Hon Marian Hobbs
Minister for the Environment
Parliament Buildings
Wellington
New Zealand
Dear Minister,
Resource consents for three new gas-fired power stations
I am a director of Windflow Technology Ltd, which is working to establish local manufacturing of wind turbines. I am a
registered mechanical engineer in New Zealand and California and my vision for the last twenty-four years (more than
half of my life) has been to establish wind power as a large-scale player on the New Zealand energy scene. After working
overseas in the wind industry for seven years I returned to New Zealand with the experience and a design suitable to
establish local manufacturing as the best means to that end. I enclose a copy of our Investment Statement for your
information and interest.
I am also a director of the New Zealand Wind Energy Association, and have written to Pete Hodgson (15 February) in
support of including of a Mandatory Renewable Energy Target in the National Energy Efficiency and Conservation Strategy.
I enclose a copy of that letter for your information
I am writing to urge you to reconsider last week's decision and (acknowledging that the time has passed to call in
Otahuhu C) either:
- call in the new Huntly and Taranaki gas-fired projects or,
- issue a National Policy Statement which would cover all three consents and any subsequent ones.
The arguments behind this letter are based on my absolute conviction that we need to apply the "polluter-pays principle"
(PPP) if we are to address the problem of climate change. There are various other terms for this:
- "economic instruments" (often presented as a choice between "carbon tax" or "tradable permits with absorption credits"
though that is actually a case of "horses for courses" rather than an either-or choice), or
- "ensuring that prices reflect the full costs of supply including environmental costs" (as per the Government's Energy
Policy Framework).
But at the end of the day it comes down to the PPP, and the thing required is regulatory action not promises and
Uptonesque procrastination.
Having spent seven years overseas in the wind industry I came back to New Zealand ten years ago, convinced (or should I
say misled?) that New Zealand's clean, green image and economic rationalism would combine in a natural acceptance of the
PPP as the minimal, least-cost principle which simply must be applied to the problem of climate change. I have made the
case for the PPP time and again through:
- submissions to the Resource Management Law Reform process (1988-90)
- submissions to climate-change policy development (1990-present) especially WOGOCOP in 1996
- a submission by Solar Action and expert testimony for the Maruia Society to the Taranaki Combined Cycle (TCC) Board of
Inquiry in 1994
- two papers published at Solar '98, one of which explains how the tradable absorption obligation (TAO) - applied
globally - can create a transition to a sustainable energy, non-greenhouse future.
I enclose these two papers for your information.
However I have become increasingly frustrated as successive ministers for the environment (principally your predecessor)
have listened not to the evidence for action, but the special pleading of the business-as-usual brigade. For the
proponents of new, renewable energy, this simply translates to "jam tomorrow". For climate change, this translates to
greater costs and insecurity imposed on future generations.
Well I am fed up with "jam tomorrow"! I am fed up with a competition which lets gas-fired power free-ride on the climate
insecurity of my children and grandchildren, a competition which puts no value on the fact that wind power does not emit
CO2 unlike most other civilised nations (even Australia!).
There are many things which need to be done in response to the Kyoto Protocol, and which require further work to be
implemented, but in the meantime there is one thing which Government can do under the RMA, which will be entirely
consistent with the Kyoto process. But it needs to listen to the wisdom of the report on the only call-in there has been
under the RMA, not the special pleading of the business-as-usual brigade for a change!
The TCC Recommendation
In 1994 after extensive hearings the TCC Board of Inquiry accepted the submissions of Solar Action and the Maruia
Society. It recommended full mitigation of the output from that station:
page 228 - "The consent holder shall establish a carbon sink sufficient to eventually store in perpetuity the equivalent
quantity of carbon emitted from the site over the term of the permit".
This was based entirely on the requirements of the RMA that "adverse effects" (including potential adverse effects) must
be avoided, remedied or mitigated. A victory for the PPP!
The Board also took account of the Framework Convention on Climate Change (FCCC), with which its recommendation was
consistent, since TCC was a new plant and the argument about backing off an existing station (as opposed to simply
meeting demand growth) could not sensibly be applied to that station. (Not that this argument has any merit in the
context of either the RMA or the ultimate objective of the FCCC. But the 2000 target of the FCCC - which has since
become the 2010 target of the Kyoto Protocol - is a complicating factor. Arguably that target was to stabilise gross
emissions but in deference to the intellectual flip-flop which has become a fait accompli since 1992, I will refer to
the 2000 target of the FCCC as "stabilise net". On the other hand the ultimate objective of the FCCC is zero or
radically reduced net emissions - "zero net" for short). Note that:
- the FCCC has been ratified and is thus legally and morally binding
- the Kyoto Protocol was still 3 years away at the time of the TCC recommendation
- the case for action on climate change has become stronger not weaker since then.
Importantly for the purpose of this letter, the Board also reported:
page 221 "11.27 After careful consideration we have resolved to recommend the issue of a national policy statement on
CO2 emissions ...."
The Minister's Decision on TCC
Minister Upton torpedoed the Board's primary recommendation by making the final consent condition only partial
mitigation, and defined in such a way as to be inherently woolly to the point of being unenforceable. I won't go into
the details here but the principle he was trying to apply was that the consent holder should not be penalised as long as
TCC results in a reduction of CO2 emissions from the electricity sector. This sounds reasonable and the discrepancy
between the Board's recommendation and Upton's decision seemed nebulous to many at the time (which is why he got away
with it). However it is now clear that there is no mitigation occurring, even though CO2 emissions from the electricity
sector have been increasing dramatically throughout the 1990's and continue to increase. So the PPP is not being
applied, not even partially.
