Capital Budgeting and Climate Change: Does Corporate Internal Carbon Pricing Reduce CO2 Emissions

31 Pages Posted: 23 Apr 2020

See all articles by John W. Byrd

John W. Byrd

University of Colorado at Denver; University of Colorado at Denver

Elizabeth S. Cooperman

University of Colorado Denver

Kent Hickman

Gonzaga Univesity

Date Written: April 14, 2020


Internal carbon pricing by corporations is a relatively new tool in carbon management. Using a sample of 1,274 firms from 45 countries and across 43 industries reporting to the Carbon Disclosure Project (the CDP) during the years, 2015 to 2018, this study uses carbon emissions intensity ratios to compare the carbon emission reductions of firms that have engaged in carbon pricing for the most recent four years with other firms that do not employ internal carbon prices. Our univariate analysis for the entire sample shows no significant difference in either revenue or employee-based carbon intensities between firms using an internal carbon price and other firms. However, when we examine industry sectors with high CO2 emissions and which are capital-intensive, there is a significant difference: Carbon pricing firms reduce emissions more quickly based on both revenue intensity and employee-intensity measures. This subsample of firms is comprised of companies in the extractive, airline, ground transportation, cement manufacturing and utilities sectors, so represent firms that regularly make large capital investments. Our results are consistent with internal carbon pricing helping capital-intensive firms make investment decisions that lower carbon emissions. Multivariate regressions confirm that the effect of internal carbon pricing is additional to reductions realized from other carbon efficiency tactics pursued by sample firms. Our results are unaffected by the existence of national carbon tax plans.

Keywords: Carbon Pricing; Energy Finance, Capital Budgeting, Carbon Emissions, Cost of Carbon

JEL Classification: Q51, Q56, Q58, G38

Suggested Citation

Byrd, John W. and Cooperman, Elizabeth S. and Hickman, Kent, Capital Budgeting and Climate Change: Does Corporate Internal Carbon Pricing Reduce CO2 Emissions (April 14, 2020). Available at SSRN: or

John W. Byrd (Contact Author)

University of Colorado at Denver ( email )

Department of Finance
Denver, CO
United States
970-247-9182 (Phone)

University of Colorado at Denver

Box 173364
1250 14th Street
Denver, CO 80217

Elizabeth S. Cooperman

University of Colorado Denver ( email )

Campus Box 165, P.O. Box 173364
Denver, CO 80217
United States
303-315-8422 (Phone)
303-315-8084 (Fax)

Kent Hickman

Gonzaga Univesity ( email )

Spokane, WA
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics