Present Policies
29. Stakeholder assessments of current policy settings varied widely. Some argued that the government should take a more prescriptive approach in order to promote sustainability, while others were of the view that the government should take a step back.
30. The following section briefly considers the current state of current settings in the following key areas:
- energy efficiency;
- renewables;
- sustainable transport and oil;
- effective and well-regulated electricity and gas markets;
- linkages with research, science and technology;
- climate change policy;
- Resource Management Act;
- public awareness of energy challenges;
- informed and inclusive decision making.
Energy Efficiency
31. More efficient energy use will contribute to a wide range of social, economic and environmental objectives, including enhanced security of supply, reduced environmental impacts and reduced cost of energy services. It is widely recognised that there is a large untapped potential to improve New Zealand's energy efficiency, even at current prices.
32. The workshops reinforced the need for more urgent steps to be taken to address both energy demand and supply options, including long-term behavioural change and technology development. Energy efficient buildings were identified by some as a specific area for greater focus.
33. There is a legislative requirement for the existing NEECS to be amended, replaced or rolled over in 2006. A review of the NEECS is now underway. This provides an appropriate context as well as a timely opportunity to consider enhanced measures in the energy efficiency area.
34. Energy efficiency requires a whole of government approach to policy development, supported by strong data and analysis. A key challenge will be to integrate the efforts of organisations such as the Energy Efficiency and Conservation Authority (EECA), Climate Change Office, the Electricity Commission, business organisations and local government.
35. Officials consider that the NEECS review provides an appropriate forum for departments to examine the adequacy of current energy efficiency policies, and that no additional report back on energy efficiency is needed under the sustainable energy work programme.
Renewables
36. Like energy efficiency, the greater use of renewables helps to reduce the level of harmful emissions. A more diverse energy supply also enhances the reliability and resilience of the overall energy system.
37. To date, the government has been supporting the uptake of renewables through such measures as:
- a wide range of promotional, industry development, and market facilitation measures driven by the NEECS target to increase energy supply from renewable sources by 30PJ per annum by 2012;
- the awarding of emission units under the Projects to Reduce Emissions (PRE) mechanism;
- recognising the benefits of renewable energy in the RMA and, in some cases, support for individual projects in the consenting process.
38. Taking into account feedback received during stakeholder engagement, officials consider potential areas for future focus include:
- supporting the commercialisation of promising renewable technologies (this point is addressed further below);
- developing suitable access regimes to key natural resources e.g. access to the marine environment for ocean energy;
- considering the future of the PRE in the light of the introduction of a carbon tax in 2007;
- ensuring that the efforts of all government agencies involved are well-integrated.
39. As with energy efficiency, the review of the NEECS provides a timely opportunity to review what more should be done in the renewable energy area. Again, a key challenge will be to ensure that a whole of government approach is taken. Sustainable energy officials consider that no additional report back on renewable energy is required under the sustainable energy work programme.
Sustainable Transport and Oil
40. Transport largely runs on imported oil. This is of concern not only in terms of the effects of the coming of peak oil on supply and price, but also resulting greenhouse gas emissions which are both significant and growing.
41. As with other issues, stakeholders expressed a range of views on what the government might do to make the transport system more sustainable. Common themes included:
- making more use of demand-side management options (including through use of road pricing);
- promoting better quality and increased uptake of public transport (including rail);
- accelerating the uptake of non-hydrocarbon-based fuels such as bio-fuels (fuels produced from animal or plant fats and oils);
- promoting earlier moves towards a more fuel-efficient transport fleet (such as through hybrid vehicles and smaller engined vehicles).
