Internal carbon price
Also called: Shadow carbon price · Topic: Environment and Sustainable Development · NCERT: Beyond NCERT
Meaning
An internal carbon price is a notional price per tonne of carbon that a company uses inside its own planning. No money is paid to the government. The firm adds this imaginary cost to projects that emit carbon when it compares its options. This shows which investments would stay profitable if carbon were priced in future. It helps the firm manage transition risk, the risk of losses from future climate policy, technology or market shifts.
Example
An Indian cement company is choosing between a new coal-fired kiln and a cleaner design. It adds its internal carbon price to the coal option's emissions. The coal option now looks costlier, so the firm picks the cleaner kiln, even though no law yet charges it for carbon.
Don't confuse with
- Carbon tax: set and collected by the government, so the firm actually pays it. An internal carbon price is a voluntary accounting tool.
- Social cost of carbon: the estimated damage to society from one more tonne of CO2. An internal price is chosen by the firm for its own decisions.
Related concepts
- Internalisation of externalities
- Carbon pricing
- Green tax
- Social cost of carbon
- Fossil fuel subsidies
- Cap-and-trade
- Carbon market
- Compliance carbon market
- Voluntary carbon market
- Carbon credit