Director of Sustainability Marketing
7 min read
As companies look to meet the requirements of the Science-Based Targets initiative (SBTi), many are having to grapple with internal carbon pricing for the first time,to support their funding of climate and nature projects.
But what exactly does this mean, and how does it work in practice?
By assigning a financial value to emissions, companies can internalise environmental externalities, and translate their climate commitments into budgets for carrying out climate action.
In turn, this helps them to make better business decisions which incorporate their environmental goals. Best practice requires a science-based carbon price – one that reflects a substantiated, justifiable cost which is aligned with keeping global warming within 1.5ºC – not just one that is convenient for the company’s budget at the time.
This guide explores how companies set an internal carbon price, what’s required to set a credible, science-based price, and how, ultimately, internal carbon pricing supports your net-zero strategy.
Why pricing carbon internally changes behaviour
Financial signalling
Internal carbon pricing changes how companies make decisions. When emissions carry a monetary cost, carbon becomes a financial variable, which allows it to be compared alongside capital expenditure, operating costs, and return on investment. Suddenly, what was once invisible now becomes visible in everyday decision-making.
Once a company has put a price on carbon, projects that reduce emissions start to look more attractive. High-carbon options become harder to justify when their true cost is accounted for. In this way, internal carbon pricing serves as a financial signal, allowing companies to embed climate considerations into how they buy, what they invest in, and how they plan for the future.
Budget clarity
Internal carbon pricing also creates clarity around climate investment. Rather than setting abstract sustainability budgets, companies can link funding directly to emissions using a simple formula:
Carbon price × emissions = climate budget
This is the logic behind a science-based carbon price. Applying a fixed price to each tonne of ongoing emissions creates a clear and scalable funding mechanism, whilst the business reduces emissions over time.
For example:
1,000 tCO₂e × £50 = £50,000 climate budget this year
950 tCO₂e × £50 = £47,500 next year
900 tCO₂e × £50 = £45,000 the year after…
Carbon pricing also strengthens alignment internally, helping sustainability and finance teams work from the same assumptions, which in turn improves scenario modelling and long-term planning.
Comply with today’s best practice (and tomorrow’s rules)
The requirement to use a science-based carbon price to produce a budget for spending on climate action comes from the SBTi’s 2024 guidance on ‘Beyond Value Chain Mitigation’ (BVCM for short), and is formalised in the upcoming SBTi Corporate Net-Zero Standard v2 under a new title: ‘Ongoing Emissions Responsibility’ (OER).
Whilst the BVCM guidance was fully voluntary, OER is a formal module in the new Corporate Net-Zero Standard to which businesses must disclose their level of engagement, and must either comply with the framework or explain why they are opting out.
This new module is included to strengthen the incentive for businesses to take action – and is designed in the v2 Standard to be semi-mandatory, with a view to becoming fully mandatory in the future.
What a science-based carbon price is
What makes a carbon price science-based?
A science-based carbon price is one that reflects the real economic and physical cost of emissions. The Science-Based Targets initiative (SBTi) defines this in terms of:
The cost of climate damage
The cost of achieving a 1.5°C pathway
The cost of fully abating emissions
In practice, this produces a wide range of possible prices. For example, guidance from the High-Level Commission on Carbon Prices suggests that prices in the range of $50–$100 per tonne by 2030 are needed to align with global climate targets.
In the new SBTi Corporate Net-Zero Standard v2, there are two pathways for carbon pricing under OER, which receive different recognition:
‘Recognised’: carbon price of $20+ per tonne
‘Leadership’: carbon price of $80+ per tonne
There are further options about what percentage of your emissions you apply the carbon price to, but the basic principle is the same: the higher the carbon price, the more credible it is.
Ultimately, it’s not about determining a single “correct” number, but setting a price that is high enough to make a difference in decision-making, grounded in credible science and benchmarks, and designed to increase over time.
How to set and scale your price
The SBTi guidance provides two figures for the different recognition tiers ($20/tonne and $80/tonne) under Ongoing Emissions Responsibility. And at Ecologi, we also say that credible ‘science-based’ carbon prices should start at around £35 (~$50) per tonne.
The ‘social cost of carbon’ (that is, the ‘true’ economic cost of damages caused by emissions) is very difficult to put a number on, and scientific estimates vary wildly, at anywhere between under $1 to over $8,000 per tonne. One meta-analysis found a central estimate of $185 per tonne. Realistically, the ‘true’ social cost of carbon is likely to be higher than most businesses are able to pay, if they are applying it to every tonne of their emissions.
So really, what carbon price your business should – and is able to – set is likely going to be driven by other factors too, like: which industry you’re in, how high your ambition is, and how much you can afford.
How to calculate it:
Measure your annual emissions (Scopes 1, 2, and relevant Scope 3)
Identify your ongoing (unabated) emissions after reduction efforts
Set a baseline carbon price (e.g. £50/tCO₂e)
Adjust the baseline price up or down slightly, based on whether you:
Are in a high/medium/low-emitting industry;
Have a high/medium/low climate ambition;
Have a high/medium/low ability to pay;
Use the final adjusted price as the carbon price, and multiply:
Carbon price × ongoing emissions = annual OER budget
For example:
1,000 tCO₂e × £50 = £50,000
800 tCO₂e × £60 (next year) = £48,000
Engage your CFO
Setting and sticking to an internal carbon price requires strong engagement with finance teams. CFOs play a critical role in validating assumptions, integrating pricing into the company’s financial planning, and using carbon costs to inform how the company allocates capital.
Framing carbon pricing in financial terms, such as risk exposure and long-term cost planning, helps build alignment. Once finance teams understand the logic, carbon pricing becomes a practical tool for decision-making.
Work with Ecologi to set your carbon price
Designing an internal carbon pricing model that is both credible and practical requires the right expertise.
Ecologi supports businesses in setting science-based carbon prices that align with their climate goals and financial strategy. From defining price methodologies to building carbon credit portfolios aligned with your budget, the focus is on creating a system that drives real impact.
If you’re exploring internal carbon pricing for your organisation, speak to one of our climate experts to get started.