Climate change has shifted from a distant policy concern to an immediate business risk. With rising global temperatures, intensifying regulation, and expanding carbon markets, the way we value and price carbon is undergoing a fundamental transformation.
In the latest episode of Sustainability Unplugged, Olive Gaea’s podcast that cuts through ESG jargon to focus on what really matters, host Jessica Scopacasa sat down with Pietro Vallaguzza, CEO of Kickstart Group, to unpack two intertwined concepts that are redefining corporate sustainability strategy—carbon lock-in and carbon pricing.
These aren’t just theoretical policy terms. They determine how competitive, resilient, and profitable businesses will be in a world moving rapidly toward net zero.
What Is Carbon Lock-in?
Carbon lock-in occurs when investments made today—such as new factories, infrastructure, or power plants—embed long-term carbon emissions into future operations. Once these assets are built, replacing or retrofitting them becomes costly and complex. The result is a structural dependency on carbon-intensive systems for decades.
As Pietro explained, carbon lock-in is both a technical and financial trap:
“There’s a risk that we make investment decisions that lock emissions into our assets—not for a short time, but for the medium and long term. And when policies change, those emissions become expensive liabilities.”
In other words, a company that builds a high-emission facility today could find it economically unviable tomorrow, when stricter carbon rules or higher carbon prices take effect. What once was a strategic investment may suddenly become a stranded asset.
What Is Carbon Pricing?
Carbon pricing is a mechanism that puts a financial cost on greenhouse-gas emissions. It can take several forms spanning from carbon taxes—a fixed fee per ton of CO₂ – to cap-and-trade systems (ETS), where companies buy or sell emission allowances in a regulated market.
The purpose is simple: to internalize the external costs of pollution and incentivize companies to reduce emissions. But the implications go far beyond compliance.
“The price of carbon,” Pietro noted, “is a strong signal of how far we are from the Paris Agreement goals—and how fast we need to decarbonize.”
A rising carbon price doesn’t just increase costs. It changes the economics of entire industries, influencing investment decisions, competitiveness, and trade flows. Sectors from steel and cement to aviation and shipping are already feeling the impact.
How the Two Concepts Connect
Carbon lock-in and carbon pricing are inseparable. When a company locks in emissions through long-term investments, it also locks in exposure to future carbon costs.
If a government introduces a carbon tax or expands its emissions-trading system, businesses with high locked-in emissions will face increasing operational expenses. In some cases, these assets will no longer be profitable.
That’s why progressive companies are introducing internal carbon pricing—a voluntary mechanism that assigns a shadow price to emissions even before regulation mandates it. This helps simulate future policy impacts and guide investment choices today.
According to Pietro, the best companies are “internalizing a future carbon price now, not because they must, but because they want to understand the true cost of their investments.”
Why Carbon Lock-in Is a Hidden Business Risk
Many companies still underestimate the financial implications of carbon lock-in. The risk isn’t only regulatory—it’s strategic and reputational.
A company that fails to assess its carbon exposure may find itself at a disadvantage in three critical ways:
- Financial risk: Future carbon costs can make existing assets uneconomic, leading to stranded investments.
- Competitive risk: Low-carbon competitors will enjoy lower operating costs and easier access to sustainable finance.
- Reputational risk: Stakeholders, investors, and consumers increasingly view carbon intensity as a sign of weak governance and short-term thinking.
Pietro captured the essence of this challenge:
“If we don’t assess the carbon locked into our investments, we’re risking not only emissions—but the economic viability of entire assets.”
Carbon lock-in is, therefore, not merely an environmental issue—it’s a test of strategic foresight.
Acting Before Regulation: The Business Imperative
So what can companies do right now? The conversation offered a clear roadmap.
- Account for emissions: Begin with a complete and accurate carbon footprint. Without this baseline, strategy is guesswork.
- Assess risk scenarios: Use science-based benchmarks and scenario analysis to understand how emissions and policy trends affect your business.
- Set an internal carbon price: Even a basic shadow price on emissions can help anticipate financial exposure and inform investment priorities.
- Integrate carbon risk into decision-making: Make carbon metrics part of capital allocation, procurement, and risk management frameworks.
- Adopt data-driven tools: Platforms like ZERO by Olive Gaea enable companies to quantify emissions, simulate policy impacts, and design pathways to decarbonization with accuracy and transparency.
By turning data into strategy, businesses can transition from reactive compliance to proactive leadership.
The First-Mover Advantage
It’s easy to assume that waiting is cheaper—but in climate strategy, delay is costly. Early adopters often bear higher upfront costs, but they gain resilience, investor confidence, and brand credibility.
Pietro was clear: first movers will lead the transition.
Companies that act now to understand their carbon lock-in and introduce internal carbon pricing will have a stronger investment portfolio, greater stakeholder trust, and access to sustainable capital.
Those who wait risk being left behind in markets that are rapidly pricing carbon into every transaction, product, and supply chain.
Key Takeaways from This Episode
- Carbon lock-in is financial lock-in. Every high-emission asset built today can become tomorrow’s liability.
- Carbon pricing is spreading fast. From Europe’s ETS to emerging carbon markets in Asia and the Middle East, policy momentum is accelerating.
- Internal carbon pricing is a strategic tool. It helps simulate future regulation and guide smarter investments.
- First movers gain resilience. Early assessment and proactive pricing protect competitiveness and reputation.
- Data-driven platforms matter. Tools like ZERO by Olive Gaea simplify carbon accounting, risk analysis, and disclosure—empowering companies to act with confidence.
Conclusion
Carbon pricing and carbon lock-in are reshaping the economics of sustainability. What was once a niche policy discussion has become a defining factor of corporate strategy.
The message from this episode of Sustainability Unplugged is clear: to remain viable in a carbon-constrained world, businesses must quantify their emissions, price their risks, and design for resilience.
The sooner they do, the greater their advantage in the low-carbon economy ahead.
Read the detailed whitepaper on carbon lock-in and internal carbon pricing- here. For a personalized consulting book a call with our sustainability experts.
