CDP, launched in 2000 and formerly known as the Carbon Disclosure Project, administers an annual climate change questionnaire to public companies. The request is made on behalf of CDP’s investor signatories, and results are made public online and in annual reports. CDP signatories are banks, investors, wealth advisors, pension funds, and other entities in the financial services sector.

In December 2013, CDP released a white paper detailing how S&P 500 companies are using internal carbon pricing as a strategic tool in their business planning. The paper generated significant media interest, in large part because the companies that use these prices are typically industrial, manufacturing or fossil fuel companies associated with higher emissions profiles. The new paper "Corporate use of carbon prices" was conceived to provide further insights into this issue through direct commentary from companies using carbon prices, investors, policy makers, and academics. These various perspectives demonstrate that corporate use of carbon pricing can spur innovation, curtail risk and provide investors with an economic valuation of climate-related risks and opportunities. 

Read CGEP Director Jason Bordoff's view on the corporate use of carbon pricing below: 

*****

While there are many reasons why companies would begin to account for an internal carbon price now, as indicated by CDP’s December 2013 report, it should send a strong signal to policy makers that despite the divisive political debate around climate change, many in corporate America are preparing for some form of nationwide carbon pricing.

This should be viewed as good news. The necessity to counter the global increase in greenhouse gas emissions is only growing. Action will need to be taken at a national level, and the sooner it occurs, the lower the cost. Carbon pricing is the best option on the table to ensure the solution addresses our two major policy concerns, environmental protection and economic growth, in the most balanced way possible.

Greenhouse gas emissions are present in almost all areas of modern economic activity. The breadth of the problem demands a market-based approach. Whether through a tax, a cap and trade program, or some form of equivalent program, carbon pricing initiatives press industries to find the most economic and efficient way to cut the emissions associated with their business. It spurs innovation, as companies strive to find solutions that reduce the financial impact on their bottom lines, and, by extension, their consumers’ bottom lines as well.

The failure of Congress to pass laws to reduce greenhouse gas emissions in a meaningful way increases the economic repercussions of climate change, raising the costs of future environmental endeavors as well as the risk of weather-related disasters, including droughts and floods.

There are success stories that show cap-and-trade systems can be effective. The Clean Air Act Amendments of 1990, signed into law by President George H.W. Bush, enacted limits on the amount of SO., the precursor to acid rain, that could be emitted by the country’s coal-fired power plants. A robust trading program in SO. permits emerged as a result, slashing SO. emissions while providing cost savings on the order of $1 billion annually compared to what it would have cost under a command-and-control regulatory approach. The program also produced health benefits estimated between $50 and $100 billion per year.

Since cap-and-trade legislation failed in Congress, there have been calls to create carbon pricing in the form of a tax. Whether this will lead to meaningful legislative change seems unlikely at this point. All indications are that it will remain very difficult to find a majority in Congress to push through a carbon pricing solution to one of the greatest problems facing our country. That companies are already preparing for carbon pricing, however, shows they under­stand some form of policy response to the growing threat of climate change is likely to come at some point.

*****