The international investors that control many of our significant industries won’t wait while we spend years imagining up perfect policy forms for action. They have better options in other countries.
ANALYSIS: Minister for Climate Change James Shaw says the Climate Change Commission’s “blueprint” for a net-zero carbon economy pathway is the only game in town.
But a net-zero target that ignores imported carbon is conceptually dishonest.And unless the Government shows far greater ambition for this country’s manufacturing exporters, the Commission’s combination of rising carbon prices and reduced protection for trade-exposed, energy-intensive industry will cause closures and job losses.
“Once closed, it would be difficult to get these industries back again. Reducing production and closing industries would have significant flow-on effects to jobs, broader society and the economy.”
– Climate Change Commission
It is encouraging the Commission listened to submitters and tweaked its earlier advice – including a belated recognition of the critical role that “fossil” gas and methanol-maker Methanex plays in the country’s energy system.
It’s also reassuring to know it still favours lowest cost options first and those that “reduce gross greenhouse emissions rather than reducing production.”
But instead of providing firm guidance to the Government on heavy industry, the Commission still seems conflicted.
Valuable industries
It says it “made clearer the need to identify and decarbonise industry that is strategically important to the Aotearoa economy.”
But aren’t all major export-earners “strategically” important to the economy? And why would the Commission highlight Golden Bay Cement and NZ Steel – but not Methanex – among hard-to-abate industries that may need protection?
“Acting too quickly could see some of these industries close before strategic decisions can be made,” it says. “Once closed, it would be difficult to get these industries back again. Reducing production and closing industries would have significant flow-on effects to jobs, broader society and the economy.”
The Commission says industrial allocation – granting free emission credits to trade-exposed firms – is an effective tool for preventing emission leakage.
But when considering agriculture’s eventual entry to the scheme it urges the phase-out of production-based free allocation, saying it is “not compatible with deep decarbonisation.”
Nor does it show any apparent urgency to develop potential alternatives such as product standards, consumption taxes and border carbon adjustments on imports, all of which “come with challenges.”
Border carbon adjustments planned by the EU and being considered by the US may not be compatible with international trade law, it fudges.
“This means that they are likely to be potential options for the longer term, rather than implemented as replacements for industrial allocation in the near future.”
Hardly reassuring.
Tougher NZ rules, lost industries
New Zealand has been on a decarbonisation journey for 20 years. If we have learned nothing else in that time it is that the international investors that control many of our significant industries will act when they need to.
They won’t wait while we spend years imagining up perfect policy forms for action. And they increasingly have better options in other countries where governments are throwing vast sums of money at manufacturers wanting to adopt new technologies to reduce their emission profiles.
The Commission earnestly says the Government will need to work with businesses here on long-term plans.
But our recent performance has tended toward indifference and sometimes outright hostility, to the detriment of emissions.
Global cement giant Holcim – for its own strategic reasons – opted in 2013 not to advance a consented, $500 million world-class plant it had planned near Oamaru to replace its ageing Westport facility.
Instead, we lost 120-odd jobs at Westport and the ability to dispose of spent cell liner from the Tiwai Point smelter. The imports that meet almost half our cement needs now come with about 20 per cent more emissions than locally produced material, according to rival Golden Bay.
In 2018, after the Government banned new offshore gas exploration without warning, Methanex planned a potential $100 million investment to capture and re-use more CO2 at its Motunui facility.
In April, 70 jobs were lost when the company shut its Waitara Valley plant indefinitely due to gas shortages. No emissions were saved as demand will be met elsewhere, in an industry where about a third of the global production comes from higher-emitting coal.
Bathurst Resources’ Canterbury coal mine will shut this month, made uneconomic by the consent demands of Environment Canterbury and Selwyn District Council. About 30 roles will be lost and emissions will increase as the next nearest mine to supply Fonterra’s Darfield plant is more than 200 kilometres further away.
