KEY POINTS:
Peter Neilson, chief executive of the New Zealand Business Council for Sustainable Development, talks about the Government's new system for reducing carbon emissions.
What kind of businesses will be most affected by the new system?
Every business will be affected in some way. The emissions trading
scheme is expected to initially cover about 200 large emitters. But most businesses will be exposed to the price on carbon through air travel, vehicle and energy costs, and the imbedded carbon cost of the inputs they use. Here, any carbon charge will be flowing through from large emitters. But we can expect large emitters to look to reduce energy and other costs to cut their carbon bills to stay competitive. How can I work out if I will need to buy or sell emissions?
We'll need to await the fine print of the policy but every wise company owner or director will be looking to measure and manage emissions. This mostly involves energy efficiency measures. For some, energy savings can add millions to the bottom line.
How will the cost of emissions be worked out under the scheme?
The market will work them out. The link to international emissions markets will also influence the local carbon price. The carbon price in an emissions market is set by the cost of reducing emissions. If that goes down so does the market price. It's surprising some of the strongest free market businesses don't want a free market in emissions credits. Emissions should carry a cost for everyone and savings a credit. The proposed emissions trading system will help a business find the cheapest way of living with the overall emissions cap. Businesses can choose if they want to cut emissions. If someone else can do it for less, you can pay them to do it more cheaply (by buying a credit from them).
Can my business plant trees or offset emissions rather than paying for them, and who would want to buy CO2 emissions?
Trees only qualify if part of a recognised emissions reduction project. Market garden owners buy CO2 to inject into glasshouses to force plant growth. However, emissions trading is a market to reduce emissions rather than sell CO2. Emitters who don't have an opportunity to reduce or offset all their emissions will need to buy credits.
What is the biggest source of emission for most businesses?
Air travel, running cars and the power bill. There are ways avoid these costs by choosing to video conference or by buying the right fleet vehicles. Even luxury vehicles are now being produced which have the same fuel and emissions performance as hybrids. The impact of a $20 per tonne emissions charge is equivalent to 4c a litre of petrol. When petrol prices hit $1.71 a litre last year it was the equivalent of a one-off carbon charge of more than $100 per tonne.
Does a system like this exist in other countries, and how has it work for them?
New Zealand will be the first in the world with an emission trading system covering all sectors and greenhouse gases, notably for forestry and agriculture. The European Union has a scheme covering major industrial emitters and is looking to expand it from 2013. Groups of north east and west coast states of the United States have had cap and trade systems on emissions. Australia, the US and others are now working on trading systems. When the US had trading for nitrous oxide (NOX) emissions it worked out less costly than expected because trading encouraged the take-up of technology to cut NOX emissions. When the EU gave away too many credits, the market price collapsed. Since then it has worked more smoothly.