The impact of environmental policy on the supply chain

Sustainability is a hot topic inside any organisation, and now has its seat at the top table, with it being a strong focus for CEO’s in 2022 and beyond. You’d be silly not to be considering it as mission critical to the future of your business considering the priority placed on it by the current government and the fact that some of the largest future buying groups care more about it when making a purchasing decision over anything else.

In my previous post I spoke about a number of the current impacts to the global and domestic supply chain. Many of which are somewhat random events  e.g. COVID, that is expected to end in the shorter term. In contrast, I also mentioned the impact of government policy and the likelihood of it having a longer lasting and potentially more significant impact on the supply chain and the way we do business.

There are a number of examples including the recent New Zealand freight and supply chain issues discussion paper and the government’s plan to develop a 30 year freight and supply chain strategy for NZ, the NZ transport strategy, the incentives for productive forestry practices, the Waste Minimisation Act and the recently announced emissions reduction plan and emissions trading scheme.

The NZ transport strategy, which takes a look into best practice and approach for things like fleet management, will see incentives for those who are willing to use electric vehicles. We will no doubt continue to see transport costs (and therefore increase costs in the supply chain) rise as petrol and diesel continue to be both a) an increasing cost b) a non renewable source and c) discouraged over electric vehicles. Considering that by 2025 the government wants 90% of energy usage in NZ to be from renewable sources this one is set to have a significant impact on both households and business.

Forestry projects have a big focus as it relates to the encouragement of afforestation and the discouragement of deforestation. This has seen the government incentivise multiple initiatives that encourage productive forest plantation. As we look to not only further “save our trees” but grow our forests, there will be a greater need for those that use the resources in this sector (e.g paper suppliers) to look further into the supply and use of environmentally sustainable products.

The waste minimisation act doubles down on the need for reusable, recyclable products as it focuses on reducing the damage to the environment from waste generation and disposal, and increase economic benefits by encouraging more efficient use of materials.

And then there’s the emissions trading scheme and the emissions reduction plan aimed at building a low-emissions economy. Having listened to a few experts on the subject there is some debate as to whether it will achieve its objectives but it definitely has the potential to increase the cost of doing business. Especially if you are on the wrong side of the emissions fence.

The Sustainable Biofuels Mandate will take effect from 2 April 2023, reducing the emissions intensity of fuels sold in New Zealand. The mandate is designed to reduce vehicle emissions, but we also need to accelerate the availability of low and zero emissions heavy vehicles in New Zealand to achieve the goal.

The New Zealand freight and supply chain issues paper, which is the precursor to the development of a 30 year freight and supply chain strategy for NZ, focuses on the recently revealed vulnerabilities in the NZ supply chain and the need for a more resilient, productive and lower carbon freight and logistics sector, future proofed from further international shocks.

The paper does a pretty good job of outlining the dependency the country and the economy have on freight and the supply chain and the key risks, challenges and weaknesses in the system. It also outlines the four key outcomes – New Zealand’s freight and supply chain system should be a low emissions one; it should be resilient, reliable and prepared for potential disruptions; it should be highly productive and innovative and performed well when measured against global standards; and finally, it should be safe and equitable for all.

The paper says meeting our decarbonisation and emissions goals will require “a drastic transformation” of how our supply chain operates. This transformation will include the decarbonisation of all freight modes and the operations of the infrastructure that supports them such as ports and airports. It suggests that if we do not reduce emissions from our freight and supply chain, it will pose significant economic risks with costs passed onto the consumer.

Among the risks cited if we don’t meet our international pledges on climate change are:

  • Exporters could face challenges with demands to reduce ‘food miles’ as consumers seek goods perceived to have lower emissions.
  • Freight operators will be affected by rising fuel prices as the price of emissions increases.
  • Freight operators may experience cost increases as international shipping is brought into other countries’ carbon pricing schemes. And;
  • NZ may become less desirable for international shipping companies that transition to low or zero emissions fuels and ships if we do not have supporting infrastructure.

It also points out NZ is at the end of international trade routes, with 99% of the country’s imports and exports travelling via global shipping routes to reach consumers.

This means our international trade could be disrupted if countries start to limit trade with higher emissions economies to meet decarbonisation targets. For example, New Zealand has attracted attention in the global debate about ‘food miles’ despite having relatively carbon-efficient food production systems. The recent announcement of a Free Trade Agreement with the UK generated heated responses from UK farmers about the impacts of importing food from the other side of the world.

At the 26th UN Climate Change Conference (COP26), New Zealand signed an international agreement to increase the proportion of zero emissions heavy vehicles entering the country. The Government pledged that these vehicles would make up 30% of new vehicle sales by 2030 and 100% by 2040.

There has been a relatively low level of government involvement in the freight and supply chain industry but that is all about to change. This will have a significant and long lasting impact on business and it’s important we are all across the commitments and policies being made so we can make the necessary preparations.