Towards a Sustainable Low Emissions Energy System
This section summarises some of the key concerns raised by submitters relating to the proposed vision statement.
Context
Some submitters suggested the context for the development of the draft NZES was inadequately set out. Some considered that the NZES in its final form should spell out the drivers for responding to energy and climate change issues more clearly in terms meaningful to stakeholders and the general public. More detail, for example, was suggested around New Zealand's obligations under the Kyoto Protocol including the costs of failing to comply and the potential local environmental impacts of failing to reverse climate change.
Linkages with other policies
Many submitters felt that the description of the linkages with other Government policies was inadequate. There was a call for clarity on the linkages and relationship between the NZES and other Government initiatives such as the Government's:
- previous energy policy work including, the Sustainable Development Programme of Action and the Sustainable Energy Framework
- Growth and Innovation framework
- wider policy programme as articulated in strategies such as the New Zealand Transport Strategy, National Waste Strategy and legislation such as Local Government Act 2002 and Land Transport Act 1998.
Some submitters, particularly non-government organisations with environmental interests and Maori, suggested an overarching strategy was required, perhaps a National Sustainable Development Strategy, so that there exists a long term sustainability strategy with a hierarchy of other strategies and action plans, including a national energy strategy to support it. This would provide cohesion and avoid an ad hoc and inefficient response to a critical resource.
Trade unions noted that adaptation to climate change and practical responses should be done in the context of a sustainable framework that includes social, cultural and economic considerations.
Local Government submitters in general supported the vision statement though also sought more explicit commitment to a sustainability framework for New Zealand energy policy to improve its clarity and intent. They considered this would act as an organising framework and tie the various documents focusing on climate change together. It would provide a base for energy policy to be considered in the wider policy context so that implications of decisions will be considered not just in terms of energy objectives but also downstream effects, for example, on water policy or health outcomes.
Others expressed concern that the strategy did not reference New Zealand's economic growth objectives. Business interests were strongly of the view that New Zealand's energy strategy should improve economic performance and be consistent with and linked to the Government's economic growth objectives. It was noted that NZES is silent on GDP growth expectations and how the strategy will ensure there is sufficient energy to deliver the level of growth expected and desired.
Our Vision
There was a high degree of support for development of a long term strategy for the New Zealand energy system. The three drivers - security of energy supply, affordability and the need to respond to climate change by tackling carbon emissions from energy production and use – were recognised as important. Support however was usually qualified. Some thought the vision was not strong enough to combat climate change issues: others saw it as too focused on climate change at the risk of security of supply, reasonable cost and economic well-being.
Many submissions suggested the vision and core objectives be fine tuned, some provided alternative vision statements, or suggested adoption of objectives already developed in other countries or other regulatory frameworks within New Zealand. Other submitters took a more generic approach and recommended a change in emphasis in more general terms. The suggestions often reflected strongly held views on what the NZES's priorities should be (and ultimately the best mix of policies to achieve the goals). Similar patterns emerged within sectors, and there was some cross sector alignment of views.
Critique of vision and objectives
Major electricity generators were particularly vocal in discussion of the nature of the objectives. They sought greater clarity and a stronger outcome orientation. They not only had suggestions for change but criticised the way the vision statements and objectives were phrased. Several considered that the objectives did not state clearly enough what was sought from a policy intervention. One preferred objectives which were relatively neutral as to how the outcomes would be achieved to avoid stifling feasible and innovative alternative responses.
Others noted that the vision and statement of principles were not sufficiently outcome-orientated. They considered these were methods of achieving objectives rather than objectives themselves.
Drivers and directions
Many, particularly with commercial interests want the NZES to clearly signal the importance of security of supply and least cost as the principle objectives, while recognising that New Zealand has a commitment to sustainability and reducing greenhouse gas emissions. Suggestions included refining the vision statement to indicate that the future energy system should not only be reliable and resilient but also efficient and affordable. Other suggestions included reference to maintaining New Zealand's international competitiveness and enhancing New Zealander's quality of life.
Recognition of the role of the market in efficient resource allocation was another principle that many in the business community considered should be more strongly reflected in the vision statement. There was, they considered, no need to predetermine the generation mix or indicate a preference for renewable development. The strategy should establish a basic framework so each type of technology faces the costs it imposes, including emissions, and can then compete on a level playing field. The market would operate to determine a generation mix that provides secure supply at least cost.
