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New Zealand: Progress in the Pacific

Ambitious targets on emissions must be met alongside economic growth

Earlier this year, net migration to New Zealand hit a record high, according to some estimates. The fast pace of economic expansion, not to mention some breathtaking scenery and a purported laid-back island lifestyle have all made the Pacific country desirable for incomers.

But while net migration of more than 70,000 people per year hints at the success story of economic growth at almost 3% annually, to a GDP of $185bn last year, New Zealand has some challenges ahead in its energy sector.

A Paris agreement target of reducing emissions by 30% by 2030 compared with 2005 levels is "ambitious", admits John Carnegie, secretary of the World Energy Council's New Zealand committee and executive director of BusinessNZ Energy Council. And Carnegie points out that there are no plans to slow down after that. By 2050, New Zealand is aiming to halve emissions from their current level.

He says that traditionally, security of supply was the major challenge for the nation, but that has changed. "We had a major pipeline outage recently from the oil refinery to Auckland, which is New Zealand's main city. [Flights were affected]. How to maintain infrastructure and build resilience are still important, but decarbonisation is our biggest challenge."

This is a view reflected by fuel provider Z Energy's CEO Mike Bennetts. "Relative to other countries we are in a good position so I think are challenges are around resilience of our infrastructure, getting the best out of disruptive technologies and accelerating the transition to lower to zero carbon energy," he says.

To that end, New Zealand has retired thermal power stations and increased its electricity generation from renewables to 81% by 2015, up to an estimated 85% today, with some of the highest capacity windfarms in the world. The efforts have earned the country ninth position on the 2016 World Energy Council's Trilemma indexa fact of which Carnegie is proud.

"It's quite an achievementwe are the only non-European country in the top ten," he says.

The Trilemma rates countries on the balance achieved between energy security, access and affordability, and environmental sustainability. In 2015, the BusinessNZ Energy Council launched BEC2050: two New Zealand-specific energy scenariosKayak and Waka. Based on the work of the World Energy Council, these scenarios provided two cohesive narratives about New Zealand's energy future up to 2050, and quantified the outcomes expected under each scenario.

The BEC2050 modelling has allowed New Zealand to go back and ask more detailed questions about how the energy sector might evolve, in this case investigating the prospects for energy and transport sector emissions.

The deep dive sets out the potential contribution the energy and transport sector will make to the total 2030 emissions target under the Paris Agreement and sheds light on where additional emissions reductions may come from.

It outlines the source of emissions in energy and transport and the potential for reductions under each scenario to assist policy setting in the sector, and inform the size of the task in other sectors.

In the Kayak scenario, a global deal on climate change is agreed but international commitments on reducing emissions are still weak. Carbon markets are developed but are fragmented across ad-hoc regional and national schemes. New Zealand governments turn towards the market to drive the uptake of new low-carbon and energy-efficient technology.

There are no direct or indirect support mechanisms for these technologies, apart from a modest carbon price.

In the Waka scenario, global leaders unanimously agree that climate change is the defining problem of our time and a comprehensive global deal is agreed based on strong emissions reduction commitments. In New Zealand, governance and decision-making become more hands-on with climate change mitigation strategies prioritized to meet New Zealand's international obligations. Emissions from the energy sector are reduced accordingly.

"This was a very useful study for us as it provided a framework that we were able to use to deepen the inquiry within our own company," Bennetts says. "So we have produced two detailed transport fuels scenarios we use to inform our shareholders about the future of our company, and it guides board and management discussions around strategy for the next decade or so."

Policies of the future

New Zealand has only one oil refinery, in Whangarei, and last year produced just under 50 million barrels of oil and 196 billion cubic feet of gas. In 2016 its self-sufficiency was 78%. Exports of all energy types fell last year by 19%, for which the government largely blames lower commodities prices.

New Zealand held elections on September 23 this year, with the centre-right National Party winning enough seats to form a minority government. However, the coalition who will form the government was still being negotiated as World Energy Focus went to press, meaning the impact of a political reshuffle on energy markets won't be fully known yet.

Carnegie highlights the introduction of vehicle emissions standards and continued upgrading of the housing stock as future policies which might help the country gain efficiency without impeding further economic growth.

Bennetts agrees that policy around transport fuels could do with an overhaul. "In the transport fuels space there is generally an absence of the sort of mandates or incentives that exist in other countries and the policy framework makes it difficult for companies to have confidence in stepping out with investments and other resources that can have a material impact on carbon reductions."

He says that the penetration of electric vehicles (EVs) in the passenger vehicle market is a "no-brainer" given the high proportion of renewables in the electricity sector.

Z Energy has recently installed eight rapid rechargers on their network, in urban areas and on highways, making EV charging more convenient.

"For the heavier end of the vehicle fleet, as well as airlines and marine customers, a biofuel product is more likely to be the solution given NZ does have ready access to suitable feedstocks. The challenge is balancing the relative economic, social and environmental factors as fossil fuels (at present and for the foreseeable future) are likely to remain the lowest cost alternative."

In the meantime, a Productivity Commission has set up an inquiry to work out how a balance can best be struck between growth and sustainability. It looks at factors such as how to reduce emissions from agriculture, which are currently at about 50% of the total, but complex to tackle. "How New Zealand responds to its international commitment to reducing greenhouse gas emissions will have major implications for our future," said chairman of the commission Murray Sherwin.

"People understand that things are changing. Tomorrow's market won't be the same as it is today," Carnegie says.

This article appears in the latest issue of World Energy Focus, the magazine of the World Energy Council, with content produced by Petroleum Economist. For more information and to register, visit the site worldenergyfocus.org.

Source: Petroleum Economist
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