carbon pricing business plan

The state of internal carbon pricing

Business leaders know that sustainable growth is possible only when they anticipate inevitable shifts in policy, social norms, and technology that could affect their companies. One of the most prominent of these so-called transition risks is in the area of carbon emissions  and the potential introduction of a universal price on carbon.

Given impending policy changes in this area, and with an eye toward protecting the health and liveli­hoods of customers and employees, some companies are experimenting with internal carbon pricing. That is, some companies are setting an internal charge on the amount of carbon dioxide emitted from assets and investment projects so they can see how, where, and when their emissions could affect their profit-and-loss (P&L) statements and investment choices. Internal carbon pricing was a key factor, for instance, in a European energy company’s decision to close several power plants, as the internal charge on increased carbon emissions cut into the expected profitability of those plants. Meanwhile, some US financial-services companies are using internal carbon pricing to identify low-carbon, high-return investment opportunities.

To better understand who is using internal carbon pricing and in which industries, we looked at data from companies that have disclosed information from their internal carbon-pricing programs. 1 Disclosures on internal carbon-pricing policy are documented by the CDP (Carbon Disclosure Project), a global organization focused on promoting corporate disclosure of environmental risks and impacts. Our research reveals growing interest and high variability in companies’ use of these internal charges. Specifically, 23 percent of the approximately 2,600 companies in our data set indicated they are using an internal carbon charge, and another 22 percent plan to do so in the next two years. Of the top 100 companies in our global data set (based on 2019 revenue), the ones that most frequently reported using internal carbon pricing were those in the energy, materials, and financial industries. They were followed closely by the technology and industrial sectors (Exhibit 1).

A geographic breakdown shows that 28 percent of companies in Europe are using internal carbon pricing. Japan, the United Kingdom, and the United States have the highest percentage of companies using this mechanism—with 24 percent, 20 percent, and 15 percent, respectively, of companies in those countries tallied.

Would you like to learn more about our Sustainability Practice ?

A closer look at the data also shows that companies’ thresholds for the price per metric ton of carbon used vary widely by region and industry. In Europe, for instance, the median internal charge is $27 per metric ton, while in Asia it’s $18. This is not necessarily surprising, as there are currently no formal, defined global standards for pricing of carbon emissions. Companies are therefore selecting values that are most useful within their own business contexts and regions (Exhibit 2).

Attempts to help companies identify optimal pricing standards are underway. Economists and advocacy groups have posited a broad range of potential pricing levels—from a few dollars to well over $100 per metric ton, depending on the discount rate used, but the topic remains a point of contention. 2 The choice of a discount rate is made by considering the trade-off between a known payment for carbon today and the potential negative impact of carbon in the future. There are different frameworks for evaluating which discount rates to use—for example, internal carbon pricing based on market-discount rates (which result in lower charges), ethics-driven discount rates (which result in higher charges), “descriptive” approaches determined by economic price, and “prescriptive” approaches that conform to an ideal. See Lawrence H. Goulder and Roberton C. Williams III, The choice of discount rate for climate change policy evaluation , Climate Change Economics, 2012, Volume 3, Number 4, worldscientific.com; William Nordhaus, “Critical assumptions in the Stern Review on climate change,” Science , July 2007, science.sciencemag.org. For instance, the Environmental Defense Fund (EDF), a nonprofit environmental-advocacy group, has estimated that the societal cost of carbon is greater than $50 per metric ton emitted. But it also recognizes that, as others argue, this figure could be low because it does not yet factor in all potential externalities from the impact of climate change. 3 “The true cost of carbon pollution,” Environmental Defense Fund, EDF.org.

