An internal carbon price turns tonnes of CO2e into pounds, euros, or dollars so that low-carbon investments compete fairly inside the business case. This calculator allocates that price across your business units and shows two distinct mechanisms: a shadow price that informs decisions without moving cash, and a fee-and-dividend scheme that actually redistributes money toward decarbonisation.
How it works
For each unit the shadow cost is simply emissions times price, summed across the scopes you select:
unit emissions = (S1 if included) + (S2 if included) + (S3 if included)
shadow cost = unit emissions × carbon priceThe fee-and-dividend view collects the same gross fee from every unit, pools the total, and returns it as an equal per-unit dividend. A unit’s net position is its fee minus that dividend, so high-emitting units end up subsidising cleaner ones — the redistribution that gives the mechanism its behavioural bite.
Worked example
Suppose three business units have the following Scope 1 and 2 emissions, and the company sets an internal carbon price of £75 per tonne:
| Unit | Emissions (tCO2e) | Shadow cost | Fee paid | Dividend received | Net position |
|---|---|---|---|---|---|
| Manufacturing | 16,000 | £1,200,000 | £1,200,000 | £400,000 | –£800,000 (net payer) |
| Logistics | 4,000 | £300,000 | £300,000 | £400,000 | +£100,000 (net receiver) |
| Office | 2,000 | £150,000 | £150,000 | £400,000 | +£250,000 (net receiver) |
| Total | 22,000 | £1,650,000 | £1,650,000 | £1,200,000 pooled | — |
The dividend is the pooled total divided equally across the three units (£1,650,000 ÷ 3 = £550,000 each in this example — adjust to your actual unit count). Manufacturing is a substantial net payer, creating a direct financial signal to invest in decarbonisation.
Note: this example uses illustrative numbers to show the mechanism; results depend entirely on your actual emissions inputs and price level.
Shadow price vs real fee: when to use each
Shadow pricing only is appropriate when the goal is to improve investment decisions — for example, re-evaluating a capital project by adding an implicit carbon cost so that a low-carbon option that looked more expensive on a nominal basis becomes competitive. No cash moves; the effect is in how future cash flows are modelled.
Fee-and-dividend is appropriate when the organisation wants behavioural change now. Charging units real money and redistributing it creates winners (low-emitters) and losers (high-emitters), making decarbonisation commercially rational for individual managers, not just a corporate aspiration.
Setting the price level
The price choice is a strategic decision. Common reference points include:
- The current prevailing price on the EU Emissions Trading System (EU ETS).
- A pathway price consistent with keeping warming to a specific target, such as a figure from the High-Level Commission on Carbon Prices.
- A regulatory shadow price published by a government for use in public project appraisal (for example the UK Treasury Green Book value).
Higher prices surface larger shadow costs and make low-carbon projects look more attractive, which is often the point. Keep the price, included scopes, and redistribution rule explicit in any board presentation — CDP and TCFD disclosures require you to state all three.
Example and notes
A manufacturing unit emitting 16,000 tCO2e of Scope 1 and 2 at a £75 internal price carries a £1.2m shadow cost. If three units share an equal dividend, a small office unit with low emissions becomes a net receiver while manufacturing is a net payer, sharpening the incentive to cut. Keep the price, the included scopes, and the redistribution rule explicit when you present the numbers — each is a deliberate policy choice, and disclosure frameworks such as CDP and TCFD ask you to state them.