Principles and Concepts of Internal Carbon Pricing – ICP

Carbon Pricing is "taking any economic measures" which directly affects the cost or payment of greenhouse gas emissions” (Center for Green Economic Policy Research, 2019) or External Costs of Greenhouse Gas Emissions. This is the cost that society has to pay from such emissions as medical expenses, the cost of disaster damage, etc. Generally, the carbon price is in the form of the carbon dioxide unit price.

Carbon Pricing are divided into 2 major formats, as shown in the figure: External Carbon Pricing that we are familiar with, namely Carbon Tax, Emissions Trading System or ETS, Emissions Offset scheme, and Result- Based Climate Finance

For the internal carbon pricing or ICP, it is the value of an organization's greenhouse gas emissions as Monetary Value in form of monetary value units per emissions volume unit or Greenhouse gas emissions, such as USD / tCO2e or THB per ton, carbon dioxide equivalent, etc.

>> The ICP determination process of an organization has four main steps:

Step 1 Evaluate and understand the scope of the organization's greenhouse gas emissions, including policies, strategies and corporate goals regarding climate change management, and then define the objectives that ICP will apply to.

Step 2 Design and select the ICP method which is suitable for the given objectives.

Step 3 Roll out of the ICP in organization.

Step 4 Continuously monitor, report and evaluate the application of ICP. The application of the ICP must be flexible and adaptable to meet organizational objectives in anytime.

>> ICP Approaches

1. Implicit Carbon Price

Implicit Price is the price determined by the amount of money an organization spends for reducing greenhouse gas emissions, such as the budget spent on CSR activities, the funds used to invest in GHG reduction projects such as renewable energy projects, or a forest planting project, etc.

The advantage is that it makes you know the real cost and it could be estimated from the actual cost of implementing the project.

The constraint is that it may not be able to catalyze the changes that drive further reductions in greenhouse gases.

2. Shadow Price

Shadow Price is a hypothesis of an organization's emitted greenhouse gas price or the price of greenhouse gas to reduce. This is a prediction of future costs used to make investment decisions.

The advantage are that it can be easily determined, help to prepare for future laws or regulations, and help in managing the risk of the organization

The constraint is a hypothetical price, and benefit of organization will get from the pricing depending on the rules that will arise in the future.

3. Internal Carbon Fee

Internal Carbon Fee is to set and collect the greenhouse gas emissions fees of each business unit in the organization. Its process is similar to the Carbon Tax.

The organization can fund their collected fees to invest in greenhouse gas reduction programs. Moreover, it can stimulate business units to raise awareness and accelerate action to reduce greenhouse gas emissions.

Restriction may be set too low fees and cause costs to business units.

4. Internal Trading System

Internal Trading System is characterized by an internal ETS mechanism, where emissions allowances are allocated to various business units of the organization and the allowances are traded between business units.

The Advantage is that it will create a market within the organization. This will result in an effective reduction of greenhouse gases.

The constraint are complex and administrative, and there is a risk of an excess supply of carbon credits.

>> Benefits of adopting ICP in an organization or business

• Assist in assessing corporate risks associated with climate change (Climate Change Risks).

• Assist in making investment decisions of new projects or low-carbon technology investments.

• Support to reduce the organization's greenhouse gas emissions.

• Prepare organizations to handle the future relevant laws and regulations such as carbon tax or ETS.

• It is a tool used in planning and setting strategies of the organization to drive a low-carbon enterprise or properly zero carbon.

• Increase competitiveness in the low carbon economy (Low Carbon Economy or Green Economy) in the future.

• It shows corporate responsibility towards society and environment. In the event of a project or operation to reduce greenhouse gas emissions, the reduced value of greenhouse gases can be represented in a monetary form.