Analysis: A $200 million fund to cut public sector emissions from fossil fuel power has received a poor return on investment, Marc Daalder reports

On Wednesday, Prime Minister Jacinda Ardern announced a $70 million fund to help reduce emissions from coal- and gas-fired boilers owned by industry and businesses, but a similar fund to electrify boilers in the public sector has done little to cut greenhouse gases.

The State Sector Decarbonisation Programme was a $200m pot of money announced as part of the New Zealand Upgrade Programme in January. It was meant to replace fossil fuel power sources in the public sector, like coal- and gas-fired boilers in schools and hospitals.

“Many of our schools have old, dirty, climate-polluting boilers that in most cases were installed in the 1950s and 1960s. Because of our support, current and future generations of kids will be kept warm at school by clean energy as we help them upgrade to using biomass instead of coal,” Climate Change Minister James Shaw said at the time.

New fund similar to public sector version

The new fund, the Government Investment in Decarbonisating Industry (GIDI) Fund, is based on the same model as the public sector programme. It also targets emissions from process heat – that is, energy used by industry and businesses to create heat for manufacturing, processing and warming spaces.

“Reducing greenhouse gas emissions from process heat is win-win for our climate and our recovery,” Ardern said on Wednesday.

“The new fund will target New Zealand’s largest energy users to accelerate their uptake of electrification and other technologies that will dramatically lower emissions from this sector, and create clean energy jobs,” Energy Minister Megan Woods said.

“We welcome [the fund], but it’s very incremental at a time that we need to be transformational.”

Amanda Larsson, a climate and energy campaigner with Greenpeace New Zealand, welcomed the new policy.

“I think it’s a good thing for the Government to be incentivising a shift away from high-carbon infrastructure to clean energy,” she told Newsroom. She also called for greater ambition in fighting climate change.

“Looking at it in the context of the Covid recovery and the multi-billion-dollar budget that’s available for infrastructure, this is pretty small potatoes. We welcome it, but it’s very incremental at a time that we need to be transformational.”

Just 26,000 tonnes

However, the public sector version of the programme has failed to significantly reduce emissions. According to a spokesperson for Woods, $80m has already been allocated. All of this spending is expected to lead to annual emissions reductions of just 26,000 tonnes.

For context, New Zealand emits 78.9 million tonnes of greenhouse gases in any given year. Around 8.3 million tonnes come from process heat.

This means the $80m spent so far to reduce public sector process heat emissions represents just 0.03 percent of the country’s emissions and 0.31 percent of process heat emissions, at an abatement cost of $3077 per tonne of emissions saved.

A spokesperson from Woods’ office contested this portrayal, saying that the abatement cost should be calculated over the expected lifespan of the new electric or biomass boilers.

“The lifetimes of projects will vary, but the most significant (e.g. large boilers) will likely be in place for 15 to 20 years or more. This means the total lifetime emissions savings of the projects allocated funding will be much higher than the annual figure,” the spokesperson said.

“As these projects progress, regular reporting on the programme will begin to capture this information more accurately.”

On an average project lifetime of 20 years, the abatement cost would come down to $250 a tonne, the spokesperson said.

However, they also noted that – with the exception of school boilers – the conversions and replacements were only part-funded by the State Sector Decarbonisation Programme. The remainder comes from the partner agencies, leading to a higher overall abatement figure.

Bigger gains possible from dairy

Ministry for the Environment report in January found wide-ranging opportunities for abatement of process heat at a much lower cost than the State Sector Decarbonisation Programme’s. There were also significantly more emissions available to be abated than the 26,000 tonnes.

Dairy processing, for example, could reduce close to half a million tonnes at a negative cost – processors would save money. Another 615,000 tonnes could be abated through swapping fossil fuel boilers to biomass ones at a cost of up to $110 per tonne or to electric boilers at a cost of $250 a tonne.

The analysis also found plenty of opportunities for cheap abatement of emissions from residential and commercial space and water heating. Just about every LPG-powered space or water heater in the country could be replaced at a negative abatement cost, for example. Even existing gas space heaters in commercial buildings could be electrified for about $355 a tonne, reducing emissions by 300,000 tonnes.

“What we are expecting to see from the Ardern government very soon is a much more ambitious decarbonisation plan that looks across sectors,” Larsson said.

“26,000 tonnes doesn’t sound impressive in the context of the scale of our annual emissions. I think it just goes to show that these kinds of initiatives, while they’re good steps in the right direction, aren’t incredibly impressive announcements on their own.”

Marc Daalder is a senior political reporter based in Wellington who covers climate change, health, energy and violent extremism. Twitter/Bluesky: @marcdaalder

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