Determinants of internal carbon pricing

Abstract

Action against climate change is urgent and requires the participation of firms. The progressive internalization of carbon costs by firms is essential in the transition to a low-carbon economy. Internal carbon pricing is an emerging set of practices voluntarily adopted by companies to embed climate footprint in operations and business models. We explore the factors that explain the adoption of internal carbon prices (ICP) among global companies reporting to the Carbon Disclosure Project between 2015 and 2017. We specifically test whether the macroeconomic, regulatory, industry, and firm-specific characteristics affect the disclosed level of the ICPs. Results show that the ICPs depend to a large extent on the national climate policy, country's development, industry, and corporate governance. Furthermore, context explain more the differences in ICP than industry and firm-specific characteristics. Thus uncertainties around countries' climate policy hampers carbon pricing in business. These findings shed light on the factors that contribute to the dissemination of carbon pricing in society.