Hong Kong companies Swire, CLP putting a price on carbon to reduce emissions, drive internal change
- Internal carbon pricing can make greenhouse-gas emissions a part of every operational and investment decision, says Deloitte expert
- Internal carbon pricing can prepare companies for policy changes around greenhouse-gas emissions, including external carbon pricing, analysts say
Internal carbon pricing is a useful tool for businesses to reduce their greenhouse-gas emissions and drive behavioural change in pursuit of decarbonisation targets, according to analysts and companies.
Businesses are facing mounting pressure from investors, regulators and stakeholders to set and reach climate targets in line with global targets to stem the tide of climate change and prevent the most devastating consequences of temperature increases around the world.
Putting an internal price on carbon can help businesses and institutions measure, plan and achieve targets to reduce greenhouse-gas emissions in line with either mandatory regulations or their own voluntary goals, such as a net-zero target, according to John Sayer, executive director of Deloitte CarbonCare Asia, which provides consultancy services on sustainability and carbon strategy.
“When a price is put on carbon emissions, the external environmental cost and medium to long-term consequences of carbon emissions become an additional criteria in operational and capital-expense decisions throughout the value chain,” Sayer said.
The practice is helping companies assess climate-related risks and opportunities, according to CDP, a non-profit organisation that runs the world’s environmental disclosure system for companies, cities, states and regions.
“By attributing a monetary value to climate risks, and translating them into a uniform metric, financial decision-makers within a company are able to make the low-carbon transition an integral part of their business strategy,” according to CDP’s website.
The government is likely to facilitate this plan with regulations and incentives covering renewable energy and energy efficiency in buildings, transport and waste management, said Deloitte’s Sayer.
“An internal carbon pricing system represents a good proactive approach to this likely scenario, giving a business the facts and figures it needs to build a comprehensive picture of its decarbonisation challenges,” he said.
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Conglomerate Swire Pacific is piloting an internal carbon pricing model this year that will support its plan to achieve net zero emissions by 2050.
“The ICP integrates carbon pricing in the decision-making process for future operating company projects while facilitating progress towards our emissions goals,” according to its 2022 sustainable development report.
Approved in 2022, the plan includes Swire Coca-Cola, Swire Properties and Hong Kong Aircraft Engineering Company, which contribute over 80 per cent of the group’s operational emissions.
Swire’s hybrid model comprises a carbon fee for each operating company, essentially “an internal tax on carbon”, according to Mark Harper, group head of sustainability at John Swire & Sons (HK), speaking at the Post’s Redefining Hong Kong event at the end of June.
“Essentially, our businesses are taxed on the basis of their emissions that they [produce] and [are] then required to reinvest that money back into the business around decarbonisation activities.” he said.
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A shadow pricing mechanism will also be applied to all future investments and significant capital-expenditure projects over certain investment thresholds.
“Both tools will help us decarbonise now, but also drive us towards a net zero business over the future,” Harper said.
Consultancy KPMG China has also implemented an internal carbon pricing system to charge for greenhouse-gas emissions related to business travel by employees.
Internal carbon pricing “is seen as an enabler to help us further raise awareness and drive behavioural change towards decarbonisation”, said Wilson Pang, head of Our Impact Plan at KPMG China.
KPMG China’s internal carbon pricing system, which was introduced last year, had an average price of around US$20 per tonne of carbon emissions, Pang said at a media briefing on April 26.
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“This will be increased in the coming months and years to encourage colleagues to reduce their carbon emissions, and collect more funds to be deployed in decarbonisation projects,” he said.
Funds generated through internal carbon pricing will be used to finance the firm’s decarbonisation initiatives to achieve its climate goals “ranging from energy-saving, green travel initiatives and potentially nature-based solutions, to carbon removal projects”.
According to KPMG China’s calculations, a one-way trip from Shanghai to Beijing on an economy class flight will emit almost six times the emissions as taking the high-speed rail on that route.
“We have identified 16 frequently travelled routes that are less than 1,200km and take five hours or less on the train as ‘green routes’ to encourage our people to choose lower-carbon travel options,” Pang said.
Japanese transport company Mitsui OSK Lines (MOL) Group has also introduced an internal carbon pricing system “to evaluate the impact of carbon pricing costs in anticipation of the future and to incorporate this impact in business decisions such as investments”, according to its website. MOL Group will set a price of about US$60 per tonne of carbon dioxide in 2025, and about US$140 per tonne in 2040.
“This will promote the group’s low-carbon and decarbonisation business and measures to offer low-carbonisation and decarbonised services, aiming to reduce greenhouse-gas emissions from our business activities and from society at large,” the company said.
Hong Kong and China Gas (Towngas) is currently studying and planning to implement internal carbon pricing in phases, according to Isaac Yeung, head of corporate ESG (environmental, social and governance).
“Implementing internal carbon pricing can incentivise our employees and business units to reduce their carbon emissions and prepare for external carbon pricing schemes,” said Yeung.
Hong Kong power firm CLP Group also applies carbon pricing as part of its business development to assess the financial return of renewable-energy and energy-services projects.
“Carbon pricing is also important for understanding and monitoring the financial exposure of our current assets, and to navigate potential changes in greenhouse-gas emissions policies and regulations that exist or may emerge in our operating regions,” CLP Group said in response to the Post’s queries.
While internal carbon pricing is a useful tool for companies to have, it is “not a silver bullet” in their pursuit of decarbonisation, said Swire’s Harper.
“It is a vital tool, but it’s not the only tool that a company should have in its toolbox,” he said.
Still, companies should get started with pricing carbon sooner rather than later, even if they are unsure about some aspects of the process, according to Deloitte’s Sayer.
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It is better to start now and fine-tune as the quality of data continues to improve, rather than delay mitigation and fall behind in the climate-transition race, he said.
“[Internal carbon pricing] gives confidence to internal and external stakeholders that the company is taking control of the issue of carbon reduction, with accurate and granular assessment of its greenhouse gas emissions and effective mechanisms to drive the reduction and protect the company value over the long term,” he said.
