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How can business address climate change?

In December 2015, 195 countries gathered at the COP 21 Paris Climate Conference and agreed to take significant action to combat climate change, signing up to the first-ever universal, legally binding global climate deal. Coming into force as of 2020, the agreement aims to keep global average temperature rises to well below 2°C above pre-industrial levels.

The historic deal is set to affect everyone across the globe, from individuals to policymakers and to businesses, and an effective framework for change, therefore, becomes vital.

Businesses are central within this debate as they must deliver the innovations and also develop new energy solutions to lead us to a zero-carbon world. They will be also facing new government policies arising as a result of the Paris climate agreement.

Some effects of climate change are inevitable and therefore businesses must also invest in adaptation accordingly.

A core challenge for business is set to be carbon pricing. The European Union currently runs the world’s biggest emissions-trading system and carbon markets are set to dramatically increase in importance as they are extended to China, possibly the US and other parts of the world. Other countries might also introduce carbon taxes in the near future. Such policy instruments, by putting a price on carbon, shift the incentives for companies to reduce the emissions resulting from their production process or the consumption of the goods they produce. This then impacts their investments and innovation decisions and hence the long term realisation of a low-carbon economy.

Imperial College Business School has the expertise to understand how firms react to carbon markets; for example, as part of a wider research programme we are currently interviewing 100 firms in China to understand how they deal with the pilot emissions trading system and how that policy interacts with anti-pollution measures. In the EU, we have analysed how companies alter their emissions as a result of the policy. We have found that they reduced these significantly by close to 15 per cent, despite the low price prevailing on the market. It is also key to understand how they adapt their management practices; their innovations and what they invest in. And by understanding this better, we can help businesses work with these carbon markets, to make the most out of them.

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About Dr Mirabelle Muûls

Dr Mirabelle Muûls is a lecturer at the Grantham Institute and an Assistant Professor in Economics at Imperial College Business School. She is also a Research Associate in the Centre for Economic Performance at the London School of Economics.

Mirabelle studied economics at the FUSL and Université Catholique de Louvain in Belgium, and holds an MSc in Politics of the World Economy and a PhD in Economics from the London School of Economics.

Mirabelle’s current research focuses on the economics of climate change, seeking in particular to understand the impact of climate change policies and climate change on firms’ emissions, energy efficiency, innovation, competitiveness and performance. Her research interests also cover international trade and globalisation.

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Written by Dr Mirabelle Muûls Published 23 February 2016 Categories Finance Topics Climate Change, COP 21, Management Share Download as PDF