Business Opportunities and Positives arising from the ETS. Business Opportunities Cluster - Minutes from the meeting on 9 May

Climate Change Leadership Forum report number: 9

Briefing for the Climate Change Leadership Forum
Prepared by Chair of the Business Opportunities Cluster Group
Date: 20 April 2008

Minutes

Climate Change Leadership Forum
Business Opportunities Cluster
9 May 2008

  • Introduction
  • Update on work already underway
  • Business opportunities 
  • Current barriers / solutions
  • Key areas discussed 
  • Suggested workstreams
  • Next steps

1. Introduction

This was the first meeting of the CCLF Business Opportunities Cluster.  By way of introduction and initiating discussion, Julia Hoare suggested that the focus of the group should be to:

  • Identify opportunities: including regulatory and voluntary initiatives
  • Maximise opportunities and make them work
  • Facilitate reduction of barriers
  • Consider initiatives in the context of country, sector and organisational levels

The first cluster session was structured around 4 key questions:

  • Does the Climate Change (Emissions Trading and Renewable Preference) Bill contain any barrier to the development of the voluntary market and recognition of voluntary market credits?
  • Are there project or voluntary activities that would provide cost effective emission reductions as the ETS is being introduced?
  • What are the opportunities / barriers that may come out of putting a price on carbon?
  • What should the NZ Inc strategy be for the post 2012 climate change agreement?

The initial outputs from this cluster meeting are intended to inform the CCLF’s 28 May meeting and to focus specific actions going forward.  The actions may not necessarily be incorporated into the Government’s work program but rather may be recommended by the cluster to stimulate business leaders’ prospective actions and initiatives.

It was noted that the World Environment Day breakfast meeting and subsequent sessions scheduled in Auckland on 4 June 2008 will also focus on business opportunities.  The outputs of the 4 June events should have been incorporated into the cluster group’s considerations. 

2. Update on work already underway

MAF updated the Cluster on specific initiatives around business opportunities already underway.  In summary, MAF have been working on:

  • Footprinting response (including primary sector, PAS/foodmiles, price premium footprinting, supply chain hot spots, and sector methodologies for dairy wines, kiwi fruit and lamb)
  • Voluntary market and compliance
  • Sustainable building strategies, including demand for wood
  • Bioenergy: wood pallets / school boilers
  • Professorships: Biochar, gasification, wood, nutrition
  • Avoided deforestation
  • Soil sequestration
  • Work streams around clean development mechanism, including methodologies and transaction costs

3. Business Opportunities

There was general discussion around specific opportunities, with recognition that consideration and development of these will need to form part of an ongoing workstream.  For the purposes of discussion at the meeting, the opportunities were divided into 5 broad categories:

  1. Revenue generation/ New business
    • Creation of carbon credits: voluntary market and Kyoto mechanisms
    • Carbon market opportunities
    • Weightless’ economy opportunities
    • LULUCF opportunities
    • Green products & services
    • Re-evaluation of internal investment decisions
    • Value of external opportunities
    • Price on carbon will drive creation of new technology and products = the winners
    • Dovetailing new R&D rules
  2. Cost reduction
    • Reduce costs: robust carbon management
    • Energy efficiency
    • Use of new technologies and products
    • Mechanisms for sourcing carbon credits
  3. Protecting value
    • Robust carbon management
  4. Environmental integrity
    • Maintaining New Zealand's green brand integrity and securing existing industries dependent on brand - ie Tourism and Agriculture.
    • Environment receives an economic value
    • Knock-on environmental benefits affecting positive economic development - reduction of water use and drought resistance through sustainable low emissions farming practices.
  5. Community / Country level
    • NZ becomes better prepared for both first order and second order risks
    • Self sufficiency in energy production
    • Infrastructure changes and development
    • Health

4. Current barriers and possible solutions

There was a discussion around barriers to business opportunities, and in particular a specific focus on whether the bill contains any measures which are a barrier to development of the voluntary carbon market. 

