceptual stage and discussions are undergoing within board members, Environment and Sustainability team members as well as finance department.
Mindtree envisages to integrating a cost of carbon into strategic planning of future projects and expects to achieve the benefits of informed management decision on investing in low carbon projects and effective achievement of emission reduction targets.