Opportune Time for the New Government to End Petroleum Industry Subsidies

"A new study has found that taxpayer support for the New Zealand oil and gas industry has doubled under the National government. In 2009 subsidies of all kinds were $40.5 million but that increased to $87.6 million by this year, a more than 100% increase."

Internationally, governments provide more than $US775 billion in subsidies annually to support fossil fuel industries according to the IMF. The UN and the insurance industry have called for abolishing state subsidies to help mitigate climate change impacts and speed the transition to a global clean energy economy.

The author of the study, economic anthropologist Dr Terrence Loomis, said successive governments had been gradually ratcheting up industry support over the past couple of decades.

But “when National came in in 2009 with the aim of boosting oil and gas exports from $3 million to $30 million by 2025, subsidies really took off.”

The study builds on previous research by WWF-New Zealand in 2013.

National consistently maintained the government did not ‘subsidise’ petroleum exploration, production or consumption, and was part of an intergovernmental group pushing for subsidy reform. Dr Loomis said “the Government was hiding behind a technical definition of a ‘subsidy’ and misleading the public.”

The latest study documented a wide range of production, consumption and general support to incentivise and benefit the New Zealand oil and gas industry.

In spite of government efforts, the New Zealand industry was in trouble and it looked like a protracted retrenchment. Royalties are down 70% over the past seven years, few new permits are awarded annually, 71% of all permit contracts have been cancelled, and the industry is cutting capex and laying off staff. Some energy commentators suggest this is not a typical boom-and-bust cycle, but a sign the industry globally has entered terminal decline.

Industry representatives and PEPANZ offer the false hope of a ‘game-changing’ discovery (see RNZ 30 Oct 2017 ‘Gas field prospect could be a game-changer’. But international energy analysts predict increasing volatility in oil and gas markets and a much more rapid shift to renewables than initially anticipated. Investment firms are getting out of fossil fuels because of poor returns and the risk of ‘stranded assets’ from global action to address climate change. If there were a major discovery in New Zealand, the chances are it won’t be commercially viable given the rapid changes occurring in the global energy scene. The government could end up spending billions supporting regional infrastructure development just to have the whole project fall over.

“New Zealand’s future is with clean energy, and the sooner we transition to it the better,” said Dr Loomis.

With a new incoming Government committed to addressing climate change and phasing out fossil fuel dependency, Dr Loomis said this seemed like an opportune time to review the subsidies regime.

“This report estimates that at least $65 million in subsidies could be redirected to initiatives such as heavy transport electric conversion tax incentives and EV infrastructure development, as Norway did.”

Full text of the study:

http://www.terrenceloomis.ac.nz/uploads/5/3/3/3/5333337/govt_subsidies_update_report__2017-2.pdf

ENDS

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