Brian Fallow 's Opinion

The Economics Editor of the NZ Herald

Brian Fallow: The upside of climate change

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New Zealand's experience in using renewable energy could help it to develop future 'cleantech' projects. Photo / Alan Gibson
New Zealand's experience in using renewable energy could help it to develop future 'cleantech' projects. Photo / Alan Gibson

A group of business leaders is urging the Government to set a up a taskforce to scope the opportunities and quantify the benefits of a "clean technology" strategy for New Zealand.

Both at the national and the global level, the debate over what to do about climate change tends to focus on costs, and how much can be offloaded on to someone else.

Very little attention by comparison is paid to the upside, the opportunities, the economic potential.

Yet one man's cost is another man's livelihood; the trick is to be the other man.

In one important area the Government obviously gets this. It has fostered an international alliance of countries to collaborate on research into reducing agricultural emissions.

But it should not end there.

Globally the lion's share of emissions arises from the use of fossil fuel in the energy (including transport) sector.

The International Energy Agency (IEA) estimates it would take additional investment of about US$10 trillion ($13.7 trillion) in today's dollars in the energy sector over the next 20 years to contain atmospheric greenhouse gas concentrations at levels consistent with the target of limiting warming to 2C - about the only number the Copenhagen conference endorsed.

But the IEA says that would be more than offset by savings in the cost of fossil fuels, including an estimated US$6 trillion in transport fuels alone.

It is not a trivial sum but to calibrate the scale a bit, the IEA also estimates that on a business-as-usual scenario, the cumulative investment needed to meet the world's burgeoning energy needs from traditional sources by 2030 would be US$26 trillion or the equivalent of 1.4 per cent of global GDP a year.

Put another way, the US$10 trillion could be seen as an estimate of the potential global market for clean technology over the next 20 years.

If New Zealand firms could capture just 1 per cent of that market, it would be worth US$5 billion a year.

Against that background an informal group of around 50 business leaders has been pressing the Government to look on climate change not just as a risk to be managed or a cost to be allocated, but a potentially transformative opportunity to be seized.

They include Warehouse founder Sir Stephen Tindall, Air New Zealand's Rob Fyfe, Les Mills' Phillip Mills, Sealord's Graeme Stuart, Icebreaker's Jeremy Moon, and such prominent Blue Greens as Rob Fenwick and Guy Salmon.

The case they make is multi-faceted.

Part of it is about the potential for new growth in the economy, especially where the country has some advantage in natural resources or know-how to leverage off.

Partly it is about businesses capturing the savings to be had from using inputs like energy more efficiently.

It is also about shoring up the national clean, green brand, which is increasingly under threat.

And more broadly it is about reducing future risks to the economy ranging from oil shocks to carbon tariffs imposed on countries seen as free-riders.

Cleantech is often seen as the "next big thing", as important over the coming decades as information technology has been over the past few decades.

It certainly seems to have momentum. A PricewaterhouseCoopers report puts its share of venture capital investment in the United States in 2008 at 15 per cent or more than US$4 billion - 15 times what it had been five years earlier.

In light of our large current account deficit and heavy reliance on imported capital, if New Zealand is to attract some of that smart money the regulatory environment will need to be stable, progressive and inviting.

Some obvious areas to focus are where we have an untapped natural resource, like geothermal steam, tidal and wave power, and biofuels.

But it is not just a matter of taking advantage of the country's relatively generous endowment (per capita) of renewable energy sources.

It's about using the development of those resources to build up world-class intellectual property and exportable expertise.

The Kyoto Protocol set up a system, the Clean Development Mechanism (CDM), under which climate friendly projects in developing countries which meet certain criteria can generate credits which developed countries can buy to count towards their emissions reduction targets.

This is already a multibillion-dollar market.

A report for the Ministry of the Environment by the international law firm Baker McKenzie, which is active in environmental law, concluded New Zealand has a wealth of experience in renewable energy and other clean technologies which could be of use in CDM projects, for instance in the Pacific.

Baker McKenzie saw a lack of detailed knowledge about how the CDM system works as the main barrier to New Zealand cleantech firms taking up this opportunity.

The business leaders' group sees this as one area where the Government could play a facilitative role.

They also stress the opportunities for bottom-line as well as environmental gains from a stronger business focus on energy efficiency.

This is the less glamorous end of the business but the scale of the opportunity is easy to under-estimate.

On a global level the IEA estimates more than half of the emission reductions needed by 2030 to keep warming below 2C could be achieved by efficiency gains, roughly twice as much as it sees coming from expansion of renewable energy.

And clearly to the extent that this requires capital expenditure, it represents a business opportunity for someone.

More broadly the Government needs to consider if it makes sense, having (rightly and belatedly) imposed a carbon price on the economy through the emissions trading scheme to see that money all flow to the order books of foreign companies.

Is it enough to set up a market and then stand back, arms folded?

Or should the Government consider some of the interventions other governments are adopting in order to position their economies for a carbon-constrained future? Measures like tax breaks, R&D spending, feed-in tariffs, efficiency standards. Complementary measures, in short.

These are questions which should not be ruled out of consideration a priori, based on ideological fastidiousness.

They are issues which could usefully be explored, with a stock-take of cleantech opportunities, by the sort of business/government taskforce the business leaders' group is advocating.

- NZ Herald

Brian Fallow

The Economics Editor of the NZ Herald

Brian Fallow is the New Zealand Herald's economics editor. A Southlander happily transplanted to Wellington, he has been a journalist since 1984 and has covered the economy and related areas of public policy for the Herald since 1995. Why the economy? Because it is where we all live and because the forces at work in it can really mess up people's lives if we are not careful.

Read more by Brian Fallow

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