A blueprint for scaling voluntary carbon markets to meet the climate challenge

Meanwhile, the High-Level Commission on Carbon Prices has estimated that companies would need to set internal carbon pricing between $40 and $80 per metric ton in 2020 and between $50 and $100 per metric ton by 2030 to reduce emissions so they are in line with standards set in the Paris Agreement . 4 Report of the High-Level Commission on Carbon Prices , Carbon Pricing Leadership Coalition, May 2017, carbonpricingleadership.org. By contrast, most of the companies that report using internal carbon pricing have set their thresholds at around $40 per metric ton. French company Danone, for instance, publicly reports its carbon-adjusted earnings per share (EPS) using an internal carbon pricing of €35 per metric ton emitted. Danone’s adjusted EPS has grown faster than its regular EPS because of the company’s reduced carbon intensity—for instance, in 2019, Danone’s carbon-adjusted EPS grew 12 percent compared with the company’s headline EPS growth of 8.3 percent. 5 “2019 full-year results,” Danone, February 2020, danone.com.

Corporate carbon accounting is just one means by which business leaders can manage transition risk, support corporate values, and improve their investment decision making—but it’s a good step to take.

Corporate carbon accounting is just one means by which business leaders can manage transition risk, support corporate values, and improve their investment decision making—but it’s a good step to take. Already, companies’ internal carbon-pricing initiatives are affecting 22 percent of global greenhouse-gas emissions, up from 15 percent in 2017. 6 “State and trends of carbon pricing 2020,” World Bank Group, May 2020, openknowledge.worldbank.org. But as the research shows, the pricing thresholds currently being used are lower than they need to be to account for possible negative externalities from carbon emissions. If companies want their strategic decisions to fully reflect the risks and opportunities inherent in carbon emissions, they should take another look at internal carbon-pricing programs and recalibrate.

Jessica Fan is a consultant in McKinsey’s London office, Werner Rehm is a partner in the New Jersey office, and Giulia Siccardo is an associate partner in the San Francisco office.

This article was edited by Roberta Fusaro, an executive editor in the Waltham, Massachusetts, office.

Explore a career with us

Related articles.

More than values: The value-based sustainability reporting that investors want

How the voluntary carbon market can help address climate change

Five ways that ESG creates value

• S&P Dow Jones Indices
• S&P Global Market Intelligence
• S&P Global Mobility
• S&P Global Commodity Insights
• S&P Global Ratings
• S&P Global Sustainable1
• Investor Relations Overview
• Presentations
• Investor Fact Book
• News Releases
• Quarterly Earnings
• SEC Filings & Reports
• Executive Committee
• Merger Information
• Stock & Dividends
• Shareholder Services
• Enterprise Contacts
• Divisional Contacts
• Media Contacts

What is Carbon Pricing?

Talking climate diplomacy and the energy transition with Dan Yergin

March 2024 – US climate disclosure rule, Canada’s proposed ISSB-aligned standards, EU forced labor product ban

Women in Leadership: How Sappe CEO went from investment banker to running a global consumer brand

Are you ready for ISSB: Navigating Singapore’s climate risk reporting framework

• 25 Feb, 2020
• Theme Electric Power ESG
• Tags Global

Carbon pricing is an increasingly popular mechanism that harnesses market forces to address climate change by creating financial incentives for companies and countries to lower their emissions — either by switching to more efficient processes or cleaner fuels.

Carbon pricing can take the form of a carbon tax or fee, or a cap-and-trade system that depends on government allotments or permits.

As awareness and support increases around these new instruments, analyses show that carbon pricing could lead to significant costs for companies.

Following the 2015 Paris Climate Agreement, there has been a growing understanding of the structural changes required across the global economy to shift to a low-carbon economy . The increasing regulation of carbon emissions through taxes, emissions trading schemes, and fossil fuel extraction fees is expected to play a vital role in global efforts to address climate change. Central to these efforts to reduce carbon dioxide (CO2) emission is a market mechanism known as carbon pricing.

Set by governments or markets, carbon prices cover a part of a country’s total emissions, charging C02 emitters for each ton released through a tax or a fee. Those fees may also apply to methane, nitrous oxide, and other gases that contribute to rising global temperatures. In a cap-and-trade system of carbon pricing, the government sets a cap on the total amount of emissions allowed, and C02 emitters are either given permits or allowances or must buy the right to emit C02; companies whose total emissions fall under the cap may choose to sell their unused emissions credits to those who surpass its carbon allotment. Either way, carbon pricing takes advantage of market mechanisms to create financial incentives to lower emissions by switching to more efficient processes or cleaner fuels .