42. Views were more varied on the priority and extent to which more roads should be built (particularly in Auckland.
43. A range of work, led by the Ministry of Transport, has been undertaken or is underway which will impact on the key areas identified by stakeholders:
- a study of surface transport costs and charges was released in March 2005. It provides data on the economic, social and environmental costs that result from land transport, and considers whether these costs are being met by users of the system. Information on such costs will assist the government to make decisions on the relative position of road, rail for freight transport and of rail, bus and private car for passenger transport;
- a range of transport-related work is being undertaken as part of the energy efficiency and renewable energy work programmes described above, including work to encourage the uptake of bio-fuels and develop supporting fuel standards;
- a report-back, scheduled for September 2005, will consider a range of options for promoting climate change objectives through transport policy, including greater support for bio-fuels, the desirability of mandatory and voluntary mechanisms such as vehicle energy and/or emission standards, price incentives and information, and the use of appropriate pricing mechanisms to create optimal transport choices.
44. Officials do not consider that a further report back on transport issues under the sustainable energy programme is required at this stage. It will be important to monitor the pace of progress carefully, however.
Effective and Well-Regulated Electricity and Gas Markets
Electricity Market Regulation
45. Stakeholders expressed a wide range of views on the electricity sector. Some argued that an electricity market was antithetical to sustainability, others that the government should remove some of the recently applied regulation and centralised governance to reduce the risk of regulatory uncertainty on investment.
46. The governance and regulatory arrangements for the electricity sector were only established in 2003/2004. The main objectives of the Electricity Commission (to ensure that electricity is produced and delivered in an efficient, fair, reliable and environmentally sustainable manner, and to promote and facilitate the efficient use of electricity) are entirely consistent with the principles of sustainability.
47. The Electricity Commission is making progress across the range of important initiatives as set out in the government's policy statement and is involving relevant stakeholders.
48. The government will continue to monitor the performance of the Commission and the wider electricity sector closely. Some of the detail of specific policy settings may evolve in the light of experience, but officials do not see any reason for further substantive change at this time.
Transmission and Distribution
49. Stakeholders expressed a wide range of views on the question of possible upgrades of the electricity transmission system, particularly Transpower's proposed upgrade of the grid into Auckland. Some stakeholders argued that major upgrade should not proceed, both because of the immediate environmental effects and because the upgrade could foreclose renewable generation and demand-side management solutions to the underlying challenge. Others believed that the upgrade should proceed as soon as possible, both to enhance security of supply at a reasonable cost and to ensure the grid could support new generation (including renewables) regardless of location.
50. The government has recently confirmed that it expects the Electricity Commission to lead an open process in which all potentially viable options for assuring security of supply into Auckland are duly considered during its decision-making process in relation to Transpower's grid upgrade plan. The Commission will consider RMA-related costs that each option would be likely to incur.
51. Some issues remain to be addressed in this process. For example, if the Commission concludes that there is a more cost-effective option than upgrading the transmission system alone, then the question arises as to how such alternatives might be funded. This and other such issues will be addressed over the coming months.
52. A further matter raised by some stakeholders was the extent to which monopoly network companies had sufficient incentive to promote energy efficiency and to facilitate connection by distributed (mainly renewable) generation. The government is introducing regulations for connection by distributed generation, but further initiatives may be required.
Gas and LNG
53. Some stakeholders argued that the government should not be facilitating the discovery and use of gas because it is non-renewable and greenhouse gas-emitting. Others were of the view that the government should be doing far more to promote exploration and development of New Zealand's indigenous gas (and oil) resources.
54. In the context of sustainable energy, gas is the most environmentally benign of the thermal fuels that can help ensure cost-effective security of electricity supply. Uncertainty over future gas supplies might force electricity generators to utilise coal and/or LNG options as alternatives (depending partly on the level of economic renewable sources available). Direct use of gas can also be a more economically and environmentally efficient means of providing (for example) water and space heating than electricity.
55. In 2004, the government acted to enhance the royalty and tax regime for gas exploration, with a view to accelerating exploration and production. The government is also more actively seeking to attract new players to New Zealand to explore for gas.
56. The government has also established a centralised governance regime for the sector, adopting the co-regulatory model favoured by gas sector stakeholders. This should ensure that all parties can get their gas to market on a reasonable basis. The government is closely monitoring this set of initiatives and will act promptly should any unforeseen issues become apparent.
