2. Sustainable Energy - A Policy Framework
This section explains how the government views sustainable energy: what it means, and the decision-making principles that it involves. It explains the connection with sustainable development and describes key government policy initiatives contributing to the pursuit of sustainable energy.
Sustainable Development Is the Overall Objective
The government's Growth and Innovation Framework is designed to deliver the long-term sustainable growth necessary to improve the quality of life of all New Zealanders. Its objective is to return New Zealand's per capita income to the top half of the OECD rankings over time, which requires growth rates consistently above the OECD average for a number of years.
New Zealand is amongst the many nations pursuing growth through sustainable development. Sustainable development is "development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs".
The challenge for sustainable development is to ensure that an integrated approach is taken in meeting economic, environmental, social and cultural needs over time. Economic growth is not sustainable if it comes at the expense of significant long term environmental damage. Environmental improvement is not sustainable if it threatens livelihoods. And social improvements are not sustainable if they weaken the economy or cause environmental harm.
The government's Sustainable Development Programme of Action, released in January 2003, sets out its principles for sustainable development policy and decision-making. Energy is one of four action areas identified in the programme. The others are the quality and allocation of freshwater, sustainable cities, and investment in child and youth development.
Energy Matters …
Consuming energy is an essential, unavoidable fact of modern life. The quality of life available in a developed nation is, in many ways, the result of innovations in the use of energy to increase our comfort, health, security and freedom.
… To the Economy
The economy depends on a reliable and reasonably priced energy supply. The international competitiveness of energy-intensive export industries depends in part on energy prices in New Zealand relative to those in competing countries.
Sustainable energy is reliable and resilient, environmentally responsible, and fairly and efficiently priced.
… To the Environment
All forms of energy, including renewables, have environmental effects. On a global scale the consumption of fossil fuel energy is causing climate change. Energy supply, distribution and use also have local impacts on air quality, water quality, landscape, noise levels and land use.
… And for Social and Cultural Well-Being
Reliable and affordable energy underpins quality of life for all New Zealanders. Supply interruptions and steeply rising prices cause social stress and hardship.
Sustainable Energy Is …
If development is to be sustainable, it must be fuelled by sustainable energy. Sustainable energy will enable us to maintain and improve our quality of life, not just for ourselves, but for future generations. To achieve this our energy choices must contribute to New Zealand's economic, environmental, social and cultural well-being. Sustainable energy can be defined by three sets of characteristics: reliability and resilience; environmental responsibility; and fair and efficient pricing.
… Reliable and Resilient
Supply reliability is the maintenance of access to enough energy to meet demand for energy services. It is achieved by complementary measures to secure energy supplies, ensure efficient use of energy and avoid waste. Reliable energy comes at a cost, and absolute reliability is unachievable. Contingency planning for supply interruptions is therefore a necessary part of planning for reliable supply.
Although energy supply can never be completely reliable, resilience in the energy system helps maintain its ability to deliver the energy services we need. Resilience is the capacity of the energy system to absorb and recover from shocks, to learn, innovate and respond successfully to gradual changes and trends. A key source of resilience is diversity in energy sources.
… Environmentally Responsible
The energy system has global and local environmental effects.
The global environmental concern is climate change. We need to restrain greenhouse gas emissions from energy production, distribution and use, so that they can be reduced over time.
At the local level we need to control the adverse environmental effects of energy production, distribution and use, manage new environmental pressures arising from growth in our energy needs, and take any feasible opportunities to enhance environmental quality.
… Fairly and Efficiently Priced
Efficient energy prices accurately reflect the relative scarcity or abundance of energy resources, and the costs of production, distribution and use. It is government policy that energy prices should, in principle, reflect the full costs of supply, including environmental costs. Efficient full-cost prices summarise a large volume of information necessary for sound energy choices. Open, competitive energy markets apply downward pressure to costs and prices, helping to ensure that efficient prices are as low as possible.
Fair pricing complements efficiency. It reflects both the energy producer's and the energy consumer's interests as well as underlying costs. Fair pricing requires energy providers to be adequately remunerated, while helping to ensure that vital energy services are widely available and affordable, including for the least advantaged. It may require, for example, the use of a transitional price path to moderate the impact of price shocks, or the correction of prices that do not currently reflect the full costs of supply.
Policy Can Promote All These Qualities …
Reliability and resilience, environmental responsibility and fair and efficient prices are all essential. They serve as objectives for energy policy development. Wherever possible, the government will promote "win-win" policy choices that contribute to the development of an energy system with all these qualities.
