The Environment: Everyone's Business

In our series about New Zealand’s future, Rod Oram examines the trade-off between the environment and the economy, and his vision of a sustainable future.

Of all the developed countries in the world, New Zealand depends most on the natural environment to earn our living.

Yet a trade-off between the two is the deeply ingrained response of most people in businesses and government. As a result, we devalue both. We under-perform economically and we degrade the environment. This model is already unsustainable.

We aren’t earning enough in global markets to pay good wages and to invest adequately in education, health, research and infrastructure.

For example, poor pay has left our households the second most indebted in the OECD; funding for tertiary education is falling in real terms, that is, adjusted for inflation; and many measures of environmental health are falling.

Quite simply we are compromising our ability to compete. Yet, if we understood that the environment is the economy we would be at the forefront of an epochdefining global shift to sustainability. Our ecosystem and our people would flourish as we changed values andtechnology to those that worked with the environment, not against it.

Historically, companies have run themselves mainly by measuring and managing the flow of money through them. But those learning to do the same with their use of natural resources and their environmental impacts are developing far more sustainable, resilient and profitable businesses.

While these concepts are still a long way from being mainstream around the world, interest in them is accelerating rapidly. You know a subject is gaining critical mass when the Harvard Business Review picks up on it. It did with sustainability in its September 2009 edition. The HBR devoted almost the entire edition to the field. One article concluded that sustainability was “innovation’s new frontier”.

New Zealand could be at the forefront of renewable energy, not just in electricity through wind, hydro and geothermal but also in liquid fuels by converting biomass or industrial waste gases into ethanol.

Ray Anderson, who died in August, was one of the American pioneers. He made a big impact when he spoke at the Better By Design CEO summit in Auckland in 2008.

His story gave great hope to the small band of New Zealand companies – such as Icebreaker, the maker of merino clothing – seeking to make themselves sustainable. Anderson established Interface, a maker of carpet tiles, in 1973. By 1994 it was the world’s largest. He was 60 but he was far from done. Inspired by Paul Hawken’s book The Ecology of Commerce, he determined to remake his business as a sustainable enterprise.

By 2007 Interface was, he said, halfway up “Mount Sustainability”. Greenhouse gas emissions were down 92 per cent from 1995, water use down 75 per cent, and 74,000 tonnes of used carpet had been recovered from landfills.

The US$400 million of annual savings by making no scrap and no off-quality tiles more than paid for research and development and process changes. Some 25 per cent of Interface’s new material came from “post-consumer recycling”. Sales had grown by two-thirds since his conversion, and profits had doubled.

Interface is still a great rarity in the world. At best, most companies concerned with the environment still focus on reducing their impact on it rather than on fundamentally reinventing their relationship with it. And, of course, there are plenty more in full exploitation mode.

We’re no different in New Zealand. Three big problems arise from our common trade-off between the environment and economy. First, in any push-pull between the two, the economy usually wins thanks to short-term profit taking by asset owners. For example, 78 per cent of businesses were opposed to the Emissions Trading Scheme two years ago, according to a survey in the government’s first annual report on the ETS. Now, 63 per cent support it.

Many companies had protested that the ETS would drive some of them out of business, or at least some of their production offshore.

The rhetoric was “wild”, said Environment Minister Nick Smith when he launched the report in August. “I can’t find a single case of jobs being lost because of the ETS.”

 Three main factors are driving the dramatic aboutface: the government, as it and its Labour predecessor promised, gives ample free carbon credits and other breaks to companies exposed to international competition; the system is easier to use than companies feared; and, most crucially of all, some companies are beginning to realise that even a very weak price on carbon is a business discipline that is driving energy efficiency and other savings. 

But most New Zealand businesses are ignoring these opportunities.

Second, the trade-off between the environment and the economy means both are deeply constrained. They are failing to maximise their potential. The dairy industry is the biggest example. It is already pushing hard against three limits: there’s little land left to convert to dairying; dairy land here is expensive – for example, roughly three times the cost of comparable pasture in the United States midwest; and the intensity of farming is causing water quality issues on many rivers. 

