Businesses must adopt internal carbon pricing before they’re forced to

This era of carbon apathy is drawing to a close, as staying in business could soon pivot on internal carbon pricing (ICP), or the practice of assigning a monetary value to greenhouse gas emissions within an organization.

A handful of progressive firms, including industrial giants like Tata Steel and Mahindra, alongside IT major Infosys and the consumer products company ITC, have begun incorporating ICP to shape their strategic investments and risk assessments.

These prices range from ₹500 to ₹4,000 ($6–$48) per tonne of carbon, which is low compared to global standards, but still represents a forward-looking shift. This foresight is commendable, but for most of India Inc, carbon remains an unacknowledged liability.

Globally, ICP is turning into a standard corporate practice. Tech behemoths like Microsoft impose a global carbon fee across their operations, while energy giants such as Shell use a robust price of $100 per tonne in their capital planning.

These MNCs understand that the financial repercussions of carbon emissions are no longer hypothetical. They have become pressing risks.

In India, the absence of a formal carbon market or mandatory pricing mechanisms has largely kept ICP on the periphery. This is about to change, driven by domestic policy shifts and rising international pressures. The proposed Carbon Credit Trading Scheme, if robustly implemented, will set out emission costs for specific industrial sectors.

Through this framework, the government will prod a shift from merely striving for energy efficiency to explicitly valuing greenhouse gas equivalents, thus embedding carbon into the operational fabric of business costs.

External forces have made ICP imperative too. The EU’s carbon border adjustment mechanism (CBAM), set to be fully operational by January 2026, presents a formidable challenge to Indian exporters.

Carbon-intensive sectors in India, particularly steel, aluminium and cement, which have significant trade with the EU, will be directly impacted. CBAM would require detailed reporting on both direct and indirect emissions, coupled with transparency on carbon pricing methodologies, posing substantial compliance hurdles, according to EY India.

The financial implications are stark. An ICRA analysis suggests that CBAM could reduce profits from Indian steel exports to the EU by $65-160 per tonne between 2026 and 2036. For local companies, especially exporters, ICP is no longer a strategic choice but an essential tool to mitigate such trade barriers.

The benefits of ICP extend beyond compliance. A carbon price, even if used as a shadow figure in financial modelling, serves as a powerful diagnostic tool. It compels firms to uncover systemic inefficiencies and drive innovation towards cleaner processes and resource optimization.

More importantly, it future-proofs investments by directing capital towards low-carbon technologies and sustainable infrastructure, reducing long-term exposure to climate-related risks and potential carbon levies.

The adoption of ICP sends a clear signal to investors that a company is earnest about managing climate risk. As environmentally sensitive funding gains momentum globally and climate-aligned procurement becomes a standard expectation, Indian businesses that fail to adopt ICP risk being left behind.

Only 42 out of 122 Indian companies that disclose emissions were using ICP, according to a 2022 report by the Carbon Disclosure Project; this number needs to rise significantly.

The ICP imperative is not confined to large corporate entities. Small and medium enterprises also stand to gain. Simplified forms of ICP, facilitated by pooled accounting tools, digital platforms and guidance from larger companies they deal with, can aid ICP adoption.

This transition will take collective effort. The government, financial institutions and industry bodies must champion ICP adoption through clear disclosure norms, targeted fiscal incentives and technical support.

Just as the GST became near-universal through digital enablement and compliance incentives, ICP adoption can follow a similar trajectory if we get it right.

The financial sector is already taking steps. Over 4,000 MNCs and investors support carbon pricing as part of climate risk management, according to the Task Force on Climate-related Financial Disclosures.

Financial institutions such as HDFC Bank and State Bank of India have begun incorporating climate factors into loan assessments, but much more needs to be done to integrate ICP with corporate creditworthiness.

Indian firms should not wait for regulation. In a future defined by carbon constraints, pricing emissions internally is not a regulatory burden but a source of competitive advantage.

Markets, investors and global buyers are increasingly expecting— and even demanding—this level of environmental accountability.

Now that climate risk is fast translating into financial risk, Indian firms cannot afford to be reactive. ICP may seem like a voluntary exercise today, but it will not stay that way for long.

The carbon cost of doing business will come to bite, whether through regulation, trade policy or investor demand. The question is whether Indian companies will wait for the bill or start pricing it in today.

The author is an independent expert based in New Delhi, Kolkata and Odisha. X: @scurve Instagram: @soumya.scurve.