Internal carbon pricing

Heinzel Group uses an internal carbon price as a shadow price on Scope 1 and Scope 2 emissions. This price is calculated and set in parallel to the risk analysis conducted for carbon cost exposure for the EU ETS. The Internal Carbon Price (ICP) aims to promote energy efficiency, stress-test investments, incentivize the consideration of climate-related issues in decision-making, encourage low-carbon investments, and influence strategy and/or financial planning. Determining the price and outlook includes consulting a number of external experts in energy procurement and carbon price modeling for the ETS cost projection tool.This process involves closely monitoring constantly changing prices of allowances in the EU ETS to set and adjust the current shadow price and to set assumptions about the future cost of allowances.Expert consultations, past price movements on allowances, and "best guesses" help determine an initial price. This price is then discussed and reviewed with the management board and at the individual business unit level. Heinzel Group modeling and best estimates indicate that the price of carbon emissions will rise over time. Therefore, we have conducted different scenario analyses to understand the potential impacts.For ease of use, a static price is mostly used in CAPEX planning to demonstrate the effects of mitigating carbon risk. More linearly increasing pricing is used in scenario modeling to demonstrate the potential impact of more severe price movements until 2040 and beyond. Based on these evaluations, business plans are adjusted accordingly.