57. Stakeholders had strong views on importing LNG. Some were strongly opposed, including advocates for demand side, renewable, coal or indigenous gas solutions to the challenge of electricity security of supply.
58. The government's position is that decisions on fuel sources for generation are a matter for market participants, within the context set by the government's sustainable energy policy framework. As with other matters, the government is monitoring developments carefully, and will address any policy issues that might arise.
Conclusion
59. Sustainable energy officials have noted stakeholder comments in the context of ongoing work to establish effective and well-regulated electricity and gas markets. A further review of policies in this area in the context of the sustainable energy work programme is not considered necessary at this time.
Linkages with Research, Science and Technology Policy
60. Technological innovation and the smart uptake of new technology are essential to meet the challenges of sustainable energy. For the most part, New Zealand is a "technology taker", although it has the potential to be a market leader in some areas. A wide range of factors contributes to the ability to be a fast follower or market leader. Competition in the provision of energy services is a critical ingredient for driving technology uptake. Other important factors include support for research and development, support for the commercialisation of promising ideas and access to international research and development. In general, stakeholders considered that a more strategic, integrated and long-term approach was required in and across these areas.
Research and Development
61. Public funding for energy research and development provided through the Foundation for Research, Science and Technology ($12mp.a.) is modest by international standards and is widely considered by stakeholders to be insufficient given the strategic importance of sustainable energy to New Zealand's well-being.
62. Whatever its level, any spending should be well-aligned with the government's objectives for sustainable energy. The challenge is to articulate these in a way that will provide guidance for FRST in setting funding priorities, and be well-understood by researchers.
63. A related question is the process for developing an ongoing strategic view of energy research and ensuring that the best possible use is made of the research effort. In this respect, it should be noted that the University of Otago is proposing the development of a New Zealand-wide, strategic research institute for energy, similar in scope to the UK's National Energy Research Centre. The aim of the institute would be to provide a more strategic focus to research and development and improved collaboration across different institutions and disciplines, thus improving opportunities for leverage both in New Zealand and overseas. A key question in considering this proposal is how it would affect the present FRST model.
Technology Testing
64. One of the problems faced in rolling out new technology is that they can be seen as high risk investment opportunities. In financial terms, high risk translates to a high cost of capital and therefore a reduced net present value of the proposed investment. This can act as an impediment to the take-up of promising clean technology. Technology demonstration projects bring together key systems to see if they perform as planned, thus helping to improve their "bankable feasibility". They can also help to raise public awareness about sustainable energy issues and provide a practical basis for collaboration among stakeholders.
65. Energy demonstration projects have been sparse in New Zealand, unlike in Australia and many other countries. The need to develop a more vigorous approach to demonstration projects was a consistent theme of the workshops.
International Technology Collaboration
66. New Zealand institutions and firms are already developing connections with research and development taking place overseas, e.g. the recent decision of the Coal Association to participate in Australia's carbon capture and storage programme "Coal 21". While government support is not required in all areas, the government has an important role to play in helping to "open doors" where this is required or helping to establish a clearer context in which particular activities can be pursued.
67. An example is the recent decision to join the US-led International Partnership for the Hydrogen Economy which opens the door for New Zealand researchers to get abreast of leading developments in various aspects of hydrogen production, storage and utilisation. It also provides an opportunity to participate in joint demonstration projects where New Zealand has specific expertise to contribute.
68. With respect to the second role, officials are currently considering the need for a clearer strategy to guide relationships with China on sustainable energy, both in terms of trade in services and research linkages. India will also become increasingly important to those countries that can provide and support cost effective, low-emission technologies.
69. Another relevant piece of work underway is to place New Zealand's international activities in energy more firmly in a sustainable energy context. The aim is to develop a more strategic approach to governmental activities and to align the work of the agencies with agreed priorities.
