<i>The fossil fools </i>

01:43, Jan 31 2009

Business lobby groups are blowing their last vestige of credibility in their flat-earth rejection of the government's energy and climate change policies.

They seem to occupy a parallel universe totally divorced from world reality, judging by their open letter to government last Wednesday.

You would think the raft of game-changing factors businesses overseas are grappling with would have had some impact on their thinking. For starters they might have stopped for a minute to consider, for example:

Companies overseas are responding constructively to such energy and climate issues because they want to remain in business. Indeed, major insurance companies make it quite clear to them that their director and officer liability cover would be in jeopardy if they don't.

Moreover, institutional shareholders, particularly in the US and Europe, are riding boards hard on these issues in order to help protect the value and future of their companies. Oh, for such rigour in New Zealand.

If our business lobbyists were sensible, they would push the government to act fast and effectively on a great competitive advantage the country has: by capitalising on our extensive sources of renewable energy, we can quickly uncouple the cost of our electricity from the fast-rising cost of fossil fuels and carbon. And in decades to come we could also start to do the same for our land transport too.


Fortunately, in the absence of any constructive engagement by business, the government has been doing the thinking for them. Roughly speaking, we need to add about 150MW of electricity generation per year to meet rising demand and retirement of elderly plants. Handily, a total of 720MW of wind, geothermal and hydro has received RMA consents and is either being built or will be soon.

In addition, a further 2800MW or so of renewables are in the consent process or in design and development phase prior to consent applications. And there is abundant resource on top of that. All up, we could increase our hydro generation by 25%, our geothermal four-fold and wind power 15-fold, which in total would allow us to generate twice as much electricity as we do now.

And at an economic price, according to analysis by the Ministry of Economic Development in the New Zealand Energy Strategy launched by the government 10 days ago. That abundant renewable resource could deliver electricity at a wholesale price of less than 9c per kw/h.

By comparison, the current wholesale price is around 7.5c. The only way business lobbyists can argue that prices would stay so low, thus making renewables uneconomic, is by claiming fossil fuel prices worldwide won't rise and that this and other responsible countries won't impose carbon charges.

If that's what they believe, they should be ashamed of their ignorance, naivety or deeply dishonest manipulation of the truth. And the businesses that support the lobby groups should cancel their membership in droves. The people who claim to represent their best interests are trashing the opportunity to insulate them from the rising world price of carbon and fossil fuels, at least for electricity.

In addition to the issue of price of renewable electricity, the lobbyists also bang on about security of supply. Yes, renewables pose some challenges because of the variability of wind and rain, counterbalanced in part by the reliability of geothermal.

But the solution is easy and two-fold. First, the government is perfectly happy to allow the building of some quick-start gas-powered generators to meet peak demands. It is opposed only to building any new fossil fuel plants over the next 10 years to meet base loads, and with good reason given the renewable potential.

Second is to make the national grid flexible, reliable and high capacity. The Energy Strategy reckons we need to spend $500m a year for the next five years to do so. An investment of $2.5 billion, or closer to $3 billion as some industry executives believe, is a bargain for the benefits it would deliver. And that's an increase from only $300m in the 2006/07 year, although it is a jump from the $100m a year in the previous decade of grid neglect.

There is, however, one large obstacle the government has to clear if we are to build the renewable generation and transmission lines we need over the next decade. That's the RMA consent process and the long delays it can cause.

The government says it will use a national policy statement and its call-in powers to take critical power projects out of the hands of local government. That will help, but the government needs to find additional mechanisms to give the electricity industry much greater certainty that projects that are sound in environmental and economic terms will get approval in a timely, predictable fashion.

Efficiency is the second part of the government's Energy Strategy and on this, business lobbyists are equally lacking in credibility.

Every megawatt of electricity we save is one less we need to supply from a new generator. The scope is enormous. The OECD reckons its members can achieve half their needed reduction in carbon emissions over the next 30 years by using energy more efficiently.

California has shown the way. It has kept its per capita electricity consumption flat for 30 years thanks to good building codes, other efficiency measures and, in recent years, a determination to build no new fossil fuel plants.

New Zealand's record on efficiency is awful. On average, OECD countries improve their energy efficiency by 0.7% a year, but we barely manage 0.4%.

From 2001-05, the government's first attempt at an efficiency strategy was modest indeed. Armed with only voluntary measures and tiny financial incentives it saved just small amounts of electricity.

The new strategy, driven by Jeanette Fitzsimons, the Green Party co-leader and the government's spokeswoman on energy efficiency, was unveiled with the Energy Strategy 10 days ago. It is a vast improvement in terms of its willingness to use standards, regulations and a range of economically justified incentive schemes to change people's behaviour and the technology they use.

And there's missionary work to be done because, once again, it is business that is a major part of the problem. Almost 46% of New Zealand companies have failed to set themselves any energy efficiency improvement targets, compared to 30% of Australian companies, according to a recent Australasian survey by Proudfoot Consulting.

It is this lack of economic and business sense that best explains why business lobbyists are hell-bent on playing the political card on climate change and energy. For the sake of themselves and the country, they should switch to doing business well rather than politics badly.

Sunday Star Times