Reducing carbon emissions is good for business and good for society.
Putting a price on carbon is increasingly being seen as an essential tool in meeting this aim.
In 2017, almost 1,400 companies factored an internal carbon price into their business plans, representing an eight-fold leap over four years. Companies that put a price on greenhouse gas emissions are better equipped to manage the financial risks and opportunities of climate change and incentivize behavior change.
The Carbon Pricing Corridors is part of the work conducted by CDP under the auspices of We Mean Business and Carbon Pricing Leadership coalitions.
Comprising a panel of 29 business leaders from across the G20, the Corridors provide market insights into the future carbon price signals needed to reduce emissions as outlined in the Paris Agreement.
Carbon Pricing Corridors are essentially carbon price ranges that apply to different time horizons (from 2020 – 2035). They can be used by investors and companies seeking to align their business and investment strategies with the Paris Agreement, and policymakers as they seek to align policy frameworks to achieve their climate goals.
Carbon pricing in the chemicals sector
In our latest report, the Corridors panel examines the carbon price ranges need to drive a transition in the chemicals sector.
With insight from industry leaders from Braskem, Royal DSM, The Dow Chemical Company, SABIC, Solvay, Sumitomo Chemical Company, and Tata Chemicals, it shows that significant innovation is needed to bring the sector in line with the Paris Agreement.
As such, high carbon price levels are needed. The panel estimates these could reach as high as US$50-100 per tonne of carbon emitted by 2035.
Responsible for an eighth of global industrial emissions, the chemicals sector has a critical role to play in tackling climate change. But the diverse and complex nature of the industry makes it challenging to define a low-carbon pathway that applies to all companies within the sector.
Early progress towards a low-carbon chemicals sector
There are signs of progress. 85 chemical companies report that they have or plan to set an internal price on carbon as part of their business strategy.
Another 42 companies have set, or committed to set a science-based emissions reduction target. 12 more have committed to procuring 100% of their electricity from renewable sources.
A long road ahead
Despite these early signs of action, current progress in the sector means ‘breakthrough’ technologies to limit climate risk could still be a decade away.
Even with mandatory environmental disclosure and greater pressure for climate action from investors, chemicals companies would find it nearly impossible to align themselves with the 2-degree Celsius pathway without filling this technological gap.
Carbon pricing is key, but just the start
How do we drive this level of innovation within the chemicals sector? A strong carbon price would be a vital first step, and the Carbon Pricing Corridors panel has recognized the need for increased carbon pricing signals.
But with the huge investment needed to shift the chemicals sector onto a low carbon pathway, carbon pricing policies may not be enough in the short term to drive the level of action required.
This type of investment will mean additional policy mechanisms that shift consumer demand.
This report also comes at a critical moment with increasing pressure on companies and investors to stress test against a range of scenarios, as highlighted by Mark Carney’s Taskforce on Climate-related Financial Disclosures (TCFD).
The Corridors present an opportunity for the private sector to forecast the future risks of missing the Paris Agreement goals and consider the impacts of business decisions made today.