An inquiry investigating how New Zealand tackles its climate change problems today begins considering submissions discussing how we best move towards a low emissions economy.
Reporter Teuila Fuatai challenges Contact Energy on its position at the table.
Using the market to sort out New Zealand’s slack climate change policies is a concept I’d normally roll my eyes at.
So when Contact Energy’s submission to the Low Emissions Economy Inquiry made it to my inbox, I did just that, and at a carefully calculated attention level of 57 percent, began leafing through the two-sided, 19-page printed version.
“We believe in market mechanisms and their ability to drive the best outcomes,” the submission said.
“However, we believe the ETS [Emissions Trading Scheme] must be strengthened, the cap and transitional period removed, and the ETS’s initial ambition to cover all sectors and all gases, realised.”
Doesn’t this contradict the previous sentence?
Many page-turns later, and squinting at a rate I can barely read, a call from Contact chief executive Dennis Barnes pops up. Barnes, it seems, is on the line to reconcile exactly what Contact are talking about in these 19 pages….
Teuila: Hi Dennis. Please explain what the ETS cap is and the transitional period?
Dennis: The current ETS has a $25 per tonne cap. At the moment, you don’t have to surrender one emission unit for every tonne – it is at 67 percent. While it is in the process of transitioning to one-for-one, it will always be capped at $25.
Teuila: What would Contact like to see?
Dennis: We believe the aim of the ETS is to change behaviour – it is supposed to get people to stop burning fossil fuels and use renewable sources, and at $25 per tonne, it just isn’t enough. As it is, the scheme – which does not include all sectors and gases (agriculture, responsible for about 50 percent of carbon emissions, is exempt), is a bit muted. If you make it bigger, that may impact behaviour and get people to re-invest in renewable energy sources.
Teuila: As one of the big players in New Zealand’s energy industry, how much do you think should be charged per tonne?
Dennis: It depends on the thing you are trying to change. If I take the example that New Zealand still has a coal-fired power station despite abundant renewable energy resources, the $25 per tonne price would have to double to make a significant economic impact on the station. The scheme doesn’t work the way it should because the market is capped and small.
Teuila: Fonterra is one of Contact’s biggest customers. Would you ever consider placing restrictions on the co-op or some of your other heavy emission-producing customers?
Dennis: It is highly unlikely we would ever criticise a customer for not using fully-renewable energy sources, particularly as Contact has some gas-fired power stations. What we would do is help customers understand what it means to be renewable. Overall, New Zealand is already running on 85 percent renewable electricity. We think it is also essential to change the remaining 15 percent. For example, there are a number of coal-fired boilers used to dry milk, as well as numerous business processes which use coal – we want to demonstrate to what it would be like if those places used renewable energy.
Teuila: But wouldn’t it be quite spectacular if Contact took a stand against businesses refusing to use alternative energy options?
Dennis: We believe lowering emissions is achievable in an economic way. It is not our place to say: ‘we’re going renewable and you should too, so we’re not going to sell to you’. The productivity commission, which is part of this inquiry, should look at what good planning and good coordination could do. You’ve still got to be economic – if you were to force things on businesses then it might not get a great reaction.
Teuila: Where do we sit internationally?
Dennis: If you look at New Zealand’s opportunity relative to the rest of the world, where there’s been large, disruptive schemes and subsidies that have destabilised some parts of the economy – New Zealand has managed to make the market work to deliver a product with the current confines of the ETS quite well. That’s what we want – make the scheme bigger and have coordination around policy formation.
Teuila: Mentioned in the submission is the cost of connecting isolated boilers to the main transmission grid. How much would that cost?
Dennis: I don’t have the exact costs, but it’s more about planning ahead so that the cost of connecting off-line boilers to the national transmission grid – owned by Transpower – is considered. At the moment, if you convert a coal boiler to an electric boiler, and the grid didn’t have the capacity to handle that electricity, then the power company foots the bill for the connection. A couple of years ago, we built a new geothermal power station in Taupo, and we paid for the grid connection, but because it’s a big power station and part of our core business, that cost was considered in the early planning stages for Contact.
However, it doesn’t always work this way. Any regions which currently have coal-fired business processes will at some point need to consider how much it costs to convert boilers. Energy policies should be viewed through a low-carbon perspective, incorporating these types of changes, and the impact this has on the ETS.