Carbon footprinting and pricing under climate concerns

Date:
August 5, 2020
Source:
American Marketing Association
Summary:
Marketers can lead how their companies can use the cost and demand
effects of reducing the carbon footprint of their products to
determine the profit-maximizing design.



FULL STORY ========================================================================== Researchers from Esade, University of St. Gallen, HEC Paris, and Columbia University published a new paper in the Journal of Marketing that
explores the conundrum faced by firms that want to reduce their impact
on the climate: Green products and their popularity with consumers can
lead to an increase in sales and, with it, an increased carbon footprint
for the organization as a whole.


==========================================================================
The study, forthcoming in the Journal of Marketing, is titled "Carbon Footprinting and Pricing Under Climate Concerns" and is authored by
Marco Bertini, Stefan Buehler, Daniel Halbheer, and Donald Lehmann.

"How dare you continue to look away." This statement angrily made to
world leaders by teenage climate activist Greta Thunberg brought the
climate change debate sharply back into focus at the 2019 UN Action
Summit in New York.

Reducing greenhouse gas emissions has been on the world agenda for decades
(197 nations formally committed to reducing carbon emissions at the Rio
de Janeiro Earth Summit in 1992). But public opinion has reached a point
where "business as usual" is becoming increasingly difficult to justify.

Marketing professionals play a critical role here because they represent
the voice of consumers among internal stakeholders. They sense and measure changes in consumer preference and champion these emerging trends within
their firms.

There is also a second element at play in the drive towards carbon
neutrality: Climate concerns reduce profitability.



==========================================================================
In both regards, the role of marketers is crucial: They channel climate concerns back to the firm, along with their impact on product design
and prices, the climate impact of the firm, the profitability of carbon offsetting, corporate social responsibility, and green technology
adoption.

With such a wide remit, managers who are balancing consumers' climate
concerns with stakeholders' business goals should follow these three
steps: 1. Calculate a carbon footprint Media coverage of climate change, particularly the need to reduce the carbon footprint of an organization,
is shown to motivate consumers to make more sustainable consumption
decisions. Following particularly bad press, the airline industry has
been very public in its commitment to carbon offsetting.

EasyJet claims to offset the carbon emissions of fuel for each of its
flights and British Airways promises the same for all its domestic
flights. In the US, JetBlue is the first major airline to pledge to
reach net zero.

The experience of airlines translates to a vast array of organizations in
the manufacturing and service industries. Measuring the climate impact
of their products or services in carbon dioxide equivalent emissions is
a powerful metric and very much in line with the UN's "measure, reduce,
offset" approach in its Climate Neutral Now initiative.



==========================================================================
2. Decrease footprint, increase price Changes in the carbon footprint may increase costs, but they can also increase demand. If the demand-enhancing effect of lowering the carbon footprint of a product outweighs the
overall reduction in carbon footprint, the firm can fall victim to its
own success. The firm could purchase carbon offsets, but that would have
a further impact on profitability. In order to become "net zero" it may
be optimal to increase the product price in order to offer a climate-
neutral product. In this case, going net zero is a win-win strategy:
Climate impact decreases, profit increases.

3. Be proactive with product design Consumers' climate concerns provide
an incentive for firms to produce greener products. But governmental
regulation of carbon use in industrial design with market interventions
such as carbon caps (consumption-based accounting and policy),
cap-and-trade systems (regulations that limit industrial emission levels),
and carbon taxes all reduce profitability.

However, while there are costs associated with climate regulations,
they can also present opportunities. Investing in green technologies
can reduce the cost of compliance and also generate income by selling
the technology that is developed. Setting an internal carbon price --
a shadow price that reflects the true overall cost of production --
allows firms to design products or deliver services that achieve carbon neutrality while also maximizing organizational profits.

Climate concerns are not going to go away. Firms -- and especially
marketers - - must be at the center of the drive to produce products
that pollute less, whether the incentives come from altruism or the demand-enhancing effect of a greener offering. What they cannot do is
continue to look away.


========================================================================== Story Source: Materials provided by American_Marketing_Association. Note: Content may be edited for style and length.


========================================================================== Journal Reference:
1. Marco Bertini, Stefan Buehler, Daniel Halbheer, Donald
R. Lehmann. Carbon
Footprinting and Pricing Under Climate Concerns. Journal of
Marketing, 2020; 002224292093293 DOI: 10.1177/0022242920932930 ==========================================================================

Link to news story: https://www.sciencedaily.com/releases/2020/08/200805091838.htm

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