Grounded by the prices : Internal carbon pricing as a means to reduce corporate air travel
Many large companies use mechanism called internal carbon pricing (ICP) as a means to voluntarily reduce their emissions, when there is no external carbon pricing by the regulator, or such price is deemed insufficient to deliver the level of emission reductions a company wants to achieve. With ICP companies can include the negative environmental impact of GHG emissions into their financial decision-making. This helps them to choose low-emission options when they are more expensive than the default option. This thesis explores the efficacy of ICP model in reducing GHG emissions from corporate business travel by incentivizing land-based travel by train and ferry or flying. The study is based on real-world price data for routes from Helsinki to Oulu, Stockholm and Frankfurt. The ICP level required for a travel method change is then estimated using these prices and emission estimates different travel options. Additional costs such as the per diem allowance and lost work time due to longer travel times are included as well. The results show that the commonly proposed methods for setting an ICP, such as using carbon credits or social cost of carbon as a reference value, are largely inadequate to lead travel method changes. Even an exceptionally high carbon price of 1,000 euros leads to travel method change only on one case in ten, and even when additional costs are excluded the share of travel method changes is only on in three. Based on the results, it is unlikely that ICP model can be effective in reducing corporate travel emissions on routes from Helsinki. This is mainly due to the fact that land-based travel is quite expensive and slow when compared to air travel.
air travel, internal carbon pricing, business travel, corporate emissions
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