While Royal Dutch Shell, BP, Statoil, Eni, BG Group and Total were united in their bid in June to urge the UN to support countries to introduce connected carbon tax pricing systems to phase out coal, current market estimates for the cost of carbon reduction range widely.

Hundreds of organisations offer, or have offered, carbon credits at various prices, with the current modal estimate appearing to be in the low to mid-teens, in US dollars.

While prices in the leading CO2 trading markets in Europe and California currently fall in the same range, Lantau says these market-based CO2 prices are kept low by a variety of subsidies that increase the number of zero emitting options that are pursued.

Then there is the fact that most carbon markets involve management of carbon credit quantities to keep credit prices within tolerable bounds.

Lantau said that traded CO2 prices have to date been well below the levels thought to be required based on academic research.

“Arguably, efforts to manage these markets have made them both less attractive and less effective than they might otherwise have been,” Lantau said in a report issued yesterday.

Companies seeking to integrate carbon prices into their risk management strategies therefore face a quandary: which price to use?

The Lantau Group said market-based prices had the advantages of being transparent and accessible.

“Alternatively, one could use theoretical prices in planning and strategy, but such theoretical prices lack commercial significance beyond that,” the group said.

“Calculating a theoretical carbon liability has no sensible value unless matched to equally theoretical adjustments to expected revenues.”

The group said carbon policies affect both sides of the economic equation.

“At the end of the day, markets exist and have value. They also illuminate the costs associated with ad hoc local policies,” Lantau said.

“Consider the implied CO2 cost associated with switching from coal to gas around the world,” the group said.

“The regional differences are dramatic.

“Gas prices and coal-to-gas switching experience in the US has no relevance to policy-making in Asia.

“Linkages across CO2 markets can help corporates and governments make better decisions regarding the value of decarbonisation options and the potential cost of associated policies.

“Such linkages can create significant value even as most countries continue to pursue highly localised solutions to an otherwise global problem.”