Carbon prices have already been implemented in 40 countries and 20 cities and regions. According to a 2019 World Bank report on trends in carbon pricing, a carbon price range of US$40-80 is necessary by 2020 to reach the goals set by the 2015 Paris Agreement. As countries try to limit the average global temperature increase to 2 degrees Celsius, average carbon prices could increase more than sevenfold to US$120 per metric ton by 2030.

In the transition to the a low-carbon economy, carbon pricing could lead to significant costs for companies, amounting to as much as $1.3 trillion from 2030 carbon prices across companies in the S&P 500, according to research from S&P Dow Jones Indices. To account for the additional costs and risks of future carbon pricing, S&P Dow Jones Indices launched the S&P Carbon Price Risk Adjusted Index Series to allow investors to consider 2030 carbon price risk exposures in addition to company earnings in investment decisions. The index series takes into account a company's carbon emissions, operating geographies, and its ability to “pass on” carbon costs to consumers or purchasers.

The implementation of carbon pricing varies from country to country. In Europe, carbon prices under the  EU Emissions Trading System (EU ETS) have been steadily rising since 2016, hitting an 11-year high in July 2019. Higher carbon prices could improve profit margins for clean energy generation in Europe, including wind, solar, and nuclear power plants. In the U.K., for example, CO₂ emitters pay more to emit carbon than most of their European counterparts , enabling the U.K. to rapidly phase out coal from power generation. High carbon prices also improve gas-fired profits relative to coal-fired margins, and encourage investment in new technologies like carbon capture . Preliminary data suggests that CO2 emissions under the EU ETS fell 3.9% in 2018. China is another country with a national carbon market in the works.

In the U.S., the Climate Leadership Council , which includes major oil, power, and consumer product companies, has called for a carbon tax of $40 a ton. Democratic presidential candidates have also been talking about carbon taxes in the lead up to the 2020 presidential election. At the regional level, 10 U.S. states have active cap-and-trade systems, in which money raised from selling carbon credits to power plants go toward clean energy investments. New York, for example, is considering pricing the cost of C0 2 emissions into its wholesale electricity market through a carbon adder or a new cap-and-trade program that could help it meet its ambitious  clean energy mandates with little impact on consumer prices.

PJM Interconnection , the largest power market in the U.S., began exploring the feasibility of pricing carbon into its power markets and developing a common set of rules to implement carbon pricing and manage cross-border emissions leakage. Emissions leakage results from emitters shifting their carbon-emitting operations to lower-cost jurisdictions in the midst of inconsistent carbon pricing policies.

While politically challenging to implement,  carbon pricing is an increasingly popular mechanism that harnesses market forces to address climate change. As the burden of reducing emissions shifts to those that are most responsible for emitting it and the assessment of a corporation's environmental footprint moves from a measure of corporate responsibility to a mainstream measure of performance, accounting for carbon pricing risk is a must for forward-looking businesses and investors.

To learn more about ESG risks and opportunities, subscribe to our ESG InFocus newsletter

• Electric Power ESG

What is Carbon Pricing?

Carbon pricing is an instrument that captures the external costs of greenhouse gas (GHG) emissions—the costs of emissions that the public pays for, such as damage to crops, health care costs from heat waves and droughts, and loss of property from flooding and sea level rise—and ties them to their sources through a price, usually in the form of a price on the carbon dioxide (CO 2 ) emitted. A price on carbon helps shift the burden for the damage from GHG emissions back to those who are responsible for it and who can avoid it. Instead of dictating who should reduce emissions where and how, a carbon price provides an economic signal to emitters, and allows them to decide to either transform their activities and lower their emissions, or continue emitting and paying for their emissions. In this way, the overall environmental goal is achieved in the most flexible and least-cost way to society. Placing an adequate price on GHG emissions is of fundamental relevance to internalize the external cost of climate change in the broadest possible range of economic decision making and in setting economic incentives for clean development. It can help to mobilize the financial investments required to stimulate clean technology and market innovation, fueling new, low-carbon drivers of economic growth.

