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Preparing your business for the low carbon economy




On the back of the historic 2015 Paris Agreement, governments have pledged to meet substantial greenhouse gas emission reductions. The outcomes from these pledges will be felt by organisations and individuals around the world, including New Zealand. Are you prepared?

 

Global overview

It can be argued that climate change is the largest issue facing society today and with global greenhouse gas emissions rising by 4% per year on average over the past 15 years, society is starting to realise that immediate action is needed.

The Paris agreement in December 2015 was a landmark moment in the united fight to address global warming. So far 178 nations have signed the agreement and 19 have ratified it. In many countries carbon measurement and disclosure for large businesses and investors has become a legal requirement (e.g. France). Cities worldwide are pledging to become carbon neutral (Sydney recently pledged to become net carbon neutral by 2050) and countries are progressing towards and achieving 100% renewable energy generation (The Danish Government Energy Plan seeks to have 100% renewable power and heat by 2035, and 100% renewable energy in all sectors by 2050).

As a result of this relatively recent activity global carbon prices are on the increase, as the following graph illustrates  and many economists predict carbon prices to reach NZ$50-200 depending on the boldness of central Government Climate Change policies.

 

The situation in NZ and implications for businesses here

The pledge NZ submitted for the Paris conference in December was an improvement on earlier reduction targets but still below the global requirements if catastrophic climate change is to be avoided. Our government is aware of this and is likely to renew its reduction target.

The NZ Emissions Trading Scheme (ETS), launched in 2008, was designed to bring NZ GHG emissions down, in line with targets set at that time. It is generally accepted that it has failed and is not a sufficient mechanism through which new targets can be achieved. The ETS is currently under review with significant changes likely.

Environment Minister Paula Bennett has reportedly signalled that the current two for one deal (companies must only purchase one NZU for every two tonnes emitted) will be replaced by full surrender obligations in the near future and this change would be strongly felt by all New Zealanders, particularly businesses with ETS trading obligations. Throw in an increasing carbon price and the impact will be even greater.

Businesses that rely on products and services from companies in the ETS will also be impacted. This means most businesses, as fuel and electricity prices will increase.

What should I do to prepare?

Carbon intensive activities are going to cost NZ businesses more and more in the coming years. Consumption of electricity, combustion of fuels and disposal of waste as common business activities are all implicated.

The table below shows ETS costs for electricity and fuels for a number of carbon price scenarios where full surrender obligations are in place.

NZ ETS Cost

Carbon price

$10

$17 (current price)

$25

$40

Per litre petrol

2c

3c

5c

8c

Per litre diesel

3c

5c

7c

12c

Per kWh electricity

<1c

<1c

1c

2c

Per GJ natural gas

54c

92c

$1.35

$2.16

Per GJ sub-bituminous coal

90c

$1.53

$2.25

$3.60

Businesses need to become more efficient and are best placed to achieve this through the development and implementation of a carbon management plan (CMP).

A CMP typically involves:

  • the measurement of your base line carbon footprint
  • identification of carbon intensive hotspots (sometimes called “pinch points”)
  • setting of carbon reduction targets
  • design and implementation of projects to address the hotspots
  • monitoring progress against the targets and the review and update of the plan.

With a CMP in place you will you benefit from cost savings associated with efficiency gains and avoided ETS pass through costs.

Other benefits from implementing and disclosing CMPs include:

  • maintaining current market relationships. Businesses of the future will cease trading with partners or suppliers that don’t make an effort to reduce their environmental impact
  • creating new market opportunities with customers wanting to do business with carbon conscious partners or suppliers
  • higher likelihood of investment
  • a better internal culture where staff know they work for a business that cares.

Want to learn more on how to future proof your business with a CMP? Catalyst will be holding a free seminar and workshop in Auckland and other centres later this year. Register your interest here or contact Wymond Symes directly if you want to know more.

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