Several submitters in the energy sector noted the disconnect between the Government Policy Statement on Electricity Governance (GPS) and the NZES. One submitter suggested that the vision should be modelled on and encapsulate the objectives of environmental sustainability, efficiency, equity and security of supply as set out in the GPS. They considered that the vision and objectives as stated, by deviating from the GPS statement, tilted the focus of the draft NZES, away from being an Energy Strategy to a Climate Change or a Greenhouse Gas Reduction Strategy.
Others in the business sector suggested establishing a clear hierarchy as a useful way to rephrase the objectives. Several quoted the council of European Union objectives as set out in the Energy Policy for Europe. It ranks the three objectives of security of supply, ensuring the competitiveness of economies and the affordability of energy, and promoting environmental sustainability and combating climate change. Others suggested that the importance of economic prosperity be elevated, without compromising New Zealand's international responsibilities for emissions.
Other submitters, preferring a sustainability approach noted that the drivers of the NZES should not be economic development alone but a "well beings" approach, consistent with the Local Government Act 2002, that considers environmental, social, cultural and economic factors.
Supply vs demand management
There is wide support from submitters, organisations and individuals alike, for a greater focus on demand-side energy management. There was a view that the NZES focuses too much on efficiency at the expense of energy conservation.
Views were mixed however. Many submitters considered a reduction in total consumption of energy alone would attain many of the goals of the strategy. Others sought an equal balance between efficiency and energy conservation. Others recognised that demand management had a place however saw efficient and emerging technologies both in the transport sector, in electricity storage capacity and a range of other areas as having the ability to provide clean solutions and thus should remain a high priority in the NZES rather than the focus being suppression of demand.
The lack of emphasis in the vision statements on reducing both stationary and non-stationary energy consumption was a core concern particularly of environmental organisations and sustainable transport advocates. These groups saw reduction in energy consumption as the key objective – it would mitigate the impacts of climate change and improve security of supply. The tenor of these submissions was that climate change is a demonstration of limits on growth, that continued economic growth is unsustainable, that factors driving energy demand need to be managed and economic growth decoupled from growth in energy demand. Several submitters provided revised vision statements and objectives for the NZES articulating this approach the primary objective being to reduce greenhouse gas emission through reducing fossil fuel and electricity consumption.
Local government also saw the objectives and principles as too supply focused. They assert more emphasis needs to be placed on demand side measures and energy conservation and their role in meeting energy objectives. Local Government NZ sums it up - a shift is required to elevate the role of efficiency and efficiency opportunities. In particular there is under emphasis on the potential role of demand management particularly in the transport sector.
Lines companies also emphasised the potential for demand management initiatives and suggested a strong focus in this area.
Urban/rural needs
Several groups, in particular local government noted that that the NZES focused mainly on urban issues. The NZES needed flexibility to recognise different economic, geographic and social characteristics. Rural options needed to be fleshed out e.g. energy issues facing farming households and dispersed rural communities. Important regional issues such as security of local power supply and the transport needs of rural communities were overlooked.
Getting the balance right – trade-offs
Submitters pointed out that the NZES objectives of security of supply, low cost and low emissions, rather than being complementary were often in competition. There was much discussion of how these competing objectives would be balanced and traded off and mixed views on the balance and weighting that should be given to different aspects.
Many submitters in the business sector, including major electricity users, major energy companies and energy companies with fossil fuel interests viewed the vision statements as too heavily weighted towards climate change at the expense of economic growth. Some considered climate change mitigation policies should be consistent with the objectives of energy security and competitive pricing but not take priority over these core objectives. Several considered that a comprehensive climate change strategy should be independent from an energy strategy altogether.
Several submitters suggested the vision statements should explicitly recognise that trade-offs will be required and establish principles, to support the vision, that indicate how those trade-offs will be made.
Other submitters saw climate change mitigation as the key driver while recognising that any potential regressive social or economic effects of change might require mitigation.
Assessment of impacts
Cost-Benefit Analysis
Many submitters, particularly those with commercial interests, saw the lack of any cost benefit analysis as a major flaw in the draft NZES. A cost benefit analysis would make potential trade-offs between the objectives more explicit.
Some felt it was premature for the Government to seek public support for a low emissions pathway in the absence of a full assessment of the costs and benefits of various future energy scenarios and combinations of policy choices. Others said the NZES was already "picking winners" and "losers" without a robust assessment of the consequences and stressed that choosing a high cost low emissions pathway without supporting analysis was risky both in terms of consumers standards of living and the international competitiveness of our export sector.
