Whether pumping petrol or fouling streams, sometimes environmental regulations make it just seem easier to go with the flow

Opinion: This is a column about two seemingly unconnected stories – fossil fuels (Z Energy), and freshwater (reforms). Yet, they share a common characteristic – bad economics trump good environmental outcomes.

That’s old news, akin to dog bites man. But familiarity rarely provides insights, even in a small country like ours where our small scale and close connections should help us understand what’s going on. They don’t, though, because the game’s played well out of sight.

Which is why the Environmental Defence Society’s new report on our long and tortuous history of freshwater reforms is so vital. It explores in depth how a narrow economic agenda undermined environmental science and thus effective water regulation for years – and still does.

“We found that current regulatory direction ensures economic matters are prioritised over environmental ones and can prevent good science-driven outcomes,” write Dr Deidre Koolen-Bourke and Raewyn Peart, respectively a senior policy researcher and the policy director at the society.

The report was funded through the Our Land and Water National Science Challenge. “The objective is to ensure that environmental policy-making in Aotearoa New Zealand is more strongly evidence-based and therefore more effective in achieving positive outcomes for the country,” the authors write.

For their report, they have dived deeply into the murky waters of how the National Policy Statement on Freshwater was produced in 2000, and into its aftermath.

The Science and Technology Advisory Group involved in the policy statement process strongly and almost unanimously advocated for a stringent limit on dissolved nitrogen in water, a pollutant, mainly from farming, which is toxic to aquatic life.

But the proposal was strongly opposed by farming sector groups, the Ministry for Primary Industries, and regional councils. And reforms outcome today still reflects that.

The authors interviewed 35 of the people who participated in the policy statement process. Their concerns included conflicts of interest, excessive sector and stakeholder influence, contractual confidentiality, efforts to discredit the science, and science advocates’ fears for their careers and funding.

All of the above factors are classic weaknesses of a small country. We lack diversity of empowered and credible voices; and we lack businesses and sources of capital big, bold and capable enough to break free from the status quo to deliver a better future.

Hence, we let bad short-term economics trump good environmental outcomes. As we’re seeing with Z Energy, our largest supplier of fossil fuels, and our second largest supplier of greenhouse gas emissions after Fonterra.

Since its creation 12 years ago out of the New Zealand assets of Shell, the multinational fossil fuel supplier, Z has espoused environmental and climate ambitions, all wrapped up in its newfound Kiwi-ness.

But it has seriously under-delivered on those goals; and has reverted to foreign ownership, thanks to its takeover by Ampol of Australia in May.

Z is a classic example of bad short-term economics delivering bad environmental outcomes. By focusing on very short-term gains, it is hobbling its future and the country’s. By, for example, closing down the Marsden Point refinery and its moth-balled biodiesel plant, Z is making us more dependent on imported fossil fuels rather than less.

Yet it still advertises widely that it is leading the transition to clean transport fuels.

Its latest snippet of news this week is further evidence of its weakness of will and strategy. Ampol, its new Australian owner, announced Z was selling 51 freehold properties to an unlisted property trust. Z will own 51 percent of the trust and Charter Hall Retail REIT, an Australian company, will buy 49 percent.

It’s a very good deal for the new entity. Its paying $132 million for properties with an inferred portfolio valuation of $269m. Z will then pay rent on the properties.

Redeploying capital can be a savvy strategy if it helps a company invest in its future. Z, for example, could become an instigator of, and a major shareholder in, a consortium that builds a plant here to produce Sustainable Aviation Fuel from the likes of forest harvest waste.

The economics of these look quite different from conventional fossil fuel refineries. Plants built close to their diverse sources of feedstock will likely be competitive against supplies shipped long distances from mega-oil refineries.

But Ampol says it will use the real estate proceeds for “general corporate purposes.” It won’t say what that means. Here’s an example, though, from its playbook in Australia. Last August it pocketed A$635m from selling 49 percent of its property trust to investors which included Charter Hall, the real estate company buying 51 percent of the Z property portfolio.

Then in November, Ampol used A$300m of the proceeds to buy back some of its shares. This gave the share price a short lift. But currently the shares are still below their all-time high set in 2015, despite the current windfall oil industry profits worldwide.

This April, Z launched its latest brand campaign. “Moving with the times to get out of the petrol business” was the headline on its press release.

“Z’s new campaign is an opportunity to celebrate the diversity of the country in which we operate, and for us to lean into the tough conversations we need to have to achieve a low carbon Aotearoa – showing all New Zealanders how Z is moving with the times,” said Z’s general manager of retail, Andy Baird, in the press release.

Yep, a real estate play sure does move with the times. But not the climate times.

So, what’s a Z customer to do? Most of us will need petrol or diesel for a long while yet. Best then to spend our money with the fossil fuel company that puts its money where its mouth is on investing in clean energy.

Over the past decade, a fair few people have asked me which of the oil companies here in New Zealand is the best at that. Well, I said, they range from deeply opposed to climate action (ExxonMobil) to talking big while tinkering around the edges (Z). But at least Z is New Zealand owned so a bit more of the value of the business you give them sticks to the ribs of the New Zealand economy.

But neither condition applies to Z today. Its Australian owners are taking capital out of the country via this real estate deal, rather than investing in it; and BP is at least investing a bit in clean energy globally whereas ExxonMobil isn’t, as this chart from REN21 shows, backed by this withering analysis.

Spending on renewable energy vs total capital expenditure

Note: Oil and gas companies do not explicitly report on renewably energy spending in their financial statements – Eni was the only company to do so in 2020. Equinor, Chevron, BP and ExxonMobil all conflate renewable spending with environmental or low-carbon spending in general. Total and Shell conflate renewable spending with spending on power generation, including fossil-based generation. Source: Renewables 2021 Global Status Report

Oh, and BP sells good coffee too, going toe-to-toe with Z. After all, being market leader in convenience store revenues is Z’s declared number strategy for its clean fuel future.

Come on Z. Stump up. Or shut up.

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