Energy and Resources Policy in New Zealand: Where’s the Plan?
Power and Electricity World New Zealand 2010. Opening speech by Labour's energy spoekesman Charles Chauvel.
I want to begin with thanks to the organisers of this conference for the opportunity to speak here today. I won’t labour
the point, since I am glad to have taken his place – and hope that may that be an indicator of things to come after the
next election. But it is a shame that you don’t have the Minister here this year. This is because after only 15 months
in office, there are many questions that could usefully have been addressed by him today about whether National has any
sort of coherent plan for this vital sector of the New Zealand economy. Here are 4 for starters.
Lack of a plan – the evidence # 1: unanswered questions
What will the revised Energy Strategy say?
First, what is the status of the Minister’s undertaking – given, ironically, when he spoke at this very Conference last
year – to make further announcements “in the coming weeks” as to National’s update of the New Zealand Energy Strategy?
Many of you will recall Gerry Brownlee’s criticism that the Strategy over-emphasises sustainability, and
under-emphasises security of supply. 51 weeks later, “the coming weeks” seem to be stretching out a bit as we all ponder
the key question of what Energy Strategy 2.0 might look like. Let’s hope, if only because of the enormous and
often-minimised potential for demand-side efficiencies, that a similar fate does not befall the New Zealand Energy
Efficiency and Conservation Strategy, also currently under review by the Minister.
Why is security of supply deteriorating under National?
Mention of National’s ostensible concern for security of supply uber alles prompts the second question. The latest draft Electricity Commission Annual Security Assessment - on which consultation
closed only a fortnight or so ago, indicates a significant revision downwards of the previous year’s assessment. This is
said to be due to a mix of factors – retirement of existing capacity, the timing of commitment of new generation,
uncertainty as to thermal fuel supply after 2010, the ability of wind to contribute at peak times, and the
unavailability of slow-start generation capacity at those times. Security of supply must obviously be measured by more
than just the Winter Capacity Margin (WCM). But given Gerry Brownlee’s completely unjustified winter 2008 scaremongering
about security of supply, how is it, on National’s watch, that these factors are being allowed to combine to cause the
WCM to fall below the Security Threshold for the first time in 2012?
A third question might be why the Minister is so prone to distorting the record. Only last week in Parliament, for
example, he was painting a picture of increased oil production on his watch. A quick perusal of the facts – set out last
month in his own department’s Energy Quarterly, shows the reality of the situation. Our recent domestic crude oil supply
production peaked at 36.1 PJ in December 2007, a year before Labour left office, then declined steadily to a low of
25.5PJ in March last year, recovering to only 33.7PJ last September. This elasticity with the facts is of a muchness
with many of his policy announcements - ranging from seismic data acquisition through to the home insulation package –
which are simply recycled initiatives of the last Labour-led Government.
Electricity Reform Bill: Will it make the problems worse?
A fourth question would relate to his insistence - despite Treasury and much industry analysis – that asset swaps in the
state-owned generation sector will improve the performance of the electricity market. I appreciate that there is not a
consensus on this issue. But I am concerned at the potential for compromise to the Waitaki system by allowing one
supplier to restrict water to the other catchments downstream, creating a lose-lose situation for consumers by putting
security of supply at risk and increasing prices. To these concerns, the Minister has replied that the issue has been
‘extensively canvassed.’ But on this point, he is being elastic with the facts, again. The Government’s own Regulatory
Impact Statement on the Bill that would empower the swaps says that ‘a more comprehensive review of the risks associated
with proposed options’ should have been included. Parliament has the legislation before it. MPs might have found it
informative to have heard a public exchange between the Minister and those present today on whether the Bill is likely
to have the exact opposite effect to what was intended: increasing prices to consumers and limiting security of supply.
As it is, we will just have to manage.
Lack of a plan – the evidence #2: repeal and rollback
If these and other unanswered questions seem to point to a lack of rigour in the direction of energy policy, so does the
headlong rush to discard much of what Labour achieved in office in this area. Worse is the failure to replace those
initiatives with anything meaningful. I’m going to mention three significant instances.
