A DEA-based model for grouped internal carbon pricing: An analysis of a large coal producer

Abstract

As a strategic lever, internal carbon pricing allows enterprises to cope with potential climate-related risks and motivate their low-carbon transformation. But internal carbon pricing, still in its early exploratory stage, lacks standard criteria for optimization. The traditional goal of cost minimization or profit maximization is not directly applicable to internal carbon pricing because internal payment for carbon emissions does not affect enterprises' aggregated costs or profits. How to optimize internal carbon prices to reduce carbon emissions more efficiently becomes an important issue. This study proposed a grouped internal carbon pricing method considering both internal carbon pricing and comprehensive efficiency. We found that there exists an optimal partition of internal units with corresponding differentiated carbon prices. Compared with other internal carbon pricing methods, the average efficiency of differentiated carbon pricing was significantly higher than the average efficiency of uniform carbon pricing. We then applied the method to a large coal producer with 16 subdivisions in China. The results showed that if the enterprise adopted the grouped internal carbon pricing under its current technology level, the carbon emissions would reach an optimal level, and its comprehensive efficiency would be significantly improved.