Not only did submitters suggest a cost-benefit of the policy package the Government proposes, some also sought a rigorous cost benefit analysis of each action that incorporates the full range of benefits, i.e. savings in electricity costs, investment in electricity generation avoided and reduction in GHG emissions.
There were mixed views on the appropriate discount rate to be applied to cost benefit analysis (see section on energy efficiency) and it was recommended that research be undertaken to determine the externality values to be used for climate change effects.
Some parties asked to be consulted on the cost-benefit analysis, others thought the methodology should be designed with stakeholder input or be reviewed by an expert panel.
Co-benefits approach
Several groups including local government and the health sector favoured a co-benefits approach to assessing the costs and benefits of policy choices. Assessment of proposed policy measures, they consider, needs to include the full range of impacts with preferred policies showing co-benefits rather than just being the lowest-cost measures.
Policy choices providing the greatest collateral benefits, which could be derived from improvements in air quality or general health for example, should be prioritised. It was suggested a health impact assessment would be a useful way of making energy and health linkages more explicit.
Targets
There was comment about targets, or lack thereof in the NZES, from many submitters across sectors. However, there was little consensus on the nature or level of targets to use. The general view seemed to be that measurable targets are needed to drive the strategy by defining how much we want to achieve and by when and enable an assessment of the success or failure of different policy choices. Targets suggested include: GHG emissions, percentage of energy from renewable sources, energy intensity, and reduction in oil use.
One of the most prominent groups advocating firm targets were environment NGO's. The lack of targets both national and by sector in the draft NZES was seen as a major flaw by these submitters. There was a high degree of unanimity among those suggesting explicit targets. Targets were expressed either as maximum greenhouse gas concentration targets and/or percentage reductions on New Zealand's greenhouse gas emissions compared to 1990 levels.
Some of the targets suggested were:
- a maximum long run or medium term greenhouse gas target of between 350-450ppmCO2 equivalent
- long term emissions reduction target across the economy of 80-90% reduction compared to 1990 levels by 2050 with reductions of 20% - 30% in GHG emissions by 2020
- targeted 30% reduction in greenhouse gas emissions from the energy sector by 2030
- targets of up to 100% for renewable stationary energy by 2050.
There was a call for near-term national targets to be translated into realistic sector targets based on the best information available about potential emission reductions. Several submitters suggested that targets be binding possibly within a legal framework.
Several energy companies also suggested targets, which if underpinned by legislation, would recognise both the growing public importance of climate change issues and provide some certainty over long run policy direction. Targets and a timetable for meeting them could help control the rate of change and secure business and consumer confidence. Several noted that targets have been legislated, or will be legislated in several jurisdictions, citing the UK's draft Climate Change Bill.
A contrary view was expressed by another energy company who considered that there is nothing to be gained from targets – the critical thing is that emitters face the international cost of there emissions – this incentive should be sufficient enough to ensure reductions in emissions over time.
Strategic leadership
There was criticism from submitters on the principles the Government had set out to guide decisions taken as the strategy is finalised.
Energy companies in particular considered that the supporting principles should set out more clearly the parameters around the policy choices government is going to make and what factors will drive those choices. Modifying the principles would make more explicit how policy choices would be made and what the trade-offs would be. This would provide a sounder basis for decision making and help promote business confidence and investment certainty.
Some general themes to emerge around the content of the Government's statement of principles were:
- strong support for energy costs to include the cost of environmental externalities
- general agreement that there had been a market failure to cost carbon and that this justified market intervention by Government
- a view that carbon costing initiatives should be broadly based and not focused solely on one sector. Any greenhouse gas charge should be broad based and apply to all sectors according to the amount they emit. Singling out sectors (e.g. electricity or transport) would put them at a disadvantage relative to other sectors of the economy.
100% renewable generation future
There were concerns about the Government's statement that it is preferable for all new electricity generation to be renewable, except to the extent that is necessary to maintain security of supply:
- was not a principle, but a policy choice
- sent the wrong signals to the gas and oil market. The statement could potentially discourage both gas and oil exploration, result in a decline in (or stranding of) existing infrastructure and investment and contradicted the Government's recent initiatives to encourage exploration.
Greater clarity and acknowledgement of the ongoing role of the gas industry in the energy mix, and its critical role in meeting long term energy needs through thermal electricity generation and direct use of gas, is required.
It was also noted, particularly by those involved in the petroleum industry, that there was little recognition or discussion of the future for developing New Zealand's indigenous oil reserves. As a submitter noted fuel resources are not so abundant that the strategy can disincentivise fossil fuel generation or exploration.
