Decarbonizing while remaining competitive

How can the private sector contribute to net emissions? What types of business innovation lead to decarbonization without losing competitiveness? And more importantly, what is competitiveness or what does it measure? Is there really a choice between competitiveness and decarbonization?

Business and industry can adopt a wide range of measures to reduce their impact, from recycling as suggested by Cristina Rivero in Building a Net Zero world, to buying clean energy What can be done to make them mainstream?

The role of business in net emissions

Companies play an essential role in the transition to a low-carbon economy, as they account for a significant part of both direct and indirect GHG emissions, as shown in the National Greenhouse Gas (GHG) Inventory.

Although it focuses on energy generation (75.4%), agriculture (12%) and industry (8.3%), all of this must also be attributed to the companies that consume it. When any company uses energy, buys materials or opens a new site, they have some impact on emissions, water or biodiversity.

Types of business innovation for decarbonization

Business innovation is a key tool to drive decarbonization without compromising competitiveness. These are the usual types of business innovation for CO₂ reduction:

• Technological innovation. Creating or improving products, services or processes that use cleaner and more efficient technologies, such as renewable energies, energy storage, electric mobility or the capture and use of CO₂.
• Organizational innovation. Introducing or modifying practices, structures or systems that optimize the use of resources and minimize environmental impacts, such as waste management, circular economy or corporate social responsibility.
• Social innovation Developing or adapting solutions that respond to the needs and expectations of stakeholders and generate shared value, such as citizen participation, environmental education or social inclusion.

However, in this analysis, it is essential to take a step back and understand what competitiveness is. Can a polluting company be competitive? Obviously, it should not.

Competitiveness must include environmental impact

One current problem with competitiveness is that it is only measured in euros, missing key dimensions such as land use, biodiversity loss, carbon emissions, water use and several dozen lesser-known ones, including social sustainability.

Something similar occurs with global indices such as the HDI. There is a positive relationship between emissions and the Human Development Index because the latter does not include emissions as something negative, and for this reason the United Nations Development Programme (UNDP) is looking for alternatives.

In other words, a company cannot be defined as competitive if it generates externalities. Historically, a company that discharged CO₂ into the atmosphere could be competitive against another because those emissions did not count in the competition. What is the solution?

Some types of business innovation resulting from internalizing externalities

To recycle, buy green energy or look for ethical suppliers, companies need to internalize their costs and scopes within the selling price of their products and services, given that the end customer tends to opt for the most competitive and this should be the one that is the cleanest. This has happened before:

• Today’s combustion engines are much cleaner than those of past decades, due to EURO standards. Since it costs money to pollute, customers are increasingly opting for cleaner cars.
• Regulating appliances on a color scale helped customers opt for the most efficient brands because they saved buyers the most money. This boosted innovation.
• Increasing the cost of CO₂ while giving green premiums to research. That’s how solar panels reduced their cost, from $100 a watt in 1975 to $0.27 in 2021. And falling.

If decarbonizing the economy is a 21^st century imperative, including externalities and impact within the concept of competitiveness is a prerequisite for achieving this milestone.

Different types of business innovation emerge as the right conditions come to be, at which point that innovation becomes a wave of disruption.

It is necessary to support conditions that help to innovate in decarbonizing, so that we do not have to choose between decarbonizing and being competitive, because both are exactly the same.