Carbon Trading and Transfer Pricing: The Next Frontier?
Exploring the transfer pricing issues related to carbon trading that will impact multinational enterprises for years to come
Because many MNEs are making large investments to meet their environmental and sustainability goals, transfer pricing issues are gaining prominence.
These issues include how to allocate the costs associated with environmental innovation or incremental environmental costs, how to design an efficient supply chain structure with a focus on clean technology and carbon abatement, and what strategy to adopt regarding sourcing or trading emission offsets depending on the MNE’s objectives and net emission goals. This article focuses on carbon trading and the transfer pricing considerations based on what operational model an MNE adopts.
Environmental taxation and the treatment of carbon as part of the value chain are very likely going to be the next frontier influencing MNCs as governments make more impactfil climate commitments moving forward and as MNC stakeholders continue to expect increasing emission reductiions. It's clear that carbon trading - and the related transfer pricing issues - will be important for MNCs to consider in the months and years ahead.
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Carbon Trading and Transfer Pricing: The Next Frontier?
In this article, the authors explain what carbon trading is, why it exists, why it is important, why some companies are doing it, and ways in which multinational corporations can think about the transfer pricing aspects of a carbon trading function.
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