Conclusion
70. It is proposed that sustainable energy officials, led by the Ministries of Economic Development and Research, Science and Technology, report back to Ministers by 30 November 2005 on what steps, if any, should be taken to strengthen the contribution of research, science and technology to sustainable energy in the areas discussed above.
Climate Change Policy
71. The energy sector is a major and increasing source of greenhouse gas emissions, primarily through oil use for transport and coal and gas use for electricity generation.
72. Some stakeholders argued that uncertainty over climate change policy (the carbon tax in particular) was stifling necessary investment in energy projects, and so risking security of supply. Other stakeholders, concerned about New Zealand's ability to reduce greenhouse gas emissions, argued that the government should be doing more to reduce economy-wide emissions (for example by prohibiting new coal-fired power stations).
73. The government has an agreed climate change policy package, which includes a carbon tax, Negotiated Greenhouse Agreements, the Projects to Reduce Emissions mechanism, and a support programme for energy intensive businesses. These policies have continued to be refined since their inception (e.g. recent announcements on details of the implementation of the carbon tax) and improved (e.g. the recent NGA policy review). Officials are reviewing climate change policies following the recent re-assessment of the projected balance of units during the first commitment period.
74. Further work under the sustainable energy programme is not required but it will be important for energy-related aspects of climate change policy to continue to be seen in a wider sustainable energy context.
Resource Management Act
75. A number of stakeholders argued that the RMA was a higher-than-necessary barrier to some energy developments (including some renewable generation), which potentially threatened security of supply (one of the central elements of a sustainable system).
76. The RMA requires developers to consider and internalise environmental costs. Often the RMA works effectively, but its application has sometimes been criticised.
77. The recent amendment to the Act requires local authorities to have particular regard to energy efficiency and the benefits to be derived from renewables in developing plans and in considering proposals. Officials consider that RMA amendment legislation now in the House will, if passed as currently drafted, further enhance RMA processes, including for energy developments.
78. Work to develop national environmental standards and national policy statements covering aspects of energy should also go some way to providing greater guidance on energy issues at the level of both general plans and individual consents.
79. Sustainable energy officials will monitor the effects of these changes on the energy sector, and report to Ministers as necessary.
Public Awareness of New Zealand's Energy Challenges
80. Stakeholder engagement identified the need for New Zealanders to have a better appreciation of sustainable energy issues to drive and reinforce the uptake of practical improvements, especially on the demand side.
81. Good quality information is already being made available by a number of agencies, especially the Climate Change Office and EECA. Less well-developed, however, are long-term educational initiatives. There is also a general absence of information on what drives consumer behaviour to help guide such initiatives.
82. An idea already being explored by the Ministry of Economic Development is the establishment of a learning discovery centre which would provide a hands-on experience for children, as well as a resource for schools. These are already being run successfully overseas, including in Australia.
83. It is proposed that sustainable energy officials consider what further steps could be taken to raise awareness of sustainable energy issues, for consideration by the Minister of Energy in the first instance.
Informed and Inclusive Decision-Making
84. Stakeholder engagement identified the need for a more informed and inclusive decision-making process. Some highlighted the need to take a regional approach as a way of helping to get buy-in to sustainable energy objectives at a local level.
85. The government clearly cannot manage a transition to sustainable energy alone. It must work in partnership with stakeholders and encourage groups that tend to be factionalised to work together more closely. Overcoming conflicting perspectives and potentially overlapping roles are also ongoing challenges. The government must be prepared to work in new ways and experiment with different approaches to counter these effects.
Use of Information
86. The way in which information is collected, used and disseminated is an important integrating mechanism. There is much more to learn about the nature of energy demand and supply options facing New Zealand, and how decisions are made. Critical areas in which to be well-informed are: the effectiveness of particular policies (how well they are working, and the contribution they are making to desired objectives); how to encourage best practice in energy use; and the policy implications of changes taking place in markets and the technology and other factors that drive them.
