Post Election Energy Breakdown
New Zealand election analysis with an energy lense.
On Saturday New Zealand went to the polls. The outcome is still not quite clear, special votes are yet to be counted, but on the balance of things it looks like we will have a National / Act coalition with New Zealand First possibly being needed to seal the deal. We will not know officially until the 4th of November and there could be the odd surprise in some electorates. However, it is reasonably safe to say that a NACT (National & ACT) coalition is the basis of the incoming government.
To my way of thinking most of the political debate is just noise. The signal is in the energy policy. All discussions about the economy are irrelevant if they are not under pinned by robust energy policy. As readers of this substack will know, money is simply a claim on energy and debt is a claim on future energy. If New Zealand’s energy in the future is disperse and low density, we can guarantee it will be expensive, and result in lower productivity. As a result, our ability to service debt will be greatly diminished.
The NACT government inherits record levels of debt as a result of the Labour government’s out-of-control COVID-era expenditure. The only reasonable solution to address this debt is to grow the economy and that will require cheap, reliable and abundant energy coupled with less restrictive regulations that allow this energy to be put to work.
They also inherit an energy system that is very vulnerable and increasingly fragile. A quick recap of all that has changed since 2017:
We now have no refining capacity and are fully dependent on imported finished products, with all of the geopolitical risk that comes with this dependence. Watch the Israel, Iran, Qatar situation closely.
Dwindling domestic natural gas supplies with no alternative supply or importation infrastructure. Cooking with the gas! or maybe not?
Fragility of the electrical grid due to low gas reserves, increasing amounts of renewables and a regulatory framework that does not support investment in reliable baseload capacity. We are already being told to expect power outages in the coming winter due to the loss of a single 100MW peaker plant in Stratford. Energy & Economy
Lobby groups full of bandits have captured the Ministries and are promoting offshore wind as our savior. Our officials are completely oblivious to the track record of this medieval technology and the chaos it is creating around the world. Hat-tip to The Energy Diplomat for the bandit analogy, I think it is summed up beautifully in this article Is Energy and Climate Policy Doomed? Stupidity and Banditry is leading us away from real, implementable solutions.
It’s quite a mess that NACT, as the incoming government, find themselves having to deal with, not to say that National haven’t contributed to this long-term decline during their earlier tenure.
So, what are National & Act’s respective energy policies to right this sinking ship?
National:
National actually have a reasonably extensive policy document. It is quite detailed. Additionally on the cover page linking to the policy document they also have this statement which is a good summary:
National will:
Overturn the Government’s costly and harmful oil and gas ban.
Investigate new technologies that can support a transition to a net-zero emissions economy such as carbon capture and storage.
Support a case-by-case assessment for mining proposals on lower-quality conservation land that meet a ‘net conservation benefit’.
Repeal the RMA and implement an environmental legal and regulatory framework that is less complex and provides more certainty to all stakeholders.
“Labour has only delivered more coal, higher energy prices and higher emissions over the past three years,” Mr Young says
“National will work hard to ensure energy is affordable, our dependence on coal is reduced and less hard-working Kiwis lose their jobs.
“We support responsible mining that can demonstrate a net positive contribution to the economy, to the environment, and to society.
“National will deliver pragmatic energy policy that is better for the environment and consumers’ bank balances.”
National’s policy is reasonably pragmatic as you would expect of a centrist government. The key elements of the policy are based on repeal of the RMA and using the Emissions Trading Scheme (ETS) to drive market incentives rather than picking winners and losers. National proposes to be energy neutral, not favoring any particular energy mix.
This is however not entirely correct as “renewables” do not pay their full lifecycle emissions costs and as such are favoured in the New Zealand context. I am not a fan of the ETS as by design it localises a global issue and incentivises the outsourcing of high emission industrial processes to other countries, countries that do not participate any emissions reduction programs. In essence it is a self-imposed tariff on New Zealand’s local manufacturing and industry. For example, China manufactures the lion’s share of the planet’s solar panels for the simple reason that polysilicon is a phenomenally energy intensive component to produce. China has no emissions related taxes and uses a large chunk of the worlds cheap reliable coal to power their industries. Solar panels can in some cases have full life cycle emissions as high as 240g / kwh which is not taxed in New Zealand as all the emissions occurred in China.
