Which of the following statements about shadow carbon pricing is incorrect?

Shadow carbon pricing is a concept used by organizations and analysts to incorporate the potential economic impact of carbon emissions into their decision-making process. This methodology involves assigning a hypothetical price to carbon emissions, allowing businesses to evaluate how future carbon regulations or carbon market prices could affect their financial performance.

The first statement about shadow carbon pricing emphasizing its role in understanding the impact of external prices on profitability is accurate, as it helps businesses gauge how changes in carbon pricing might affect project returns. The third statement highlights the benefit of revealing hidden risks by factoring them into future valuations and capital expenditures, which is another key application of this approach. The last statement is also correct in saying that shadow carbon pricing aims to establish an internal price for carbon emissions, making the costs associated with emissions visible and actionable.

However, the statement regarding the use of shadow carbon pricing to reduce a business's carbon footprint is not accurate in the same way as the other statements. While applying shadow carbon pricing might motivate an organization to consider emissions in their project planning and investment decisions, it does not directly lead to a reduction in carbon emissions. Instead, its purpose is more about assessing risk and the financial implications of carbon emissions rather than implementing specific measures to actually decrease a company's carbon footprint.