Benchmarking Internal Carbon Pricing Mikhail Yakhnitskiy, Ryan Davis, Martin Aguilar Created for: Intro and Agenda Who we are Mikhail Yakhnitskiy yakhnitskiy5@gmail.com https://www.linkedin.com/in/mikhai l-yakhnitskiy/ Martin Aguilar martin.agbia@gmail.com www.linkedin.com/in/martin-aguilar -57b6a9b2 Ryan Davis ryan@kmorae.com https://www.linkedin.com/in/kmorae/ Agenda ● ● ● ● ● ● An introduction into carbon pricing Overview of project deliverables Background on ICP selection and strategies The deliverables Our recommended strategies Next steps What Is Carbon Pricing? Carbon pricing is a tool being considered and used by both governments and businesses to capture the external cost of CO2 emissions and shift the burden for those damages back on those who are responsible for it (World Bank, 2019). 3 Types of Internal Carbon Pricing (ICP) Internal Carbon Tax Implicit Price Money collected for each ton of carbon emitted by your business activities to fund emissions reduction efforts. How much your organization is spending to cut carbon emission on projects like renewable energy or to comply with certain regulations. Used to identify costs to minimize and better understand your emissions. Shadow Price No real money is transferred, rather a theoretical or assumed cost is placed on each ton of carbon. A deep dive into Colgate-Palmolive Colgate has established its Net Zero strategy and has been considering utilizing an internal carbon pricing scheme as the next step in their journey, but isn't sure where to start. In order for us to explore the best strategy route for Colgate, we have to first: 1 Deep dive on Colgate Sustainability Strategy 2 Learning the fundamentals of ICP 3 Benchmark how current ICP prices are being evaluated (redacted) (Colgate-Palmolive Co., 2024) Anticipated Deliverables for Colgate Develop an internal carbon pricing strategy that: Benchmarks peers carbon prices and methodologies ICP Explains pros and cons of carbon pricing strategies Showcases step-by-step process Identifies main data requirements Identifies best ICP strategy for Colgate The WHY behind ICP Risk Mitigation Prepare for future mandatory carbon taxes. Resilience to climate risks. Demonstrate Climate Leadership Contribute their fair share and encourage others to do the same. Capitalize on Low-Carbon Future Strengthen brand value and gain a competitive edge in the market. The Intent What companies hope to achieve with their ICP 1. Accelerate reduction of GHG emissions and transition to clean energy. 2. Future-proof assets and investment. 3. Change behavior and encourage suppliers and end users to do the same. 4. Generate the funds needed to offset their carbon footprint and finance climate initiatives. 5. Incentivize decarbonization and market capture. Our Deliverables Industry ICP Benchmark Company Price Goal Type Unilever $70 Innovation Shadow & Tax Ben & Jerry’s $10 Climate Leadership Tax Mars $10-40 Risk Mgmt Shadow Microsoft $15-100 Climate Leadership Tax Reckitt $20-80 Risk Mgmt Shadow Pepsico $50 Risk Mgmt Shadow P&G $8-200 Innovation Shadow Our Recommended Starting Strategies 1. Implement a shadow price on CAPEX decisions. 2. Implement a shadow price, specifically on the procurement department, for OPEX decisions. Reasons behind our recommendations: 1. By integrating the price of carbon in capital investment decisions, the rate of return is adjusted to encourage low-carbon and energy-efficient projects, accelerating the reduction of an organization's GHG emissions and their transition to clean energy while also future proofing their assets and investments. 2. A shadow price on the procurement division will influence behaviors within the companies sourcing while also engaging key suppliers to promote the decarbonization of Colgate’s supply chain. How to Get Started Identify Key Players Set Clear and Transparent Goals The identification of the players will let the Colgate sustainability team know what emissions data will need to be gathered as well as how they will need to craft their business case message to get key player buy-in. Tailor the ICP approach to determining the objectives each division is trying to reach as well as the price point that will be needed to influence behaviors. Build the Message Monitor and Evaluate The Colgate team will need to develop a message covering why the organization is using carbon pricing, why the specific price was developed and how the ICP is to be used. Set up the KPIs each division will use for their objectives as well as determine who will be responsible for the tracking and evaluating of the ICP implementation. Recap ● ● ● ● ● Overview of internal carbon pricing The context of ICP utilization Benchmark of Colgate’s peers The deliverables Our recommendations (Colgate-Palmolive Sustainability & Social Impact Report., 2023) (redacted) References: Colgate-Palmolive Company (2023). Colgate-Palmolive Sustainability & Social Impact Report 2023. https://www.colgatepalmolive.com/content/dam/cp-sites/corporate/corporate/common/pdf/sustainability/colgate-palmolive-sustainability-and-social-impact-fin al-report-2023.pdf Colgate-Palmolive Company. (2024). The Power of We - 2023 Climate Transition & Net Zero Action Plan. Colgatepalmolive.com. https://www.colgatepalmolive.com/content/dam/cp-sites/corporate/corporate/common/pdf/2023-climate-transition-net-zero-action-plan.pdf Ecofys, The Generation Foundation, & CDP. (2017). How to guide to corporate internal carbon pricing. https://cdn.cdp.net/cdp-production/cms/reports/documents/000/002/740/original/cpu-2017-how-to-guide-to-internal-carbon-pricing.pdf?1521554897 KPMG. (2023). How to get internal carbon pricing right. https://kpmg.com/kpmg-us/content/dam/kpmg/pdf/2023/how-to-get-internal-carbon-pricing-right.pdf PlanA. (n.d.). What is internal carbon pricing? Plan A. https://plana.earth/glossary/internal-carbon-pricing#:~:text=Internal%20carbon%20fee%20or%20charge World Bank. (2019). What is Carbon Pricing? | Carbon Pricing Dashboard. Worldbank.org. https://carbonpricingdashboard.worldbank.org/what-carbon-pricing Photos used in the slides were stock photos and as such do not need referenced