This can be done. Two examples stand out. Promoting increased energy efficiency contributes in all three areas. So, generally, does promotion of innovation in energy supply, distribution, use and policy.
Sustainability can only be achieved over time. A complex system like the energy system must be changed step by step. We learn as we go, adjusting priorities for action in the light of experience.
Leading this change is a critical role for government. It alone is in a position to influence the energy system as a whole and take the long-term view necessary to manage a transition over time.
… But This Can Be Difficult to Achieve
There can be tension between sustainable energy objectives when we make energy choices, particularly in the short term.
Higher energy supply reliability, for example, will generally come at a higher price. This may be considered unfair, particularly if the reliability benefits are not evenly valued by consumers. Lower environmental impact can also come at a higher price. Conversely, measures to hold prices down can reduce supply reliability and inflict environmental damage.
Although a sustainable development approach to energy policy involves looking first for "win-win" solutions, sometimes trade-offs between objectives must be made. Reliability has generally been the prevailing consideration when this happens, although not at any price. Historically, environmental objectives have often been compromised first.
Policy Choices Must Be Guided By …
… A Long-Term View
Taking a long-term view requires the full implications of today's energy choices to be considered, but also opens up a much wider range of possible actions. For example, over the long run improved urban planning could reduce the impacts of energy infrastructure development. A long term view also enables policymakers to adjust priorities for action over time, shaping a transition to a sustainable energy future.
… A System-Wide Perspective
The energy system is complex and interactive. Changes have multiple implications and often a high likelihood of unforeseen consequences. Government has an important role in seeking a system-wide view of the costs and benefits of particular energy choices. This requires effective collaboration with a wide range of stakeholders and an integrated approach to policy development by the many government departments and agencies concerned with energy and energy-related policy.
The government's aim is to move progressively to a more sustainable energy future, keeping open as many options as possible.
… The Need to Maintain Flexibility
Future supply and use of energy is highly uncertain. This means a rigid central planning approach to sustainable energy is unlikely to succeed. The government's aim is to move progressively to a more sustainable energy future while keeping open as many options as possible, using a mixture of market solutions, regulation and planning. The need to maintain flexibility demands caution in the use of specific policy targets, although these can be useful in providing motivation, a shared sense of direction, and accountability. In some circumstances the need to keep options open will require a precautionary approach to policy decisions, avoiding measures with the potential to seriously or irreversibly undermine progress towards sustainability.
… The Need for Open and Efficient Energy Markets
Open and efficient energy markets enable the entry of new sources of supply, fair and efficient pricing of energy services, uptake of new technologies, efficient interaction between energy suppliers and consumers, and the spread of better ways to use energy.
… Good Practice in Regulation
Markets are never perfect and will not deliver on all objectives for sustainable energy. Policymakers need to be alert to the barriers that can prevent sustainable energy solutions coming into markets, and be prepared to adjust energy market settings where they fail to promote energy reliability, appropriate environmental outcomes or fair and efficient prices. The form of regulation should be guided by experience, practicality, sound information, consultation and the need for the government to provide as much certainty about its policies as possible, so that businesses can plan and invest with confidence. The greater the uncertainty, the more investment decisions tend to be focused on short- to medium-term returns rather than long-term strategic interests. This is a significant consideration in the energy sector, where investments are often large and long-lived.
… Partnerships and Good Process
Government must work in partnership with energy sector stakeholders and follow transparent and participatory decision-making processes. Partnership requires a readiness to share information and understand different points of view, as the government does not have a monopoly on good information or solutions. Useful tools for engagement include the construction of scenarios for New Zealand's energy future, the creation and use of networks for sharing information and ideas, and the development of indicators to track progress towards sustainable energy.
… And Good Information
Policy choices must be made with the best information available. The government needs new information continually for policy improvement and periodic strategic evaluation and review. It also has a key role in collecting, collating and disseminating information that informs energy consumers, markets, energy sector thinking and public debate.
Policy Has Advanced Significantly …
In the past five years the government has introduced a number of specific energy and energy-related policies and strategies that contribute to sustainable energy objectives. These policies and strategies, together with the objectives and principles set out above, form the framework for future policy development.
The government has introduced a number of policies contributing to a more sustainable energy system.
