Klarna has done what U.S. politicians have failed to do: put a price on carbon pollution. The Stockholm-based global payments platform set aside $2.35 million in 2023 in internal payments for its climate action strategy based on its ongoing emissions — $100 per ton of Scope 1 and 2 emissions, as well as those from employee travel, and $10 for all other emissions in its supply chain (Scope 3).
The internal carbon price, which Klarna instituted in 2021, has generated over $5 million to date. The company contributes the money to climate projects selected by Milkywire’s Climate Transformation Fund, a portfolio of initiatives ranging from carbon removal to protection and restoration of natural ecosystems to policy advocacy for emission reductions. The funds are used not for the purchase of offsets against Klarna’s emissions, but rather to accelerate global decarbonization.
Companies that put an internal price on carbon pollution from their operations tie their climate and sustainability budgets directly to a metric of ongoing climate impact, embedding their climate initiatives within a larger business strategy.
“By holding the whole company accountable [for our carbon pollution] at a fixed price,” the fee has increased transparency and helped reduce Klarna’s absolute emissions, said Salah Said, Klarna’s head of sustainability and ESG. And the payments support “projects that really need funding in order for us to solve the climate crisis.”
When does a carbon fee make sense?
Over 2,000 companies use internal carbon pricing (ICP), or have plans to begin doing so in the next two years, according to a 2021 survey from CDP, a non-profit dedicated to environmental impact disclosures. This includes half of the world’s 500 largest companies and represented an 80 percent increase in companies planning or using an internal carbon price from the five years prior. The overwhelming majority of these, however, are shadow prices, calculated only on paper to inform corporate decisions and help navigate greenhouse gas disclosure regulations.
Only a fraction of companies with ICP levy an internal fee that generates revenue and impacts the company’s bottom line. In addition to Klarna, other companies with internal carbon fees include Ben & Jerry’s, Microsoft and SwissRe.
Companies with limited opportunities to spend internally to reduce their emissions are prime candidates for instituting carbon fees to fund climate action outside their own supply chains, according to an analysis by Milkywire. These are typically companies in low carbon intensity industries, such as technology, finance and professional services.
Klarna’s Scope 1 and 2 emissions totaled less than 350 tons of carbon dioxide equivalent in 2022.
For companies with high Scope 1 and 2 emissions, a carbon fee may not be suitable. A shadow carbon price that’s high enough to influence operational decisions can drive down corporate emissions, according to Simon Fischweicher, director of supply chain and reporter services at CDP. Alternatively, Milkywire’s guide to setting an internal carbon fee suggests that these companies set aside a percentage of their profits for internal decarbonization.
Transparency from carbon fees drives emission reductions
Carbon fees provide consistent transparency to company decision makers about the climate impact of all aspects of business operations, from flights to vendor selection.
“Setting an internal carbon fee produces a downward pressure on emissions,” said Robert Höglund, who manages Milkywire’s Climate Transformation Fund and is co-founder of cdr.fyi, a carbon removal data platform, because “it puts a real cost to the emitting activities.”
In addition to driving internal emissions reductions, a carbon fee can also inform supplier engagement, galvanizing Scope 3 decarbonization, said Fischweicher.
Establishing a carbon fee has increased a sense of shared responsibility for climate impact across Klarna, said Said. His team also created an internal dashboard that gives employees the ability to dive into department and vendor-level emissions data.
Customers, not philanthropists
Klarna does not use the carbon credits it purchases from Milkywire’s Transformation Fund participants to claim offsets against its emissions. But it’s not charity — the plan is to be an early customer for climate startups. “Our goal is to be a capacity builder by focusing on carbon project quality and helping disruptors scale,” said Said. “Having been a startup ourselves, it’s really in our culture to support young businesses.”
(Klarna separately engages in philanthropy through programs such as its Give One initiative).
Embedding an internal carbon fee within business operations
Internal carbon pricing is “a critical tool to translate the language of sustainability into business and finance,” said Fischweicher. Klarna calculates its greenhouse gas emissions annually alongside its regular financial reporting cycle.
Milkywire’s guide to setting a carbon fee recommends calibrating it to the company’s CO2 intensity and profit per ton of emissions. Klarna’s current tax of $100 per ton of pollution from Scopes 1 and 2, as well as employee travel, is in line with the UN Global Compact recommendation. The company will explore increasing it in the future, in line with the social cost of carbon.
“It’s not about making our own business climate net zero,” Said said. “It’s really about how do we get the world to net zero.”