Some submitters considered the NZES should recognise in the vision statement the importance of utilising all of New Zealand's indigenous energy resources. A strategic focus for each fuel type could then be explored in the strategy.
Not all submitters held this view. Environment NGO's, many individual submitters, some energy companies and those with interests solely in renewable energy supported a 100% or close to 100% renewables future, though there was recognition that fossil fuels will remain part of the mix during the transition. Some submitters sought the phasing out of all fossil fuels unless carbon emissions can be securely sequestered.
Security of supply at competitive prices
The impact of policies on prices remains a concern particularly for major energy users, exporters and business groups. While supporting the security and affordability objectives of the NZES, major energy users were of the view that there was an urgent need for least cost strategies for the electricity sector because the competitive price advantage relative to Australia in particular is rapidly decreasing. One noted that any increase in NZ electricity prices relative to Australia and Asia would seriously jeopardise the viability of their NZ operations. Business groups:
- Were concerned that most of the proposed actions are likely to be high cost and that any artificial environmental costs applied out of step with our trading partners could see significant loss of business. NZ must take care before taking any unilateral action to reduce GHG emissions or move ahead of our trading partners.
- Considered that Government energy and climate change policies must be cognisant of business reality.
- Noted that global consensus was yet to be achieved on how emissions are to be reduced, and that NZ policy should not be finalised until the time when such a consensus is reached.
- Were concerned that if economic activity is moved offshore in response to higher domestic costs and distribution it would be bad for our economy and global emissions would not be reduced at all ("carbon leakage"). They could increase if the new destination had less lenient climate change policies.
Other submitters while expressing caution noted that in the long run a strategy that expands our use of renewable energy could improve NZ competitiveness. The impact will be magnified as fossil fuel prices rise and carbon pricing becomes further embedded in the global economy.
A major exporter noted that climate change concerns are already influencing customer and supply requirements, as such, there was a need to anticipate the directions major trading partners are moving in and develop initiatives so New Zealand can respond quickly as market requirements change. Transitional arrangements however need to be carefully managed to avoid disproportionate front end costs.
The economic impacts from higher energy prices, some suggested, especially for energy intensive exporting industries and other vulnerable sectors, could be compensated through a range of measures such as a combination of negotiated greenhouse agreements, enhanced depreciation on energy saving investments, subsidies and possibly tax reductions in other areas.
Fuel Poverty
There was recognition amongst submitters that some policy choices could disadvantage low and fixed income New Zealanders. Many noted that there was a need to ensure low and fixed income New Zealanders are not disadvantaged by regulatory tools.
The growing problem of fuel poverty, where by some consumers are disadvantaged by having to pay a larger percentage of the total income on energy, particularly heating, was raised by several submitters as an emerging issue.
Policy stability
Submitters across the range of sectors called for policy stability and certainty relating to energy policy. Clear, certain government policy in the energy sector was needed with initiatives designed so that they are fairly applied, effective in reducing emissions, and do not put New Zealand's economy at undue risk. Some suggested cross party agreement on the NZES, others indicated that another option was to embody aspects in legislation referencing the UK Government's draft Climate Change Bill 2007 as an example of a legislative means of stabilising policy.
Companies involved in developing new renewable generation emphasised the capital intensive nature of supplying renewable energy and the need for clear, coordinated, long term (at least 10 years and up to 25 years) stability in government policies that incentivise renewable energy developments to allow financing of the projects.
Electricity companies thought it was critical for the Government to make timely decisions that can be stuck to as Governments change. The investments in this energy sector (and particularly renewable energy investments) are capital intensive and have lives spanning decades. Changing policies create the risk of value being undermined. This risk inclines companies to either delay investment or to risk less capital (as is possible with thermal investments in contrast to renewables investment).
Concerns of Maori
Maori interests noted that throughout the NZES (and associated discussion documents on climate change) there was no reference to the Treaty of Waitangi, the founding basis of the relationship between the Maori people and the Crown. The document should be at the forefront of any policy development that impacts on the Maori people.
There were concerns that climate change policies generally might adversely affect property rights - settlement assets should not be negatively affected by any policy established post settlement.
The consultation process was also criticised. There was insufficient internal Maori input and no external Maori input into the policy development process, no discussion of quadruple bottom line reporting, and not enough time or resource for Maori to consult Maori. There was a suggestion that independent economic and social analysis of the proposals on the Maori economy including iwi, iwi settlements, small blocks, large blocks occur and that the effects on Maori be monitored.
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