There is a growing consensus among both governments and businesses on the fundamental role of carbon pricing in the transition to a decarbonized economy. For governments, carbon pricing is one of the instruments of the climate policy package needed to reduce emissions. In most cases, it is also  a source of revenue, which is particularly important in an economic environment of budgetary constraints. Businesses use internal carbon pricing to evaluate the impact of mandatory carbon prices on their operations and as a tool to identify potential climate risks and revenue opportunities. Finally, long-term investors use carbon pricing to analyze the potential impact of climate change policies on their investment portfolios, allowing them to reassess investment strategies and reallocate capital toward low-carbon or climate-resilient activities.

Carbon pricing can take different forms and shapes. In general, both the State and Trends of Carbon Pricing series and the Carbon Pricing Dashboard focus on direct carbon pricing instruments – that is, those that apply a price incentive directly proportional to the greenhouse gas emissions generated by a given product or activity (primarily carbon taxes, ETSs, and carbon crediting mechanisms). However, some jurisdictions, including Argentina, Mexico, and Uruguay, have introduced carbon taxes with varying tax rates (per metric ton CO2) across fuels. While these policies are called “carbon taxes” and have been historically included within the State and Trends Reports, they are closer to the definition for indirect carbon pricing, due to non-uniform carbon prices across fuels.

"Climate Countdown: Carbon Pricing" by Kaia Rose & Eric Mann, USA

This short film was selected for the "Put a Price on Carbon Pollution Award" of the Film4Climate Global Video Competition . 

Carbon pricing can take different forms and shapes. In the State and Trends of Carbon Pricing series and on this website, carbon pricing refers to initiatives that put an explicit price on GHG emissions, i.e. a price expressed as a value per ton of carbon dioxide equivalent (tCO 2 e). Considering different carbon pricing approaches, an emissions trading system (ETS), on the one hand, provides certainty about the environmental impact, but the price remains flexible. A carbon tax, on the one hand, guarantees the carbon price in the economic system against an uncertain environmental outcome. Other main types of carbon pricing offset mechanisms, results-based climate finance (RBCF) and internal carbon prices set by organizations. Scaling up GHG emission reductions and lowering the cost of mitigation is crucial to decarbonize economies. Given the size and urgency imposed by the climate challenge, a full range of carbon pricing approaches will be required, alongside other supporting policies and regulations.

An emissions trading system (ETS)  is a system where emitters can trade emission units to meet their emission targets. To comply with their emission targets at least cost, regulated entities can either implement internal abatement measures or acquire emission units in the carbon market, depending on the relative costs of these options. By creating supply and demand for emissions units, an ETS establishes a market price for GHG emissions. The two main types of ETSs are cap-and-trade and baseline-and-credit:

• Cap-and-trade systems, which apply a cap or absolute limit on the emissions within the ETS and emissions allowances are distributed, usually for free or through auctions, for the amount of emissions equivalent to the cap.
• Baseline-and-credit systems, where baseline emissions levels are defined for individual regulated entities and credits are issued to entities that have reduced their emissions below this level. These credits can be sold to other entities exceeding their baseline emission levels.

A carbon tax  directly sets a price on carbon by defining an explicit tax rate on GHG emissions or—more commonly—on the carbon content of fossil fuels, i.e. a price per tCO 2 e. It is different from an ETS in that the emission reduction outcome of a carbon tax is not pre-defined but the carbon price is.

A crediting mechanism  designates the GHG emission reductions from project- or program-based activities, which can be sold either domestically or in other countries.  Crediting Mechanisms issue carbon credits according to an accounting protocol and have their own registry. These credits can be used to meet compliance under an international agreement, domestic policies or corporate citizenship objectives related to GHG mitigation.

