Reducing emissions from the country’s heavy industry without using natural gas or a coal-biomass blend appears prohibitively expensive, based on analysis by Vivid Economics.

Using forestry to absorb emissions from hard-to-treat sectors like industrial heat, dry-year power generation and long-haul trucking, could raise energy costs by about $3.8 billion to $4.6 billion a year, or $1,700 per household, the London-based consultancy says.

But if less planting is achieved than assumed in the Productivity Commission’s report on meeting the country’s 2050 net-zero carbon goal – and electricity or hydrogen has to be used to directly reduce emissions – that cost could climb to $6.2 billion to $7.2 billion – or $2,700 per household annually.

One of the biggest contributors to that jump is the cost of alternative high-heat options for industry.

“Only 5 percent of industry heat is provided by electricity, indicating the high cost and technical immaturity of this solution,” Vivid said. “Currently, high-temperature heat pumps have an operational range of 80 – 150°C; while this is improving, the potential to cover high-grade heat processes is uncertain.

“The evidence on other technologies – hydrogen, resistive heating, induction heating and plasma torches – is currently poor, and costs are expected to be high.”

Heavy industry accounts for about 15 percent of the country’s emissions. Food processing, including dairy and meat processing, is heavily reliant on hot water and steam and accounted for about a third of the almost 9 percent of emissions that came from manufacturing in 2016, according to government data.

Synlait Milk is aiming to commission a 6 MW electrode boiler at its Dunsandel plant next month to reduce its reliance on coal. But at Pokeno, south-east of Pukekohe, it will use gas in the plant it is building there.

Fonterra is trialling a coal-wood blend at its Brightwater plant near Nelson but plans to install high-temperature heat pumps at its Stirling cheese plant near Balclutha to displace about 9,700 tonnes of coal a year.

Azwood Energy is perplexed by the government encouraging electrification of process heat when it says wood is readily available, cheaper and would not add additional load on the national grid.

General manager Brook Brewerton said work by forestry research institute Scion indicated the country’s wood residues could displace as much as 70 percent of the country’s coal demand and reduce emissions by 1.1 million tonnes per year.

“The Scion data is fantastic, it shows there is about 50 petajoules of energy going to waste,” he said. “If large energy users are willing to pay half of what they would for electricity per gigajoule – Azwood Energy could double the recoverability of biomass.”

Mataura Valley Milk general manager Bernard May said customers are demanding more sustainable products and the dairy industry will have to adapt its energy supplies.

On the South Island, where the government has banned exploration for gas, that will mean switching to biomass, but more effort is needed to establish consistent, long-term supplies, he said.

The company, which already uses electric fork hoists and won’t allow suppliers to use palm kernel as feed next season, this year commissioned a coal-fired boiler that can be converted for biomass further down the track.

But May noted the conversion might still cost a further $5 million, and the company can’t make that commitment until it can get a 10-year fuel contract to back it.

“I’m sure it will be. We have to become more sustainable,” he told BusinessDesk last week.

The Vivid study was commissioned by gas distributors First Gas and Powerco to test the role of gas in a low-carbon economy, including options for hydrogen blending to reduce emissions and large-scale hydrogen and biogas production as a complete replacement.

It took as a given that increasing wind and solar electricity could underpin large-scale electrification of light transport and low-heat energy use in industry. It then modelled what it would cost to meet the net-zero target if only 2.3 million hectares of forest was planted, compared with the 2.8 million assumed by the Productivity Commission.

Vivid found that using high-temperature heat pumps and resistive electric heating to reduce emissions from intermediate to high heat processing could cost between $200 and $700 for each tonne of CO2 avoided. And that figure was before any cost of upgraded transmission and distribution was allowed for.

Using hydrogen instead would cost between $130/MW and $160/MW in 2050 – roughly twice the cost of gas, even after applying a $200 a tonne carbon tax.

“Overall, total costs of generating heat with hydrogen are significantly higher than with gas, and would need a carbon price of around $450 – $600/tCO2 to be economic without subsidy.”

Vivid recommended policymakers look closely at what can actually be achieved with afforestation. If that can be done at large-scale and low cost, the country could then look at continuing use of gas for dry-year generation and industrial heat.

If not, it said the country needs to understand the potential for hydrogen and electrification in those roles, and should also consider the potential of carbon capture and storage to enable lower-cost hydrogen production from gas.

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