Internal carbon pricing scheme

An organisational arrangement that allows an undertaking to apply carbon prices in strategic and operational decision making. There are two types of internal carbon prices commonly used by undertakings. The first type is a shadow  price,  which  is  a  theoretical  cost  or  notional  amount  that  the undertaking  does  not  charge  but  that  can  be  used  in  assessing  the economic implications or  trade-offs for such things as risk impacts, new investments, net present value of projects, and the cost-benefit of various initiatives. The second type is an internal tax or fee, which is a carbon price charged to a business activity, product line, or other business unit based on its GHG emissions (these internal taxes or fees are similar to intracompany transfer pricing).