There was much talk in the past about “greeniums” – price premiums that could be commanded by goods and services that are greener/more sustainable/more responsible than similar goods and services. I’ve never been a proponent of that because there are very few successful examples. New data indicates that success in greening goods and services may hinge on doing just the opposite – keeping prices low.
A recent study by LeapFrog Investments, CGAP and Temasek found that the top four most investible opportunities for private capital represent “opportunities where the price of green goods and services is out-competing incumbent technologies.” In other words, cheaper goods – not premium-priced products – are the way to go. The study emphasizes the need to ensure that low-income populations are part of the solution – and you can’t do that with greeniums. And speaking of low-income populations, the study points out:
“a significant share of projects that generate carbon credits are already located in low- and middle-income countries … there is an increasing opportunity to leverage revenue from the sale of carbon credits to improve the affordability of green technologies and practices…
A range of innovative emerging market green companies have already begun using carbon revenues to bring down the cost of their products. Kenyan startup Koko Networks, which sells bioethanol cookstoves designed to replace charcoal use, has raised more than $100 million from the sale of carbon credits. These revenues allow the company to subsidise the cost of its stoves by 85%, and make its fuel 40% cheaper than charcoal…”
I’m not a fan of the voluntary carbon market, but this sounds very interesting (although the question about the quality of KoKo’s offsets is valid). Offset project developers may cringe at reducing their take by subsidizing other things for other people.
Kind of in the same realm comes from Shenzhen in China. According to Reuters, the city is:
“promoting ‘carbon coins’ to commuters to earn and trade for shopping vouchers and travel cards in a push to get households to join China’s fight against climate change. The southeastern city’s ‘Carbon Road for Everyone’ scheme, which rewards people for logging their use of public transport, is one of dozens around China encouraging citizens to ditch cars, plant trees and cut energy use.”
Will paying people to use less become a thing? Probably not in capitalist markets, but companies may be able to learn something from the experiment (maybe a merger of frequent flier miles and the Biggest Loser?). Companies should carefully assess their pricing and market strategies through a climate/sustainability/responsibility lens. Relying on greeniums for margin improvement may a recipe for failure for consumer goods. Instead, it may be better to figure out how to leverage high volume over high margin for green products.
If you aren’t already subscribed to our complimentary ESG blog, sign up here: https://practicalesg.com/subscribe/ for daily updates delivered right to you.
