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.


Learning from British Columbia
In March 2016, the Canadian Federation of Independent Business surveyed 500 small businesses in BC about the impacts of the carbon tax. Less than half said that it had increased their input prices, only 14% were concerned about the impact on their competitiveness, and 77% believed it possible to grow the economy while protecting the environment.  Overall, BC’s economy slightly outpaced the rest of Canada’s since the carbon price was introduced.
Policy Insights
On the cost side, policymakers need to track the impacts on SMEs in order to ensure there are no unexpected adverse costs.  And there is still lots to do in Canada to equip businesses with basic knowledge about carbon pricing to help them make the best choices.
On the opportunity side, policy needs to forge ahead. For instance, the Pan-Canadian Framework on Clean Growth and Climate Change leaves lots of details to be determined, such as all the agriculture-related policies. Similarly, the rules around carbon offsets in Ontario are still being sorted out.  And businesses could use some good analysis that identifies where the demand is for clean technology solutions.
All to say, while policy work needs to keep advancing, early evidence shows that business will be resilient, innovative and able to survive – and even thrive – in a Canada with carbon pricing.
To learn more about SMEs and carbon pricing, watch this spring’s iPolitics live event on Facebook.  And read why my co-panelist Craig Alexander thinks that Canada can go it alone on carbon pricing.