… With Electricity Market Reform
The government commissioned a ministerial inquiry into the electricity industry in 2000 and introduced the Power Package reforms later that year to give effect to the inquiry's recommendations. The package included:
- a new governance structure for the industry;
- a consumer complaints resolution scheme;
- a requirement for retailers to offer a low fixed charge tariff to small power consumers;
- targeted price control for electricity distribution companies and Transpower;
- a requirement for a decision-making process and transmission pricing methodology to enable necessary investment in the national grid to proceed;
- improved protocols for consumer switching between power companies; and
- looser restrictions on the ability of electricity distribution companies to invest in new generation.
Following the industry's inability to reach agreement on self-regulation to achieve a number of these changes, the government established the Electricity Commission in 2003 to govern the electricity market and ensure the further progress of the reforms. The Commission is also responsible for improved modelling and forecasting of future electricity supply and demand, collecting and publishing information from the industry that will improve the function of the wholesale market, and promoting more demand-side participation.
… Electricity Security Policy
In 2003 the government introduced policy requiring the Electricity Commission to secure enough reserve energy within the electricity system to reduce the risk of electricity shortfalls in periods of very low hydro inflows. Amongst other measures, the Commission can contract with electricity producers and users for reserve generation capacity or demand management, within specified limits, to ensure New Zealand's electricity needs can be met without emergency power savings campaigns in up to a 1-in-60 dry year. In 2004 the government commissioned a 155 megawatt generation plant in Hawke's Bay to provide some of the necessary reserve energy.
… The National Energy Efficiency and Conservation Strategy
New legislation in 2000 required the formation of a National Energy Efficiency and Conservation Strategy and made the Energy Efficiency and Conservation Authority (EECA) an independent statutory body. In 2001 the government produced the strategy, which sets targets for improving energy efficiency and increasing energy use from renewable sources. It contains action plans for improving energy efficiency across five sectors: government, energy supply, industry, buildings and appliances, and transport. To enable EECA to lead implementation of the strategy, its budget has been increased from about $8 million in 1999-2000 to more than $20 million in 2004-2005.
… The Climate Change Policy Package
In 2002 the government introduced a comprehensive package of policies to address New Zealand's international obligations to tackle climate change. The policies are designed to enable New Zealand to meet its greenhouse gas reduction target under the Kyoto Protocol, which New Zealand ratified in December 2002, while promoting sustainable energy and protecting the nation's economic interests. The foundations of the package are the National Energy Efficiency and Conservation Strategy, the New Zealand Transport Strategy, the New Zealand Waste Strategy, the Growth and Innovation Framework, and a public awareness programme. Key climate change policies are:
- an emissions charge to apply from 2007-2008;
- Negotiated Greenhouse Agreements, by which firms whose international competitiveness would be at risk from the emissions charge can contract with the government for an exemption if they undertake to move towards world's best practice in emissions management;
- the Projects to Reduce Emissions programme, which awards Kyoto Protocol "carbon credits" to projects that will reduce New Zealand's emissions during the Protocol's first commitment period (2008-2012);
- co-investment with the agricultural sector in research into options for reducing greenhouse gas emissions from pastoral farming, a local government mitigation programme, and programmes to identify and develop business opportunities.
… Resource Management Reform
Over recent years the government has acted on a number of problems with the way that the Resource Management Act (RMA) operates in practice. Amendments to the Act in 2003 introduced a limited notification process for resource consent applications with minor environmental effects, reducing costs for such developments. Delays in hearing Environment Court appeals have been substantially reduced. A package of national environmental standards is being developed to create a more consistent and predictable regulatory environment for applicants across regions, with clear bottom lines set for the protection of the environment and human health. The first batch of standards being phased in deals with air quality, including, for example, a design standard for new wood burners in urban areas. The RMA has also been amended to require regard to the benefits of renewable energy and energy efficiency in the plan making and resource consent processes. Proposals for further reform of the Act are focused on achieving the right balance of local and national interests, improving local policy and plan making, improving the consent decision-making process and allocation of natural resources (including water and geothermal), and supporting best practice in the implementation of the law by local government.
… Gas Market Reform
In consultation with the gas industry through 2003 and 2004 the government has developed policy for reform of gas wholesaling, transmission, distribution and retailing. These changes are designed to update market arrangements to cope with the more diverse sources of supply and increased trading arising from the decline of the Maui gas field. The necessary changes will be delivered through a co-regulatory approach in partnership with the gas industry. They include:
- improving arrangements for the wholesale trading of gas;
- an open access regime for all transmission pipelines;
- standard terms and conditions for access to distribution pipelines;
- model contracts for consumers;
- standardised arrangements for customer switching; and
- an independent system for handling consumer complaints.
