Oil industry’s attitude to emissions renders Fonterra a dinosaur

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Now the coal fired electricity station at Huntly is closing, Fonterra is set to become one of the biggest remaining coal users in the country. Despite the availability of renewable alternatives to turn their milk into powder, Fonterra [NZX: FCG] shows no sign of changing its coal burning ways. In fact, its recent submission to the Government on climate issues shows that Fonterra is behind even the oil industry when it comes to shifting to a new, low carbon economy. 

Huntly is closed – now the heat goes on Fonterra
Huntly’s closure leaves Fonterra and the Glenbrook steel mill as the two biggest users of coal in the country. Glenbrook is understandable – coal is integral to the steelmaking process and solutions are still under development. But why does Fonterra still use coal? Simply because it is cheap; other renewable fuels such as wood chips would require time and effort to work out the logistics and supply. The fact they don’t has prompted Coal Action Network Aotearoa campaigner Jeanette Fitzsimons to label Fonterra as our country’s “biggest climate changer”. 

Is that true? Well, coal certainly produces the greatest amount of greenhouse gases for a given unit of heat. With Huntly out of the way, Fonterra is the greatest preventableuser of coal. Fitzsimons would be right to say that, like Huntly, Fonterra’s boilers are certainly a low hanging fruit as far as reducing emissions are concerned. However, let’s make no mistake – the biggest source of carbon dioxide emissions in New Zealand (and remember those are the ones the experts say we need to most urgently reduce to zero) is transport fuel. That’s right, Fonterra isn’t our biggest climate changer, it is you, me and our Holden Kingswoods.  

The oil industry is calling for a price on carbon
They are called fossil fuels for a reason – the oil industry has made their money digging up dinosaurs and selling them to us to power our cars. Yet even six major oil companies have realised the writing on the wall and are calling for a price on carbon. That’s right, back in June BG Group, BP, Eni, Royal Dutch Shell, Statoil and Total sent a letter to the United Nations saying:

Our companies are already taking a number of actions to help limit emissions … For us to do more, we need governments across the world to provide us with clear, stable, long-term, ambitious policy frameworks. We believe that a price on carbon should be a key element of these frameworks.

And they mean a real price on carbon – one that is strong enough to change behaviour. Not a carbon price that hands out free credits, two for one deals and encourages trading in cheap and nasty international credits like our Government has. By contrast France as a new climate plan which will boost their carbon tax to 56 euros by 2020. Maybe Tim Groser should get his advice from the oil companies, given he doesn’t listen to the science community. His attachment to high emissions has him standing shoulder to shoulder with Fonterra only it seems.

While Fonterra stalls 
Despite the oil industry supporting a price on carbon, Fonterra’s submission to the Government on our 2030 emissions target contained no such idea. Fonterra pushed the point that agriculture is “different” and should be treated differently – this is a fair point as we have discussed previously.  However, this is no reason to stuff about on reducing the use of coal. If Fonterra were serious about treating agriculture differently they would back the oil companies’ call for a decent price on carbon. That would quickly make coal uneconomic to burn. Even if the Government didn’t listen to them, they could take the lead on sorting out their non-agricultural emissions – chiefly their use of coal and transport fuel. 

But now is not the time! 
Fonterra responded to this idea saying that this year with the current poor payout is not the time to increase costs. That’s no reason not to even have a plan to move off coal and onto renewable fuels. Climate change isn’t going away – it is only a matter of time that mounting disasters push international negotiators to create a binding deal. We should be making investments now that will set us in good stead when that time comes.

Fast growing biomass is one option, as are woodchips – waste from forestry operations. Either is fine, but as a major manufacturer Fonterra has a responsibility to plan for the transition ahead. Blaming a low milk payout is a short-term excuse. Fonterra’s planning and the length of their investment horizon is hardly encouraging and an indictment of the prescience of our largest exporter. 

Z Energy shows the way
Not all New Zealand businesses have as retarded responses to climate change. There are some stellar examples of companies out there that are thinking ahead, and actively advocating for change. Our own ‘oil company’ (they hate being called that) Z Energy [NZX: ZEL] for example called for a target that would match the European Union – a 40% reduction in greenhouse gas emissions below 1990 levels by 2030 – and bold action to back it up. There is hope.

Gareth Morgan is a New Zealand economist and commentator who in previous lives has been business as an investment manager. He is also a motor cycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment. This post first appeared on Gareth's World.