Carbon Might Be Your Company’s Biggest Financial Liability
The price of carbon may be zero in many places today, but it’s unlikely to remain zero for long. That means that many companies have hidden liabilities on their books. To cover their carbon short position, executives can take several steps: Measure the position in carbon terms; determine if carbon intensity will increase or decrease as revenues increase; determine a set of carbon prices to use and the timing of putting them into place; price out future emissions; and finally discount the “carbon cash flows” by using your company’s cost of capital to discount the future carbon prices and determine a total economic impact in today’s dollars. Executives should then share these calculations with investors in their quarterly reports.