… Incentives for Gas Exploration
To accelerate exploration for new gas reserves to replace supply from the declining Maui field, the government is altering the petroleum exploration regime. The package includes:
- reducing the royalty rates for fields discovered before 31 December 2009;
- acquisition of geological data to increase knowledge of the prospectivity of our petroleum basins
- increased funding for the promotion of New Zealand overseas as a petroleum prospecting destination; and
- changing a tax rule that created perverse incentives for drilling rig operators to leave New Zealand within a set time.
… Transport Reform
In 2002 the government introduced the New Zealand Transport Strategy, the first to recognise all modes and users of transport and to take a sustainable development approach to transport policy. Key initiatives to implement the strategy include:
- legislation and organisational change embedding the new approach in transport funding and administration;
- investment in Air New Zealand, the national rail track network and roads;
- increased funding for walking and cycling infrastructure;
- a new patronage funding system for public transport that has produced substantial increases in passenger numbers and funding; and
- new world best practice fuel specifications and vehicle emission standards, and collaboration with local government on the development of more sustainable forms of urban development.
… Local Government Reform
In 2002 the government introduced changes to the Local Government Act to say that regional, city and district councils should take a sustainable development approach. The Act provides for local authorities to play a broad role in promoting social, economic, environmental and cultural well-being. This covers the activities they undertake, the services they provide and way they represent their communities. Many of these services and functions have a significant influence on energy use and production, for example through shaping urban development and infrastructure and making space more accessible for energy projects. Local government is also increasingly involved in energy-related partnership programmes with central government, for example in energy efficiency (the EnergyWise Councils Partnership) and climate change (the Communities for Climate Protection programme).
All these policies contribute to sustainable energy objectives in a number of ways - and in some areas illustrate the tensions that can arise between objectives, as discussed above. The contributions and the tensions are discussed further in Section 3, but Figure 12 offers a brief overview. The table indicates how some policies - notably the National Energy Efficiency and Conservation Strategy - contribute to more than one objective, while others predominantly contribute in a particular area.
Figure 12: Sustainable Energy Objectives, Policies and Tensions| Objective | Key Supporting Policies | Possible Tensions |
| Energy system is reliable and resilient | National Energy Efficiency and Conservation Strategy (NEECS) - including renewables programme | Few or none |
| Electricity and gas market reform | Few or none |
| Decision-making and pricing methodology to enable national grid upgrades | Local environmental impacts of transmission network |
| Reserve energy policy for electricity | Impact on electricity prices, emissions from thermal reserve generation |
| Gas exploration incentives | Emissions from gas use |
| Resource management reform | Few or none |
| Energy production and use is environmentally responsible | Climate change policy package | Higher energy prices more accurately reflecting costs |
| NEECS | Few or none |
| Renewable energy programme in NEECS | Local environmental impacts |
| Resource management regime | Cost of compliance, constraints on some energy developments |
| Transport reform | Higher cost of compliance with higher standards, e.g. for fuel specifications |
| Local government reform | Possibly higher cost of compliance with higher standards |
| Energy prices are efficient and fair | Electricity and gas market reform | Higher prices more accurately reflecting costs |
| NEECS | Few or none |
| Emissions charge | Higher energy prices more accurately |
| Electricity low fixed charge tariff requirement | Some distortion of prices |
Some key policies relevant to sustainable energy serve other government objectives not connected with energy at all. Significant parts of transport policy and climate change policy, for example, deal with matters such as road safety or greenhouse gas emissions from sources other than energy use. Figure 13 illustrates the extent to which key policies are concerned - or not - with sustainable energy.
Figure 13: Relationships of Key Policies with Sustainable Energy
→ Full size version of Figure 13 available [39KB GIF]
… And There Is Much More to Do
This document discusses how existing government policies work towards a sustainable energy future for New Zealand, but acknowledges that we are only beginning to move towards that future. The next section discusses the challenges and opportunities New Zealand faces in making a transition to sustainable energy, considers the present strengths and weaknesses of our energy system from the perspective of sustainability, explains the functions of government policies in more detail, considers what remains to be done to achieve sustainability, and suggests possible new policy approaches.
The government does not underestimate the challenge that the further development of policies for sustainable energy presents to the policy agencies concerned. At least a dozen government departments, ministries and agencies have functions and responsibilities concerned with energy and energy-related policy development. Integrating their activities in pursuit of sustainable energy objectives will require an ongoing effort to break down institutional barriers to collaboration and promote a common sense of purpose. Progress will also require constructive engagement with and contributions from a wide range of stakeholders, including the energy sector, non-governmental organisations and local government.
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