Climate Change Series Can business “save the planet”? The answer is unquestionably “no”, if one means by this “business, on its own”. Businesses respond to incentives. But climate change is what economists call an “externality”. Businesses will respond – or, in the technical jargon, “internalise” externalities – only if it is in their interests to do so. It is government’s job to ensure that it is.
It is not in the interest of profit-seeking businesses to internalise externalities, since they will then be unable to compete with competitors who do not. It is particularly hard to do so when internalising the relevant externality is costly and the externality is generated by the activities of a large number of producers.
