How SMEs can thrive with a price on carbon

May 2, 2017

By Michelle Brownlee

The carbon pricing systems that have been adopted by four Canadian provinces and are soon to be in place across Canada will have an impact on small- and medium-sized enterprises (SMEs). But because carbon pricing is a flexible policy and allows businesses to be innovative in adapting to it, SMEs are in a unique position to manage cost increases while also capturing opportunities like increased market share for clean innovation and possibilities in the carbon offset market.

 Managing the costs
On the cost side, many businesses will need to adjust to increasing input costs, particularly for carbon-based fuels such as natural gas and gasoline, and for products and services that are fuel intensive.  For example, in Ontario, carbon pricing means about a 4 cents/litre increase in the price of gasoline, and about a 3.3 cents/metre³ increase in the price of natural gas. For an average household, that’s about $13/month; it will vary for businesses. The math is roughly similar in Alberta. In both provinces, electricity costs aren’t expected to change.
 
How might a small or medium business react to these increases?  Take the example of gasoline use in an SME that runs a fleet of vehicles. When the price of gasoline rises through a carbon price, fleet managers have a number of options to adjust: reduce how much they drive their vehicles, invest in new vehicles that use less or zero carbon-based fuel, or make improvements in their system to find efficiencies, not to mention any other custom solutions. The key thing here is that businesses have options and are enabled to find the most innovative, cost-effective and competitive solutions.
 
Businesses will need tools to find the right solutions. For instance, a business that is considering replacing a vehicle fleet will now need to factor into its calculation the trajectory of rising carbon prices. Alternative-fuel or fuel-efficient vehicles will now show better returns on investment.

Seizing the opportunities
There are also upsides for small- and medium-sized businesses for moving to cleaner, more resource-efficient operations via a carbon price. First off, clean technology is a growing sector in Canada and one that is almost exclusively populated by SMEs.  These SMEs will see growing domestic demand for their products and services, allowing them to scale up and become competitive in a global clean-tech market that is expected to be worth as much as $3 trillion by 2020.
 
And all Canadian companies will be able to market themselves as among the cleanest in the world – an important advantage as investors increasingly seek companies showing climate leadership. Finally, there will be new opportunities created through sequestering greenhouse gas emissions that aren’t subject to the carbon price – for example, through GHG sinks in the forestry and agriculture sectors.