Climate warning for NZ business: 'adapt or get left behind'

Kiwi businesses need to get on top of their emissions now or risk being caught out by new legislation, a new report has warned. Photo / File

Kiwi businesses need to get on top of their emissions now or risk being caught out by new legislation, a new report has found.

The report, just published by law firm Bell Gully, looked at proposed changes to the Emissions Trading Scheme (ETS) which could mean many companies may find it harder and more costly to gain access to units they need to meet obligations.

The Government recently announced it would put a cap on the ETS, limiting the number of units that could be traded under what remained the country's main tool to counter climate change.

Its proposed Zero Carbon Act would introduce this cap through both a net zero emissions target for 2050, along with a requirement on the Government to have three five-year emissions budgets in place at any given time, as short-term targets.

From these caps on emissions, emissions pricing was expected to become a much more material issue for business through to 2050 and beyond.

Currently, the only eligible emissions unit in the ETS was the New Zealand Unit, or NZU, which were presently sitting around the effective legislative cap of $25 on the spot market.

Yet, some of the more moderate and optimistic scenarios suggest carbon prices of approximately $100 to $275 per tonne of emissions, depending how ambitious the new act's target would be.

While those cost rises appeared dramatic, the Government had flagged them early in the hope of giving businesses more clarity around what lay ahead in the next 30 years.

The report's lead author, Simon Watt, said businesses may have previously passed all costs down the supply chain and relied on availability of NZUs at a modest cost to meet their obligations.

But that couldn't last.

"Meeting ETS obligations has been a fairly administrative and relatively low-cost thing to do over the last five or 10 years, but soon it is going to need to be more actively managed and require more attention," Watt said.

"Now is the time to get ready. Businesses that are exposed to climate change risks should feature it on their board agenda at some point this year – and once it gets on the agenda it should stay on and be kept under review."

The report noted the greater certainty offered by proposed climate change legislation would be good for business.

If businesses took the chance to review climate change risks early and seek out new opportunities as the economy transitioned, and make good decisions around processes and how carbon emission risks were allocated in their supply contracts, there was scope to reduce and minimise costs in the future.

Regardless, the path ahead was to a low-emissions economy.

Climate change would pose real challenges for some businesses, and the rising cost of carbon could materially affect asset values and operating costs, Watt said.

"Business must adapt or risk getting left behind."

Similar warnings have been signalled in the World Economic Forum's just-issued Global Risks report for 2019.

That report, which polled around 12,000 senior business leaders and executives from the global risk industry, singled out climate change adaptation and extreme weather events among its five biggest risks of doing business in New Zealand.

Sustainable Business Council executive director Abbie Reynolds said while climate change had long been regarded as a purely environmental risk, today's report highlighted it was also an economic one.

"But it also presents opportunities. It's why we're proud to support the Climate Leaders Coalition who are sharing what they have learned about how to reduce emissions and looking for solutions together," she said.

"The Climate Leaders Coalition is now at nearly 80 businesses representing over half of New Zealand's emissions."