Gary Taylor: Opportunities for NZ in Australia's carbon scheme

The Australian government has just announced its Clean Energy Future Plan. This package includes a carbon tax on the 500 biggest emitting companies as well as billions to be invested in renewable energy, energy efficiency and agricultural emission reductions. Households are to be compensated for likely cost increases.

It has proved incredibly controversial across the Tasman in much the same way as New Zealand's Emissions Trading Scheme did a few years back. Yet the sky did not fall in as a result of the ETS and it is now an established part of doing business here.

Our ETS, which is criticised by many for being too soft, is actually more comprehensive than the Australian scheme which exempts many sectors including transport fuels for households and small businesses.

If the Australian government succeeds in getting its measures all passed into law, it could have a positive impact on New Zealand in three main ways.

First, the Australian carbon tax, an interim measure with a price of A$23 per tonne, will convert to a full ETS in 2015. This gives New Zealand's ETS greater credibility. If there was any prospect of our ETS being abandoned, it has now gone and the markets have responded accordingly: there has been a reported upsurge in sales of forest credits as ETS confidence builds.

Secondly, at the point that both Australia and New Zealand have similar schemes, there could be opportunities for linking them to create a larger, joined-up market for carbon trading across the Tasman. Later we might link with the European ETS and other schemes around the world. This would be a big boost not just to those providing forest sinks but also to our burgeoning clean tech sector - those who sell low carbon technologies that achieve real emission reductions.

Thirdly, the Australian Scheme includes an A$10 billion Clean Energy Finance Corporation, an A$3.2 billion Renewable Energy Agency and an A$200 million Clean Technology Innovation Program. Together these are expected to stimulate A$100 billion of investment in the low carbon economy. It's not clear the extent to which New Zealand companies might be able to directly access those funds but at least there will be opportunities for businesses providing specialised advice: New Zealand has expertise in areas like geothermal power and agricultural emissions.

Transitioning to a low carbon economy will be a huge challenge for Australia. More than 80% of its electricity is coal-powered. In contrast, New Zealand generates 70% of its power from renewable sources. With all that investment Australia expects to get to just 40% renewable by 2050; New Zealand in that time frame could get close to 100%.

The key difference between the two approaches to addressing climate change is that Australia is not just relying on a carbon price. It has also proposed a massive investment in complementary policies. New Zealand could learn from this approach and put in place more incentives for businesses to invest in science, innovation and clean energy solutions. The government's Green Growth Advisory Group will hopefully address some of these policy opportunities when it finally reports later this year.

Whatever governments may do, businesses are taking the initiative themselves and providing leadership. BusinessNZ has set up its Sustainable Business program. A group of prominent New Zealand business people has kicked off Pure Advantage, an initiative to foster green growth. Hundreds of clever start-up ventures are already greening our economy.

There are some anomalies remaining. Solid Energy is expanding coal production and products in the absence of any viable carbon capture and storage scheme and full ETS coverage. Genesis Energy still runs the Huntly Power Station on coal even though it can run on gas. Agriculture accounts for 50% of our emissions and is still not in the ETS. The price signal from our scheme is half what it should be so the incentive for renewables is weak. There are many exemptions. And although we agreed to prepare one, New Zealand still doesn't have a Low Carbon Development Plan showing how we intend to get to the 2050 reduction target.

So while both Australia and New Zealand have started the job they still have work to do. It will take the combined effort of governments and business over many decades to avoid the worst excesses of climate change.

Gary Taylor is the convenor of the 7th Australia-New Zealand Climate Change and Business Conference, Wellington, August 1-2, which examines the business risks and opportunities arising out of climate change.