These developments highlight the fundamental flaws in Upton's decision. It was:
- invalid (and probably unprecedented?) from an RMA perspective to make conditions on one project based on what other
projects are doing. Enforceability problems inherently arose
- invalid from the perspective of the FCCC's ultimate objective, because like the RMA the FCCC will require full
mitigation
- invalid from the perspective of the FCCC's 2000 target, because the consent's base year was not 1990 (perversely this
created an industry-wide incentive to maximise emissions the year before TCC was commissioned)
- naive in accepting the argument that the new gas-fired power station was being installed to improve generation
efficiency by displacing thermal stations which (in the NZ context) were normally run as intermediate or peaking
stations. Such a project would not be economic. TCC's purpose was to run as base-load - meeting demand growth in the
long run (and fuelling it by downward pressure on prices thanks to the availability of Maui take-or-pay gas), and
displacing thermal and hydro stations in the short-term to generate a return on investment
- useless if not followed up by a national policy statement to ensure that the same condition is applied to all new
power stations. As this has not happened, I am sure the TCC lawyers are having a field day with the question of "fair
allocation" of the increase in sector emissions to this or that power station ("not ours, guv'nor - oh no, not ours").
Labour needs to sort this!
The mess that has resulted in electricity sector emissions policy is similar to the mess that resulted from the
"Bradford reforms". The discrepancy between the TCC Board of Inquiry's recommendation and Upton's disingenuously
unenforceable decision needs to be sorted.
If Labour wants to maintain its environmental credibility, it should put its stamp on this matter.
Furthermore the government, as owner of Genesis in the context of the new Huntly consent, and party to the Maui
contracts, needs to ensure its commercial interests are not torpedoing its climate change policy (and NZ's clean green
image at the same time).
What to do?
The basic economic principle which needs to be internalised (ie monetised) is that the playing-field needs to be
levelled environmentally for renewable energy, in particular in respect of CO2 emissions. A level playing-field is one
which the competition is between zero-net and zero-net. At the moment the competition is between gas-fired gross
emitters and zero-net renewables like wind power.
To remedy this situation there would seem to be a choice between:
- regulating a zero-net versus zero-net competition (using the PPP to level the playing field), or
- regulating some softer target on fossil-fuel projects (eg stabilise net), in which case some other measure in favour
of renewables (eg using TransPower pricing policies to enhance the value of embedded renewable projects) would be needed
to offset the remaining tilt in the playing field.
However we would argue that both these approaches can and should be taken. If this seems paradoxical, the resolution to
the paradox arises from considering the "marginal economics" issue. "Zero-net" for new projects (which can and should be
required under the RMA) corresponds to "stabilise-net" if old projects stay on line, and in the long run "zero-net" as
old projects are shut down. Thus there is a perfect match between the RMA and the FCCC's initial and ultimate
objectives. This is an example of the principle that economic efficiency is maximised if the correct price signals are
present "at the margin".
Thus we believe that the RMA should be used to ensure that new projects fully mitigate their CO2 emissions, as
recommended for TCC by the Board of Inquiry. To do this we urge you either to:
- call in the new Huntly and Taranaki and subsequent gas-fired projects or,
- issue a National Policy Statement (NPS) which would cover the new Huntly, Taranaki and Otahuhu C projects and any
subsequent ones.
Obviously the NPS would be the preferable course of action. It should as a minimum require full mitigation of new
stationary sources of CO2, with no exemptions for shutting down old plant. It could also:
- address moving sources of CO2 (eg vehicles) and other GHG's (eg animals) if possible (the TCC Board of Inquiry thought
it was - ref. paragraph 11.22 of their report). For example the oil companies could be required to mitigate increased
sales since 1990, farmers could be required to plant a few trees if livestock methane emissions increased (these
emissions haven't increased and farmers are planting trees anyway for other reasons)
- allow trading of the obligations on stationary sources with other emitters, or purchasing absorption credits within NZ
(the pilot trading option)
- include a sunset clause if a comprehensive international trading system is introduced or if New Zealand's net
emissions (including only absorption credits which have been procured on a polluter-pays basis) reduce below our FCCC
commitments.
Summary
In summary we urge you to revisit the report of the 1994 Board of Inquiry into the Taranaki Combined Cycle station and
to adopt its recommendations rather than the flawed decision of your predecessor. A new Board of Inquiry may be
advisable if you believe that developments since 1994 need to be taken into account. If so, we would urge you to call in
the Genesis proposal for Huntly, which is disingenuously being called an "energy efficiency enhancement" project, and/or
the new Taranaki project. Otherwise we would urge you to issue a National Policy Statement as outlined above.
We will continue with our enterprise in any event because (as set out in the Investment Statement) we believe our design
will be competitive in five years time without any "environmental adders". However it has been difficult to establish
this enterprise in the last ten years when the general perception among prospective investors has been that the
government is not doing anything concrete to level the environmental-economic playing field. Last week's announcements
did not provide any reassurance on this point and thus made our job harder. Another glut of gas-fired power funded by
environmental free-riding at Otahuhu, Huntly and Stratford could set us back significantly. We want to be able to
contribute to a renewable electricity future in New Zealand, and not have to turn to the Australian market with
consequent losses to the NZ economy.
I would be pleased to discuss the contents of this letter with you, and would like to have the opportunity to meet for
that purpose at your earliest convenience, either in Wellington or Christchurch.
Yours sincerely,
with kind regards,
G M Henderson
DIRECTOR
cc by e-mail: Pete Hodgson, Jeanette Fitzsimons, Tim Barnett
Alistair Wilson (NZWEA), Gary Law (EDS)