87. There is currently no coherent, overall strategy for addressing the above areas. Significant gaps exist in our understanding of energy use, especially in the transport sector, and in what motivates consumers to behave in the way that they do. There is also scope to improve energy and emissions projections using a mix of scenarios based on likely or possible energy futures. Policy-making could also be enhanced through the use of system simulation models.
88. In terms of existing work, MED has recently reviewed its modelling work ahead of next years' sustainable energy futures report (formerly "Energy Outlook") and is giving increased attention to data requirements. Officials are also preparing advice on possible indicators of the performance of four main infrastructure sectors, including energy, in delivering sustainable development objectives so that investors and others can broadly assess the state of infrastructure against the dimensions of sustainable development. Consideration is being given to ways to fill identified gaps so that the quality of information improves over time.
89. Organisations outside government such as the New Zealand Business Council for Sustainable Development and Auckland University's Centre of Excellence for Energy are increasingly active in developing energy scenarios. While recognising that independent modelling, scenario planning and policy research will be undertaken for a variety of purposes, officials consider that there is scope for greater co-operation which the government may be able to facilitate.
90. It is proposed that sustainable energy officials report to POL by 31 December 2005 on steps that can be taken to improve the availability and quality of information to support the development of sustainable energy policies. This exercise will include consideration of the need for a new energy statistical series (made by the Department of Statistics in the context of the 2006 Budget but not carried forward at that time).
New Approaches
91. New Zealand can learn much from other countries such as the Netherlands which are managing a transition to sustainable energy in a highly innovative and participatory manner.
92. The Dutch have identified a number of broad transition "roads" within which a partnership of public and private interests is empowered to chart and implement particular transition paths. These take the form of transition experiments, the emphasis of which is on shared risk-taking and learning by doing. Officials consider that a modified version of this approach could well be applied in New Zealand in similar areas to those chosen in the Netherlands such as industrial energy efficiency and biomass.
93. There is also some further scope to encourage councils and communities to identify energy as an important issue in long-term council community plans and to assist communities to identify and deliver on specific objectives. EECA is actively promoting energy efficiency and renewable energy to local government through its long-standing "EnergyWise Councils" partnership programme. It has recently developed a resource for councils to stimulate thinking about the relationship of energy to community outcomes. EECA's work is supported by the "Communities for Climate Protection" programme which is overseen by the Climate Change Office and includes the promotion of sustainable energy practices.
94. It is proposed that sustainable energy officials report to POL by 31 December 2005 with recommendations as to the possible adoption of transition experiments modelled on the Netherlands' experience.
Government Leadership
95. The workshops identified the need for the government to be more prepared to lead by example such as through supportive procurement policies.
96. The role of government in implementing energy efficient measures, including through procurement, has been highlighted with earlier cabinet papers on climate change policy for energy-intensive small and medium size enterprises and the Govt3 government procurement practice programme. All public sector agencies have been asked to show leadership in this area.
97. Further opportunities may exist such as promoting the use of hybrid-electric or small-engined vehicles in the government fleet and using solar hot water heating in government buildings where appropriate. It is proposed that officials report back to Cabinet by 31 December 2005 on possible actions to pursue sustainable energy objectives through government procurement decisions.
Machinery of Government
98. The Ministry of Economic Development leads the sustainable energy programme across relevant government agencies. There is no equivalent process at a ministerial level although aspects of sustainable energy are discussed from time to time by an ad hoc group of Ministers on infrastructure issues. A question for Ministers is whether an ad hoc group on sustainable energy, chaired by the Minister of Energy and supported by the Ministry of Economic Development, is necessary or whether existing structures can suffice.
99. A further question is whether more needs to be done going forward to ensure that different agencies have the appropriate incentives to co-operate and commit the necessary resources to engage. Experience and expertise are thinly spread in places, and there are some potential overlaps and gaps in what is a fairly crowded stage. Officials consider that this question should be kept under review.
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