REPORT: SOME COMPANIES ACCOUNT FOR CARBON PRICE

Karen Frantz
GHG Monitor
12/06/13

Nearly 30 large corporations based in, or operating in, the United States are using an internal price of carbon in their business strategies—including several in the energy and utility sectors—according to a new report released this week by CDP, an environmental data company. Many of the companies said that they “expect an eventual regulatory approach in some form to address climate change” and “find it prudent and useful to use the concept of a carbon price as part of their planning for achieving reductions in greenhouse gas emissions,” according to the report, and internal prices range from $6-60 per metric ton of CO2e. Some companies set internal targets for greenhouse gas emissions reductions “either in terms of absolute tons or carbon intensity, and use an internal carbon price or gauge to evaluate return on related investments, or to incentivize employees to meet established corporate targets,” the report says. It also notes that internal carbon prices are often linked to governmental initiatives such as cap-and-trade programs or carbon taxes.

In a statement, CDP North American President Tom Carnac said, “Many companies across the U.S. have come to recognize that there is a price associated with the carbon they emit and an economic opportunity in factoring a carbon price into their business model,” adding, “Companies view the establishment of an internal carbon price as both an evaluation of risk and a business opportunity if they take steps to limit carbon pollution before others do.”

Utility and Energy Companies’ Carbon Prices

The report says that utility and energy companies are the most likely to use a carbon price for strategic purposes “as they make long-term plans to meet energy and electricity needs, load factors, and amortization of plant investments and costs.” Such companies that disclosed their internal prices include ExxonMobil at $60 per metric ton; BP at $40 per ton; ConocoPhillips at $8-$46 per ton;  Royal Dutch Shell at $40 per ton, Xcel Energy at $20 per ton; and Devon Energy at $15 per ton of CO2e “to account for the cost or benefits associated with any change in GHG emissions resulting from proposed projects,” according to the report. Ameren uses $30 per ton “in future planning (2025) in its power generation and distributed energy businesses and includes that price in its mandatory integrated Resource Plan for 2011-2014,” the report says.

Other companies such as Chevron, Hess, American Electric Power Company, CMS Energy Corporation, Duke Energy Corporation, Entergy Corporation, Integrys Energy Group and PG&E Corporation did not disclose the carbon price figures they use, indicating it is confidential business information.

Company Snapshots

Many companies also offered details on their internal carbon prices in their disclosures to CDP. For instance, Chevron said it factors in a carbon cost into its investment appraisals and engineering designs for some new projects. “We do this by requiring larger projects, and those for which emissions costs would be a material part of the project, to apply a standard carbon cost to the projected GHG emissions over the life of the project,” Chevron said. “The standard cost is based on our estimate of the carbon price that might realistically be expected in particular parts of the world. … For major capital-project development and approval, we estimate a project’s incremental emissions profile, assess the financial impact of GHG regulations, and describe the emissions reduction options considered and implemented. We developed tools to identify, assess and rank emissions reduction methods; conduct economic analysis; and integrate GHG factors into decision making and overall project development and management. All capital projects of more than $5 million must conduct an initial analysis to estimate emissions and their potential range of carbon costs and benefits. Analyses are then integrated into the capital projects planning process.”

CMS Energy Corporation said climate change has influenced its capacity planning process. “In this process we evaluate a number of factors including a carbon price for Co2 emissions in our generation capacity planning,” CMS said. “Future generation planning incorporates this business strategy to make sound business decisions. The most substantial business decision made in 2012 influenced by this capacity planning process was the decision to begin development of a new natural gas-fired electric generating facility. … Furthermore, the company continues to work toward the late 2011 decision to cease operations at several small coal-fired generating facilities in the 2015-2016 timeframe which will reduce the company’s carbon footprint.”

Apache has different methods of determining its internal carbon price depending on a projects country of origin. For example, in Canada, “Apache GHG reduction projects are assessed against the current carbon price of $15 per tonne of Co2-e, whereas [where ‘no local process drives a comparable price evaluation against a carbon obligation’], GHG reduction projects … are primarily driven by adherence to meeting the annual corporate wide GHG reduction target, based on an evaluation of each projects price (cheaper priced GHG reduction projects are undertaken first.),” the report says. However, when operating in the UK, Apache “cites the UK government floor carbon price established to encourage investment in clean-energy projects,” it adds.

And American Electric Power Company said it “assumes a price on carbon (either through regulation or EPA requirement) will begin in the United States by roughly 2010. In the absence of clear price signals in the U.S., AEP uses a projected price and expects its pricing approach to evolve over time,” according to the report.