Moving to a lower-carbon economy

Alternative technologies

New Zealand can explore and adopt other technologies that bypass coal as part of reducing greenhouse gas emissions and meeting our Paris Agreement target. Industry, including the coal sector in New Zealand, produces 7% of gross GHG emissions (Ministry for the Environment greenhouse gas inventory)1, and the figures for other sectors are: agriculture (47%), energy, including transport (43%), and waste (3%). This gives an idea of where the priorities and the opportunities lie.

Electric vehicles

A greater uptake of electric vehicles in New Zealand could significantly reduce our dependence on petrol and diesel. Once the infrastructure is in place with recharging facilities, supply of reliable vehicles at affordable prices, and with new-generation battery technology, the economics would favour New Zealand motorists switching to EVs. 

The potential for New Zealand is highly encouraging - with a market opportunity of 3.1 million light vehicles nationwide. The BusinessNZ Energy Council's energy scenarios 2 suggest as many as 1.65m - 3.2m EVs on the road by 2050. With transport accounting for 20% of New Zealand's GHG emissions, the promotion of EVs (and also plug-in electric & petrol hybrid vehicles) could form a key part of our country's transition to a lower-carbon economy.3

A report by the World Energy Council suggests that EVs will need to reach 16% of global light vehicle markets by 2030 4 as part of meeting internationally-agreed climate change targets. That will require action to both incentivise EVs and disincentivise fossil fuel-driven vehicles

Renewable electricity generation

New Zealand has one of the highest rates of renewable electricity generation in the world, exceeding 80%, compared to the global average of around 24% (IEA). That is a fortunate situation to be in, as well as posing the challenge of further improvement in that figure.

The Government's target of 90% renewable electricity generation by 2025 5 will require more hydro, geothermal, wind and solar to be brought on stream, and in New Zealand we have plenty of potential.

Advances worldwide in battery storage technologies are ongoing, as is work in New Zealand on "smart grids" and other improvements to electricity markets and pricing mechanisms.

Subject to technology developments, some fossil fuel-generated electricity will be necessary for the foreseeable future for base load generation to guarantee energy security. No one likes black-outs, as occurred repeatedly in the early 2000s.

New Zealand Emissions Trading Scheme

For many emitters in New Zealand, it will be challenging to move to affordable lower-carbon technologies, or use less coal in the immediate term. Regardless, every user will have to provision for the inevitable changes in government policy, while being mindful of their business, and the people they employ.

This is where the New Zealand Emissions Trading Scheme comes in. This "market" allows an emitter to buy "emissions reduction units" or carbon credits at a cheaper price than the cost of reducing emissions directly, and in this way account for their emissions. That means someone else has to create the units. In New Zealand, the creator of units is the plantation forestry industry.

Theoretically, the price of carbon in a trading scheme will be set by supply and demand, which raises questions. For example, how do you ensure fair trading or competition in this market? The foresters as the sole supplier of units could have an incentive to influence the price in their favour. So could the Government in the opposite direction, for example, by flooding the market with stockpiled units. 

In March 2017 London-based Vivid Economics produced a report entitled Net Zero New Zealand6 commissioned by 35 New Zealand MPs from all political parties. 

The report points out that New Zealand is unusual among Paris Agreement signatories in three key respects: a low-carbon electricity sector, a large part of the economy with high marginal costs of abatement (i.e., challenging to reduce emissions, e.g., agriculture and industrial process heat), and a large forestry sector (a source of emissions reductions, however, only from new plantings).

Vivid Economics used scenarios to suggest that “deep decarbonisation” measures include “energy efficiency, further decarbonisation of electricity generation, and the electrification of the transport fleet and of low-grade heat.”

There is also a question of fairness. If New Zealanders are paying a higher carbon price than our trading partners, that could be damaging to our export-led economy.

One way around this difficulty would be to link or expose the NZ ETS to an international carbon price or set of carbon prices, if such markets can be created. They do not exist at present to any significant extent, noting that this is a priority under the Paris Agreement. Exploratory work in this area is underway, with New Zealand playing an active role, and the work could take 5-10 years.

At Paris a Carbon Pricing Leadership Coalition was established, which NZ has since joined. 7

In March 2017 this coalition argued for a price of $US100 a tonne of CO2-e for the world to achieve the +2 degrees stabilisation target. This would entail a cost of 6% of global GDP, if, and only if, all countries impose this price. At issue for New Zealand is that much of the industrial process heat sector would close at such a price, as no longer competitive, as it is extremely unlikely that such a price would be global.    

In May 2016 the IETA, a not-for-profit business organisation, wrote a paper on how carbon markets could be established under the Paris Agreement, a basis for ongoing discussion from 2017. 8

At issue is that New Zealand is one of few countries in the world that has an ETS or a carbon price, noting the situation is improving. The IEA estimated that 11% of global emissions were covered by carbon markets in 2014, and that figure reached 15% in 2017, according to the  International Carbon Action Partnership. 9

Jurisdictions with ETS schemes include the European Union, Switzerland,  regional schemes in China, South Korea, Kazakhstan, California, the northeastern States of the US, Quebec, Ontario and Alberta in Canada, and schemes in three prefectures of Japan. “By the end of 2017 emissions trading will regulate more than seven billion tonnes of global emissions, with 19 systems operating worldwide,” ICAP reports in the global trends part of its website.

Note that New Zealand does not have access to any of these markets, and that much work lies ahead for any of these markets to be linked. Assuming that international carbon credits do become available in the future, New Zealand emitters could offset their emissions by purchasing these credits. They would have to be credible units that relate to real emissions reductions elsewhere in the world, as opposed to the fraudulently-created "junk carbon credits" New Zealand purchased during the early 2010s10

The economic theory is simply that a functional market for CO2 emissions will enable those in the world who can reduce emissions at least cost per tonne of CO2 to do so in preference to higher-cost emissions. In practice, this has been challenging to implement, as the experience of the Kyoto Protocol attests. The US and Australia were not part of the Kyoto Protocol; Canada left the Kyoto Protocol; and the EU ETS covered only some sectors. The Paris Agreement is a crucial improvement (link to article on the Paris Agreement). 

Forest carbon sinks - a temporary fix

The growing of trees is to a degree an attractive way of capturing carbon, especially if the foresters earn carbon credits along the way. This method does come with a few wrinkles.

Once the trees are grown, forest owners have earned a carbon store that deals with past emissions, on land that cannot now be used for anything else (without penalty). On top of that, the owner has to ensure the forest does not burn down in a fire, or get diseased and die, or fail to replenish itself over time.

Plantation foresters would normally plant, earn credits as the trees grow, and then harvest the forest, pay the accumulated carbon liability, and replant and start the cycle anew. In that scenario, New Zealand only reduces emissions through the planting of new forest. While there is a practical limit to the area of land in New Zealand that can be planted in new forest, for a period at least, there is an important opportunity in this space.