Our Climate Our Say Discussion Paper - for the Zero Carbon Bill
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The Tatua Co-operative Dairy Company Limited
Response to the
Our Climate Our Say Discussion Paper
for the Zero Carbon Bill
July 2018
Formed in 1914, The Tatua Co-operative Dairy Company Ltd (Tatua) is one of the few dairy
companies in New Zealand that has remained unchanged by merger or take-over. The Company
operates as a co-operative, with 107 supplying shareholders and concentrates its business
activities in the added value and higher technology sectors with over 90% of production being
exported to 60 countries around the world.
1Introduction
As a business owned and operated by 107 farming families, Tatua is grateful for the
opportunity to provide feedback on the range of options available for managing climate
change in New Zealand. We acknowledge the threat posed by climate change to the milk
production end of our business, but we are equally aware of the enormity of the
challenge before us and the in-market pricing risks that we will be exposed to.
The following comments are made in response to the specific questions raised in the
Our Climate, Your Say discussion document.
The 2050 Target
1 Target setting process
Milk production and milk processing are capital intensive businesses, requiring
significant investment decisions to be made from time to time. Many of these
investments have an expected lifespan of 30 years or more, and are often
difficult to modify once installed.
It is not surprising then, that investment decisions are subject to careful scrutiny
to ensure, as far as possible, that the investment will remain fit for purpose over
its expected lifetime. While much of this analysis has historically focussed on
product attributes and customer preferences, increasing weight is now being
placed on operating efficiency and resource demand considerations.
To support robust investment decision making, it is important that there is as
much clarity as possible around future operating environments, including
constraints associated with resource use and emissions. Tatua therefore
supports the inclusion of the emissions target in legislation, as this provides the
highest level of long term certainty.
Notwithstanding the above, it must be acknowledged that setting of the long
term emissions target will have significant consequences for New Zealand and
require the synthesis of a wide range of information and conflicting views. So,
while the target setting process is important and should be actively pursued, it
should not be rushed.
We recommend that the proposed Climate Change Commission be formed and
tasked with undertaking the necessary analysis and preparation of an emissions
target for consideration by the government. The recommendation should
include both the quantum of the target and the timeframe for its achievement -
which could be well beyond 2050.
2 Appropriate target for New Zealand
Tatua is supportive of the target being appropriate and sufficient to achieve the
agreed Paris Accord outcome of limiting global temperature rise to less than 2°C
and preferably, less than 1.5°C. In setting the target we must be cognisant of
New Zealand’s unique emissions profile, the significant role of exports in the
national economy, and the practical availability of mitigations. The chosen target
2should reflect these factors, and as such, should not shy away from taking a
different approach from that taken elsewhere around the world.
As our understanding of the role of major greenhouse gasses continues to
evolve, it is becoming apparent that climate stabilisation may be achievable by
applying different treatment to short and long lived gasses. In addition we are
keenly aware that there are currently limited mitigation options available for
practical methane reduction.
With this is mind, and based on current emissions reduction commitments,
Tatua supports a split-gases, or two baskets, approach with short-term gases
either exempt or treated differently to carbon, given their different decay rate
and cyclical nature. This would, however, need to be reconsidered in response
to any revision of international agreements on climate stabilisation.
3 Options to meet target
Like most other New Zealand dairy industry participants, Tatua exports over 90%
of its manufactured goods. While some products may be sold into markets that
have, or will have, domestic emissions policies and targets equivalent to those in
New Zealand, and in some cases may compete with imports from other
exporting countries with similar emissions schemes, it is unlikely that this will be
the case for the majority of the 60 or more countries we trade in.
We recommend that one of the functions of the Climate Change Commission is
to monitor the emissions reduction actions being taken internationally, and
robust cost comparisons made on how those actions flow through to business
costs. If New Zealand’s approach to carbon neutrality is comparable to our
major global competitors, then trade exposed businesses such as Tatua can
make long term investment decisions with a reasonable level of confidence.
In cases where there is an imbalance in emissions costs, it will be vital that
options are available to help ensure that New Zealand exporters, like Tatua, do
not face unreasonably competitive risk. One of the primary mechanisms to
achieve this is ongoing access to high quality international emissions units. This
will not only mitigate the potential for a rapid increase in New Zealand's carbon
price, but also reduce the potential for carbon leakage.
4 Revision of target
Notwithstanding the benefits of having certainty around New Zealand’s long
term emissions reduction target, if there is a significant shift in international
climate science or policy that makes the target invalid or no longer appropriate,
then it should be able to be altered based on advice from the Climate Change
Commission and with suitable consultation.
3Emissions Budgets
5 Emissions budget design
New Zealand’s long term emissions reduction target is more likely to be
achieved if there is a clear and consistent path for all New Zealanders to follow.
Tatua therefore supports the proposal to establish three consecutive 5-year
budgets spanning a 15-year period. Having these “stepping stones” will provide
a clear direction of travel and help inform near term investment decisions.
