The government’s proposed 100 percent renewable electricity target risks driving up power costs for relatively little emissions benefit, according to a study by business think tank The New Zealand Initiative .

The report – Switched on! – argues that renewable projects (hydro, geothermal, solar and wind) are on track to increase their share of power production to 95 percent within the next 20 years. But getting that last 5 percent from renewables could add $500 million to power costs. And that’s even if the government keeps some thermal power generation on hold as a backup in dry years, the study says.

Without that backup, power costs could go up by as much as $800 million. 

The think tank, which emerged from the 2012 merger of the Business Roundtable and the NZ Institute, says the government should instead rely on a strengthened emissions trading scheme to deliver carbon reductions at lowest cost.

“Policies like 100 percent renewables choose one part of one sector for emissions reduction without weighing the alternatives across the rest of the economy – an impossible task for policymakers when those alternatives can cost millions,” author Matt Burgess says in the 56-page report.

“New Zealand’s ETS has not been effective to date, but this reflects a watering down rather than any inherent problem with the mechanism. A stronger ETS will increase investment in renewables as well as in R&D, but getting there will require dealing with difficult problems, including leakage and whether and how to include agriculture.

“These problems are worth solving because the prize is huge: the ability to achieve any emissions target at a fraction of the cost of the policy alternative.”

The NZ Initiative report comes as the Interim Climate Change Committee is due to report back to the government next month on the ‘100 percent renewable generation by 2035’ target and options for including agriculture in the ETS.

The ICCC, a ministerial advisory committee set up by the government last year to explore transitioning to a net zero emissions economy by 2050, has previously said generation could be 93 percent renewable by 2035, but that pursuing the remainder would be a “big challenge” for relatively little emissions benefit.

Earlier this month, Shaw said the government would be willing to shift ground on the target if the committee felt there were better targets to pursue.

The NZ Initiative report also comes a day after the government announced new accounting rules for foresters intended to encourage more planting under the ETS. And it is two days after Climate Change Minister James Shaw rejected calls from the Parliamentary Commissioner for the Environment for limits on the use of planting to offset emissions and a zero gross emissions target for transport and industry.

Meridian Energy chief executive Neal Barclay yesterday said renewable electricity can remove up to 90 percent of the country’s non-agricultural emissions. But he said tree planting – even plantation forests harvested within 30 years – will still be needed.

“The reality is that tree planting buys us time while the solutions to electrify other systems become cheaper,” Barclay said in a statement.

The reaction to the PCE’s report – “Farms, forests and fossil fuels” – shows the challenge the coalition government faces. Federated Farmers endorsed the science-backed approach the PCE took; Greenpeace accused the PCE of being influenced by the ‘dirty’ dairy industry and fertiliser producers.

The New Zealand Initiative said it’s not good enough for politicians to say the high ETS prices needed to cut emissions are politically infeasible without even trying to make them work.

Voters’ objections probably depend as much on certainty, sufficient warning, policy credibility, access to compensation, and fairness as they do on the actual price level.

Top of the list for building support for the ETS should be a commitment that revenue raised through it will be used to reduce taxes elsewhere.

“The 2010 tax switch, which paired a GST increase with an offsetting reduction in income  taxes, was received with only muted opposition.”

Genesis Energy earlier this month said its biggest gas-fired power station could stop year-round operation within five years. That change, a wind farm the firm plans at Waverley and other plant retirements in the sector could get generation to 90 percent renewable within six years.

Yesterday, Mercury NZ said it would start building a 119 MW wind farm at its Turitea site south-east of Palmerston North in August. Commissioning is expected to start in late 2020.

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