Source: Gavin Evans – Wed, 5 Apr 2023
New Zealand must find ways to decarbonise the economy without shutting down industry, Energy and Resources Minister Megan Woods says.
Re-investing funds from the emissions trading scheme in energy efficiency and low-carbon technologies will be cheaper than buying offsets overseas and also cheaper for emitters, she told a BusinessNZ Energy Council breakfast in Wellington today.
The $63 million the Government has so far invested in 51 industrial projects has triggered more than $100 million of co-investment and will deliver life-time emission reductions of almost 7.2 million tonnes, she says.
That is equivalent to taking 130,500 cars off the road, with some projects delivering abatements costs as low as $19 to $20 a tonne.
Woods told the gathered energy sector executives the $650 million available for the EECA-administered programme for the next four years will be critical to help industry continue that effort.
“We have to look for these domestic abatement opportunities,” she says.
“We have to find a way that decarbonisation doesn’t have to mean de-industrialisation.”
Carbon costs
Carbon prices last week fell to $54 a tonne – a 20-month low – amid doubts about the direction of climate policy ahead of the October general election.
Prices, which last year peaked at about $87, fell after the Government in December rejected Climate Change Commission advice to further increase the rising track carbon prices were already on. It modestly reduced auction volumes available but did not make the steep cuts the Commission had been seeking.
Prices fell further last month after the Government announced a further review of the emissions trading scheme to put greater emphasis on gross emission reduction and reduce incentives for forestry planting.
Carbon was trading at about $59 earlier today. Under the current ETS settings, the trigger price for the price cap in the scheme will rise from $80.64 this year to almost $130 by 2027.
Prices rising to those levels will make forestry planting more profitable – even without harvesting. It will also put upward pressure on wholesale power prices and deliver windfall gains to generators of renewable energy.
“I do not for a moment believe that we can expect industry to decarbonise by relying only on the ETS and carbon pricing,” Woods said today.
“I think the transition will simply be unaffordable for too many people.”
Export-critical
The breakfast was sponsored by Genesis Energy.
Chief executive Malcolm Johns told guests that climate change will be a fertile area for trade protectionism in coming decades.
The carbon border adjustment mechanisms proposed in Europe are the most obvious example of that and will attempt to police flows of goods based on their net carbon intensity.
Johns says electrification of transport and light industrial heat here – and maintaining firming capacity and resilience in an increasingly renewable energy system – will be critical for the country’s exporters.
“The decisions we make in the energy sector will play into New Zealand’s export competitiveness over the next 20 years and ultimately the standard of living that we can enjoy.”
Woods told the audience the gas transition plan being worked on by industry and officials will be key to developing a plan for decarbonising the gas system through to 2035 and beyond.
Potential scenarios for that work will go out for general consultation soon.
Woods says that work will be an important contribution to the draft national energy strategy which should also go out for consultation in a few months’ time.
System thinking
“We’ve got to start thinking in terms of an energy system, rather than seeing gas and electricity as mutually exclusive and on their own track.”
Woods says the next stage of consultation and the development of the wider strategy will be key to decarbonising the country’s energy system. That includes the “serious and hard work” of finding a long-term solution for dry-year risk in an increasingly electricity-dependent economy.
“I have no desire to simply put out a glossy booklet, give you four weeks to get a submission in and ‘we’re done and dusted’.
“This is a conversation that we need to have as a sector.”