Low-emissions Economy - What do manufacturers need to think about?

14 September 2018

Recently, the Productivity Commission released their final report on a Low-emissions Economy – investigating how New Zealand can effectively transition to a lower-emission economy, particularly meeting the goal of net-zero emissions 2050, while continuing to grow, and improving living standards for our people.

The report, which can be read here, covers a lot of ground – focusing on current and future levels of emissions, and areas which have the most potential for future reductions, as well as the challenges we face as a country to successfully make the transition while maintaining growth. Today I want to look at parts of this report and try to distill what impacts may come to our sector – do we need to be worried, and what changes and opportunities may we expect to come with our transition?

For context – manufacturing makes up 8% of gross Green House Gas (GHG) emissions, with food processing making up 3.5%, chemicals 2.5%, non-metallic minerals 0.6% and other manufacturing sources at 2.2%. Transport contributes 19.1% (90% of which is road vehicle emissions) while agriculture makes up 49.2%.

Firstly, while we have an Emissions Trading Scheme which puts a price on carbon, determined by some sort of ‘market’, the report suggests that in all likelihood, this price will increase over time. Emission pricing is viewed as an effective way to put an incentive on reducing activities.  For those manufacturers who currently face charges through the ETS, either directly or indirectly, investing in process improvements to decrease your exposure to future price increases where possible will be critical.

Modelling in the report suggests that prices may need to rise to $75 a tonne of carbon dioxide equivalent, and potentially as high as over $200 a tonne in the next three decades. If this is the case, we really needs to see international agreements continue to ensure all countries respond in a similar way to us to ensure there is a level playing field.

In regards to electricity supply, the report suggests that our generation will need to increase by at least 50% from current levels by 2050.  Such an increase in demand will require significant investment – if we fail to keep up with new generation, electricity prices may increase, putting pressure on manufacturers and jeopardising the switch away from fossil-fuels.

Aside from carbon and electricity pricing, the transition to a lower-emission transport system may impact manufacturers. The report focuses in large part on facilitating the move from our current high emitting fleet to electric vehicles (EV’s) over time. For manufacturers, the main concern is how the transition impacts both pricing and time-on-the-move for freight, as well as how it impacts employees’ travel costs.  We are already seeing higher travel costs for employees to get to and from work with higher petrol prices. This is exacerbated by rising housing costs which are forcing many workers to live further away from where they work, especially in the major centres.  If the transition is not managed in a way which keeps forms of transport accessible to all workers this may add to our already troubling skill shortages. 

Overall – it’s clear a lot of work needs to be done to support and create settings and policies in which our economy can successfully transition to a lower-carbon economy.  For manufacturers, while we are not a large overall contributor to emission, there is a real potential for direct and indirect costs associated with this transition.  The other risk is more unknown – from symbolic political reactionary policy which is not thought through and effective. Setting up well-informed and more apolitical groups like the independent climate commission as suggested in the report may help to reduce this risk and provide clearer expectations of future policy change for us to work with. It’s worth noting that the period of transition may also be a time of opportunity for those in our industry – innovating and creating new technology and processes can give us a leg up and even create new products and revenue sources.    

So should you be worried?  Ultimately, the core challenge we face is continuing to improve productivity and become more efficient in our own businesses.  This will not only help us thrive and compete in the short term, but will often mean lower effective emissions per unit of production.  Let us not forget, either, that in all likelihood the biggest risk your business is going to face in this area are demands from your customers in international markets that you need to provide them with hard evidence of your sustainability credentials in the area of energy consumption / low-carbon-emissions. These demands sometimes come in very quickly and may, for example, involve certification schemes and agencies not even available in this country.