The types of barriers discussed/identified were:

  • Anything in current ETS legislation that needs fixing which acts as a barrier?
  • Design of NZ rules and interplay between the voluntary and regulatory markets
  • Post 2012; what will happen and how will it impact?
  • Managing costs & compliance
  • Impact of carbon on business value
  • Emissions trading – other bolt-ons (other regulatory initiatives)
  • Leakage – deferral of investment
  • Calculation of emissions profile based on production vs consumption
  • Strict adherence to Kyoto in NZ ETS design : coal vs wood
  • Carbon intensity
  • Environmental integrity
  • Market volatility
  • Growth and innovation – need for harmonisation
  • Education

5.  Key areas discussed

The Group discussed a number of key areas requiring further work and consideration.

  1. Gap in the voluntary market
    Specifically, the difficulty in generating carbon credits in New Zealand due to the specific design details of the NZ ETS.  The all sectors all gases approach of the NZ ETS, as distinct from the narrow CO2 approach of the EU ETS, means it is difficult to create voluntary market credits in the New Zealand environment.
  2. Carbon Neutrality
    The specific design features and mechanisms in the NZ ETS have created questions around the requirements for carbon neutrality status.  For example, does a business using liquid fuels, which wishes to be carbon neutral, need to purchase carbon credits to cover fuel usage, noting that fuel companies have already covered the full quantum of emissions from liquid fuels by purchasing emission units?  If so, does this mean, that to seek carbon neutral status, such a business effectively needs to pay twice?  Officials indicated that work is underway around this issue.  
  3. Need for a type of Projects to Reduce Emissions (“PRE”) initiative
    There was general discussion around potential delay in timing of introduction of new technologies and possible opportunities for acceleration of technologies that could occur if the government agreed to further “PRE” type  tender rounds. 
  4. Carbon Development Fund
    Consideration should be given to the development of a carbon development fund (similar to the Technology for Business Growth Fund), which could stimulate growth. 
  5. Removal activities
    At this point, there are concerns that insignificant recognition is given under the NZ ETS bill to removal activities.  There was discussion as to clarification and expansion of wording in the ETS bill that could facilitate businesses identifying and creating opportunities from removal activities. 
  6. Traceability of units
    There was a discussion as to whether it was important that emission units are specifically traceable, detailing their origins.  This is was agreed to be important, both in the context of linking and also for those businesses seeking to promote carbon friendly initiatives and offset measures. 
  7. Responding to how the world responds to Climate Change
    There was general discussion as to how New Zealand should respond to international initiatives and drivers, and be light footed enough to take advantage of opportunities.  The Lehman Brothers Report, which adopted a sectoral approach, was discussed as a useful example.  It is important to identify the opportunities and consider where New Zealand may have sectoral advantages.  It is necessary to have both an upside/downside strategy. 
  8. Investment Planning
    Business needs to understand investment planning in the context of a carbon constrained world. 
  9. General business awareness
    Business awareness is patchy.  It is important that businesses understand the implications of a price on carbon, and the opportunities and barriers this may create. 
  10. CDM Facilitation
    There are opportunities for New Zealand businesses to generate carbon credits offshore using the clean development mechanisms.  MAF are working to facilitate accelerating development of some of these technologies: businesses need to be aware and input.

6. Suggested work streams

It was agreed that a number of work streams should be created out of the Business Opportunities Cluster to accelerate the thinking and opportunities.  These include:

  1. Focus on the supply side
  2. Legal barriers including enabling registration, Henry VIII type clauses for alternative mechanisms for the voluntary markets, and future required legislative changes
  3. Pure opportunities workstream
  4. CDM opportunities :Initially MAF / MFE will do a paper on these points

5. Next Steps

It is important to identify other members of the CCLF (or designated appointees) who may wish to be involved and contribute to the focus on business opportunities.

It is intended that the CCLF will also have a separate cluster addressing complimentary measures.  Some of these measures may link closely into business opportunities but, at this stage, both strands would be easier to progress if operated separately.