The Parliamentary Commissioner for the Environment says eliminating fossil fuel emissions from New Zealand will bring upheaval right throughout the economy.
“No sector of the economy will remain untouched given our pervasive reliance on burning fossil fuel,” he says.
Simon Upton's comments come in a new report looking at ways to decarbonise the electricity system, which he says will have a huge impact on the economy at large.
At present, New Zealand is 15% dependent on fossil fuel to generate electricity in an average year.
Though that is low by world standards, the Government wants to end it. The cost of doing that runs into the tens of billions of dollars and work is underway to try to find a way to pay for this.
In his report, Upton says there are three ways to live without a fossil fuel backstop for electricity generation.
One is to overbuild renewable capacity to provide a buffer, a second is to incentivise consumers to reduce their demand, and the third is to store renewable energy which can be harvested at times when it is plentiful.
In his report, Upton looks at various pathways for the future.
One of them is Business as Usual (BAU), another is predicated on closure of the Tiwai Point aluminium smelter, a third looks at green hydrogen production in the far south, and a fourth is the pumped hydro scheme proposed for Lake Onslow in Central Otago.
Upton wants all the alternatives to be based on similar assumptions, so that fair comparisons can be made.
The report done for Upton says the closure of the Tiwai Point aluminium smelter has the most immediate effect on residential electricity prices and emissions.
“In this pathway, benefits exceed costs and Tiwai Point meets the benchmark of a positive net present value (NPV) over the model period,” the report says.
The business as usual case is given little attention, and is used mainly as a benchmark to assess the other options.
The green hydrogen proposal in the far south is denounced as one of the poorest performing options. Residential prices would remain high and it would provide little energy security.
“All hydrogen pathways … return a negative NPV over the modelling period across all cost-of-capital assumptions and discount rates, indicating that the social benefits of this pathway do not outweigh the costs.” the report writes.
The green hydrogen proposal is often thought of as a way to use surplus hydro electric power if Tiwai Point closes. But this analysis assumes Tiwai Point remains open, and shares power with hydrogen producers via demand-side management.
The most dramatic of all the options under consideration is the proposed Lake Onslow pumped hydro scheme in central Otago.
This project would essentially pump water uphill using electricity when it is plentiful and run the water back through turbines when more electricity is needed.
It has become extremely controversial, in part because it will be sited at a remote location compared with the main centres of demand, and in part because it will be expensive, $17 billion.
But Lake Onslow gets a comparatively good review from Upton's team, because it suppresses seasonal volatility, thus driving down wholesale electricity prices and providing more long term certainty over prices.
They say it offers lower residential electricity prices than the BAU case, even after its capital costs are paid for, with household bills rising only 0.11 cents per kilowatt hour to 1.73 cents per kilowatt hour.
“The Onslow pathway also returns a positive NPV for all but the highest cost-of-capital and discount rate scenarios, suggesting further analysis into Onslow is warranted based on its ability to reduce seasonal wholesale electricity prices when compared to other scenarios,” the report says.
The report admits it is making several assumptions in this study. These include upgrading the national grid. This would include improvements to the HVDC link, sometimes called the Cook Strait cable.
But it notes this work is under consideration anyway, even without Lake Onslow being built. The study notes that its analysis does not include the costs associated with electricity outages or reduced supply during an extended dry year. But in a comment hedged with qualifications, he suggests Lake Onslow could save up to $130 million per year compared with BAU.
In releasing this study, Upton says he hopes for discussion and criticism from the public and the industry, and “robust" decision making.
“There is no perfect solution to today’s decarbonisation challenge,” he says.
“None of us can predict the future of technology or the shape of the economy in a warming and climate-disrupted planet.
“The scale of investment needed, no matter which path we choose, will be immense. That is why we need a better way of weighing up the options.
“The most we can hope for, and expect, is high-quality decision making based on even-handed treatment of the options."
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