Challenge Zero: net carbon zero by 2050
In this day and age, it is pretty hard to find people who disagree with the science showing that human activities have led to an increase in some greenhouse gases, which in turn is leading to a steady and unsustainable increase in average global temperatures.
Whatever your personal view, one thing you cannot ignore is that the Government of New Zealand has set this country on the path to become net carbon zero by 2050 or sooner. The Zero Carbon Bill sets this target. Further, the Bill sets five yearly emissions budgets to help us reach it, to establish an Independent Climate Change Commission to offer advice and hold governments to account, and to plan for how New Zealand adapts to climate change.
The 2050 target will put New Zealand in the forefront of global action in this area. Some other countries are already on the move – Norway is ahead, aiming to be carbon neutral by 2030, and Sweden is going for net zero emissions by 2045 – but New Zealand would be in front of many major world economies such as the UK, US, EU, Canada, France and Germany, which have all committed to deep cuts by the middle of the century, but not net zero.
To find out how the Government’s commitment to moving to a zero carbon economy will affect New Zealand business, and to understand some of the challenges and opportunities that it presents, MEttle spoke to two leading business people who are intimately involved in the challenge: Lindis Jones, General Manager Corporate at Z Energy, and Graeme Milne ONZM, the Independent Chair of Synlait Milk.
Graeme Milne is unequivocal: business needs to take the lead towards zero carbon. Why? Because there’s no doubt any longer that the Earth is warming.
“There’s no debate on that any more. CO₂ in the atmosphere has rapidly increased since the industrial revolution, and virtually all of that has come from using oil and gas or coal. Further, we are flat-out using the Earth’s non-renewable resources – or what remains of them.
“Therefore, there’s no logical argument not to aim for a sustainable and environmentally-friendly economy. We need to leave the remaining non-renewable resource for those applications that can’t be easily sustainably replaced in the foreseeable future, and take the lead in other directions.”
There have to be leaders, he says, and there’s no excuse for leaders to duck their responsibilities.
“You have to start doing something. I am aware of the argument that if New Zealand did everything it would only have a less-than 1% of an effect globally, and that a company within New Zealand might have 0.001% of an effect. But, if everyone said that, nothing would happen.
“The fact is, if you’re in a position to lead, then go out and lead, and you’ll get followers. If you don’t lead you won’t have followers. After all, we did sign up to the Paris Accord. We have made a commitment, so we all need to get out there and do something about it.”
But what does achieving ‘zero carbon’ actually mean? Essentially, net zero carbon emissions, or ‘carbon neutrality’. And to get down to net zero carbon emissions, carbon emissions must reduce to a level that is balanced out by carbon stored in forests and other carbon sinks. More specifically, the Zero Carbon Act says that the 2050 target only applies to long-lived greenhouse gases – mainly carbon dioxide and nitrous oxide – the main global temperature criminals.
Economic and environmental impetus
Milne says that the agriculture sector is already working hard in this area, aided by emerging technologies.
“When we consider CO₂, it’s not such a big issue in agriculture because we take it out of the atmosphere, but of course our products are sold, consumed and digested. If you’re using ruminants in the process, then methane is created and lost to the system. Nitrogen is needed by plants and we encourage its production by promoting clover in healthy pastures and other methods, but we don’t want it lost to the waterways. And there’s nitrous oxide, which requires a careful scientific look.
“An economic driver exists to solve these problems, as well as an environmental one. The whole thing makes sense in multiple ways. And technology can help. Because we – agriculture worldwide – have started to look, pushing hard, there are now technologies that do look viable, whereas just a short time ago we were thinking ‘this is not solvable’.”
“There’s no logical argument not to aim for a sustainable and environmentally-friendly economy.” Graeme Milne ONZM, Synlait Milk
He says that this approach is not restricted to the agriculture sector.
“Every business needs to look at how it can be more sustainable from both a greenhouse gas and non-renewable resources point of view. If you can’t be more sustainable by stopping non-renewable resource consumption, you need to think about the circular economy after its first use – how to recycle, downcycle, or upcycle even. If you start creating targets and creating an urgency, you find that things are possible.”
