Pricing and Capitalism

For those who may not have heard, this week, nearly 20 of Canada’s leading companies joined federal Environment Minister in calling for a carbon price. Unilever Canada, Scotiabank, Enbridge, Air Canada and numerous others, have all signed on to the Carbon Pricing Leadership Coalition established by the World Bank.

While this move comes as little surprise to those who have have followed the climate debate closely, it should challenge the preconceived narrative that the environment and business are locked in conflict. For too long the conversation has been environmental advocates determined to see capitalism and corporations as the enemy, or supposed defenders of the free market who resist any moves towards climate action. But what becomes clear, if we look carefully, is that the free market and market based instruments like carbon pricing may be our greatest ally if we are going to make any meaningful progress to combat and adapt to climate change.

Perhaps we should start by laying out some acknowledged facts: climate change is real, it is human caused, and we need to both curb our emissions and invest in new technology in order to secure our future prosperity. The question is what is the most effective and efficient way for us to get there – and this is where capitalism and economics can provide some important answers.

Economics teaches that the cheapest way to reduce an externality like carbon emissions, is to put a high enough price on it so that demand for it is reduced. This is because people and businesses will choose the cheapest alternatives to replace their emissions sources, and by leaving these choices to the economy, we can minimize the amount of government interference needed to achieve results. On the other hand, government interventions in the economy are often extremely inefficient and expensive because governments cannot predict how individuals and businesses will adapt. Furthermore, putting a price on carbon incentivizes innovation as businesses large and small seek to develop new ways to generate energy or produce goods with lower emissions.

If we want to develop effective approaches to tackling climate change, it’s important to examine the implicit (and sometimes explicit) claim that corporations are the enemy. Even Canada’s leading oil sands producers – several of which signed on to the Carbon Pricing Leadership Coalition – have been asking for a simple and clear price on carbon emissions for over a decade. Many companies have been including carbon pricing in their economic forecasts. Most companies, including oil and gas producers, acknowledge climate change and are prepared to take action – but they are looking for regulatory and price certainty that a carbon pricing regime can provide. Meanwhile, financial industries are increasingly looking at potential investment risks related to climate change while the insurance industry is highlighting the major threats facing infrastructure and property now that “once-in–a–century” weather events seem to happen on a regular basis. For all of these sectors, a carbon price is an important step towards a solution.

We should not be naïve – of course there are businesses that seek to maintain the status quo. But their number is decreasing, while responsible companies continue to step up to the plate to recognize the threat posed by climate change and demand smart action. Through their words, deeds, and investments, those businesses will be best placed to both address these major threats and to generate the new technologies, products and jobs necessary to help save the world from a changing climate. So let’s applaud those companies which have signed on to the Carbon Pricing Leadership Coalition and hope that they use their ingenuity to help find new solutions in a carbon constrained world.


Catherine McKenna, Minister of Environment and Climate Change
Air Canada
Barrick Gold Corporation
BMO Financial Group
Canadian Tire Corporation
Carbon Engineering Ltd.
Catalyst Paper Corporation
Cement Association of Canada
Cenovus Energy Inc.
Desjardins Group
Enbridge Inc.
IKEA Canada
Loblaw Companies Limited
Resolute Forest Products Inc.
Royal Bank of Canada
Shell Canada
Suncor Energy
TD Bank Group
Teck Resources Limited
The Co-operators Group Limited
TransCanada Corporation
Unilever Canada Inc.

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