Sustainability: Counting the cost of carbon

Almost half of New Zealand's greenhouse gas emissions in 2014 were from agriculture. Photo / Brett Phibbs

It pays to calculate your company's emissions, writes Adelia Hallett

Is your business counting its carbon yet, or are you and your colleagues still dismissing it as a bit of a hippie fad?

If so, it's time you thought again. Carbon accounting -- the concept of measuring and disclosing the climate-damaging greenhouse gases released in the production of whatever it is you are selling -- is fast becoming mainstream business.

And not just for businesses forced into it by regulations like carbon taxes and cap-and-trade schemes. Across the world, some of the strongest pressure to measure and disclose carbon exposure is coming from risk-averse investors.

"Carbon" is shorthand for the six greenhouse gases -- carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride -- released by human activity into the atmosphere, and measured as carbon dioxide-equivalents.

According to the official Greenhouse Gas Inventory, in 2014 New Zealand released more than 81 megatonnes of these greenhouse gases, giving the country one of the highest per-capita emissions rates in the world.

Almost half (49 per cent) of these emissions were from agriculture, 40 per cent came from energy (heat and transport), 6 per cent came from industrial processes (metals, minerals and chemicals) and 5 per cent came from decomposing waste in landfills.

The Emissions Trading Scheme, which came into force in 2008, was established to give our largest emitters a financial incentive to measure and reduce their carbon emissions.

For several years, the low price of carbon meant there was little incentive to cut emissions, but that's rapidly changing. In January last year, spot NZUs (the domestic carbon unit which is now the only credit that can be used under the ETS to offset emissions) were $6. Now they are trading in the $18 range, and are expected to hit $20 by the end of the year.

So for a company like Genesis Energy, which owns the Huntly coal-fired power station and emits two megatonnes of greenhouse gases a year, carbon accounting makes good business sense.

But why is it important for companies that aren't forced into it by the ETS?

For a start, the scheme we have now is not the one we will always have. Already, the agricultural sector is being forced to measure and report emissions, despite being specifically excluded from liability for them, and would come fully into the scheme under a Labour-Green Government.

Carbon accounting ... is fast becoming mainstream business.

Then there's the issue of procurement. Companies that are counting carbon want to know how much of it is embedded into the goods and services they are buying, so increasingly, suppliers will be asked for this information.

Customers are another source of pressure. More and more consumers in Europe and North America want to do what social trends researcher Jill Caldwell has called "walking lightly on the Earth in designer shoes". In other words, they will pay for products they are confident have been produced in ways that do not damage the environment, and will punish products that are not.

Then there's the straight financial argument that cutting carbon also reduces costs -- by reducing energy usage for example.

But the real game-changer for business is the Paris Agreement on climate change, negotiated in December last year, signed by 174 countries in New York in April and expected to be in force by the end of the year.

That agreement, which replaces the Kyoto Protocol, for the first time locks every country in the world into making deep emissions cuts.

New Zealand has made a conditional commitment to cut greenhouse gas emissions by 11 per cent on 1990 levels by 2030, and will come under pressure to increase this.

In order to meet the Paris Agreement goal of keeping climate change within 2C of warming (with an aspirational goal of 1.5C), the world is going to have to be carbon-neutral by 2050. Globally, the reaction has been swift. Investors are realising that it doesn't make sense to have their money tied up in fossil-fuel assets which are likely to be stranded.

The G20 has commissioned former New York Mayor Michael Bloomberg to investigate and make recommendations on the issue of carbon exposure, while in New Zealand and Australia, the Investor Group on Climate Change, representing $1 trillion worth of investment, says companies that do not disclose their carbon exposure risk being sued.

Last year, $100 billion was invested globally in climate bonds (bonds that are used to finance low-carbon and climate-resistant infrastructure), up 16 per cent on 2014.

New Zealand has made a conditional commitment to cut greenhouse gas emissions by 11 per cent on 1990 levels by 2030, and will come under pressure to increase this.

Toyota New Zealand managing director and Sustainable Business Council chair Alistair Davis told Carbon News last month that every New Zealand business should now be asking themselves how they are going to cut emissions to meet New Zealand's commitment, and his sentiments are being echoed by a growing group of business leaders.

Counting carbon is now part of doing business.

Adelia Hallett is editor and publisher of Carbon News, www.carbonnews.co.nz, a daily news service covering the carbon markets and sustainable business.