“If you start creating targets and urgency, you find that things are possible.” Graeme Milne ONZM, Synlait Milk
Which brings us round to Z Energy. Describing the 2050 target as a call to action, Lindis Jones says that Z is committed to being at the centre of the climate change solution, and is in favour of long-term policy certainty that provides clarity to New Zealanders and business.
Staff and stakeholder demand
“The more we can plan for investing in carbon-reducing and mitigating activities, the more certain we will be to do so. We deliberately chose the Paris target of a 30% reduction by 2030 for our own organisation’s operational emissions. We recognise that as a fuel company our role can be much bigger than managing our own direct emissions. However, this public commitment is important in sending the message that we see ourselves as being part of the solution.”
This, he says, is in part because staff, customers and other stakeholders demand it.
“I believe Kiwis have embraced the science of climate change and the need to minimise our environmental footprint more generally. When we talk to our customers and our people, one of their key expectations is that you have to look after your own backyard, minimise the impact of your own operations, and reduce them.
“Resisting it doesn’t do anything for our shareholders. And our staff expect we do something around this. Our commitment to environmental sustainability is one of the top drivers of engagement for our people.” Jones says that where Z can’t reduce or eliminate carbon, the company will offset it.
“We made a choice that we would buy into permanent forest initiatives – forests that exist now, certified as meeting the standards for domestic voluntary carbon credits – locked up in perpetuity, small plots with high conservation value.”
Z has so far invested in 10 forests, and believes it is the right thing to do. “We invested $1.5 million in the initiative this year, and we have a similar commitment going forward,” says Jones.
“When we talk to our customers and stakeholders, one of their key expectations is that you have to look after your own backyard, minimise the impact of your own operations, and reduce them.” Lindis Jones, Z Energy
But isn't Carbon Zero 2050 fundamentally a bad thing for Z?
Jones says that the demand away from core hydrocarbon products will happen anyway, and Z is exploring many other alternatives. “While the opportunity for New Zealand to move away from hydrocarbons fuelling small cars and replace them with electrons from renewables is critical to New Zealand meeting its commitment, there are other opportunities to reduce carbon in our customers' businesses without destroying value for Z shareholders.
“The way we look at it is that we are a company that exists to provide energy and mobility solutions for customers and we are not wedded to fossil fuels. After all, Z invested in New Zealand’s first commercial-scale biodiesel plant.”
Jones says that from a capital markets perspective, there is also a growing enquiry about the investment in carbon-intensive businesses. “However, if you have a business showing good governance and seen to be part of the solution, then you’re still in play with investors.”
Which brings into play the concepts of value, cost and pricing.
“Carbon is a mis-priced asset,” is his view. “It will be re-priced, and there is an opportunity for clear policy and regulation to provide greater certainty of how this re-pricing will occur. In the face of growing global ambition for reducing emissions it is important that uncertainty is resolved by a regulatory environment that supports action in New Zealand. Getting left behind would be bad for New Zealand, environmentally and economically.
“We do recognise, however, that for our industry, passing through the cost of a higher price on carbon will likely impact our customers disparately. This is one example of potential for uneven impacts of a higher price on carbon across different sectors, geographies and households. Managing this change in a just and inclusive manner is important and should be taken into account when defining policy responses.”
More science and certainty
Where it starts getting complicated and needs real leadership, he says, is that so much is still unknown.
“When you have a target of net zero carbon, when it comes to policy which gases are to be included, and what are the costs of the different abatement options? We worry that this could cause inter-sector disputes, which could reduce the ambition of the collective New Zealand effort.
“Meaningful policy certainty will aid us in informing business decisions that would make commercial and environmental sense. For instance, business would have greater confidence when making investment decisions on new carbon abatement solutions. Specifically, a binding and ambitious New Zealand target would provide a signal to business that investments will be supported and provide confidence for further possible investment decisions, such as to scale up biodiesel production and invest in new bio-jet opportunities.”