Repeal of Renewables Preference
First to go was the renewables preference legislation, which put a statutory hold on building any new baseload thermal
power stations until 2018, absent any obvious threat to security of supply. This was in pursuit of the Energy Strategy’s
goal of 90% baseload renewable generation by 2025. I’m aware that many of you would have preferred a market price
mechanism to legislation. But given last year’s weakening of the Emissions Trading Scheme, to which I will refer again
later, you don’t really even have that. Combined with the lack of support in last year’s budget or in this year’s Prime
Ministerial statement for renewable energy, it is clear that there is no simply vision as to how to maintain and
maximize our massive existing 70% advantage in the renewable electricity space.
Repeal of Biofuels Obligation
It’s not only renewable energy that has suffered under National. The repeal of the obligation to add a small amount of
biofuel at the pump has been a significant setback to the development of a domestic biofuels industry. When the
Government repealed the obligation, an international company pulled out of building a 60 million litre bio-diesel plant
in the Bay of Plenty – infrastructure that would have been good for our energy sector, the economy, and the environment.
When he realized just what a hit local biofuel producers took after the repeal of the obligation, Gerry Brownlee decided
to make available $36m worth of scarce public funds for grants for the sector. The lack of success of this alternative
policy is indicated by the 1% uptake to date of those grants.
Major Weakening of the Emissions Trading Scheme
An ETS is intended to use the market to limit greenhouse gas emissions across time over the sectors of the economy to
which it is targeted. Different sectors receive a specified level of carbon credits, which allow each of them limited
rights to continue to pollute for a limited time. Credits may be traded, and the desired effect is that industries
reduce pollution over time because in most cases it should be cheaper to do this than to have to buy increasingly scarce
credits. Labour’s scheme applied to all sectors, and would have credited 90 per cent of emissions based on the 2005
averages for each sector, and then phased that out by 8 per cent each year, down to zero. Emitters that sought to
pollute over and above the levels set by the ETS could purchase a limited number of additional credits. Revenue from
such purchases would have gone towards funding the measures necessary over and above those made economic by the market
to transition to a low carbon economy, and to ensure that the manner of that transition was just. Labour’s scheme had a
fixed allocation of credits, meaning that once these were purchased and spent, emitters would pay. All of our
allocations were based on the 2005 average, setting a benchmark from which to measure the reduction in emissions over
National, the Maori Party and Peter Dunne last year softened the phase-out for free ETS credits to a rate of 1.3 per
cent per year, rather than the original 8 per cent. The Minister of Agriculture told Federated Farmers that this would
allow free allocations of credits to continue for 90 years into the future. Allocations will be secret, and involve
enormous transfers of wealth from taxpayers to emitters. If the scheme as amended last year is not changed, Government
debt will increase by 2030 by an estimated 15 to 17 per cent of GDP. These changes – and the need to make them in haste
and under urgency - were said at the time to be based on the need for harmonisation with Australia, where political
conditions make it apparent that there can be no certainty as to when, or even whether, an emissions trading scheme will
be legislated for. They send a virtually non-existent price signal, and the lack of provision for any meaningful
complementary measures means that our existing ETS is pointless as an environmental protection mechanism.
Lack of a plan – the evidence # 3: the vision vacuum
Late last month, 8 of our leading businesspeople wrote to all MPs urging investment in the opportunities that New
Zealand could realize in clean technology. Lloyd Morrison, Rob Fenwick, Stephen Tindall, Jeremy Moon, Rob Fyfe, Philip
Mills, Geoff Ross, and George Fistonich mention the potential of investing in this area to create and attract major new
businesses to New Zealand, and to add significant value to our current ones. They speak of adding brand value, and
reducing the risk of significant and possibly irreparable brand damage to our exports and tourism. They write of
reducing long term risks to escalating foreign oil and other costs. Yet in his statement to Parliament last week, the
Prime Minister made no mention of the potential for New Zealand in cleantech investment. This vision vacuum represents
an enormous threat to the New Zealand economy.
So what would Labour do?
No-one expects a detailed series of manifesto commitments from the opposition just under two years out from the due date
of a general election, and even if they did, the requirement for a major political party to consult with its wider
membership and with key stakeholders means that a party spokesperson would offer them at his peril. But in energy
policy, I will restate a number of important commitments.
