No Need to Wait for a Low-Carbon Economy

Recent developments give reason to believe real policy innovation is just down the road.

In the world of climate change and energy policy, it is an article of faith that real action will not emerge until government places a price on emitted carbon. That, as many corporate leaders and investors tell us, is the single most important step in making the investment flow, developing and deploying the technologies, and creating the businesses that will make the low-carbon economy a reality.

Knowing this, some jurisdictions in Canada are moving forward – notable examples being B.C. and Quebec instituting a carbon tax and Alberta putting in place a baseline-and-credit trading system. Even so, the day we see a national (or global) price on carbon appears distant, even as the science tells us that the need for it grows ever more urgent.

But luckily for us, even the anticipation of a future in which carbon is priced is enough to see the beginning of real policy and market innovation.

First, if governments are not yet prepared to take the ultimate (and politically tough) step of pricing carbon, they can provide direct and indirect financial support to low-carbon economic activity. The American Reconstruction and Recovery Act, a.k.a. the U.S. stimulus package, contains $90 billion in grants and loan guarantees for everything from R&D programs for transportation-based battery technology to direct grants for the manufacturing of wind turbines. If you’re a company looking to establish an R&D or manufacturing facility that is in any way connected to a low-carbon technology, you can have one-third of your capital costs paid for through U.S. government grants.

In Ontario, the government has taken a different tack. It is directly targeting the electricity sector and has put in place a price for renewable energy delivered to the grid that is a substantial premium over the market price, through a mechanism called a Feed-in-Tariff (FiT). The goal is ambitious: To make Ontario a world leader in the development and manufacture of renewable energy technology, and to reap the considerable economic benefits that will accrue from that position. Already, anecdotal evidence suggests that investments are pouring into the province to take advantage of the FiT, and with that comes new employment for a province that has been beset by woes in the auto and other manufacturing sectors. And the province may in fact be on course to shut down its coal-fired power generating assets, which has long been an objective of the government.

Aside from direct investment activities into low-carbon energy, there are new initiatives related to the carbon content of the supply chain that are starting to show promise. There is the well advertised example of Wal-Mart and how the environmental component of its purchasing decisions can have a dramatic, supply-chain driven impact on packaging, energy use, etc. But other, less well-known examples are out there as well. The B.C. government’s decision to have public institutions in the province go carbon-neutral, for example, has yielded some interesting results. With bureaucrats, universities, and hospitals in the province needing to either choose carbon-neutral products or services, or having to purchase offsets for their activities, businesses that depend on B.C. government procurement now have an incentive to provide carbon-neutral products and services – from paper to airlines – to what is a pretty significant customer in the provincial economy.

And finally, an emerging class of entrepreneurs is taking advantage of market niches being created in anticipation of a carbon-constrained future. Companies like Ron Dembo’s Zerofootprint are developing enterprise carbon management software to help other companies track, manage, and report on their carbon footprints, all in anticipation of the reporting requirements that will come with climate-related regulation. The Toronto Atmospheric Fund, using an endowment provided by the City of Toronto, is working with green developers and technology providers to create financial models of how to pay for energy efficiency and retrofits. Profit and non-profit organizations in Canada are looking at how policy innovation like California’s Assembly Bill 811, which enables cities and municipalities to provide PACE (Property Assessed Clean Energy) loans, might work in this country. PACE loans allow property owners to borrow from a revolving fund (either publicly or privately managed) to carry out retrofits, and then to repay the loan through their municipal property taxes.

For us to address the threat of climate change and to create a more sustainable form of prosperity for Canada, a major policy commitment – in the form of an economy-wide carbon price – will need to come from government. That is the necessary condition to the kind of entrepreneurial churn that will enable the transition to a low-carbon economy. Looking at how much is happening already, when so much is still uncertain, gives us some cause for optimism.