An opportunity for leadership and targets
Ultimately, Jones sees an opportunity for company boards and leadership to define what they stand for, what outcome they want to see and how they support it. “I think of the role of a board or executive and how this challenge enables them to use the tools they are good at – like risk management or strategy. Every executive and board member needs to understand more about the carbon economy, and the science around it. Don’t get caught up and stuck where we are, or we’ll go nowhere. There is a real opportunity here from a governance level.”
Echoing this theme of leadership, Graeme Milne sees the key for each business being to analyse its situation and set its own bold targets, and the need is there to solve this faster than 30 years.
“Companies need to go out there, be bold and make commitments, even if they don’t quite know how they’ll do it. Involve suppliers, look upstream, look downstream, involve your staff. You’ll get lots of support from people who want to play their part. Everybody wants to do their part.”
Face the science
Don’t just greenwash your company; be fact-based, he adds.
“We need to look at the actual impacts on the environment, not what people might think is a great initiative. If you sit down and work out the energy and resources utilised in making a glass bottle vs a plastic one for example it might not calculate out as you first thought, as sand is not an inexhaustible resource either.
“I read a statistic recently about plastic bags in supermarkets. You’d have to use a cotton bag 143 times to be equal to the energy consumed in making 143 single use bags. We need to get to the correct solution. To do that we need to be genuine, and science-based about it, not just thinking it will be popular with our customers, a knee-jerk, that’s not the solution.”
Take the lead, make commitments
To do this, businesses need to set steady, bold, long-term targets, because they really do make a difference. Synlait Milk is already doing that, revealing a lengthy series of targets to reduce its environmental impact significantly at its annual conference in Christchurch in June. Among them, reducing greenhouse gas emissions by 35% per kilogram of milk solids on-farm (consisting of -50% nitrous oxide, -30% methane and -30% carbon dioxide) and 50% per kilogram of milk solids off-farm by 2028.
Other targets include reducing water consumption by 20% per kgMS both on-farm and off-farm by 2028, and reducing nitrogen loss on-farm by 45% per kgMS by 2028. Two more that catch the eye are ‘Never building another coal-fired boiler’ and the goal to commission New Zealand’s first large-scale electrode boiler in January 2019.
“We did the analysis and then made commitments,” says Milne. “There’s no reticulated gas in the South Island, so we can’t use a gas-fired boiler, and diesel is no better, so we came across a new technology, an electrode boiler, like an arc welder inside a boiler.”
Another new technology being investigated by Synlait Milk aims to substantially reduce methane produced on the farms the company collects milk from.
“Developed by a Dutch company, a very small dosage of a very simple and safe compound is fed to a cow. It reduces the bacteria that produces methane in a cow’s gut, leading on the one hand to less methane generated and, on the other, to more energy for the cow.”
Milne says it is surprising just how much momentum and support new technologies have from farmers. “It is their businesses we are talking about, and they have come on board surprisingly quickly.”
However, he says a balance does need to be struck: aiming high, with pace-setting leadership, but not going too fast in the rush to achieve targets.
“New Zealand could trip over if we go too fast, for example with policy settings that can’t be achieved without social disruption, not good. But if you are bold and you do get out there, if you aim high and get somewhere, it is always better than not aiming and getting nowhere.
“Do it right, aim properly, and create opportunities. Look at the commercial value in other countries and sectors. Companies in all sectors should take guidance from the UN’s 17 Sustainable Development Goals – a broad programme companies should consider carefully. Tick some off: there are some tough ones you might not be able to tackle, but many you will.”
To do so, he says, first we have to take action.
“If New Zealand is serious about becoming more sustainable and hitting our carbon zero 2050 target, we need to be grown up about what that means in reality. Technology has reached a point where most of the uses for oil and gas or coal can be replaced with sustainable technologies. It is time to be getting on with it.”
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MEttle, a collection of stories and interviews with influential New Zealand business leaders, curated by MinterEllisonRuddWatts.
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