Energy Minister David Parker Speech: The end of cheap oil

Address to the Hampden Energy Future Forum 6.45pm, Hampden

Thank you for inviting me to speak here this evening. I have been following media reports of your meetings, and I am impressed that your community is showing initiative and leadership in addressing the issue of our future energy needs and how we will supply them.

In my role as Minister of Energy I am tasked with seeing that the country has reliable energy, at an affordable price. In my role as Minister Responsible for Climate Issues, I have to consider how to minimise the greenhouse gas emissions resulting from our energy production, transport, industry and agriculture. Both of these roles are relevant to our discussion today.

No doubt you have many questions for me, and I'm keen to hear from you too, but let me first give you some idea of where the government is coming from on this issue.

PEAK OIL

Your concerns are centred around peak oil, and how the world, and your community specifically will cope as oil becomes more expensive.

Peak oil describes the point in time when the world-wide production of conventional crude oil peaks. After it peaks, the world's daily production of crude oil is expected to decline over time.

If this occurred soon, it would be momentous. For decades the world has used increasing quantities of oil and gas as a central component of our way of life. Recent increases in oil use have been spurred along by burgeoning demand in rapidly industrialising developing countries, most notably China.

Whether conventional oil production will peak in the next year, or the next decade or a decade or two later, is moot. But it will peak and, in policy terms, the timeframe is short.

Increased prices will spur exploration and make previously uneconomic reservoirs of oil viable to use. Higher prices and other technologies will also cause liquid fossil fuels to be extracted from sources such as gas, oil-rich shales and from lignite. These non-conventional sources of oil are of immense scale. So while peak "cheap" oil from conventional sources will occur, the world has plentiful sources of fossil-based oil for the next few decades.

Another concern on the horizon is energy security. In an international sense, that is shorthand for worries that oil supplies might be disrupted. Much of the world's oil production and known reserves are in the Middle East and other areas where there are geopolitical concerns, which could disrupt supplies.

Peak "cheap" oil and energy security cause concerns for some that oil will run out or become much more expensive. While the Government is concerned about threats to oil security, we don't expect it to run out.

But, while oil and other fossil fuels may remain available, we might not want to continue using it in the same way as we have.

CLIMATE CHANGE

The Government believes the more serious and more immediate problem is climate change, and that is why we as a nation need to actively reduce the greenhouse gas emissions produce.

You may have heard in recent days about the dire warnings from one overseas economist of the consequences if the world does not find a way to put the brakes on our growing greenhouse gas emissions.

Our biologically-based economy is particularly vulnerable economically to a changing and unstable climate. Climate change is expected to bring more droughts to already drought-prone areas, and more floods to those areas that are already vulnerable to flood. Studies by our National Institute of Water and Atmosphere suggest that, in large parts of eastern New Zealand, droughts occurring every 20 years may occur as often as every five years by the 2080s. Sometimes they may occur two years in a row, with no time to recover between them. The last major drought we had, in 1997-98, cost the economy a billion dollars in New Zealand currency; and the floods of February 2004 are estimated to have cost well over $300 million. It is difficult to imagine how our farming industry will manage if these kinds of events happen much more frequently. Climate change is an indicator that the world is not living sustainably. That needs to be addressed, and New Zealand is committed to addressing it.

SUSTAINABLE NZ

You will have heard the Prime Minister on the weekend at our party conference place great emphasis on sustainability.

This government believes that sustainability will be a core value in 21st century social democracy, and we want New Zealand to be in the vanguard of making it happen.

In order to live sustainably, and to reduce our greenhouse gas emissions, we have to make the most of our renewable energy resources.

ENERGY EFFICIENCY

This means not wasting what we have. For a long time, New Zealand has enjoyed cheap electricity, and this has meant we have not been as frugal with it as we could have been.

However, the cost of producing it is going up, with the demise of Maui gas, and because we want to make the most of our renewable resources, we have to be as energy efficient as possible.

