Looking at energy through our signed-up obligation to the Paris Agreement of a low-emissions economy and a target of 30 percent below 2005 levels by 2030. David Caygill, chair, BusinessNZ Energy Council.
WHAT A DIFFERENCE a year can make. With the scepticism and rancour of Copenhagen left behind, international negotiators – with the strong support of the international business community – concluded the Paris Agreement in December 2015.
While much work remains to develop rules around the agreement, the optimism generated remains. Importantly, its ambitious goal of keeping the global temperature rise to below two degrees Celsius has focused minds around the world.
More recently, the agreement to eliminate HFCs underlines countries’ willingness to respond to global warming and climate change.
Business is already actively addressing the challenge of transitioning to a low-emissions economy. We have strong cross-sector collaboration and with growing business acceptance of the Paris Agreement, the government has signalled a willingness to take action. Initial steps have involved a review of the ETS and announcements around the encouragement of electric vehicles. More will undoubtedly follow as the pressure goes on this country to increase its nationally determined contribution (NDC) above its current target of 30 percent below 2005 levels by 2030.
But what specifically are the challenges and opportunities faced by the energy sector? How can our country decide which policies and investments to pursue? Should we focus on efficiency improvements, with carbon reduction co-benefits, or should government be more explicit, directing the economy towards a low-carbon transition pathway?
The BusinessNZ Energy Council (BEC) is focused on helping business and government work these options through. BEC has been delighted with the uptake of the two scenarios we released last year (www.bec.org.nz/projects/bec2050). One – ‘Waka’ – posited a future led by government policies and interventions. The other – ‘Kayak’ – assumed a greater role for private markets. These scenarios have contributed to the debate about what might happen over coming years.
Neither of the scenarios is a future BEC is predicting. Rather, they stake out possible outcomes of how the future might look. They help us understand what trade-offs we might make if we shifted from one scenario towards the other. They are a contribution to debate – and calls to action. BEC is delighted that the scenarios have helped parties frame their thinking. That’s exactly what we are seeking.
Some commentators focused on the fact that neither scenario shows our country meeting the country’s emissions targets required by the Paris Agreement, or the government targets for adopting electric vehicles. Of course, neither the Paris Agreement nor New Zealand’s NDC include an energy sector specific target. Any assessment of our scenarios in terms of whether we ‘miss’ or not, is guessing at what the target for the energy sector should be.
More importantly, this criticism misses the point that it is the very uncertainty of the future that spurred BEC to develop scenarios to help think about the choices we face. Both scenarios seek to balance what the World Energy Council calls the “energy trilemma” of energy equity, energy security and environmental sustainability. Recent events in South Australia are a lesson in the need to get the policy and investment balance between these three factors or goals right.
The BEC2050 scenarios and their associated “deep-dives” help develop insights into the choices and trade-offs we might face.
A key message emerging from our scenarios is the interconnectedness between the various moving parts. The relationship between the price of carbon, the price of oil, the price of electricity and the price of new technology suggests it is no longer relevant to look separately at, for example, the transport sector and the electricity sector. Never before has the need to develop energy policy in a holistic, sector-wide way been more relevant and important. This thought is keeping New Zealand energy executives awake at night as evidenced by the results of the most recent New Zealand Energy Issues Map (bbit.ly/BEC_WorldEnergyIssuesMonitor). It also resonates with the government as it now looks to broaden the focus away from renewable electricity to renewable energy and energy productivity.
BEC’s first deep-dive on energy targets sought to provide informed, quantitatively supported views to the government. An obvious place to start is in the transport sector, where we still rely heavily on imported fossil fuels. Transformation of this sector is needed to underpin a large increase in renewable energy and to reinforce the interconnectedness point this would need to be coupled with highly renewable electricity and increased efficiency in process heat. None of this is readily tractable, but that’s no reason to avoid debate or change. The large scale use of bioenergy in transport also raises many questions.
Clearly our electricity sector stands out compared to other countries for the high proportion that is generated from renewables. But raising this share beyond 90 percent looks challenging with regard to how we can guarantee security of supply. Talk of the retirement of the Huntly units has heightened the significance of this issue.
On the other hand, interest in battery storage technology continues to grow – Vector has taken some early commercial steps. Others will watch with increasing interest. However, it is not clear at this point whether batteries can contribute to the ‘hydro firming’ role that gas and coal currently play.
All this raises the overall question of the role of markets and government. Should we primarily focus on economic growth and rely on carbon prices to influence fuel choices? Or will we need stronger policy support and direction from the government to achieve a transition to low carbon economic output? As a trade-dependent nation, the costs and opportunities from our choices have direct consequences for our international competitiveness. One thing is clear from BEC’s work – policy cannot be based on a single ‘pathway’. The more we narrow our set of choices and technologies the more we lose our resilience to different futures.
Ultimately consumers will set the direction chosen – but will they react in orthodox ways? With 3500 solar installations at residential level over the past 12 months, there are a variety of factors at play – not just payback period. So when thinking about where we’re heading, we have to allow for consumer sentiment that may speed some things up and slow other things down.
BEC’s next deep-dive, scheduled to be released around March 2017, will consider more directly the question of energy sector emissions. This will look at the contribution the energy sector can make to our NDC. Are there opportunities for industrial heat consumers to transition from coal to gas and reduce emissions? What does the prediction of significant growth in tourist arrivals over the coming decade mean for emissions from the aviation sector? And to what extent would pursuing renewable electricity lead to an increase in CO2 emissions from geothermal?
In the year ahead, the most obvious big event will be the general election. It’s the moment when the nation gets to set or approve our policy direction. Three years ago the choice of energy policies included a problematic commitment to transform our wholesale electricity market through the introduction of a single monopoly purchaser. Thankfully that proposal appears to have been abandoned. On the other hand, the extension of the ETS to include agriculture, and its abandonment and replacement with a carbon tax are likely still to be on offer. And, no doubt, advocacy for greater commitment to a ‘zero carbon’ future.
Given the significance of the energy investment decisions that both consumers and businesses make, our policy framework needs to be stable, and not just about the next three years.
Elections are opportunities to consider our direction and priorities as a nation. At their best they invite civilised discussion of our values and choices. In the field of energy at least, there is much to contemplate and weigh up. BEC will continue to encourage its members and others to do exactly that.