The Zero Carbon Bill: what does it mean for business?

27 November, 2019 by
FMCG Business

By Phil Jones

At last year’s SBN Annual Conference, Minister for Climate Change James Shaw outlined the government’s aim to establish a new legislative framework to address the environmental and social crises of our time. It includes a suite of changes with the aim of setting a foundation to tackle climate change and enhance social wellbeing over the next few decades.

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Minister Shaw likened it to the scale of transformation brought about by the neo-liberal economic reforms of the late 1980s and early 1990s. Some might say, “but in a good way”.

It is within that context that so many have welcomed the recent passing of the Climate Change Response (Zero Carbon) Amendment Bill – fortunately better known as the ‘Zero Carbon Bill’.  With our net emissions continuing to rise, and as the world warms, the need for urgency has never been greater.

The passing of the bill is the culmination of efforts by many: from advocacy group Generation Zero and fellow advocates who created the vision; by the masses who campaigned for it over recent years; and those who engaged positively during the bill’s development. The business community (especially the Climate Leaders Coalition) has also played a leading role in advocating for change.  Without doubt, though, the main credit must go to Minister Shaw, his team, and the Environment Select Committee, for their painstaking crafting and guiding of the bill into law – an heroic effort.

It is very much the end of the beginning. Now the real work begins, to transform to a zero carbon economy over the next 30 years; and doing so in a way that looks after those adversely affected.

What the bill does is set a framework for that transformation. It sets the emission targets for 2050: net zero for most greenhouse gases and 24-47% reduction for biogenic methane. It establishes the independent Climate Change Commission, to advise on interim targets (or budgets) and policy, and to report on progress. Importantly, it also requires the government to lead the work to prepare for (adapt to) the effects of the temperature rise and climate changes that are already ‘locked in’.

The framework is based on the UK model, which has existed since 2008 and delivered significant emissions reductions to date (mainly from the electricity generation sector). The UK example also shows that we are far from leading in this space – most countries are taking meaningful action, with a few notable exceptions. Our Zero Carbon Bill positions us as a fast follower and is an essential protector of NZ’s environmentally responsible brand overseas.

The bill is not perfect. Gaining the support of all four main political parties required compromise. In these populist times, this consensus is probably welcome – and a political acknowledgement that most New Zealanders recognise climate change as an urgent issue. It remains to be seen whether the compromises will limit the effectiveness of the changes in achieving the target.

There are gaps, too. For example, emissions from international aviation are not within scope of the targets (they are excluded from international carbon accounting rules), even though they have increased nearly threefold since 1990. However, the new commission has been instructed to consider their introduction.

Of course, with legislation this profound, there has been opposition to the bill. Much of the debate has been over the methane target. That is a complex subject, beyond the scope of this article. However, one thing is probably certain – the economy of 2050 needs to be quite different from that of 2019, and that includes our land use systems.

So, what does this all mean for businesses?

The bill does not have an immediate impact on individual businesses. It does not place any specific obligation, but it signals a direction of travel that all businesses need to be aware of, and respond to. They need to factor it in when setting strategy and investing.

Most importantly, it affirms the need for businesses to move quickly. With the 10% methane emissions reduction target for 2030 now confirmed, it effectively means NZ needs to cut its net CO2 emissions in half by 2030, to be on the pathway to meet our Paris Agreement commitment, ratified under the previous National government.  It is clear we can’t keep our CO2 emissions at current levels and just offset them by planting trees, which has been the predominant response up to now. We actually need to turn the corner within the next few years and make some massive cuts to our carbon usage over the next decade.

As the emission budgets are set and changes to the Emissions Trading Scheme (ETS) implemented, the cost of carbon will increase. Our economy is a ‘carbon’ economy, running on fossil fuels, so those impacts will be significant for many businesses.

Estimates suggest that the emissions price could increase from circa $25 now (per tonne of carbon dioxide equivalent (CO2-e) emissions) to up to $250 by 2050. Products and services that are carbon intensive will become progressively more costly. For example, today the ETS component of one litre of petrol is about six cents; with an emissions price of $250 that would rise to 60 cents. A powerful incentive to shift to low carbon forms of transport, which of course is the intention!

Therefore, it makes sense for businesses to understand their carbon footprint. Knowing this will help them to understand the carbon ‘hotspots’ in their operations and supply chains. It will enable better-informed decisions. There are various footprinting options depending on the size and circumstance of the business.

However, this is not just about cost. The flipside is the opportunity for innovation. Innovation is often a response to constraints, and climate change has been described as the ultimate set of constraints.

Larger businesses and sectors directly affected by rising emission prices will have powerful incentives to innovate or suffer. For smaller businesses and entrepreneurs, developing innovative low carbon products and services is a prime business development opportunity. Recent climate action by young people shows how much this issue means to them. They will increasingly be looking to make values-based decisions when shopping and businesses need to respond with authenticity.

Many businesses are already taking the lead in positive action, in areas like EV car share, charging networks, electric boilers and many more. The Zero Carbon Bill and other government initiatives provide the foundation for many more to follow with greater confidence. All businesses need to step up.

Looking back in 2050, Thursday 7 November 2019 could well be seen as a defining day in our history – when NZ took a decisive first step to become a zero carbon nation.

Phil Jones works in the SBN-Advisory team at the Sustainable Business Network. Please email him ([email protected]) if you want to discuss what these changes may mean for your business.