How carbon pricing impacts companies. Setting a carbon price, is meant to incentivize companies to reduce their CO2 equivalent emissions. Companies must decide what is the most economic option in the long term. Should it compensate for its emissions by buying allowances? Or should it invest in low carbon technologies? If the company believes that carbon emission allowances are going to be cheap, then it may be better for the company to keep buying allowances or permits. If the company believes that prices will be higher, it will prefer to invest immediately in energy efficient technologies or renewable energy.

When making investment decisions, companies need to apply the carbon price to the cashflow analysis of capital expenditure projects. This will help them make better decisions as to which new technology to use. For example, the company may face a decision as to whether to continue using existing technology, and incur the carbon emission permit cost, or invest in a new technology, incur investment costs, but benefit from no need to purchase carbon emissions permits going forward.

There are in fact many benefits of using internal carbon pricing when making investment decisions. Because it will firstly make carbon considerations more central to business operations and understanding, but it will also help the company de-risk against the future carbon price. It will also help understand carbon and carbon risk in the business. It will help future-proof business strategy. It will raise awareness internally and externally. It will help when answering investor questions and consumers queries, and ultimately, the use of such pricing should help reduce carbon emissions.