By now you will have put in your submissions on the Government’s five draft strategy documents about sustainable economy. You will know your carbon footprint and be working on how to reduce it short term. Your strategy group is working on the long-term prospects for your industry with an emission price between $20 and $80 per tonne of carbon dioxide equivalent. Meanwhile, you are drafting transition plan to redesign your business and your innovation group is focused on new opportunities in the new carbon constrained world.
Well perhaps not. Perhaps you are sceptic on the science and believe that this will all go away – it all sounds too much like Y2K, SARS or bird flu. It would not be good idea to take this approach.
Though we seem to be treating this as new issue, it is far from that. In the latter half of last year series of events – Al Gore’s ‘An Inconvenient Truth’, the Stern Report and the International Panel on Climate Change (IPCC) scientists’ report – moved public opinion and started to change mass consumer decision making. However, the debate started to get global warming on the agenda in 1987 through the Montreal Protocol, moved via the Rio Earth Summit in 1990 to the Kyoto Protocol in 1997. That was nearly 10 years ago. This issue already has longevity.
A number of things will keep it in the public eye. Between writing this article and you reading it another IPCC report will have been released. Every extreme weather event will be reported as climate change issue.
And there are number of political forces at play. They are most evident in the United Kingdom with the Labour and Conservative parties trying to out green each other and number of other European countries which have had green legislation for many years.
A sensible approach is to expect change and, in particular, world where emitting greenhouse gases has an associated charge.
So what should business be seeking from Government? Some indication of the long-term strategy for dealing with this. Anyone investing in long-term assets will need to be building in possible future carbon costs but the devil will be in the detail. Areas where steer would be useful include:
•How price for carbon might be determined and what mechanism will be used to apply this. It seems form of carbon trading is the preferred method and this is to be applauded. Carbon trading should provide mechanism for reducing emissions at the lowest cost and is designed under cap and trade system to give specific outcome.
In the short term regulation may bolster carbon pricing where that mechanism does not give rise to price signals that impact behaviours. Knowing the design of the system which will be implemented in the long term is essential.
•How the Government will help business manage the transition. Design of carbon trading systems is important here, as is whether there will be grandfathering of baseline emissions or what other system will be used in transition to (probably) an eventual full inclusion of all emissions.
•How the system will deal with the impact of competition on business which could be considered as competitively at risk, particularly when competing against businesses based in countries with no emissions costs. Businesses would also benefit from knowing what the relationship with international markets in carbon will be.
•What to do when it seems there is little business, for example agriculture, can do to reduce emissions.
•What the national targets will be and how they will be measured and monitored.
Some businesses are well ahead in their thinking. There are number of places where you can determine your carbon footprint and buy offsetting credits – CarboNZero, owned by Landcare Research, is one – and some are already trading internationally in carbon credits. Others have parent or subsidiary organisations trading in Europe where there is deal of experience in carbon pricing. So find out what can be done and as starting point measure your carbon footprint so you know how big the issue is for you. Think how energy intensive your business is and how this could be reduced.
We are likely to be entering period of dramatic change in the cost of one of the major ingredients of business – the emission of greenhouse gases. The reductions required are significant – 80 percent according to the Stern Report, 60 percent targets are being suggested in the United Kingdom – and at this level the marginal price is high – 40 Euros or about $80 according to recent report from McKinsey. At US$40 per tonne for carbon, it represents an 8c per litre petrol price rise in New Zealand.
We have coped with more sudden shocks of this magnitude before. It is time of great business opportunity as well as risk. Rethinking your business and how you create and market your product may be the opportunity of lifetime.
Nick Main is chairman of Deloitte and also chairs the New Zealand Business Council for Sustainable Development.