GLOBE-Net, March 4, 2013 – Many large companies in the Canadian energy sector are incorporating a self-imposed internal carbon price into key business decision-making processes according to a new report by Sustainable Prosperity. This “shadow” carbon price is used widely by oil and gas, electricity and pipeline companies to inform investment, planning, and technology decisions.
The 10 companies surveyed in the report including BP, Shell, Suncor, Statoil, Devon, Cenovus, Penn West, Enbridge, Ontario Power Generation and SaskPower are using shadow carbon prices of between C$15-68/tonne carbon dioxide equivalent (Co2e), reflecting a range of expectations about the actual short and long-term carbon price. The top of the range represents a price projection for future years: C$48 – $68/tonne for 2020 and up to 2040.
[stextbox id=”custom” float=”true” width=”200″ bcolor=”add3d5″ bgcolor=”add3d5″ image=”null”]A shadow carbon price is the hypothetical price of carbon used voluntarily by a company, reflecting the company’s expectations of the future market carbon price or regulatory cost, or the cost of reducing or offsetting carbon emissions.[/stextbox]
A shadow carbon price is the hypothetical price of carbon used voluntarily by a company, reflecting the company’s expectations of the future market carbon price or regulatory cost, or the cost of reducing or offsetting carbon emissions.
The company’s choice of shadow carbon price reflects the actual regulatory price (such as Alberta’s C$15/tonne contribution to the province’s Climate Change Emissions Management Corporation) and the expected future increase in that price, among other factors.
“Current carbon pricing systems in Canada provide varying levels of policy certainty for companies. That is why more and more companies are using a shadow carbon price: to ensure they are prepared for the future when carbon emissions are likely to be priced.” said Mike Wilson, Sustainable Prosperity’s Executive Director.
The main ways companies are using a shadow carbon price are to conduct project analysis and strategic planning.
The use of a shadow carbon price can help companies decide whether or not to go ahead with a given project, decide which technologies to choose and practices to implement – all through the lens of understanding the potential carbon liabilities that are associated with different options.
“The recent calls for a National Energy Strategy – from the provinces, from companies and others – show that there is a yearning for certainty about Canada’s energy future. Certainty around carbon pricing is a crucial part of that discussion.
In the meantime, companies are using a shadow carbon price to inform long-term strategic planning and investment decisions”, added Alex Wood, Senior Director of Policy and Markets at Sustainable Prosperity.
The report details how and why energy companies are using a shadow carbon price, and what this means for Canadian policy-makers. Sustainable Prosperity’s research suggests that many companies in the Canadian energy sector are well-prepared for a regulated carbon price because they have already internalized a carbon price into their project and strategic decision-making processes.