As these execs will tell you, a price on carbon is good for business

Tom Murray

This post was updated June 8, 2015.

Carbon pricing may still be a tough sell in Congress. But talking to major corporations, including some oil giants and leading investment banks, you’ll get a different story these days.

Back in September, more than 1,000 businesses joined a call for a global price on carbon. And last month, BP noted that carbon pricing provides market stability that all industry – including the fossil fuel industry – needs to be able to plan for the future.

We’re looking at a major paradigm shift from which not even Congress can forever isolate itself.

More immediately, the push from industry leaders for a price on carbon – through carbon taxes or cap-and-trade – may help pave the way for a new international agreement to tackle climate change. Countries hope to finalize such a deal at talks in Paris this December. 

Business 101: Plan for the future

Business is hard-wired to react to the market – and when the market signals support for policies that use price mechanisms to rein in greenhouse gas emissions, big things can happen.

Corporations, unlike elected leaders, must plan for both short-term rewards and long-term stability. Climate change has become a significant external force that cannot be ignored when setting a business strategy.

Climate change already drives disruptions and erratic regulation exacerbates that. Just like multinational corporations need consistent banking and transportation rules from one country to the next, they want to be able to operate across continents without having to tailor business models to local carbon market rules.

Should we set the ambition…for Paris in December to make a statement that we really should start pricing carbon? I would say yes.

“Corporations need clarity,” noted Paul Polman, the chief executive of Unilever, the consumer goods giant, in a recent interview. They need to know the cost of materials such as water and carbon that are critical to their business, he said.

“Will there be a single market for carbon in the future? Probably not, that’s a bit complicated to put in place,” Polman said. “But should we set the ambition at least for Paris in December to make a statement that we really should start pricing carbon? I would say yes.”

It’s clear that more needs to be done to tackle climate change and no single solution or initiative will fix the problem, said BP’s Group Chief Economist Spencer Dale, in a different interview. “The best way to pick the winners and losers are to let the market decide.” A global price on carbon, he said, would provide “the incentives for everybody to play their appropriate role.”

Big brands make their voices heard

Corporate engagement around climate change has been building for years, and emerged as a force to reckon with in recent months.

Since early 2014, 19 companies – including Facebook, General Motors and Walmart – have joined forces with nonprofit leaders to develop a set of principles for corporate buyers of renewable energy.

A group of investors managing $300 billion in assets has called for federal regulations to reduce methane emissions from oil and gas as an important step to reduce financial and environmental risk.

And more than 200 companies sent a letter to President Obama and the EPA, publicly supporting cuts in emissions from fossil-fueled power plants.

Corporate demand for a price on carbon is a natural extension of such engagement. In fact, many companies have already incorporated the idea by implementing their own, internal carbon price.

This trend of major businesses aligning their sustainability values with their support for smart climate and energy policy needs to continue. By weighing in, companies can help plot out the future on familiar terms.