CCC Report: Implications for the Petroleum Industry and NZ

Dr Terrence Loomis, Coordinator

Fossil Fuels Aotearoa Research Network (FFARN)

3 February 2021

The Commission has generated a projected path, based on scientific evidence, to achieve New Zealand emission reduction targets by 2050 and steps for each sector with targets to 2035.

A number of measures toward ending our reliance on fossil fuels are spelled out in the report. Unfortunately, the overall energy transition process envisioned is too long and piecemeal, and may not be bold enough to make a significant difference to slowing climate warming to 2C and more.

Two key high emissions areas that are heavily reliant on fossil fuels are transport and heat, industry and power generation. Transport emissions made up more than a third of the country’s total long-lived gases, most of which (91%) are produced by petrol and diesel cars, SUVs and trucks. Heat, industry and power emissions make up 41% of total long-lived gases. The CCC calls for transport emissions to be cut by half by 2035 and heat, industry and power by 55%.

For transport, the Commission proposes that no further internal combustion engine light vehicles would be imported after 2032. By 2035, 40% of the light vehicle fleet would be electric and hybrid vehicles and 84% of light trucks.

In regard to electricity generation, the Commission envisions a rapidly declining role for natural gas after 2030, particularly when Tiwai smelter closes. Coal generation will cease. There may be a continuing role for gas to 2050, but this may not be the case depending on the outcome of the NZ Battery project to provide reliable backup to renewables. The CCC warns of overinvestment in sunk assets (superseded by the transition to alternative energy sources).

For natural gas use, the Commission apparently wants to have a bob both ways. It’s disappointing they didn’t decide to confront the scientific research challenging ‘gas as a bridge fuel’ head on. They note we’re reliant on gas for some industries, heating and cooking as well as generating electricity when renewables fluctuate (which is less and less with battery backup). Apparently borrowing from PEPANZ, they point out that gas has a role currently in providing affordability and stability of energy supply. “Without continued exploration and development, the country’s natural gas fields are likely to reach the end of their economic life” which will reduce the amount of gas available for users. Does this mean they are questioning the exploration ban!? The commissioners dodge the bullet on that one. But they do point out that it may become uneconomic for Methanex, our biggest user of gas, to continue operations (their scenario assumes it will close). That “could have flow on cost and supply implications for other gas users including electricity generation and domestic users of gas.” In other words, like the closure of Tiwai smelter, there would be more gas and prices would come down in the short term (but steadily go up with rising carbon emissions charges). Bad news for Methanex anyway you look at it.

Re impacts on the cost of living and transport, electricity prices are likely to decline in the short term with the closure of Tiwai and Methanex, but return to today’s levels by 2035. The pressure will be on with proposed government energy-efficient transport initiatives and rising fuel costs for people to get rid of their gas guzzlers and convert to electric/hybrid vehicles and public transport. The Commission among other measures is suggesting phasing out gas connections in buildings and new homes, which would protect customers from rising costs. PEPANZ’s CEO John Carnegie doesn’t question the impact of rising gas and petrol costs. In a candid comment (Stuff 2 Feb 2021) he states “It is about being an informed consumer.” Presumably he’s willing to acknowledge ‘informed’ people are going to choose to move away from use of domestic gas and petrol/diesel vehicles.

Regarding industry and heat generation, the CCC notes there are already proven options for decarbonising low and medium temperature process heat. These include switching fuel use from coal and natural gas to biomass and electricity. There are also opportunities to improve energy efficiency. This will have implications for future demand for gas. PEPANZ’s CEO John Carnegie maintains gas has continuing role if government introduces industry-friendly regulations, particularly around the RMA and the use of carbon capture and storage (CCS) – which is largely unproven technology and serious questions have been raised about its scalability.

The projected impacts on the Energy sector of the CCC’s proposed actions are expected to be significant. The fossil fuel industry is expected to lose up to 1100 jobs (even though many of these traditionally have involved offshore specialists). Not a career path smart young Kiwis would probably contemplate, certainly when good paying jobs in the growing renewables sector are coming on-stream.

All in all, not good news for the future of the oil and gas industry, in spite of PEPANZ’s warnings we’ll need to import gas and oil if we don’t reverse the exploration ban (CEO Carnegie’s Scoop media release 1 Feb 2021). In his comments to Stuff (2 Feb 2021), Carnegie argues as he has in the past that we need to be practical and consider the costs of too rapid a transition. We don’t want to end up in the ludicrous situation of importing expensive gas and oil from other countries like Australia. But of course, other countries are also pursuing their own energy transition planning and moving away from fossil fuels. The reality is that gas is going to get more expensive by 2035 and beyond, and demand is going to plummet as the country transitions to renewables. The government has introduced a Just Transition plan for Taranaki and the fossil fuel industry. The industry is certainly going to need major help in phasing out its operations.

The CCC has shown that bolder government action, with private sector and public support, can achieve our emissions targets in a cost-effective way. Based on the petroleum industry’s recent record of predatory delay, the Government may not take much comfort knowing, as Carnegie states (Stuff, 2 Feb 2021), that PEPANZ’s “role will be to walk alongside the Government and commission and say, if you do this, that might be the consequences.” The challenge is whether we can move fast enough to make a meaningful difference in mitigating climate warming. It’s certainly not about moving slower in order to protect the energy incumbency.

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