Review of Internal Carbon Pricing and the Development of a Decision Process for the Identification of Promising Internal Pricing Methods for an Organisation

Increasing demand by the public and shareholders for substantial actions against the climate crisis is forcing organisations of all sectors to manage their greenhouse gas emissions more effectively. One method for organisations to reduce their emissions is Internal Carbon Pricing (ICP). So far, a comprehensive overview on ICP, especially on the impacts and barriers to its implementation, is missing. This paper closes the knowledge gap by summarising the motives for organisations to use ICP, by discussing the different ICP methods and by describing their impacts as well as identifying key implementation barriers. The work condenses the findings into a flow chart for easy identification of promising ICP methods while accounting for implementation barriers. The discussed ICP methods are emissions trading systems, proxy prices, carbon fees and hybrid systems. The review also discusses ICP methods which are not that common such as revenue-neutral carbon fees. The developed flow chart underlines two common barriers for implementing ICP. These are, 1) frequent difficulty allocating emissions to the responsible cost center within an organisation; 2) the challenge cost centers face reacting to the ICP by changing processes, technologies or products. Nevertheless, the results underline a variety of methods that allow the effective use of ICP under different organisation-specific circumstances. The literature review also emphasises the need for more in-depth case studies on the implementation of ICP within organisations.