Draft New Zealand Energy Strategy released on 11 December 2006

The Energy Strategy, entitled "Powering our Future - Towards a sustainable low emissions energy system", sets out the Government's strategic vision for New Zealand's energy system until 2050.  It is a relatively comprehensive document, and refers to several other related policy initiatives (including those relating to climate change and energy efficiency). This commentary outlines the Government's key objectives and proposals put forward for consideration in the Energy Strategy.

Identification of long term energy challenges

The introduction to the Energy Strategy seeks to set the scene by identifying the two major long term energy challenges facing New Zealand as the Government sees them.  These are:

• responding to climate change and addressing carbon emissions from New Zealand's energy production and use; and
  
  
• delivering secure, clean energy to New Zealanders at affordable prices to support economic development, while being environmentally responsible.

The Energy Strategy is then broken into two main parts.  The first part outlines the Government's broad policy objectives for New Zealand's energy future.  The second part details the various initiatives the Government proposes to follow to achieve the identified goals.

Six broad areas of focus to improve the energy system

Part 1 of the Energy Strategy identifies six broad areas on which the Government intends to focus in order to improve New Zealand's energy system.  In brief, these are:

• ensuring the Government provides strategic leadership and a clear direction in relation to the future of New Zealand's energy system;
  
  
• maintaining a secure energy supply – by ensuring supply is reliable and resilient;
  
  
• increasing the efficiency with which New Zealanders use
  energy - in order to reduce energy costs, enhance productivity and safeguard the environment;
  
  
• increasing the use of renewable energy resources (including new renewable energy sources such as wave and tidal electricity generation and the use of biofuels in the transport sector);
  
  
• reducing the level of New Zealand's greenhouse gas emissions; and
  
  
• promoting the use of environmentally sustainable technologies as soon as they become proven and economically viable.

Part 1 of the Energy Strategy also usefully identifies between five and ten initiatives or measures that are to be followed to achieve each of the broad objectives set out above.  These are then described in the draft action plan (set out in Part 2 of the Energy Strategy) and the draft National Energy Efficiency and Conservation Strategy that also accompanies the Energy Strategy.

Some observations – climate change and security of supply

It is interesting to observe that although maintaining electricity supply in dry years and addressing the challenges posed by "peak oil" are clearly considered to be important policy objectives, the Energy Strategy states (page 19) "the Government believes that the more serious and immediate challenge is climate change".

Accordingly, a recurrent theme of the Energy Strategy is the Government's commitment to developing workable solutions to climate change concerns and implementing a strategy for the gradual reduction of New Zealand's greenhouse gas emissions.  The Energy Strategy acknowledges that, in order to achieve tangible results, targeted initiatives – on both a macro and micro level – will be necessary.  It is perhaps not surprising the Energy Strategy has such a significant focus on climate change issues given the Government's various initiatives in recent years to address the potentially severe effects of climate change.

The Energy Strategy recognises that to effectively achieve the second key policy objective of having a secure energy supply all members of society – the Government, the energy producers and the energy consumers – must play an active role.  The Government's stated goal is "reliability and resilience": the public must be able to reliably access energy services when required and those energy services must be able to cope with shocks and change – it appears that a "reliable" energy system will be a function of a "resilient" one.  To achieve this, the Government advocates investment in core energy infrastructure such as grid and line arrangements in the electricity sector as well as the requirement to advance "energy diversity" – a catch phrase describing the use of different sources of supply.

Although the Energy Strategy promotes increased investment in renewable energy sources and associated technologies, the potential pitfalls of such sources of supply have not been ignored.  In particular, security of supply issues exist in relation to the potential growth of the use of renewable sources of energy such as wind and hydro schemes.  There is a concern that if New Zealand becomes overly reliant on wind and hydro power generation it may be susceptible to intermittent supply shortages.  To address this concern, the Energy Strategy suggests a diversification of the location of wind farms but also that fossil fuel-based backup will continue to be required for some time to come.  This makes even more acute the need to ensure that a secure gas supply is maintained given the limited future of the Maui gas field.

The Energy Strategy also recognises that the efficient use of energy has a central part to play in safeguarding New Zealand's security of supply, while also having ancillary environmental benefits such as reduced greenhouse gas emissions.  It seeks to encourage both commercial and domestic consumers to use energy more efficiently.  Achieving this goal in relation to domestic consumers is a clear challenge and the Government hopes to achieve this through widespread dissemination of information and the promotion of product labelling which clearly specifies the energy efficiency (or otherwise) of products.  When used in conjunction with incentives and pricing mechanisms, the distribution of such information is seen as an effective means of encouraging consumers to use energy more efficiently.

The Energy Strategy concludes by stating that it will be necessary to consider what impact the choices made in relation to New Zealand's energy future will have on, in particular, energy security, greenhouse gas emissions and the affordability of New Zealand's energy.  Clearly, the Government will be very interested in ascertaining whether industry participants feel that the many initiatives and policies detailed in the Energy Strategy have struck the "right" mix to ensure that these fundamental policy objectives are achieved over the long term.

Implications for the transport sector

The Energy Strategy specifically identifies the transport sector as a major consumer of energy and emphasises the importance to that sector of both security of supply and the gradual reduction of transport-related emissions.  The Government advocates the introduction of biofuels and electricity as alternative sources of energy for the transport industry; although it is not debated that oil will remain an important source of transport energy for years to come.  It is clearly hoped that the introduction of renewable energy sources such as biofuels will help the reduction of greenhouse gas emissions and ensure a steady stream of alternative energy to the transport sector. 

In terms of actual initiatives, the Government proposes (among other things) a minimum biofuels sales obligation and the implementation of policies that promote the development of low emission vehicles such as hybrid plug-in and electric vehicles.  Further initiatives include a restriction on the number of high emission vehicles that can be imported into New Zealand and the promotion of low carbon-related transport options by attempting to take more freight off the roads.

Submissions on the draft Energy Strategy

The Energy Strategy is a discussion paper and the Government has invited submissions on the proposals outlined – it is clear there is likely to be considerably more debate on New Zealand's future energy strategy in the coming months.  Submissions on the Energy Strategy are due by Friday 30 March 2007.

Enquiries and information

For more information on any of the cases, articles and features in Commercial Quarterly, please email Diane Graham or call her on 64 9 916 8849.