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Internal Carbon Pricing
1. System content
In 2024, the company will implement its internal carbon pricing system for the first time, aiming to enhance energy efficiency, reduce greenhouse gas emissions, conduct stress tests, and comply with future carbon emission regulations through the internal carbon pricing mechanism, in order to achieve the group's sustainable development goals and the expectations of stakeholders. And formulate emission reduction targets and incentive policies for each branch company, thereby changing the internal behavior and emissions of each company, improving energy efficiency and promoting low-carbon transformation investment to seize low-carbon opportunities. This system is applicable to all business groups and their subordinate branches.
The company will adopt the shadow pricing method (attaching the assumed carbon cost to each ton of carbon dioxide equivalent) to calculate the potential compliance costs increased by each branch due to emissions. And as a tool to reveal the hidden risks and opportunities in the entire group's operations and supply chain, and to support strategic decisions related to future capital investments. Moreover, it partially combines the internal fee/transaction mechanism. On the basis of the existing fuel-saving award, the group transfers profits among itself due to the achievements of energy conservation and emission reduction, and implements the internal fee and compensation functions. The group incorporates carbon pricing into the decision-making process and supports each branch company in reducing emissions and related costs through green power procurement, replacement of new energy vehicles, oil-to-electricity conversion of storage yards, and other measures.
The company calculates the proportion of inclusion and synchronization based on the average carbon price of the international carbon market for the current year every year, and in accordance with the progress of the EU carbon trading market in including the shipping industry. The EU carbon trading market will gradually incorporate the shipping industry into the carbon market from 2024 to 2026, with annual proportions of 40%,70%, and 100% respectively.
The Operations Management Center is responsible for implementing the internal carbon pricing policy. It uses the data within the system to assess the direct and indirect emissions (Scope 1 and Scope 2) as well as the emission efficiency of the group and each branch company, and calculates the potential additional carbon costs in accordance with the internally set carbon price. On an annual basis, monitor the carbon emissions and carbon costs of each branch company and at the group level, set specific emission reduction targets for each branch company, and combine them with the internal carbon pricing policy.
Moreover, the operation management center conducts regular internal communication and training every year to ensure that the heads of branch companies understand the internal carbon pricing policies and provide necessary training. And regular audit spot checks are carried out to audit the implementation of the internal carbon pricing policies of some companies and the supporting evidence documents of emission data. Moreover, every year, in combination with the requirements of external standards and best practices, it is ensured that the internal carbon pricing policies comply with current and expected future environmental regulations. Regularly report the implementation and effect of the carbon pricing policy to the management and stakeholders, and seek their opinions. In addition, we support suppliers' participation in carbon pricing policies and our efforts to promote the low-carbon transformation of the supply chain.
2. Achievements of the latest complete report year
In 2024, the average transaction price of the EU Carbon Trading Market (EU-ETS) was approximately $70.1, and the proportion of the shipping industry included in the EU carbon market that year was 40%. After multiplying by the internal carbon price coefficient, the weighted price is $28.03 per ton of CO2e greenhouse gas. Based on this, the total internal carbon cost calculated is approximately $47.8 million, of which approximately 99.5% comes from emissions in the shipping sector.
3. Climate-related performance incentives
In addition to providing climate-related performance incentives for senior management, the company also offers climate-related performance incentives for general management and key departments: Through internal carbon pricing policies, SITC International monitors carbon emissions and carbon costs for its subsidiaries and branches. Provide internal recognition, incentives and rewards for subsidiaries and branches that have successfully reduced carbon emissions. Energy conservation and emission reduction indicators have been added to the performance evaluation of the general manager of the branch company. Key departments such as the Operations Management Center and employees participating in the ESG governance team all have ESG ratings and KPI-related incentives. In 2024, the Operations Management Center was awarded the Outstanding Contribution Award and bonuses within the group for effectively promoting ESG governance.
Based on the total volume and efficiency, different internal energy conservation scores will be given to ships that achieve different levels of energy conservation and emission reduction. Moreover, policies such as fuel-saving bonuses for ships (with no upper limit) and cooperation awards for outstanding ships (with an annual budget of approximately 120,000 US dollars) will be implemented. The fuel-saving bonus aims to directly reward all personnel of the relevant ships based on the amount of fuel saved. The Ship cooperation Award aims to support the effective implementation of navigation instructions, reasonable wind avoidance, rapid resumption of navigation, and reasonable cargo loading, thereby enhancing fuel efficiency and controlling risks throughout the entire voyage. In 2024, the company distributed approximately 6.1 million US dollars in fuel-saving bonuses and approximately 120,000 US dollars in outstanding ship cooperation awards.
4. Latest Carbon Pricing Announcement
According to the internal carbon pricing mechanism of the group system, the greenhouse gas emissions and potential emission reduction/compliance costs of each company during the most recent reporting period have been calculated as follows:
Internal Carbon Price Reference | |||||
Period | EU-ETS Average Price (EUR/ton CO2e) | Internalization Coefficient | Internal Carbon Price (EUR/ton CO2e) | USD/EUR | Internal Carbon Price (USD/ton CO2e) |
Q1 2025 | 77.25 | 70% | 54.08 | 0.9475 | 57.07 |
Q2 2025 | 72.67 | 70% | 50.87 | 0.8707 | 58.42 |
