4 Context, Objectives and Scope
4.1 Context
Between 1990 and 2005, greenhouse gas emissions from stationary energy generation and industrial energy use rose by approximately 50 percent.[Ministry of Economic Development, New Zealand Energy Greenhouse Gas Emissions 1990–2005, 2006.] Of this total, emissions from electricity generation increased by approximately 105 percent, while emissions from industrial energy use increased by approximately seven percent.[Ministry of Economic Development, New Zealand Energy Greenhouse Gas Emissions 1990–2005, 2006.]
Energy models currently forecast that, under a ‘business as usual’ (BAU) scenario, greenhouse gas emissions from stationary energy generation and industrial energy use will increase by approximately 18 percent between 2005 and 2015.[Ministry of Economic Development, New Zealand’s Energy Outlook, 2006.] Emissions from the electricity generation sector are forecast to account for approximately 30 percent of this increase.[Ministry of Economic Development, New Zealand’s Energy Outlook, 2006.]
The draft NZES recognises that energy suppliers (and other sources) will increasingly face a cost for the greenhouse gas emissions they produce. This is expected to make it more expensive to combust fossil fuels, and will act as an incentive to develop technologies that either eliminate greenhouse gas emissions or make the process more efficient.
4.2 Objectives
The objectives of the draft NZES include: maximising the proportion of energy which comes from our abundant renewable energy resources; reducing our greenhouse gas emissions; promoting environmentally-sustainable technologies; and maximising how efficiently we use our energy to safeguard affordability, economic productivity and our environment.
It recognises that policy measures to reduce greenhouse gas emissions from the stationary energy supply sector should provide investment certainty and should not detract from economic development.
Although no decisions have yet been made, the government is in favour of economically-efficient, price-based measures applied broadly across key sectors of the economy post-2012. Any measures introduced would have to be consistent with New Zealand’s economic and sustainable development interests and with the longer-term international climate change policy framework.
Options for a broad price-based measure or a group of measures to be applied after 2012 are set out in a separate discussion paper, Measures to Reduce Greenhouse Gas Emissions in New Zealand Post-2012. In contrast, this paper examines measures that can be applied prior to 2012 to encourage low emissions energy supply and to facilitate the transition to greenhouse gas pricing in the future. For the purposes of the evaluation of options in this paper, a time period of 2007–2015 is assumed.
4.3 Scope of this discussion paper
The scope of this discussion paper can be defined in three ways: the supply of energy, coverage of sectors or sub-sectors, and the types of measures possible.
First, this paper focuses primarily on the supply of energy.
Demand-side issues, such as measures to improve the energy efficiency of homes, are discussed in the NEECS[As an option for further investigation, the NEECS is also considering an energy efficiency obligation, which could be classed as a demand side transitional measure.] and are not considered in this paper. Nonetheless, some of the options addressed here – such as a narrow-based CO2 charge – would also influence demand.
A second boundary marker is the coverage of sectors or sub-sectors. This discussion paper focuses on electricity generation and stationary industrial heat and power.
Some of the options discussed here apply only to electricity generation, whereas others cover both electricity and industrial heat and power. The reasons for selecting a narrower or broader coverage are discussed when these options are presented. This paper does not consider:
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The supply of energy to small- to medium-sized businesses and to homes, although some of the measures could also feasibly be extended to these areas. However, any measures that have an impact on electricity generation will have an indirect impact on the commercial and residential sectors, which are major electricity consumers.
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Industrial process emissions (non-energy greenhouse gas emissions), as they are not covered in the scope of the draft NZES. However, many of the options discussed here could feasibly be extended to cover industrial process emissions. From a climate change policy and efficiency perspective, this may be desirable.
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Transport energy, which is being addressed in separate policy proposals under the draft NZES. This paper also does not include industrial energy for vehicle equipment, such as those used in agriculture, construction, forestry, mining, and fisheries.
A third boundary marker concerns the type of measures being discussed. The only measures explicitly excluded from analysis in this paper are broad price-based measures designed to cover several sectors of the economy.
This leaves a wide range of potential measures available for discussion, including various economic instruments (price-based measures), and regulatory and voluntary methods.
4.4 What is meant by ‘transitional’?
As mentioned above, policy objectives and measures post-2012 are covered in a separate discussion paper.
This paper looks at measures that can be implemented in the electricity and stationary supply energy sectors in the near term, and that could enable – or, at least, not be incompatible with – a transition to a mix of policies post-2012.
Determining suitable measures is not an easy task, given the uncertainty of longer-term domestic policies and international climate change policies after 2012. Nevertheless, the government has indicated that the discussion on long-term policy measures should include consideration of the option to introduce a price on greenhouse gas emissions across the New Zealand economy. The government believes a mix of price-based, regulatory and voluntary measures may be needed to achieve New Zealand’s long-term sustainable development objectives.
4.5 Method of evaluation
Transitional measures should be seen as part of the long-term strategy, but there should also be sound arguments for implementing them on their own merits. They should also meet criteria for good policy design. Criteria used to assess the measures in this discussion paper include:
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environmental effectiveness (the extent to which the intervention will achieve emission reductions beyond BAU)
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cost effectiveness (the measure’s ability to reduce emissions at a low cost, or the least possible cost)
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impact on energy prices
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ease of implementation (including regulatory and administrative issues)
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compatibility with a long-term price on greenhouse gas emissions.
Other issues of relevance include: stimulation of innovation; treatment of new entrants; and regional and technological diversity, as it applies to the New Zealand energy sector.
This discussion paper guides the discussion by providing a descriptive summary and brief evaluation of the different options. The evaluation is largely qualitative and comparative: the paper does not provide a comprehensive cost-benefit evaluation of each intervention.
It is unlikely that any one measure will be sufficient to meet the overall objectives specified in the draft NZES. A combination of measures may be necessary, as well as supporting policies such as providing information and encouraging innovation.