We seem ambivalent about the 2024 closure of the Tiwai Point smelter – one of the world’s lower-carbon aluminium producers – for the loss of more than 2000 Southland jobs and no global climate benefit.
And later this year shareholders of Refining NZ will vote on a plan to stop processing at Marsden Point and convert the site to an import-only terminal as soon as mid-2022.
We will lose hundreds of jobs and the opportunity to make fuel – particularly the diesel and jet fuel we will need for another 20 years – with renewable hydrogen. Instead, we’ll import it all.
Time will tell whether we deliver on talk about a potential biofuel facility at Marsden Point. The Government to date has been silent on the emissions impact of the closure.
Possible solutions
It’s a bit cute for the Commission, having focused on gross emission reductions, rejected import controls and called for an end to free allocation, to say that it’s now up to Government to decide how to protect firms like NZ Steel.
At the same time, it wants the cap on emission auction prices raised as soon as possible from $50 to $70, and its modelling assumes carbon prices climb from $40 now to $160 by 2035 and $250 by 2050.
World Bank data published last month shows that only about a fifth of the world’s emissions are being priced, at an average to date of about US$7 a tonne. Across all emissions that averages to about US$1.50.
The Commission knows there is no climate benefit from shutting domestic production prematurely when there are options to decarbonise. That will simply export emissions rather than reduce them and destroy jobs and incomes long term.
It’s not all bad news. In 2017, the Ministry for the Environment put money into the tyre-waste fuel facility Golden Bay commissioned earlier this year to help reduce its coal use.
And the Energy Efficiency and Conservation Authority has just funded a bunch of industrial projects cutting about 500,000 tonnes of emissions annually at a cost to the Crown of less than $10 a tonne.
The Government – after almost four years in office – has also finally introduced a feebate scheme to try and speed the take-up of electric vehicles.
The Government and the Climate Change Commission say there are big opportunities for business to develop new low-emission operations here, such as the $600 million investment being scoped for Oji Fibre Solutions’ Kinleith operation.
But will the Government act to deliver genuine decarbonisation, or will it repeat the past four years of time-wasting and distracting environmental grandstanding?
Remember the offshore exploration ban; the unlawful attempt to halt expansion of the Waihi gold mine; the still-unresolved ‘ban’ on new mines on Conservation land; and the $4 billion Onslow pumped hydro proposal?
Why isn’t the Government already talking to Methanex about its long-term options here, instead of just working to choke off its current feedstock?
Demand for methanol – increasingly being used as a low-particulate industrial and shipping fuel – is growing. About 5 per cent of global production goes into biodiesel, a product we say we want to produce more of.
Methanex also has a stake in Iceland’s Carbon Recycling International, which makes renewable methanol from industrial waste gases and is now building plants in China and Norway to capture emissions from steelmakers and silicon producers.
Could that work here? I don’t know, but surely it’s worth asking.
“Environmentally and socially sustainable jobs, a productive economy and the wellbeing of the people who live here are vital for future generations and sustainable prosperity over the long term.”
– Climate Change Commission
Where will councils and government agencies stand if Golden Bay, Holcim and others advance investigations to mine the country’s silica and diatomite resources to make low-emission cement?
Which Ministry for the Environment will turn up? The one that backed chipped tyres for emission reduction, or the one that never once mentioned international emission leakage in its recent consultation on reducing process heat emissions?
The Commission knows there is no climate benefit from shutting domestic production prematurely when there are options to decarbonise. That will simply export emissions rather than reduce them and destroy jobs and incomes long term.
“It would also reduce our resilience and ability to put in place solutions to make continual and lasting emissions reductions. Environmentally and socially sustainable jobs, a productive economy and the wellbeing of the people who live here are vital for future generations and sustainable prosperity over the long term,” the Commission says on page 91 of its final advice.
Let’s hope Cabinet got that far.
Journalist Gavin Evans has written about the NZ energy sector for more than 25 years. He is group editor of Freeman Media, publisher of Energy News.