NZES

An important part of addressing future energy needs will be the New Zealand Energy Strategy. The draft Strategy out next month will consider how we can more effectively manage the energy we use.

It will therefore consider changing behaviour around the investments we make in capital and technology, and what we as individuals buy and how we live our lives.

It will ensure that energy efficiency is duly considered in the upgrade, design, location and management of activities, processes, buildings and infrastructure.

As part of this, we are working on a replacement National Energy Efficiency and Conservation Strategy, as a subset of the draft Energy Strategy.

Its specific focus is promoting more efficient use of energy and renewable sources of energy.

It's important to note the co-benefits of many of the initiatives that have been announced, or are being developed.

For example, insulated, warmer homes mean healthier families with lower power and medical bills. More efficient, well-tuned cars mean cleaner air, a healthier environment and lower fuel costs.
At the core of the Energy Strategy remains reliable access to the energy resources needed to support a vibrant economy.

The draft Strategy will aim to address uncertainties around investment in energy infrastructure.

Clarity in areas such as climate change policy and regulation will help facilitate timely and cost effective investments over time.

Similarly, it will be important that the Strategy is clear about the role of renewables and thermal fuels in the transition to New Zealand’s sustainable energy future.

At some stage greenhouse gas emissions will bear a cost, which will provide incentives to change to production and consumption activities and capital investments with a lower emissions profile.

The New Zealand Energy Strategy will consider the extent and the means by which we can meet the demand for energy services while avoiding increasing greenhouse gas emissions.

It will be necessary to show a preference for new generation to be renewable, at least until such time as clean technologies, such as carbon capture and sequestration, are proven to be both practical and economic.
Therefore, the Strategy will consider various incentive options to support the development of additional cost-competitive renewable energy sources.

The Strategy will also address deployment hurdles for low- and zero-carbon energy alternatives by providing more planning certainty, and by creating a more dynamic environment for energy innovation.
BIOFUELS

I'd like to take the time to talk about a subject which I think is uppermost in your minds, and that's finding a replacement for transport fuel. Obviously, as a rural community, the public transport possibilities are not great, and private vehicles by necessity remain an important means of getting around, doing business and staying in touch as a community. Any huge increase in transport fuels would therefore make a very big difference to communities like yours.

There is also an imperative to reduce greenhouse gas emissions in the transport sector. I recently released the Energy Outlook report. It projects that if we do not change our policy settings, transport greenhouse gas emissions increase by 35 percent over the next 25 years.

That's where biofuels come in. You may already be aware that the government has just finished receiving submissions on a proposal to set a minimum biofuels component for transport fuels. Our proposal was for a 2.25 percent minimum as a starting point, to be in place by 2012.

Although imported biofuels could be used, there is enough domestic feedstock from within the agricultural sector to produce the amount of biofuels needed to meet the minimum obligation.
In New Zealand, we have sufficient tallow, a by-product of the meat industry, which would, if converted to biodiesel, produce around 5% of our diesel fuel needs. New Zealand currently produces sufficient bioethanol from whey, a by-product of the dairy industry, to meet around 0.3% of our petrol needs. More bioethanol could be produced from whey or other waste and by-product sources.

Diversifying into these renewable transport fuels will reduce our dependence on imported oil, and improve air quality.
And of course, they will also reduce greenhouse gas emissions. If the proposed sales obligation is met, we will not need to account for over a million tonnes of carbon dioxide emissions under the Kyoto Protocol, due to the replacement of fossil fuels by biofuels. This represents more than $16 million that would be saved by the Government in respect of its Kyoto Protocol commitments in the first commitment period (2008-2012) alone.
And I'd like to stress that this is a starting point. Once the legislative framework and infrastructure is in place, we can expect biofuels to make up a greater proportion of our transport fuel than these mandated minimum levels.
CONCLUSION

There is a challenge ahead of us, but we are committed to making a difference and we need New Zealanders to come on board.

That's why it's great that communities like yours are stepping forward to play their part in thinking hard about how to address these energy challenges.

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