Smart businesses can profit from a price on carbon – it’s all about attitude

Businesses that talk about maximising the benefits could find the carbon tax is good for them. Mays Business School

For most people, the debate about climate change and what we should do about it is not really based on the science. It’s much more about what they think the implications are for them.

Let’s face, it if I think a change is going to benefit me, or help someone else without hurting me, I’m likely to support it.

But if I think it will hurt me, I look much more closely at it, and am more reluctant to actively support it.

So most Australians happily use mobile phones, even though there may be health risks. Why? Because the short term benefits are very large while the downside risks (if they are even aware of them) are small, and a long way in the future.

In my work with many Australian businesses, I have been fascinated by how much their adoption of changes depends on how they see an issue.

If it’s a matter of minimising risk and compliance costs, there is a fundamentally negative approach: aim to limit the damage. This involves delegating the problem to someone and assuming it will cost something to fix it.

For example, when addressing a carbon price, these companies might cut back on staffing, try to pass the extra costs on to their customers or invest in expensive energy supply options.

These firms are likely to adopt expensive “end of pipe” solutions, and strategies that do create problems for some groups in their organisations. It is a self-fulfilling prophecy.

On the other hand, if the change is seen as potentially good for the business, people across the organisation can be seen discussing it over lunch. They explore ways of integrating the solutions into their core business. They look at how they can maximise the benefits.

Faced with a carbon price, these businesses are more likely to increase sales by improving the energy efficiency of their products, and install energy efficiency measures that also improve product quality or productivity.

So, these businesses typically do profit from their efforts to cut emissions. Indeed, they may even reframe their business models to capture the potential opportunities.

We have had two decades of certain businesses telling us action on climate change will damage our economy, and many conservative economists (who don’t seem to understand innovation very well) reinforcing this view. Many Australians now fear that action on climate change will hurt them personally, hurt their businesses, and hurt the economy.

Yet extensive economic analysis tells us the opposite; or that, at least, the costs will be very small in the short term, but the benefits look substantial in the longer term.

And, importantly, international studies show that if we drive innovation harder, we can bring down the carbon price and grow jobs and the economy.

Most Australian businesses and politicians suffer some deep misapprehensions. They believe that if something is good for the environment it must be bad for business.

Many also believe that increasing energy use (and in particular, fossil fuel use) is essential for economic growth, and that cheap energy is one of Australia’s key strategic advantages.

But we have many examples of where action to benefit the environment has improved the economy. Australia’s appliance efficiency schemes are cutting millions of tonnes of emissions at an estimated cost of minus $56 per tonne and a net benefit of over $22 billion between 2009 and 2024. The industry focused Energy Efficiency Opportunities scheme has delivered 75 PJ pa of savings (worth over $600m pa with rates of return of three-quarters of these measures greater than 50% pa).

Global studies cast serious doubt on the relationship between energy growth and economic success (see for example Michael Grubb’s work at Oxford).

And Australian businesses (and households) have wasted their cheap energy advantage by failing to improve efficiency in line with their overseas competitors.

Over the past 30 years, I have worked with a wide range of businesses, from alumina and copper refineries to breweries, supermarkets, office buildings and hot bread shops. Almost without exception, they have found substantial cost-effective energy saving opportunities that not only cut their energy costs, but often improved product quality and productivity.

As technology improves and businesses become smarter at saving, the savings are becoming larger, and the up-front costs of change smaller.

Smart businesses can profit from climate response and a carbon price. The challenge is to frame the issue as an opportunity, not a threat. That’s what a lot of other countries are doing.

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