A New and Comprehensive Energy Strategy, Providing for Security, Affordability and Sustainability
First, we will be clear from the outset about over-arching policy. New Zealanders will not, as they are having to do
now, endure a year or two of reviews. An incoming Labour-led Government will provide certainty as to the regulatory
environment in energy for investors and consumers. We will as a matter of priority reissue a detailed New Zealand Energy
Strategy. This document will consolidate and extend the goals of the existing strategy and the related documents
published under the last Government. It will specify that domestic energy security is of cardinal importance, to be
achieved bearing in mind the twin imperatives of affordability to consumers; and the need to fully maximise our
renewable advantage. This includes avoiding dependency on imported gas. Our electricity prices have never been linked to
those of foreign fossil fuels. It is a linkage we should continue to avoid.
As far as the renewable advantage is concerned, we expect that it will be feasible to agree and set out a way forward
over a period of years by which most if not all baseload generation currently derived from fossil fuel sources will be
replaced by geothermal load. Significant wind turbine development will continue - and the potential of marine, tidal,
biomass, small-scale hydro and other clean sources of energy will be encouraged, as our leading businesspeople urge. The
Emissions Trading Scheme will be recalibrated to send a meaningful price signal in favour of renewables and to enable
funding of complementary and transitional measures, including significant research and development capability to support
renewables and to reduce our particular emissions profile. Transport emissions will reduce drastically through a mix of
encouraging the use of biofuels, moving heavy freight back onto rail and coastal shipping, reinvesting in user-friendly
public transport, and adopting electric vehicle technology as early as economically possible.
Energy Efficiency and Conservation
Proper use will be made of energy efficiency and conservation, both for health reasons and for the potential to minimise
new generation, transmission and lines investment. A smart metering standard will be set, and it will be a requirement
that such metering empower the domestic consumer to make use of favourable tariffs when commercial and industrial usage
is lower, particularly as the use of electric vehicles becomes more widespread. Perverse incentives to energy
conservation will be eliminated where possible, and otherwise minimised. Although the grid will continue to be
strengthened, since that will make for the optimal nationwide deployment of renewable energy wherever it is generated,
incentives will exist for consumers to generate their own electricity, including for resale to the grid, where that is
Phil Goff has already undertaken that when he is Prime Minister, the runaway power price increases for domestic and
smaller commercial consumers that were created under National’s electricity reforms in the late 1990s will end. The bulk
of these increases when they occur are now attributed by generators to the need for further investment in generation
capacity. Some 75% of existing and medium-term projected generation capacity is state-owned. So one way to look to
achieve electricity price stability is to be realistic with the state-owned generators as to dividend policy, much in
the same way that Transpower has recently been permitted to reinvest notional profits in grid upgrade work. We will,
however, be clear that realism over dividend policy is not a licence for the inefficient use of public funds on any
Competition vs Regulation
We are aware of the need to get the balance right between competition and regulation in each part of the electricity
sector, and on an overall basis. At the generation level, the benefits of haphazard competition for a limited number of
sites in a long, thin, sparsely populated country seem mixed. At retail level, real competition is still not a reality
for many consumers. Effective monopolies at transmissions and lines levels require careful thought about how to get the
best out of the entities that operate them.
Resources in context
Finally, a word about resources policy. Warren Freer reminded me in June last year - at the 40th anniversary of the
discovery of the Maui gas field - that Labour has a proud record of ensuring that our natural resources are exploited in
the overall national interest, having regard to our sovereignty and to our environmental integrity. Future Labour-led
Governments will continue this legacy. What we will not do is permit exploration or mining in the Conservation Estate.
Nor will we operate resources policy in isolation from other key concerns.
For Labour, for example, the prospect of the discovery of significant reserves of oil or gas in the Southern Basin is
potentially much more than just an opportunity to extract more things to be shipped offshore and burned, so as to reduce
our balance of payments deficit. If it does transpire that 30 years’ worth of existing domestic oil consumption is
discovered beneath our territorial waters, wouldn’t it make sense to take a long, hard look at what we should do in our
national interest with that resource? Very arguably, instead of going down the export substitution route, we might
ensure that we had onshore refining capacity for that oil. Then, we might use the window that the depletion of the
reserves would give us to plan for energy independence, based on the renewables technologies (especially in transport)
that are almost certain to have come on stream by the depletion date.
Thank you for inviting me here to speak today. I hope to return in subsequent years to discuss and develop these ideas
in more detail with you.