2. Our Challenges
2.1 Energy Security
We rely on imported oil for around half of our energy needs3 and must be prepared to respond to supply disruptions caused by international events beyond our control. The government has increased our oil reserves to act as a buffer and to meet our treaty obligations as a member of the International Energy Agency (IEA), as well as updating emergency response planning.
Gas has been a major energy source in New Zealand for 30 years. Proven reserves of gas declined sharply in 2001, when the Maui field was found to have considerably less economically recoverable gas left than previously thought. Renewed exploration efforts have found more gas and led to some increases in proven reserves.
New Zealand's geological basins are under-explored, and there is a significant chance of more oil being discovered in the future. In the meantime, using more gas would use up our reserves more quickly, which could cause gas and electricity prices to increase closer to the cost of imported liquefied natural gas (LNG). The government believes the current regime and incentives for gas exploration are generally appropriate and do not need to be enhanced further.
Although gas is not imported in significant quantities,4 gas pipeline supplies can be interrupted by domestic events. Contingency arrangements to minimise the impact of a national outage are being reviewed to ensure they are appropriate to the changing nature of the gas market.
The pressure on global energy resources is expected to increase strongly. The IEA expects global demand for oil to grow by 41 per cent by 2030.5 In its recently released Medium Term Oil Report, the IEA says world oil markets may come under increased pressure due to potential supply constraints within the next five years. In any event, these consumption patterns mean that, within a decade, the capacity to increase oil production will be concentrated to just a few predominantly OPEC countries. As the IEA observes, "the ability and willingness of major oil and gas producers to step up investment in order to meet rising global demand are particularly uncertain". In releasing the report, the IEA said that it was a wake-up call for increasing supply investment in producing countries and energy efficiency improvements by users.
New Zealand's import bill increases when oil prices rise, which is all the more reason to lessen our dependence on imported oil. The government will continue to monitor developments in oil markets closely.
2.1.1 Electricity Security of Supply
It is essential for New Zealand to maintain a secure electricity supply. The dominance of hydro electricity in our energy system has given New Zealand relatively cheap electricity, but our limited ability to store water puts us at risk of shortages in dry years. Historically, we have relied on fossil fuel-based generation to back up hydro when water is short.
For the foreseeable future, we will maintain a secure electricity supply through an increased use of new renewable sources of electricity generation with existing renewable and fossil fuel generation.
In 2003, the government established the Electricity Commission (EC) as its regulator and charged it with ensuring that the electricity system is able to cope with up to a 1-in-60 dry year. The EC is also responsible for setting wholesale electricity market rules and for approving transmission investment.
Some initiatives to improve the security of our electricity system would cost more, such as paying for additional levels of reserve energy generation to be available for dry years or peak demand. These costs would have to be weighed up against the benefits to consumers and the wider community. It is also important to improve competition in the market, which helps to ensure prices are kept as low as possible.
The government recently reviewed the operation of the electricity market and concluded that the current arrangements were fundamentally sound, although there is room for improvement. Initiatives to improve electricity security and competitive pricing are discussed in the action plan accompanying this strategy.
2.2 Climate Change
Around the world, there is a growing sense of urgency about the need to address the serious challenges of climate change. For New Zealand, there are four main climate change challenges. We need to:
- control and reduce our own greenhouse gas emissions
- support international initiatives for multilateral action on greenhouse gas emissions, principally through maintaining momentum on the implementation of the Kyoto Protocol and ensuring this momentum is carried through into whatever agreements emerge for the period after 2012
- prepare for, and adapt to, the impacts of changes in our physical environment, by responding to the risks and taking advantage of the opportunities they present
- realise the objectives above at the lowest achievable long-term cost.
The government has announced its intention to introduce an ETS to give businesses flexibility in deciding how to reduce their carbon footprint and to help set New Zealand on the path to a sustainable future. This is consistent with actions by other countries and jurisdictions that are also moving towards requiring emitters to carry the cost of their emissions.
Some sectors in New Zealand will find it comparatively harder to reduce emissions, which makes it even more important that we reduce greenhouse gas emissions in areas where we can, such as electricity production and use, and transport. Many climate change measures achieve other commonsense objectives. Using energy more efficiently reduces the amount we pay for electricity and petrol, while insulating our homes keeps us warmer and healthier.
The cost of putting a price on greenhouse gas emissions cannot be over-stated, as the predicted costs and risks of inaction would prove to be unacceptably high.
Box 2.1: What is climate change?
Human activities like driving cars, farming, burning coal and cutting down forests produce greenhouse gases – carbon dioxide, methane and nitrous oxide.
These gases gather in the atmosphere, wrapping around the earth and trapping the sun's heat.
The more greenhouse gases we emit, the thicker the gas blanket, and the faster the world's climate heats up. The result is more extreme weather events – floods, storms, cyclones, droughts and slips – and rising sea levels and coastal erosion.
International scientists now agree the global climate is changing. It's projected the world's average temperature could rise by 0.2ºC per decade over the next two decades.
Source: www.climatechange.govt.nz
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