Carbon Pricing in the Private Sector

A rapidly increasing number of large U.S. companies are reporting use of an internal carbon price, in spite of the struggle to enact environmental regulation or reduction standards on carbon emissions in the United States. Such trends have created a growing interest in both how and why the private sector is using internal carbon pricing and what the implications of these developments will be. This paper examines the precise motives, methods and prices used by the U.S. private sector for incorporating an internal cost of carbon into their organizational strategies for the purpose of reducing carbon emissions. Careful analysis of reports from the CDP (formerly the Carbon Disclosure Project) suggests that the primary motives driving internal carbon pricing initiatives in the United States are investor relations, cost savings opportunities provided by reducing emissions, perceived physical risks associated with climate change (e.g., as severe weather or supply chain interference), and regulatory risk. Furthermore, shadow pricing and carbon offsetting are the most common methods of private-sector carbon pricing, and the average internal carbon price in the private sector is $40.09 per ton as of 2017. These trends are evaluated in the broader context of U.S. political developments, economic policies, and mechanisms for pricing carbon. This research should be particularly pertinent to private-sector shareholders and stakeholders, business owners, and executives—in addition to policy makers—as it provides unique insights into how private initiatives are advancing a commitment to CO2-induced climate change mitigation in the face of an increasingly uncertain public policy landscape.