These constraints will drastically limit its ability to keep growing its volume. But if dairying focused on working with the environment, rather than simply trying to mitigate the impact on it, farmers would increase their productivity.

For example, in large part the chemical constituents of agricultural greenhouse gases are the same as animal nutrients. Methane, for example, is a by-product of cows’ digestion. If scientists could work out how to help them digest their feed better, they would convert more of the nutrients into milk and less into methane.

Such breakthroughs would also help New Zealand dairy products earn a premium on world markets from sustainability-conscious consumers. Currently, our dairy commodities trade at world prices. Only more sensitive products such as infant formula gain some premium and buyer preference from our reputation for quality and food safety.

Third, the economy-environment trade-off ignores the rapidly accelerating shift in technology underway in the world, particularly in energy. While oil and coal will still be needed as major energy sources for some decades to come, they will face intensifying competition. Oil will become ever more expensive to extract and, like coal, it will increasingly be hit with a price on its carbon content; renewable energy sources will be increasingly cost competitive against them; and consumer resistance to oil and coal will build.

New Zealand could be at the forefront of renewable energy, not just in electricity through wind, hydro and geothermal but also in liquid fuels by converting biomass or industrial waste gases into ethanol. Scion, the forestry Crown Research Institute, has some promising science in the former; and Auckland company LanzaTech has a proven process in the latter with a pilot plant at New Zealand Steel and a larger one planned at a Baosteel mill in China.

Yet, Solid Energy is working on plans for a multi-billion investment in old technology to strip-mine large volumes of Southland lignite to produce coal-like briquettes for heat or power, diesel and urea fertiliser plus a 500MW lignite-fired electricity plant. The diesel would have a carbon footprint double that of fuel from crude oil.

The urea carbon footprint would be higher than the current average of domestic and imported sources; briquettes would be eight times higher than burning wood pellets and the electricity at least four times the current generation mix.

The vast increase in New Zealand’s greenhouse gases would make a mockery of our attempts to reduce emissions through the weak ETS and other small-scale and barely effective government policies on the likes of energy conservation and efficiency. It would also seriously damage our international reputation.

Solid Energy says it would take “responsibility” for the emissions from production by, for example, buying forest credits. Self-servingly, its recent submission on the ETS suggested the government isolate our carbon market from the rest of the world. This would cause the price of forest credits to plunge, thanks to abundant supply swamping the tiny market.

The trade-off between the economy and environment is the defining feature of the government’s economic policy.

On one hand, it advocated at the Copenhagen climate change negotiations in 2009 establishing an international research alliance on agricultural greenhouse gases.

Currently 36 countries are members, representing 70 per cent of the world’s output of such gases. Our government is the secretariat and our scientists are co-leading with Dutch colleagues on animal research, one of three main work streams.

At home, the government is funding initiatives such as the ruminant animal research center at Palmerston North. But on the other hand, it is delaying indefinitely activating animal emissions in the ETS. 

 

It says, for example, that emission reduction opportunities are still too limited to justify inclusion. Yet, Fonterra believes it will be possible to reduce them by 30 per cent by 2030.

Similarly, the government has given the Green Growth Advisory Group a short life and a very narrow remit focused mainly on the adoption of existing cleaner technologies by small and medium sized companies. It is a pale imitation of a high-powered, highly strategic business taskforce that is needed to help shape New Zealand’s economic future.

It will take a massive groundswell of public opinion to shift government and business to the road towards a prosperous, sustainable economy. We mobilised such power with our nuclear-free stand; we can do it again with carbon-free.

Back then, the risks of a nuclear catastrophe were very small, though the cost of one would have been cataclysmic.

Now, the cost of creating ultimately a carbon-free economy is small, indeed the reward would be large. But the risks of failing to do so are not just very large, they are an outright certainty in the form of climate change and other environmental damage.

Carbon-free has yet to excite the public. But perhaps Solid Energy’s lignite plans will be the issue that will trigger the revolution.

Rod Oram is a business journalist with the Sunday Star-Times and Radio New Zealand’s Nine to Noon. In 2009 he was named the Landcorp Agricultural Communicator of the Year and he is a long-time contributor to The ICEHOUSE, the entrepreneurship centre at the University of Auckland’s Business School.