RBCF  is a funding approach where payments are made after pre-defined outputs or outcomes related to managing climate change, such as emission reductions, are delivered and verified. Many RBCF programs aim to purchase verified reductions in GHG emissions while at the same time reduce poverty, improve access to clean energy and offer health and community benefits.

Internal carbon pricing  is a tool an organization uses internally to guide its decision-making process in relation to climate change impacts, risks and opportunities.

For governments, the choice of carbon pricing type is based on national circumstances and political realities. In the context of mandatory carbon pricing initiatives, ETSs and carbon taxes are the most common types. The most suitable initiative type depends on the specific circumstances and context of a given jurisdiction, and the instrument’s policy objectives should be aligned with the broader national economic priorities and institutional capacities. ETSs and carbon taxes are increasingly being used in complementary ways, with features of both types often combined to form hybrid approaches to carbon pricing. Some initiatives also allow the use of credits from offset mechanisms as flexibility for compliance.

Many companies use the carbon price they face in mandatory initiatives as a basis for their internal carbon price. Some companies adopt a range of carbon prices internally to take into account different prices across jurisdictions and/or to factor in future increases in mandatory carbon prices.

GHG emissions can also be indirectly priced through other policy instruments such as the removal of fossil fuel subsidies and energy taxation. Indirect carbon pricing initiatives are not currently covered in the State and Trends of Carbon Pricing series and on this website.

International carbon pricing took off with the introduction of the flexibility mechanisms under the Kyoto Protocol. Adopted at the third Conference of the Parties (COP) to the UNFCCC held in Kyoto, Japan, in December 1997, the Kyoto Protocol committed industrialized country signatories (so-called “Annex I” countries) to collectively reduce their GHG emissions by at least 5.2 percent below 1990 levels on average over 2008–2012. Annex I countries could fulfil their commitments through domestic actions or the use of three flexibility mechanisms International Emissions Trading, JI and CDM. The amendment adopted in Doha, Qatar, in December 2012 provided a basis for the three Kyoto mechanisms to continue for 2013–2020. The IET, JI and CDM were of significant relevance in the creation of cross-boundary carbon markets.

Looking ahead, carbon pricing can play a pivotal role to realizing the ambitions of the Paris Agreement and implement the Nationally Determined Contributions (NDCs). Article 6 of the Paris Agreement provides a basis for facilitating international recognition of cooperative carbon pricing approaches and identifies new concepts that may pave the way for this cooperation to be pursued. Paragraph 136 of the first COP 21 Decision (Adoption of the Paris Agreement) recognizes the important role of providing incentives for emission reduction activities, including tools such as domestic policies and carbon pricing .  Many of the plans submitted to the UNFCCC recognize the important role of carbon pricing, with about 100 countries planning or considering carbon pricing mechanisms in their intended NDCs.

The voluntary market  caters to the needs of those entities that voluntarily decide to reduce their carbon footprint using offsets. In 2021, the total traded value of the voluntary carbon market was around US$ 1.4 billion. This significant increase in value from previous years reflects both rising prices and rising demand from corporate buyers leading to higher transacted volumes.

Results-based Climate Finance (RBCF)  is a form of climate finance where funds are disbursed by the provider of climate finance to the recipient upon achievement of a pre-agreed set of climate-related results. These results are typically defined at the output or outcome level, which means that RBCF can support the development of specific low-emission technologies or the underlying climate outcomes, such as emission reductions. Various RBCF initiatives build on existing carbon market mechanisms and prepare for new instruments. Some RBCF programs purchase compliance emission reduction units, including CERs and ERUs, helping bridge the current lack of demand for these units. Some of these programs include the World Bank’s  Carbon Initiative for Development (Ci-Dev)  and the  Pilot Auction Facility for Methane and Climate Change Mitigation (PAF) , and the German government’s  Nitric Acid Climate Action Group . Elements of the existing carbon market infrastructure, such as the CDM monitoring, reporting and verification (MRV) requirements, have been incorporated into these programs. Other programs not specifically designed for compliance markets use RBCF as a direct funding mechanism and were built from the ground up. Such programs include the  Performance Based Climate Finance Facility (PBC) in Latin America  financed by the European Commission, KfW and CAF, and the World Bank’s  Transformative Carbon Asset Facility (TCAF) . These programs focus on the implementation of large scale sectoral or policy-level emission reduction programs. 