6 Altering third emissions budget
It would be naïve to think that our understanding of climate change, including
mitigation options, will not change with time. Where significant changes in
science and technology do occur, or it becomes apparent that our major trading
partners adopt policies that significantly impact the competitiveness of New
Zealand exports, then adjustment to the third budget should be allowable.
7 Altering second emissions budget
Short term “tinkering” with the emissions budgets would significantly reduce
confidence in New Zealand’s emissions reduction strategy, and deter investment
in low emissions technologies. To avoid the possibility for political manipulation,
modification of the second budget should only be permitted in exceptional
circumstances, and even then, only on the recommendation of the Climate
Change Commission.
8 Budget setting considerations
Tatua supports the following factors being considered by the Climate Change
Commission when developing emissions budget recommendations:
Scientific knowledge about climate change, including the roll and function of
different gasses in stimulating global temperature change.
Technology relevant to climate change, with a specific focus on the
availability and utility of possible mitigations.
Economic circumstances and, in particular, the likely impact of the decision
on competitiveness of particular sectors of the economy.
The consequences of policy decisions on the potential for carbon leakage
and resulting impact on global emissions.
Fiscal circumstances and, in particular, the likely impact of the decision on
taxation, public spending and public borrowing
Social circumstances, including the likely impact on rural communities where
there is limited public transport or access to low emissions goods transport.
Energy policy and, in particular, the likely impact on rural electricity
infrastructure constraints.
9 Plans to achieve emissions budgets
To minimise the risk of political interests influencing the timing of government’s
response to the Climate Change Commission’s recommendations on emissions
budgets, plans should be developed and finalised no less than 12 months after
the budget has been published. A longer timeframe would erode the certainty
4for businesses, potentially resulting in the delay of investment decisions on
emission reduction measures.
A shorter timeframe would be appropriate in the case of a change to an existing
emissions budget.
When presenting plans for delivering on emissions budgets, government should
be required to respond to the Climate Change Commission's proposals and
provide justification for any areas of policy deviation from the Commission’s
recommendations. This is important for maintaining government accountability
and transparency.
10 Important planning issues
The government would need to satisfy itself that that any Climate Change
Commission emissions budget recommendation is appropriate and achievable.
This will require the assessment of a wide range of societal factors and the
development of policies to encourage the required behavioural change, while
protecting those communities and business sectors that are disproportionately
exposed.
The policy mix should recognise the availability of practical mitigation options,
the time needed to adopt new technologies, and their economic impact at
national, provincial and business sector level. Where appropriate the use of
incentives and support mechanisms should be used to encourage uptake and
manage short term economic impacts.
Climate Change Commission
11 Powers of Climate Change Commission
Tatua supports the powers of the Climate Change Commission being limited to
advising on and monitoring New Zealand’s progress toward achieving its
emissions reduction goals. Given the far reaching implications of climate policy
on New Zealand’s economy and social wellbeing, target, budget and policy
decisions must rest with the elected representatives in government.
12 Role of Change Commission in relation to the NZETS
As noted in point 11 above, the Climate Change Commission should not have
decision making powers. The role of the Commission with respect to the ETS
should be an advisory function only. This would include monitoring the
performance of the ETS and its effectiveness in contributing to targets, and
making recommendations to the government regarding potential
improvements.
13 Climate Change Commissioner expertise
Tatua considers that the Climate Change Commission should include members
with a wide range of expertise and experience. While we are in general
agreement with the specific areas of expertise identified in the discussion
document, given the potential implication of climate change policy on exposed
5businesses, we consider it essential that the Commission include expertise in
both domestic and international business competitiveness.
We are also surprised, given the significant role that agriculture will likely play in
climate change response, and the world leading agricultural emissions research
being conducted in New Zealand, that agricultural system and economics has
not been identified as being an essential area of expertise.
In addition to having the necessary expertise, it is essential that the
commissioners are independent and of high standing, with any conflicts of
interest declared and appropriately managed.
Climate Change Adaptation
14 Inclusion of adaptation
Tatua supports the inclusion of adaptation in the Climate Change Bill. This will
not only raise the profile and co-ordination of adaptation work streams, but also
provide a higher level of certainty that this important aspect of climate change
will be managed in a systematic and consistent manner across the country.
15 Adaptation functions
Undertaking a climate change risk assessment and preparation of a national
adaptation plan are important pieces of work to prepare New Zealand for the
future. We would expect that much of this work would be completed by the
Climate Change Commission, leveraging off its other responsibilities.
In addition, it would also be appropriate for regional and local government to
have roles in climate change adaptation, as this would allow for adoption of
solutions appropriate to local circumstances and community aspirations.
16 Adaptation reporting
Given the potential impact of climate change on exposed rural sectors and
critical infrastructure such as primary production industries, road and rail
transport, and energy transmission, it would be appropriate for the government
to have powers to require the status and exposure of such industries and assets
to the impact of climate change, and flow-on effects to the national economy to
be reported.
Paul van Boheemen
General Manager Co-operative Affairs
Tatua Co-operative Dairy Company Limited
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