Repealing the RMA will not be an easy piece of work and could take the first full term of government to achieve anything significant as it’s a rat’s nest of lobbyists and issues motivated groups. It is however desperately needed as it is not fit for purpose and so cumbersome that we have reached the point where only domestic houses can be built. Any large scale infrastructure is essentially impossible. We only have to look at the port of Tauranga’s wharf extension for a case study in the ridiculousness of this legislation. A relatively simple piece of infrastructure that has been tied up in the courts for years at a cost of millions and is no closer to completion.
As part of their RMA repeal, National aim to make it easier to get permits for oil and gas development and have also committed to reverse the offshore oil and gas exploration ban as stand-alone policy position. In my opinion, this will have little to no effect on investment in New Zealand’s oil & gas industry as these investments are long term. The political risk with a three-year election cycle is now too great. A change of government back to Labour at any point would risk stranded capital that is better off invested in other countries.
Act:
We’re not off to a great start with the cognitive dissonance on display here. The text and the imagery being completely at odds with one another. But giving them the benefit of the doubt let’s look at what they are actually proposing. Their summary states.
ACT will:
Reverse the ban on oil and gas exploration,
Remove Te Mana o te Wai from resource consenting,
Get the state out of energy development, dumping Lake Onslow,
Introduce a regulatory framework to support carbon capture,
Fast-track permit development to make offshore wind easier to permit.
Reversing the oil and gas exploration ban will achieve little as discussed earlier in the National policy analysis.
Removal of Te Mana o te Wai from resource consenting is self-evidently necessary. Abstract concepts, with no definition, arbitrated by unelected bodies, have no place in law and are simply government endorsed extortion rackets.
Lake Onslow is interesting. It was intended to use pumped hydro to support a more “renewable” grid. It is however too small to achieve this and is already seeing cost blow outs before it has even left the drawing board. This project was always destined to fail but this is somewhat incongruent with ACT’s desire to fast track offshore wind.
Carbon capture is a resource intensive and expensive virtue signally exercise. It is only supported by an abundance of energy and is an extravagance only considered by the wealthiest of nations. It could have some limited application for gas fields in New Zealand, but for what purpose? And, getting the economics to work would be nigh on impossible.
Fast tracking offshore wind. ACT’s policy folks clearly aren’t reading the international news on offshore wind. The offshore wind industry is in dire straits dealing with a huge inflationary cost spiral, reliability issues and losses in the courts after trying to renege on power purchase agreements they can’t meet and remain profitable. This is simply the unavoidable nature of low density, high resource intensity, intermittent systems. Read more here Reuters Explainer: Why the US offshore wind industry is in the doldrums
The full ACT energy policy statement can be found here ACT Energy. It’s worth a read as ACT do understand some of the issues quite well and have a focus on reducing regulatory red tape which is desperately needed.
Summary:
Both National & Act are trying to thread a fine line between having a policy position supportive of real tangible baseload energy requirements and not scaring off the champaign socialist types. The types who virtue signal that climate change is the biggest issue facing the country right up to the point they have to stop going for weekend ski trips to Queenstown. But of course, this is exactly how politics works.
I don’t think that either party fully appreciates just how tenuous New Zealand’s energy security has become and how little time there is to address the problem.
The intention of both parties to pursue large scale offshore wind spells disaster for our small debt laden, primary producer nation. In the best case it will be very expensive energy which will drive up the cost of production for New Zealand businesses. In the worst case it will add complexity and ultimately fragility of our electricity system. Regular power outages could quickly become a reality for New Zealand businesses. This is not a recipe for success when your largest industry is competing for international markets against players still committed to cheap reliable energy sources.
Don’t get me wrong this is a significant improvement over the previous government’s incoherent fantasy land approach. I have faith that NACT will significantly improve the RMA and regulatory related issues.
I do however foresee that energy will become a key and potentially decisive issue that will plague this government over the coming term as grid fragility, gas supply issues and geopolitical tensions make the standard of living Kiwi’s aspire to even more tenuous.
NACT need to be proactive and focus on shoring up the grid as fast as possible, taking advice from realists like Brian Leyland. This is necessary for their political survival as there was a surprisingly large proportion of the electorate that voted Green and Red, despite their abysmal performance in the last term. The next election is only three years away.
Foot note:
As I write this I am sitting in Indonesia, a nearly 100% coal and gas fired nation, who have the much more realistic expectation to be 20.1% “renewable” by 2050.
Have a great day everyone!