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Infrastructure - Areas for Focus


This Document is Archived


Overview - Advancing Economic Development

[ Last Updated 10 January 2006 ]


Large investments are needed in land transport, electricity generation, gas prospecting and electricity transmission.

  • Infrastructure involves few suppliers and so competition can be weak. Public provision and financing and/or wide-ranging regulation are usually required - further reducing market disciplines for efficiency and innovation. Reforms over the last 20 years have strengthened these disciplines.
  • Increased use of private sector expertise and market disciplines would improve the performance of the SOE model in energy generation and supply.
  • Infrastructure has big impacts on the environment and serves social as well as economic objectives. Sustainable solutions require integrated packages of measures that address these multiple objectives.
  • Demand management policies such as congestion pricing in transport have proved effective in Britain and elsewhere.
  • Given uncertainty about future conditions, government has an important role in building the information base for investment decisions - particularly so they are made early enough to avoid bottlenecks.

Energy security of supply and pricing has a strong effect on firms' willingness to make long-lived investments. Electricity is essential for virtually all commercial and industrial premises. Oil remains dominant as a transport fuel - but in the long run alternatives will be needed.

  • New Zealand, like other countries, is faced with growing demand for energy, driven by economic growth, and increasing pressure on supply, including the need to control greenhouse gas emissions.
  • Risks to energy supply in New Zealand are exacerbated by the dry-year hydro constraint, the run-down in the Maui gas field and the relative lack of investment in the electricity transmission system in recent years.
  • On current projections, significant new sources of generation will be needed by around 2010. A number of projects are being progressed but as yet relatively few firm commitments have been made (a number of wind projects are proceeding).

The solution will include a mix of:

  • greater dependence on renewable electricity sources
  • discovery of new domestic gas and oil sources
  • making more efficient use of energy
  • strengthening the electricity transmission system, particularly into Auckland
  • monitoring new technologies that may make previously unfavoured options more competitive, both economically and environmentally, and addressing any policy or regulatory barriers to timely uptake
  • development of National Policy Statements and National Environmental Standards under the RMA

Electricity Generation by Fuel Type for March Year Ended 2005

Graphic of "Electricity Generation by Fuel Type for March Year Ended 2005"

MW of Installed Capacity to Generate 800 GWh by Type

Graphic of "MW of Installed Capacity to Generate 800 GWh by Type"

The end of cheap oil?

  • In the long run, oil supplies are finite and, at some point, world production will peak. Despite uncertainty, mainstream informed opinion is that this will not happen until around 2030, and that after the "peak" will come a gradual decline in conventional oil supply. During this period, other factors such as new technologies, price rises making previously uneconomic oil resource economic to produce and increasing alternatives to oil, will all have an impact.
  • New Zealand, like others, needs to plan early for the eventual end of "cheap oil". We need to monitor technology developments and consider the domestic infrastructure requirements of potential alternatives such as hydrogen.
  • Meanwhile, the government should encourage greater efficiency in transport use and (subject to economics) the development of alternative energy sources, especially biofuels.

Climate Change

Climate change is a long-term global problem that requires a long-term global response. New Zealand's main interest lies in influencing other countries to act by making a credible contribution to the global response. The longer the economy has to adjust, the better. Current arrangements will have only modest effects.

  • New Zealand accounts for less than 0.2% of global emissions and we have limited ability to develop world-leading technologies to avoid or manage emissions.
  • The Kyoto Protocol requires countries either to reduce net emissions to the 1990 level (on average over the 2008-2012 first commitment period), or to purchase credits for emissions over that level or offset them against increases in forest sinks. The Protocol does not necessarily require New Zealand to reduce carbon dioxide emissions - countries can choose what mix of the six greenhouse gases to target with domestic policies.
  • An international trading system would allow emission reductions to be made where the cost was lowest.
  • Within New Zealand, it makes sense to reduce emissions where the cost is lowest. This is not necessarily where emissions are currently growing.
  • The agricultural sector accounts for half of New Zealand's greenhouse gas emissions. A stronger research effort could identify significant low-cost abatement opportunities.
  • For the rest of the economy, emissions trading may be a more flexible way for firms to manage emissions than a carbon charge. To be most effective, this requires a viable international market.
  • A carbon charge does give price certainty to emitters, but no assurance to government that its obligations will be met.
  • Transport fuel use is relatively insensitive to price, so a very high charge would be required to substantially reduce emissions there (and might not be part of a least cost solution).

Land transport infrastructure under-investment?

  • Land transport infrastructure investments are decided on the basis of "sustainability" criteria set out in the New Zealand Transport Strategy. These take account of savings in travel times and vehicle operating costs, reduction in accidents and some environmental impacts. In general, only investments with a high benefit:cost ratio proceed expeditiously.
  • This implies that New Zealand could reap considerable further benefit from more land transport infrastructure investment.
  • Investment has been rising in recent years, and careful phasing is needed to avoid undue cost escalation.

Water

  • Water is becoming increasingly scarce in some regions of the country.
  • Clearer allocation and trading mechanisms would help ensure scarce water was allocated to its highest value use.

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