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CDP, Bank of America, Barclays Introduce World's First Investment-Grade Carbon Pricing Scheme

Image Credit: World Bank

While the adoption of carbon pricing is on the rise, members of the We Mean Business Coalition, including Barclays, Bank of America and Hermes Investment Management have introduced the world’s first investment-grade carbon pricing system for the power sector — which accounts for one-quarter of global emissions — in an effort to accelerate the transformation needed to limit global warming to a 2°C scenario.

The announcement coincides with a Carbon Pricing Corridors report released by CDP on behalf of the coalition, stating that utility companies will need to adopt a carbon price between $30 – $100/ton by 2030 to achieve keep global warming below 2°C.

The report also found that while there has been a 23 percent increase between 2015 – 2016 in the number of companies embedding an internal carbon price, that existing policies aren’t providing enough incentive for companies to align with the Paris Agreement.

The Carbon Pricing Corridor allows companies, investors and policymakers to use price ranges to calculate the risks and opportunities posed by climate change on investment decisions. Furthermore, they can help companies and investors align their business models with the goals outlined in the Paris Agreement.

“The power sector is at the heart of the shift to a low-carbon future. Power generation needs a complete overhaul, with 100 percent decarbonization needed globally by 2050 to have a better chance of keeping to 2°C,” said Nicolette Bartlett, Director of Carbon Pricing for CDP. “By factoring in carbon prices necessary for this transformation, utilities and investors can better assess climate-related risks as well as identify commercially attractive carbon-free alternatives.”

The report also incorporates a ‘user matrix’ detailing how different sectors can use the price ranges during different time periods to benchmark their investment decisions against price signals.

Price ranges for the period to 2030 do not differ significantly from those created by institutions such as the Carbon Tracker and IEA. However, there are variations nearing 2030, when some panel members believe a lower price will be needed due to technological breakthroughs and favorable renewable curves.  

The initiative is due to report on its initial carbon price ranges in other energy-intensive sectors over the next two years, including steel, cement, paper and pulp and aluminum.

The Carbon Pricing Corridor’s findings mirror those from Mark Carney’s Taskforce on Climate-Related Financial Disclosures (TCFD), highlighting a clear need for investors to be able to stress test their portfolios against a range of climate scenarios. The Carbon Pricing Corridors initiative provides organizations with a ready-made tool to stress test their investment decisions in light of the Paris Agreement.

“Our focus on the Task Force is on how companies can and should integrate climate-related risks and opportunities into their core financial planning and reporting. We recommend companies sense check their business strategy against a range of scenarios, including taking into account that over 200 countries agreed to the ambitious goal of stabilizing the climate below 2°C,” said Mark Lewis, Managing Director and Head of European Utilities Equity Research for Barclays and a Member of TCFD.

“There is a very real transition underway, in particular across the energy sector. The private sector needs to take this into account if we are to allocate capital to the right places and ensure financial stability.”


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