Member States of the International Civil Aviation Organization (ICAO) adopted the first  global sectoral carbon pricing initiative —the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)—on October 7, 2016. This is a global carbon offsetting initiative that aims to stabilize net emissions from international aviation at 2020 levels; any additional emissions above 2020 levels will have to be offset. According to  researchers and analysts , the CORSIA has the potential to generate demand for carbon assets of around 2.5 GtCO 2 e between 2021 and 2035, which is comparable to the cumulative volume of Kyoto credits issued so far.

Article 6 of the Paris Agreement  recognizes that Parties can voluntarily cooperate in the implementation of their NDCs to allow for higher ambition in mitigation and adaptation actions:

• Articles 6.2–6.3 of the Paris Agreement cover cooperative approaches where Parties could opt to meet their NDCs by using internationally transferred mitigation outcomes (ITMOs). ITMOs aim to provide a basis for facilitating international recognition of cross-border applications of subnational, national, regional and international carbon pricing initiatives.
• Articles 6.4 establishes a mechanism for countries to contribute to GHG emissions mitigation and sustainable development. This mechanism is under the authority and guidance of the COP serving as the meeting of the Parties to the Paris Agreement (CMA). It is open to all countries and the emission reductions can be used to meet the NDC of either the host country or another country. The mechanism is intended to incentivize mitigation activities by both public and private entities. 

An increasing number of organizations are using internal carbon pricing to guide its decision-making process:

• Corporate applications  of internal carbon pricing include supporting corporate strategic investment decision making and helping companies shift to lower-carbon business models.
• Some governments  are using internal carbon pricing as a tool for in their procurement process, project appraisals and policy design in relation to climate change impacts.
• Financial institutions  have also begun using internal carbon pricing to assess their project portfolio.  

Additional detail on internal carbon pricing is collected and reported by CDP .

Governments  are also using internal carbon price for decision making purposes, such as assessing the climate impact of investments on infrastructure in project appraisals. Governments generally use three different approaches to set the internal carbon price: 

• Estimates of the social cost of carbon: the social cost of carbon reflects the value of global damages caused by a ton of GHG emissions. This approach is subject to a high level of uncertainty as it relies on forecasts of the state of the economy, demographic changes and the cost of adaptation measures. 
• Estimates of the marginal abatement cost: the internal carbon price can be derived from the marginal abatement cost of meeting a national emission reduction target. Estimates of this cost are based on expectations of the cost of emission reduction technologies.
• The current and estimated future market values of emissions allowances: internal carbon prices can also be based on the market prices of emissions allowances. In all three cases, costs increase over time as the stock of GHGs is increasing. In the first case, costs increase as future emissions are expected to cause greater damages for each ton of GHG emitted. In the latter two cases, costs are higher as marginal abatement becomes more expensive over time.

Financial institutions  increasingly use internal carbon pricing as a tool to evaluate their investments by including the cost of carbon in economic analyses of new projects. Reasons include to better understand and measure their carbon footprint, and to systematically integrate the negative externality of CO 2  emissions into project appraisal as part of commitments to support low-carbon solutions through their lending portfolio.

Carbon pricing initiatives continue to be fine-tuned, adapting to new circumstances and incorporating lessons learned. Existing carbon pricing initiatives are evolving based on past experiences and upcoming initiatives try to learn from these experiences in their design. 

