Businesses Must “Carbon-Proof” To Reduce Impact Of ETS
September 17th, 2008
A new report by PricewaterhouseCoopers advises NZ businesses to “carbon-proof” themselves to minimise costs under the new Emissions Trading Scheme. The Emission Critical report warns businesses need to focus their attention on energy efficiency, and develop robust carbon management strategies to price carbon into all business decisions. PwC’s Climate Change Team Leader, Julia Hoare, says businesses which are required to participate directly in the ETS have no option but to prepare themselves for significant new compliance, accounting and tax obligations. But the change in mindset the ETS heralds makes it certain a much larger number of enterprises will need to start to manage their carbon emissions.
Hoare adds, even if businesses find it easier simply to pay the cost of carbon through their energy bills, thereby avoiding the need to engage directly in the ETS, the case for managing carbon in the longer term will become “overwhelming.” The report notes the impact of the ETS will almost certainly deepen in future, as international negotiations are underway in pursuit of more ambitious emission reductions than those under the first Kyoto Commitment period.
The most immediate source of uncertainty around the ETS is political. The National Party has indicated it will not be bound by legislation passed so late in the Parliamentary session and has promised, if elected, to re-open the scheme for further consideration. But National also says it will enact any changes to the ETS within nine months of the election. This short time-frame makes it unlikely the overall structure of the scheme will be changed significantly, although the treatment of individual sectors might be.
PwC stresses whoever wins the election in November, it is clear the momentum to reduce greenhouse gas emissions is continuing to build, and businesses and households will have to pay increasing attention to the efficiency with which they use fossil fuels in particular.
The ETS, and any foreseeable variant of it, will impose significant costs and obligations on business. These need to be understood in detail if they are to be effectively managed. The report notes NZ’s ETS is not a traditional “cap and trade” system. In other countries, businesses within an ETS are generally given a cap within which they can emit. But under the NZ ETS, there is no cap for emitting businesses. This means unless a business receives a free allocation of emission units (generally to compensate for trade exposure) they will be required to cover the full cost of all their emissions. There is currently no clear guidance on which businesses will be eligible for free allocations or the amount they will receive. Nor is there any guidance on how emissions units will be allocated across the agricultural sector. PwC expects the allocations process to be contentious between sub-sectors within agriculture.
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