Does adding a carbon price make good business sense?

As the international community searches for efficient ways to reduce greenhouse gas emissions, putting a price on carbon has emerged as one of the key tools. Experts argue it can help re-gear economies and put them on the path to sustainable growth and development.

In simple terms, putting a price on carbon recognises that in many markets it is currently free to pollute greenhouse gases like carbon dioxide, even though this pollution has lasting effects (and costs) on people and our planet. A carbon price changes the equation by employing the ‘polluter pays’ principle, rather than deferring the bill to future generations.

Interestingly, many businesses are now introducing their own internal carbon prices. In 2015, 435 companies reported that they use an internal price on carbon – up from 150 in 2014. More than 500 more indicated they intend to introduce internal carbon prices in the next 2 years.

On a recent webinar (see below) hosted by Yale University, the Carbon Pricing Leadership Coalition, and the World Economic Forum, Feike Sijbesma, CEO of Royal DSM, explained that reasons range from incentivizing investments in clean energy and low-carbon technology to managing risks from anticipated future regulation.

Around 90 countries included a form of carbon price in their climate commitments (NDCS) for the Paris Agreement. Around 40 countries and 20 major cities, states and regions already have a form of carbon pricing and China’s emissions trading scheme is due to start in 2017.

“That means you better be prepared for that… If you don’t want to have a ‘Kodak moment’, you’d better prepare yourself for the future” Feike told the webinar audience.

He highlighted that it’s not just about managing risk – there are opportunities too. “You can grow your business while addressing climate change.”

Here’s how Geraldine Matchett – the Chief Financial Officer at Royal DSM – described in a minute the internal benefits of introducing an internal price on carbon:

To learn more about why and how Royal DSM introduced a price on carbon of 50 Euros a tonne, watch the full webinar here: