low-emissions economy

Introduction

Here are some key points in the Productivity Commission’s Low-emissions economy report which were published in August 2018. The inquiry was initiated by the National Government and welcomed by the Coalition Government.

This summary is by no means comprehensive — there are whole sections of the Commission’s 620 page document which I haven’t yet looked at. However, what I have read is a fascinating glimpse into our low-emissions future. This is an incredibly important topic, as Murray Sherwin (the Chair of the Productivity Commission) says in his foreword:

“Being asked to advise on how New Zealand can best make the transition to a low emissions economy, while at the same time continuing to grow incomes and wellbeing, is perhaps the most profound and far-reaching mandate the Commission could be tasked with.”

I have limited myself to 29 points but this is a long website page!

Click here to download printable copy

 

 

1. Pathways to a low-emissions economy

  •  Policy driven
  • Disruptive decarbonisation
  • Stabilising decarbonisation

The Productivity Commission has considered three different ways New Zealand could become a low-emissions economy.

1. The ‘Policy Driven’ scenario assumes that technologies are slow to develop and reductions in emissions must rely on strong policy such as high emissions prices.

2. The ‘Disruptive Decarbonisation’ scenario assumes that technological change is fast, and it disrupts existing industries.

3. The ‘Stabilising Decarbonisation’ scenario assumes that technological change is also fast, but it reduces emissions in existing industries.

2. Scenario 1: Policy driven

  •  Increased emissions prices
  • Rapid expansion of forestry
  • Reduced animal agriculture

Technological change is slow under the Policy Driven scenario. Instead, strong policy action drives change, particularly a greater rise in emissions prices, to achieve the emissions targets.

High emissions prices stimulate a rapid expansion of the forestry sector (including policy to support native afforestation) and contraction of emissions-intensive animal agriculture. In the transport sector, the government provides further incentives to support public and active transport, and electric vehicles (EVs) enter the fleet at only a moderate pace since EV prices fall relatively slowly.

The Policy Driven pathway requires higher emissions prices in the short term to constrain emissions, but these prices grow at a slower rate to 2050.

3. Scenario 2: Disruptive decarbonisation

Rapid technological change disrupts current economic structures. Examples could include low cost renewable electricity and electric vehicles.
 
The Disruptive Decarbonisation scenario features rapid technological change that disrupts current economic structures, with new technologies and products creating new markets, destroying demand in traditional industries and accelerating turnover in capital assets.

A shift in global demand patterns supports the expansion of horticulture and reductions in dairy. Electric vehicles spread rapidly due to low costs, supportive policies and consumer preferences. The reduction in the cost of renewable generation is reflected in the closure of coal-fired generation capacity, and a reduction in baseload gas-fired generation capacity. It is assumed that aluminium and steel plants choose to close in response to expectations that global technological developments and market shifts will reduce demand for these products.

4. Scenario 3: Stabilising decarbonisation

Technological changes enable existing industries to stabilise. Examples could include methane vaccines, nitrogen inhibitors and fuel efficiency.

The Stabilising Decarbonisation scenario features rapid technological change that stabilises existing industry structures through the emergence of new mitigation options (such as methane vaccines and nitrogen inhibitors) that reduce the need for large shifts in economic activity.

Under this scenario, recent trends to convert land for dairy farming continue at a modest rate. In transport, efficiency improvements in internal combustion engine vehicles and slow reductions in battery costs result in much slower uptake of electric vehicles.

5. The good news

All three pathways are feasible. New Zealand can achieve both the emissions target of 25 MtCO2e and the more ambitious net-zero target by 2050 under each of the three pathways.

The differences between the three scenarios are profound and fundamental to New Zealand’s future as it seeks to transition to a low-emissions economy:

  • policy driven relies on emissions pricing and incentives to stimulate changes in land use and transport modes,
  • destabilising decarbonisation occurs if new technologies and products replace the status quo, and
  • stabilising decarbonisation occurs if technology is developed that modifies the status quo.

6. Energy transition

Widespread uptake of alternative energy sources relies on both:

  • the new sources being cheaper than traditional ones
  • innovation and major economies of scale related to the new energy sources.

​An energy transition will only be successful when the new energy source is cheaper than the incumbent energy source. But for these new energy sources to achieve widescale uptake, innovation and major economies of scale are needed so that they can then become price competitive enough to replace incumbents.

Therefore, policy that stimulates both the development of alternative energy sources and its broad uptake (such as emissions pricing that penalises emissions-intensive energy sources) is needed to achieve an accelerated transition.

7. Rising petrol prices

Fossil fuel prices are likely to increase. Rising emissions prices will play a role, but changes in oil price and exchange rates could have much larger effects.
This trend supports a low-emissions economy because transitions are about the decline of incumbent technologies and industries as much as the rise of new ones.

8. Range anxiety

If all service stations began to disappear at the same time, this could lead to ‘range anxiety’ becoming more of an issue for people still driving fossil-fuel vehicles.

This effect could encourage faster depreciation and turnover of existing fossil-fuel vehicles in the fleet, particularly if societal attitudes also shift against the use of fossil-fuel vehicles — similar to how views towards smoking have evolved.

9. Emissions pricing

Emissions prices will need to rise strongly from their current levels to achieve the 2050 targets. The estimated range of prices in 2050 is $75 to $250 a tonne of CO2e.
 
In November 2018, NZ Units were $25 per unit (as reported in Carbon News). The Productivity Commission’s modelling results suggest that New Zealand can substantially decarbonise its economy with higher emissions prices.

Early action to raise emissions prices will:

  • put New Zealand in the best position to achieve targets at lower cost over the following decades
  • achieve lower cumulative emissions to 2050
  • provide the most protection against high-carbon investments that lock in emissions for many years into the future
  • promote an early start to expanding forestry
  • create the space to devote a portion of new forestry to native species that grow and sequester carbon more slowly, yet will continue to absorb CO2 well after 2050.

10. Emissions trading scheme

While substantial changes are needed to the New Zealand Emissions Trading Scheme to effectively incentivise behaviour change, the basic architecture is already in place.

The Productivity Commission recommends reforming the New Zealand Emissions Trading Scheme by introducing biogenic methane into an emissions pricing system. Emissions pricing provides a strong incentive to reduce emissions at least cost.

11. Electricity demand

Electricity generation will need to increase by between 45% and 63% by 2050. This growth in demand is likely to be met through geothermal, wind and solar energy sources.
 
The costs of renewable generation have fallen sharply over recent years to become, in many cases, either cost-competitive with, or less costly than, fossil-fuelled generation. The costs for solar photovoltaic (PV) and onshore wind energy have been particularly noticeable.

12. Emerging technologies

Emerging technologies — such as solar PVs, batteries, EVs and smart appliances — will enable households to become active participants in the electricity market, rather than simply consumers.

For a successful transition to renewable energy, it will be important that electricity prices do not rise excessively and discourage fuel switching away from fossil fuel energy sources.
Artificial intelligence (like smart meters) are likely to play a role in helping to achieve a low-emissions electricity sector, particularly in combination with real-time pricing, so that users can reduce reliance on fossil-fuelled peaks in electricity demand. This is likely to be most visible in relation to charging of electric vehicles.

13. In demand skills

Increased electrification will create a need for electrical engineers, civil engineers, construction project managers and qualified electricians.
Gaining skills in these types of roles is likely to ensure you are in demand in future!

These occupations are listed on Immigration New Zealand’s long-term skill shortage list. To meet projected growth in the sector, further upskilling of the domestic workforce will be vital and needs to begin now to avoid workforce shortages. This is particularly important given the increased global demand for skilled labour in this area, meaning that New Zealand may be unable to look to other countries to meet gaps in the supply of skilled workers.

14. The NZ advantage

New Zealand’s electricity generation system is among the least emissions-intensive in the world.

The ability to produce an abundant supply of low-emissions and inexpensive electricity will be particularly valuable as the light vehicle fleet and parts of industry transition from fossil fuels to electricity.

15. Will your next car be electric?

Medium-sized EVs are likely to cost about the same as a fossil fuel vehicle by the mid-2020s.

Since EVs are also much cheaper to run – the equivalent to paying 30 cents a litre for petrol in today’s prices – and have lower maintenance costs, EVs would significantly undercut fossil-fuel vehicles on total cost of mobility. However, even with rapid growth in EV sales, the transition will take decades as many of us buy second hand cars.

16. Transport emissions

Nearly 20% of New Zealand’s emissions come from transport, and there is significant scope to reduce these.

Transport is New Zealand’s second largest source of greenhouse gas (GHG) emissions, and compared to other large emitting sources like agriculture and industrial heat, significant scope exists to mitigate transport emissions in the short term.

However, the average age of light vehicles in New Zealand increased from 11.8 years to 14.2 years between 2000 and 2016. Also, vehicles entering New Zealand’s fleet are more emissions-intensive (ie, have a poorer fuel economy) than in many other developed countries.

Our fleet’s fuel economy also reflects a preference in New Zealand for larger, heavier vehicles, which has increased in recent years.

17. Why not buy an electric car?

Barriers to buying EVs:

  • the upfront purchase cost
  • limited travel range, and range anxiety
  • lack of public awareness and understanding of EVs.

People tend to under-value the long term savings in running costs, given uncertainty about future fuel prices.

Policies in place to encourage EV uptake include enabling local authorities and the New Zealand Transport Agency (NZTA) to create bylaws allowing EVs to travel in special vehicle lanes, and a nationwide EV information campaign. Local government also plays a role in promoting EV uptake. For instance, Wellington City Council is trialling the deployment of residential, public charging stations.

18. Incentives scheme

Under a feebate scheme, the emissions of all vehicles (new and used) entering NZ would be assessed. High emissions vehicles would incur a fee, and lower emission vehicles would receive a rebate.
 
France introduced its feebate scheme in 2008 for new vehicles entering the fleet to reduce CO2 emissions. The system offers rebates of up to €7 000 to the purchase price of the lowest-emitting vehicles, and charges fees of up to €6 000 for the highest. The scheme has been largely successful.

19. EV charging

New Zealand currently has 114 public fast EV charging locations, with 18 more under construction. Close to 90% of the state highway network is within 75 km of a fast charger.
 
About 85% of New Zealanders have access to off-street parking, so can charge their vehicles at home. However, public charging infrastructure is still needed to enhance accessibility throughout the country, and to provide charging for households without access to off-street charging.

Most fast chargers in the network take roughly 25 minutes to provide 100 km of charge. ChargeNet, which is the dominant investor in charging infrastructure in New Zealand, is planning develop several charging stations over the next two years, including in the gap between Christchurch and Nelson and in Southland.

20. Mode shifting

An increase in public transport trips by 30%, cycling trips by 30% and walking trips by 100% over the next 20 years would only achieve a 1% reduction in light passenger emissions.
 
The Productivity Commission’s modelling shows that emissions reductions are not going to be a significant reason for investing in shifts to public and active transport. However, there are many other reasons to make these changes including improving road safety and accessibility, relieving congestion, and achieving gains in productivity.

21. Car-sharing

Ride- and car-sharing services and other technologies that enable ‘mobility-as-a-service’ has the potential to reduce vehicle ownership, travel demand and emissions.

The Government has given funding to two car-sharing projects through the Low Emission Vehicles Contestable Fund,: $500 000 to Yoogo — a fleet in Christchurch with 100 battery EVs; and $500 000 to Mevo — a fleet in Wellington with 50 battery EVs.

In addition, in 2017 NZTA (jointly with public and private partners) launched two pilot mobile applications for Queenstown and Auckland to connect individuals with different modes of mobility.

22. Land use changes

The scale of horticulture and forestry is likely to increase, and the number of sheep and beef farms is likely to decrease.

The area of land used for horticulture is assumed stable at 0.5 million hectares under the Stabilising Decarbonisation pathway (where technology is developed that modifies the status quo).

However, the scale of horticulture is assumed to double to 1 million hectares under the Policy Driven pathway (emissions pricing stimulates changes in land use) and to triple to 1.5 million hectares under the Destabilising Decarbonisation pathways (new technologies and products replace the status quo).

The overall levels of additional forest by 2050 ranges from 1.5 to 2.2 million hectares. In the long-run, a transition to a low-emissions economy will require a complete shift away from fossil fuels. However, over the next 30 years, the potential for significant afforestation in New Zealand allows for a more gradual transition, particularly in those parts of the economy where there are few low-cost options to reduce emissions.

23. Horticulture

Barriers to landowners moving to horticulture include:

  • uncertainty about hidden costs
  • limited availability of skilled labour
  • marketing and distribution logistics
  • access to financial support.

 
I can understand landowners being resistant to the change to horticultural land uses — this is a pretty imposing list of barriers! The benefits of automation are also likely to be a factor to take into account in this industry.

24. Forestry buys time but is not a permanent solution

Beyond 2050, there will be a point at which New Zealand can no longer rely on forestry sequestration to offset large volumes of emissions.

Because there are limits to how much forestry the country can sustain, forestry will only buy time. In the longer term, new approaches to bring net emissions to zero will be required. It is critical that emissions reductions in other parts of the economy continue alongside afforestation.

25. Carbon in harvested wood

The Government should provide recognition for carbon sequestered in harvested wood products.

I’m really pleased to see this comment included in the Productivity Commission’s report, as it seems that carbon is not lost to the atmosphere when forests are harvested and become wood products.

26. Automation

Rural areas are likely to be more heavily affected by automation than urban areas.

Infometrics estimates that rural areas will be heavily affected by automation — much more so than urban centres. In the context of long-term trends towards urbanisation, automation therefore presents a particular challenge to provincial areas.

27. Mid-life training

The current education and training system is not well set up to meet the needs of people seeking mid-career retraining.

One of the preconditions for a smooth decarbonisation of the overall economy is that the vocational education and training system adapt in a timely way to changing skill demands.

The ability of individuals to acquire new skills over their lifetimes is likely to take on greater importance, not just because of the economic changes resulting from climate change but wider technological advancements, such as automation. However, an OECD review in 2017 noted the training and career guidance system in New Zealand is heavily skewed towards “young people moving to the job market, while services available to guide adults in need of (re-)training are limited”.

28. Scanning for technology

New Zealand has no institution that scans internationally for new low-emissions technologies to import and adapt to help New Zealand transition to low emissions.

New Zealand is more of a knowledge taker than a knowledge maker. But being good at taking does not happen automatically. It requires similar capabilities to creating knowledge — technical and management skills, and the ability to tailor innovation to local conditions.

29. Low income households

Lower-income households are less able to make investments that enable them to reduce the emissions intensity of their consumption.

The Commission recommends targeted increases to tax credits and welfare benefits to help people transition to the low-emissions economy.

 

Click here to download printable copy

Your contribution was illustrated by the way you grappled with the dog control policy and bylaw. You remained committed to high quality community engagement through being professional, actively listening and seeking the best solution for our city. You have promoted and demonstrated personal leadership and positive attitudes.

Richard Johnson, Acting Chief Executive, Nelson City Council (October 2012)

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