Various organizations have published studies to help governments and businesses develop efficient and cost-effective instruments to put a price on the social costs of emissions, including: 

• The World Bank Group, together with the  OECD  and with input from the  IMF , set up the  FASTER Principles . The FASTER principles are:  F  for fairness,  A  for alignment of policies and objectives,  S  for stability and predictability,  T  for transparency,  E  for efficiency and cost-effectiveness, and  R  for reliability and environmental integrity. The research draws on over a decade of experiences with carbon pricing initiatives around the world. It points to what has been learned to date: a well-designed carbon pricing initiative is a powerful and flexible tool that can cut GHG emissions, and if adequately designed and implemented, it can play a key role in enhancing innovation and smoothing the transition to a prosperous, low-carbon global economy.
• The World Bank’s  Partnership for Market Readiness (PMR) —jointly with the  International Carbon Action Partnership (ICAP) —published the second edition of Emissions Trading in Practice: Handbook on Design and Implementation , a guide for policymakers that distills best practices and key lessons from more than a decade of practical experience with emissions trading worldwide. This revised Handbook is intended to help decision makers, policy practitioners, and stakeholders achieve this goal. It explains the rationale for an ETS, and sets out a 10-step process for designing an ETS—each step involves a series of decisions or actions that will shape major features of the policy.
• The World Bank’s Partnership for Market Readiness (PMR) published the  Carbon Tax Guide: A Handbook for Policy Makers . This guide has two main objectives. First, it serves as practical tool to help policymakers determine whether a carbon tax is the right instrument to achieve national policy goals. Second, it is a resource to support the design and implementation of a tax that is best suited to the specific needs, circumstances, and objectives of national policy. The guide provides both conceptual analysis and important practical lessons learned from implementing carbon taxes around the world.
• The World Bank’s Partnership for Market Readiness (PMR) published a Guide to Developing Domestic Carbon Crediting Mechanisms .  The guide is intended to assist national and subnational policymakers considering whether and how to establish a carbon crediting mechanism in their jurisdiction. It provides insights into the decision points for designing a crediting mechanism and how to tailor the mechanism to achieve domestic policy objectives. The guide is divided into 10 chapters representing the key elements that must be considered when setting up a domestic crediting mechanism.
• The World Bank’s Partnership for Market Readiness (PMR) published  A Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments.  The guide is intended to provide policymakers with structured guidance on the development of benchmarks and draws on over a decade of global experiences in benchmark development, covering practices in 16 jurisdictions that are already using or are in the process of developing a benchmarking approach.
• The  European Commission  published the  EU ETS handbook , which provides detailed information about the EU Emissions Trading System (EU ETS), including information about how the system was designed and how it operates.
• The  UN Global Compact  and  World Resources Institute , together with  Caring for Climate  partners, published the  Executive Guide to Carbon Pricing Leadership . The guide outlines what different internal carbon pricing approaches mean and features company case examples illustrating how businesses have put them into practice.
• The  European Bank for Reconstruction and Development (EBRD)  and the  Grantham Research Institute on Climate Change and the Environment  published the  Special Report on Climate Change - The Low-Carbon Transition . The report maps out the policies needed to reduce carbon emissions in central and eastern Europe and Central Asia, including carbon pricing. The report highlights the challenges and opportunities of carbon pricing in the context of the transition countries’ involvement in the global climate change mitigation efforts.
• The  Asian Development Bank  published the  Emissions Trading Schemes and Their Linking: Challenges and Opportunities in Asia and the Pacific  report. This knowledge product summarizes some of the most significant learning experiences to date on linking of ETSs and discusses some of the solutions to alleviate challenges that have been faced. It also examines the possibilities for future linked carbon markets in Asia and the Pacific region.
• Ecofys ,  The Generation Foundation  and  CDP  have developed  a guide on best practice approaches to internal carbon pricing in businesses  to support further adoption of internal carbon pricing. Using a new four-dimensional framework, the guide explains how a best-practice internal carbon pricing approach can be established to optimize decarbonization in a company’s value chain.

Supported by

• Ways to Give
• Contact an Expert
• Explore WRI Perspectives

Filter Your Site Experience by Topic

Applying the filters below will filter all articles, data, insights and projects by the topic area you select.

• All Topics Remove filter
• Climate filter site by Climate
• Cities filter site by Cities
• Energy filter site by Energy
• Food filter site by Food
• Forests filter site by Forests
• Freshwater filter site by Freshwater
• Ocean filter site by Ocean
• Business filter site by Business
• Economics filter site by Economics
• Finance filter site by Finance
• Equity & Governance filter site by Equity & Governance

Search WRI.org

Not sure where to find something? Search all of the site's content.

