Pricing global warming: why there's no escape

Business is facing an unavoidable ‘double whammy’ on two global fronts: the recession and climate change.

No business can avoid the issues raised byeither the economic downturn or climate change – including the opportunity to cut costs and grow sales.

And while ‘green politics’ might seem a luxury in a recession, the United States, Europe, other nations and the UN are banking on managing climate change to trigger billions in investment and generate millions of new, sustainable jobs.

The IT sector will be no exception. And the climate change challenge will go on longer than any recession.

But the IT sector seems poorly prepared here compared with its overseas counterparts. It must raise serious questions about how it can fully play its role in keeping New Zealand businesses competitive.

ShapeNZ research last year for IBM and the Business Council for Sustainable Development, covering 2302 business people, with a sub-group of 200 IT managers, showed 65 per cent of respondents believe businesses must become more environmentally sustainable for New Zealand to have continued success in the global economy.

However, only 21 per cent of IT respondents believed their organisation had an environmental or sustainable development strategy – compared to 55 per cent in Australia and 41 per cent in the US.

So what?

So why is an adequate response to climate

change – including pricing greenhouse gas emissions – essential?

Firstly, the science:

* Recent environmental changes and emissions of CO2 from human activities are in line, and in some cases, above the track set out in major reports by the International Panel on Climate Change last year.

Secondly, the impacts will carry huge costs. According to the UN, if the world can’t cut emissions and temperatures exceed 2°- 3° above pre-industrial levels (and we are getting close to that range):

* 20-30 per cent of species will run increasingly high risks of extinction

* abrupt and irreversible changes are possible, such as collapse of the Greenland or West Antarctic ice sheets, which can lead to Sea Level Rise of several metres

* the global burden of disease and premature deaths will rise

* yields from rain-fed agriculture could be reduced by 50 per cent by 2020 in some African countries

* If current warming rates are maintained, Himalayan glaciers could decay at very rapid rates. Decline in river flows as a result could affect 500 million people in South Asia and 250 million in China.

Emissions Trading Scheme

So what’s our response?

To help the world live within a global emissions cap.

New Zealand has committed under Kyoto to maintain its emissions between 2008 and 2012 to 90 per cent of our 1990 levels. We have actually increased them to 26 per cent more than that.

* We don’t have to reduce emissions within New Zealand.

* We can buy emission units from other countries which have cut theirs. The aim is to keep the world within an agreed cap.

* However, the units have a cost – and at this stage the government is provisioning $1.2 billion to buy credits.

* Taxpayers meet this bill – unless it is sent to emitters.

* The ETS is one way of doing this.

As it stands, subject now to Parliamentary review, the emissions trading scheme (ETS) will involve about 400 major emitting companies as points of obligation and will cover all sectors. Forestry entered on January 1 this year. Stationary energy (electricity) joins on January 1 next year, and transport fuels a year later. All sectors are involved in the scheme by January 1, 2013.

New Zealand has a considerable proportion of its exports produced by emissions-intensive industries (like dairying and aluminium) that face competition from countries that don’t yet have a price of emissions.

The principle behind making those who emit above 90 per cent of their 2005 levels under the ETS, as it now stands, is to send a price signal directly to the emitter. This will encourage emissions reduction, and send a signal to invest in other technologies made economic by the imposition of this marginal price on carbon.

Thus, a geothermal power plant might become more economic than a coal-fired one. Or a steel maker might find turning its emissions into bio ethanol, using a New Zealand invention, might cut its emissions and its emissions bill.

The price on carbon might also trigger other major changes: using a million tonnes of woody waste from forestry to make bio fuels; investment in wind and wave energy, forestry expansion; and new technology to reduce emissions from agriculture. Over time we develop a lower-carbon economy and reduce climate change.

New Zealand emissions units can be traded on the world market. Companies can also undertake emissions reduction projects offshore – and count these against their own emissions liabilities.

An IT issue?

It doesn’t concern you or your business?

We will all be participating indirectly when, over time, emissions trading sends the carbon price through the economy. Your IT customers will be looking to you to help them manage and cut their carbon footprint, carbon bills, and make them more competitive.

Behind this will be mega-trends started by the rest of the world’s response to halt global warming.

The European Parliament on February 4 this year voted 570 votes for, to 78 against, with 24 abstentions, to adopt a report recommending detailed measures be taken in key economic sectors to achieve EU climate change policy goals. One of them is IT.

The report noted the ICT sector currently produces 2 per cent of global CO2 emissions – “but the industry is potentially capable not only of reducing its own CO2 emissions but also, in particular, of developing innovative and more energy-efficient applications for the economy as a whole”.

IT is on the hook, and must play its part in helping the world limit global warming to 2 deg C.

Already New Zealand faces distance-based emissions taxes on visitors travelling from the UK. Further, the EU in February this year reaffirmed the need to give consumers information to help them choose lower-carbon products by labelling goods and services.

Several major retailers in the UK have already adopted carbon labelling. If a company is in their supply chain, they’ll be reporting their emissions.

That means the carbon content of electricity used by your customers will end up on a label. You’ll need to help them compete.

Silver lining

Fortunately, doing the right thing for the planet can also mean doing the right thing for your bottom line. For example, IBM cut Auckland University’s IT infrastructure bills in half using latest server technology. One major New Zealand industrial manufacturer has implemented emissions reduction measures that have improved product quality, cut emissions by 45 per cent and put another $10 million a year on the bottom line. Fonterra, through an efficiencies programme, has saved the equivalent of the annual power bill for Hamilton.

While it has taken 15 years for New Zealand to end up with a strong policy response (which is again subject to review), let’s hope there is major agreement among parties and across the country soon on policy. This will be all the more important as New Zealand is most likely to stay with emissions trading.

Businesses with potentially stranded assets will be given transitional assistance. It is currently proposed they receive 90 per cent of their emissions at 2005 levels for free between 2008 and 2012, with support being phased out right up until 2030. Some want more support; others say it’s too generous. Parliament will make a decision, hopefully, soon.

Then we will be equipped to take advantage of the multiple major forces now at work:

* Emissions trading schemes, already running in the 27-nation bloc European Union (receiving more than $6.2 billion of our exports a year); several states of the United States; the Tokyo administration district (where 500 large companies have just volunteered to join); and being joined by others planned in the United States, Canada, China, Australia, Norway, South Korea and Switzerland.

* Trillions in revenue from selling emissions credits being recycled into low-emission energy and other initiatives in our main markets to the benefit of our competitors

* Carbon labelling in our major markets – meaning the need to measure and lower emission content of all of our goods and services will be essential if we’re to compete

* Capturing more of the massive global market among consumers who are worried about climate change and lifestyle and health issues – and who want companies to help them solve the problem: In Australia this consciously drives the purchasing decisions of one in four adults, with a market value of $12 billion a year. In New Zealand it’s 22 per cent of the market, with an estimated value of $2 billion.

The opportunities extend far beyond those posed by a recession: they offer a path to significant product development and sales growth into the next few decades as the world’s population rises, resources fail to meet demand on a sustainable basis, and the world increasingly grapples for solutions to massive problems and costs inflicted by climate change. Try offering this highly-aware market a high-emission, carbon-taxed, ticket to fly to New Zealand, or an uncompetitive carbon label.

IT has an immense opportunity to serve the new low-carbon economy.

Let’s hope that more than 21 per cent of New Zealand IT managers get the message soon.