Placing a Value on Internal Carbon Prices: Exploring Influencing Factors through a Mixed Methods Approach

Abstract

The increasing use of internal carbon pricing among companies demonstrates the possibility of an interaction between business and environmental interests. An internal carbon price is a price that is voluntarily placed on a tonne of greenhouse gas emissions by a firm in order to inform its decision-making. It is a corporate reflection of inter-governmental discussions regarding placing a price on carbon. The internal carbon prices currently disclosed vary widely in value. This difference suggests that firms are using a variety of factors in order to calculate their internal prices. However, companies appear reluctant to reveal details of the calculation methods that they use. This study sought to identify what influences the value given to an internal carbon price and, where such influencers were identified, to gain insight into how these factors impact the chosen value. A mixed methods approach was used which consisted of a literature review, a case study of Statoil and a multiple regression analysis across 121 companies. The integrated findings from this study suggest that companies adopt a rather pragmatic approach; and whilst many companies purport to base their pricing on carbon regulation, this may, in fact, not be the reality. The findings also reveal that a company’s industry sector plays a role in the value that is used.