Pricing Carbon in the United States

A well-designed carbon price can be a key policy lever to spur innovation, create lasting economic growth and help the United States decarbonize its economy by mid-century. 

WRI's Pricing Carbon in the United States is part of U.S. Climate . For media inquiries, contact Matt Herbert. 

The impacts of climate change impose costs on society as a whole by increasing the risk of natural disasters that can lead to economic damage and worsening public health conditions. Pricing carbon can help factor those costs into decisions made by those responsible for the emissions, providing an incentive to reduce them. 

Pricing carbon across the economy will make the goods and services with the greatest impact on climate more expensive. Higher prices for carbon-intensive goods and services will encourage businesses and consumers to look for alternatives that meet their needs and have lower carbon-emission footprints. In this way, a carbon price can help the United States meet its near- and long-term climate goals.  

But a carbon price is more than a climate policy; it is an economic policy. Revenues raised by a carbon price can go toward supporting other policy priorities, including investing in communities affected by pollution, investing in clean energy, helping provide a just transition for communities dependent on fossil fuels or returning money to households. 

WRI’s experts are diving into the design choices and potential economic effects of carbon pricing and the associated uses of revenues. This includes preparing a series of issue briefs and publications that provide guidance on effectively mobilizing a carbon price to address climate change.  

In  Putting a Price on Carbon: A Handbook for U.S. Policymakers ,  WRI provides an overview of carbon pricing — the types of decisions that need to be made in designing a program, including the political decisions about the use of revenue, and the expected economic impacts of alternative approaches.  Putting a Price on Carbon: Reducing Emissions  dives deeper into how a national price on carbon would reduce emissions across key sectors of the economy using empirical evidence and real-world case studies.  

Other publications investigate the limitations of a carbon price and how they can be addressed through complementary polices and careful policy design.  Putting a Price on Carbon: Ensuring Equity  describes the differing effects of a carbon price on regional and socioeconomic groups across the United States. The analysis finds that the revenues from a carbon price can be used to address regional disparities and ensure that unfair burdens are not imposed on households that cannot afford them. Most recently,  

Putting a   Price on Carbon: Evaluating A Carbon Price and Complementary Policies for a 1.5° World  emphasizes that a carbon price is not a silver bullet for addressing climate change and complementary policies to a carbon price are needed. These policies and programs must address market barriers and drive deep emissions cuts over the long-term. 

WRI leverages this research  to cultivate a shared understanding among public and private sector partners that underscores economy-wide carbon pricing as an important lever to decarbonize the United States economy by mid-century. This understanding should also position carbon pricing as  a critical addition to investment-focused climate policy. To further promote this understanding, WRI serves as a resource for policymakers and engages as an environmental voice in coalitions with important private sector voices, like the  CEO Climate Dialogue .  

More Related

Putting a price on carbon: evaluating a carbon price and complementary policies for a 1.5° world, achieving u.s. emissions targets with a carbon tax, roundtable at the house committee on science, space and technology: embracing a 21st century, low-carbon economy, statement: “carbon dividend” proposal offers bipartisan, pro-market approach to climate change, carbon taxes on the table in us presidential campaign, west virginia imagines a future beyond coal, help for coal country from a carbon fee, putting a price on carbon: ensuring equity, media contacts.

Communications Manager, Climate Program, WRI US

Featured Experts

Senior Fellow, U.S. Climate Initiative

Director, Government Affairs

How You Can Help

WRI relies on the generosity of donors like you to turn research into action. You can support our work by making a gift today or exploring other ways to give.

Stay Informed

World Resources Institute 10 G Street NE Suite 800 Washington DC 20002 +1 (202) 729-7600

© 2024 World Resources Institute

Envision a world where everyone can enjoy clean air, walkable cities, vibrant landscapes, nutritious food and affordable energy.