Many companies are protecting themselves against “climate risk”—the damage they might suffer from heat waves, flooding, and other effects of global climate change. But the smartest companies are also paying attention to “carbon risk”—the costs they will have to bear as governmental policies extract a growing price for CO2 emissions. These firms are setting internal carbon prices (ICPs), putting a monetary value on their own emissions to better prepare for success in a lower-carbon world. This article explains the process firms go through: measuring their direct and indirect emissions, ascertaining current external carbon prices (both explicit and implicit), predicting future ones, deciding what time horizons their ICPs should cover, and considering emissions-reduction goals. The authors then discuss how internal carbon pricing is helping companies make decisions about new investments, manage financial and regulatory risks, and develop long-term strategy.
Aldy, Joseph, and Gianfranco Gianfrate. "Future-Proof Your Climate Strategy." Harvard Business Review. May/June 2019, 91-101.