The Government’s energy strategy declares a preference for renewable energy and for emissions trading but comes with two major caveats.
One is Energy Minister David Parker’s assurance yesterday that security of supply is paramount.
Because of the variability from one year to another in how much rain and snow fall in the catchment of the hydro lakes, and because of the intermittent nature of wind power, that suggests a continuing major role – as Parker confirmed – for thermal generators.
The other caveat relates to his oft-stated need to relate the stringency of any measures New Zealand adopts in the longer term to the pace of progress elsewhere in the world.
But some of Parker’s comments yesterday, as the Government released its energy strategy, seemed unsympathetic to concerns about energy-intensive businesses whose international competitiveness could be at risk.
Citing the British Government’s Stern report, he said those looking to invest in energy-intensive industries anywhere had to contemplate a future in which there would be measures that sought to limit emissions.
And there were other factors relevant to decisions about where to locate or whether to relocate production, including the sunk cost of capital, a trained labour force and market access issues.
“As a consequence, Sir Nicholas Stern says we have to take care we don’t overstate competitiveness-at-risk issues and that the experience in Europe so far is that they have not seen companies exposed to the cost of carbon pulling up stakes and embarking for foreign places,” Parker said.
“So you can take that as a signal that so long as we have a transitional path towards these prices for carbon, we don’t see as great a need to have absolute protection of emitting sectors.”
The discussion papers say the effect of any transitional [pre-2012] measures on electricity prices should be gradual.
While investors in new generation should face a price on emissions, owners of existing fossil fuel-based generators should follow a transitional path to facing the full cost of emissions.
Tom Campbell, chief executive of Rio Tinto Aluminium (the former Comalco), said while Parker was right that that was the direction the world was moving, New Zealand had to be careful not to get out ahead of its trading partners, in particular Australia and the United States.
“And the reality is just about every European country has taken measures to protect their large emitters. In the United Kingdom, there is a system for exemption from the climate change levy through negotiated greenhouse agreements almost the same as those which were being negotiated here.”
Rio Tinto globally favoured emissions trading but “we get uneasy when they talk about a national scheme in New Zealand. I don’t think it’s large enough”.
Genesis Energy chief executive Murray Jackson saw the strategy as a continuation of Government policy favouring gas over coal and renewables over both of them.
“It’s not a wolf in the henhouse,” he said.
But Jackson believes officials are over-estimating the amount of renewable energy, especially wind, that would be cheaper than gas combined cycle plants at current gas prices and without a price on emissions.
Contact Energy chief executive David Baldwin said his company’s view of how much wind power could be generated for what prices started higher and increased more rapidly than the energy strategy document envisaged.
Campbell said: “If we are going to optimise renewables, it is essential to develop the best sites and not just the ones that are easiest to get consents for. That’s key. Otherwise we will end up with second-rate renewables.”
* To introduce measures to limit greenhouse gas emissions from energy generators and industry.
* Revising the Resource Management Act so that the national benefits can be compared in conjunction with environmental impacts.
* Lines companies will be able to generate more energy within their own catchment area and will have a free hand outside their catchments.
* Electricity generators to start reporting the impact of their operations on the environment and communities.
* Support the introduction of renewable fuels as substitutes for petrol and diesel.
* Creation of an expert group to consider the implications of enforcing the introduction of bio-fuels.
* Improve the efficiency of the national vehicle fleet.
* Encourage the development of power generation closer to demand.
* Give greater priority to energy efficiency projects.
* Establish an $8 million fund to help the development of electricity generation from tides and waves.
By Brian Fallow
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