Competitiveness in a carbon-constrained world John Carnegie, BusinessNZ Wood Processors and Manufacturers Association Rydges Hotel, Latimer Square, Christchurch Thursday 4 April 2019 @JohnCarnegie7 @BusNZEnergy

The BusinessNZ Energy Council the BusinessNZ Energy Council (‘BEC’): is an apolitical group of New Zealand organisations taking on a leading role in creating a sustainable energy future for New Zealand brings together business, Government and academia is the New Zealand Member Committee of the World Energy Council (WEC)

Our members

Wood processing an industry characterised by energy and capital intensity highly competitive (tight margins) global in reach New Zealand-specific features often not at world scale high proportions of energy from biomass and renewables increasingly disaggregated from forest ownership not automatic participants in the NZETS all face higher fuel and electricity costs only a handful of businesses receive free units as trade-exposed, and emissions intensive

Fuel demand and GHG emissions Source: EECA, MBIE

Current climate change developments Zero Carbon Bill (target and Commission) establishment of independent Climate Commission 100% renewable electricity target in a mean year by 2035 should agriculture be brought into the ETS, and how Productivity Commission's report on transition to a low-emissions economy, and government response emission trading scheme review one billion trees by 2027

Ambitious targets New Zealand’s net emissions from 1990 to 2013, current emission targets for 2020, 2030 & 2050, as well as new proposed target (red dot) Current target Proposed target Source: Ministry for Environment (2015)

Economic costs to New Zealand NZIER estimate of adopting a net-zero (by 2050) target: 10 to 22 per cent of GDP

NZETS price path Source: Frazer Lindstrom

Estimated NZ ETS pass-through Vehicle fuel users, including household consumers Effective carbon price Effective carbon price NZ ETS cost $50 $100 per litre of premium 95 fuel $0.12 $0.24 per litre of regular 91 fuel $0.12 $0.24 per litre of diesel fuel Effective CO₂ price $100 $5.36/GJ $9.04/GJ $9.16/GJ $0.13 $0.26 Consumers, including households Effective carbon price Effective carbon price NZ ETS cost $50 $100 per kWh of electricity $0.02 $0.04 per kWh of natural gas $0.01 $0.02 Industrial users Effective carbon price Effective carbon price NZ ETS cost $50 $100 per GJ of natural gas $2.68 $5.36 per GJ of sub - bituminous coal $4.52 $9.04 per GJ of lignite $4.58 $9.16 Estimated annual NZ ETS costs passed through to households Effective carbon price Effective carbon price $100 $290 $322 $140 $752 Annual NZ ETS cost for an average NZ household: $50 Petrol $145 Electricity $161 Natural gas (if used) $70 TOTAL $376 Source: Ministry for Environment

We don’t know the future “Prediction is very difficult, especially if it’s about the future” Niels Bohr   Martin Cooper photographed in 2007 with his 1973 handheld mobile phone prototype

Uncertainties are non-trivial we’re not talking about variables which have a prospect of only a minor differences played out over decades, each of the uncertainties could produce a substantially different outcome the presence of strong or weak climate change action globally the compounding effects of growth in our major trading partners the transformational potential of alternative transport on our energy system

A target is not a vision nor is it a strategy it’s a political number – we might know where we’re heading but not how we are going to get there it’s a necessary but not sufficient condition doesn’t tell us what our New Zealand story is

Otherwise we get this…

Start with the right question what might New Zealand be known for in 20-30 years time? need to build a coherent competitiveness story around that, which drives our decisions our future will differ depending on the extent to which we choose to pursue certain societal, economic and environmental outcomes, or not

Resilient policy Averaging Procurement – more life cycle costs we advocate for a wide range of pro-competitive policies for all businesses: lower corporate tax rates better government procurement policies less regulatory compliance education that delivers the required skills flexible employment relations better targeted immigration energy and carbon pricing R&D policies more permissive FDI Averaging Procurement – more life cycle costs Broader outcomes including social, environmental and regional

Summary we don’t know the future – its unknowable but we do know it’s a tough business environment energy costs on upward trajectory – energy reducing investment proposals have more credibility competitiveness concerns ever-present CO2 cost faced vs other’s subsidies to manufacture and/or promote renewable energy business needs predictable, durable and resilient policies that last beyond electoral cycles

Thank you