By assigning a financial value to greenhouse gas emissions, businesses can make climate impacts visible within investment appraisals, operational decisions and long-term planning. This helps organisations identify risks, prioritise investments and accelerate their transition towards net-zero emissions.
What is internal carbon pricing?
Internal carbon pricing is the practice of assigning a monetary value to greenhouse gas emissions within an organisation. Even when emissions are not subject to an external carbon tax or emissions trading scheme, companies can apply a carbon cost internally to reflect the financial implications of climate impact.
The objective is to ensure that emissions are considered alongside other key business factors such as costs, revenues, risks and return on investment.
Why introduce an internal carbon price?
Organisations that implement internal carbon pricing report a range of benefits, including:
- Improved visibility of climate-related risks in business and investment decisions.
- Better allocation of capital towards low-carbon technologies and solutions.
- Greater preparedness for future regulations, carbon taxes and compliance requirements.
- Stronger collaboration between sustainability, finance and operational teams.
- More effective prioritisation of emissions reduction initiatives.
- Increased awareness of climate impacts across the organisation.
Ultimately, internal carbon pricing serves as a governance and decision-making tool, helping businesses align financial performance with sustainability objectives.
Recommended carbon price levels
The UN Global Compact encourages companies to adopt an internal carbon price of at least USD 100 per tonne of CO₂e, or a level that meaningfully influences business decisions and investment planning.
While the exact figure may vary depending on industry and geography, the most important factor is that the price is actively used to guide strategic and operational decisions.
Two common approaches to internal carbon pricing
Shadow price
The most widely adopted approach.
- A hypothetical carbon cost is incorporated into investment appraisals and business cases.
- No actual internal charge is applied.
- Helps organisations compare alternative investments and assess long-term climate risks.
- Provides greater visibility of potential future carbon costs.
- Suitable for businesses seeking to integrate climate considerations into decision-making without altering internal financial structures.
Internal carbon fee
A more direct mechanism that creates financial incentives for emissions reductions.
- Business units are charged an internal fee based on their emissions.
- The collected funds are allocated to a dedicated internal sustainability fund.
- The fund can be used to finance decarbonisation projects, energy efficiency initiatives and other climate actions.
- Creates clear accountability for emissions across the organisation.
- Supports sustainability investments through internally generated resources.
This approach is particularly effective for organisations looking to move beyond analysis and drive measurable action.
How to get started
Companies that have successfully implemented internal carbon pricing often emphasise that the most important step is simply to begin. The model can evolve and mature over time.
A typical implementation process includes:
- Assessing and mapping organisational emissions.
- Defining climate targets and ambition levels.
- Selecting an appropriate pricing model and carbon price.
- Implementing, monitoring and refining the approach over time.
Starting with a simple framework allows organisations to build experience and adapt the model as their climate strategy develops.
Lessons from leading companies
Organisations of all sizes have integrated internal carbon pricing into their sustainability strategies.
Their experiences highlight a number of common themes:
- Getting started is more important than waiting for a perfect model.
- Internal carbon pricing strengthens collaboration between finance and sustainability teams.
- Supply chain emissions are becoming increasingly important to address.
- The approach improves organisational understanding of climate-related risks and opportunities.
- The greatest impact is achieved when carbon pricing is closely linked to business strategy and climate targets.
Read how Atmoz customer Stepsta work with internal carbon pricing as a decision-making tool.
A strategic tool for the future
Internal carbon pricing is not primarily about introducing additional costs. Rather, it is about making better-informed decisions.
By assigning a value to emissions, organisations can better understand climate-related risks, encourage innovation and strengthen their long-term resilience in a rapidly changing business environment.
For companies seeking to accelerate their sustainability journey, internal carbon pricing offers a practical and effective way to turn climate ambitions into measurable action.
Our Climate Analysts can support you in the development of your carbon pricing, get in touch today!
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