Electricity (Renewable Preference) Repeal Bill

I move, That the Electricity (Renewable Preference) Repeal Bill be now read a first time. The previous Government inserted Part 6A into the Electricity Act 1992, making the connection of new thermal generation plant above 10 megawatts for which an exemption has not been granted a criminal offence punishable by fine. The provision is known widely as the thermal ban. Eligibility criteria and matters dealing with the exemption application process were to be dealt with, but those regulations have not yet been made. This bill repeals Part 6A of the Electricity Act 1992.

Let me first outline the circumstances in which Part 6A was added to the Electricity Act. The previous Minister of Energy, the Hon David Parker, added the thermal ban provisions to the bill that introduced the emissions trading scheme at the very last minute. The provision had not been signalled in advance and the industry was taken completely by surprise. The justification for the ban was written hurriedly into the explanatory note of the bill, and was somewhat deficient. At the select committee, the ban came under heavy criticism. All of the major electricity generators said they were opposed to it. Major lobby groups like the Major Electricity Users Group and the Business Council for Sustainable Development said the thermal ban should be dropped. However, the previous Minister remained wedded to the policy, and it became law with the passing of the emissions trading scheme bill in September of this year.

The current Government has listened to the experts, agrees with the criticism of the ban, and is now moving to repeal it. I will outline the specific reasons why the Government is repealing the thermal ban.

The first reason is that the ban was totally unnecessary as an intervention in the electricity market. National believes that investment decisions in the electricity sector should be made on the basis of sound economics, with environmental effects taken into account through a price on carbon, rather than through some decision being ruled out through the command and control style reflected by the ban. If a price is put on carbon, it will incentivise the uptake of renewable generation technology, because thermal generation will be subject to carbon charges while renewable generation will not. It therefore surprised us that the previous Government felt it necessary to advance the thermal ban. This raises two questions. The first is whether the previous Government ever had confidence in its emissions trading scheme, and I have to say that it looks to us that it did not. If the Government did have that confidence, that raises the second question, which is whether the ban is, in that case, just a bit of political symbolism. We think it is. Unfortunately, that symbolism has dangerous consequences.

That brings me to the second reason why the Government is repealing the ban: it puts security of electricity supply at risk. New Zealand’s electricity system relies on thermal generation. Coal and gas-fired plants generate about one-third of our electricity each year. Without those two fuels, the lights would not stay on. This was made clear to the whole country in this winter of 2008, as it has been in three winters since the year 2000. Gas and coal plant were at times supplying over 50 percent of New Zealand’s electricity needs, due to low hydro lake levels. Thermal generation, then, underpins the security of our electricity system, and the ban creates an unnecessary hurdle for this vital resource. New gas plants like the e3p plant at Huntly are highly efficient and produce relatively low levels of carbon emissions. The last Government was so keen to see the e3p plant built that it chose to underwrite the gas contract to ensure that the plant had the fuel. More important, thermal plants like e3p can run round the clock and produce large amounts of electricity. It is, then, in our view, foolish for New Zealand to close off the option of more plants like the e3p plant, if gas is available and the electricity system needs bolstering. Further, the Government will leave investment in new generation plants up to the industry, which is best placed to weigh up the capital and operating costs of new plant, and the availability of fuel into the future. What we are not doing is ruling out carte blanche the types of plants that might be built.

I do want to make it clear now that the Government does not expect the repeal of the thermal ban to lead to new coal-fired power stations being built. That was not the situation before the ban came into force, nor will it be the situation after it is repealed.

The third reason why the Government is repealing the ban is that it does not lead to environmentally sound outcomes. This is because the ban blocks investment in new generation that could displace more inefficient and more carbon-emitting existing generation. For example, the ban blocks the building of new, efficient gas turbines at the Huntly plant that could phase out the coal-fired turbines or return them to the reserve capacity for which they were originally built. So the ban, ironically, would have—should it have survived—ensured that for the foreseeable future Huntly’s coal-fired boilers would be fired up each winter to belch out very intensive carbon dioxide emissions. That, to us, makes no sense whatsoever. Newer thermal plants are very efficient. A modern combined-cycle gas plant like e3p emits just under half the volume of carbon dioxide per megawatt of energy produced compared with the Huntly plant when it is running on coal, and about 20 percent less compared with the Huntly plant when it is running on gas.

The fourth reason why the Government is repealing the ban is that it disincentivises oil and gas exploration in New Zealand. Already the ban, in the short time it has been in existence, is seeing some explorers and investors shy away from New Zealand. Under the current ban explorers have less opportunity to offset exploration risk and costs against potential gas sales. If New Zealand bans sales for new electricity generation, we are not likely to see the exploration that this country could do with. Repealing the ban removes the risks for the explorers.

As I said at the outset, the current Government has listened to the experts and agrees with the criticisms of the ban. This is why we are now moving to repeal it. To make it very, very clear exactly what our intentions are, let me say this: when we look at the emissions profile from electricity we see one glaring place where there is an extreme amount of emission, and that is the coal-fired plant at Huntly. We would note that there is a lot of renewable generation coming along. We are committed to the 90 percent renewable energy target, and we do want to see more of that renewable generation developed. The fact is that there are times when we do have low lake levels. There are times when the wind does not blow. At those times there is a heavy reliance placed on the thermal capacity that this country has. So our simple view of this is to ask why we would shut out a fuel like gas as a potential source for electricity generation in the future, when we know that even with much enhanced capacity in renewable generation there will be times when thermal generation is needed. During this winter it was about 50 percent of the time. It may drop during other winters, but I do not think anyone in this House would be comfortable about telling New Zealanders two things: first, that we are going to continue to burn coal at the rate we are, and, second, that should renewable generators have those little down patches, there is no thermal back-up for them.

The thermal ban was a piece of political symbolism and we are repealing it today. I commend the bill to the House.

I rise to oppose Electricity (Renewable Preference) Repeal Bill. It is bad legislation. We have already seen a bill thrust through under urgency that reverses the mandatory sales obligation for oil companies to start to include a small proportion of renewable fuels in the fuels they sell through the pump.

💬 Moana Mackey: Bad couple of weeks for the planet.

It has been a bad couple of weeks for the planet, as my colleague says.

I will reflect again on something I mentioned earlier when we were debating the last bill. Both National and Labour agree that human-induced climate change is real. We are not alone in that view; the Governments of the United States, China, Australia, and the whole of Europe have reached the same conclusion. Although it is true that some scientists disagree with that viewpoint, the vast majority of them think that human-induced climate change is a real and serious problem. We have freedom of speech. Sceptics will always be able to have their say, and they get more press coverage than they deserve because they are expressing a sometimes radical viewpoint in somewhat intemperate language and are willing to criticise other people who do not agree with their minority viewpoint as being dogmatic. None the less, they have freedom of speech.

If this Government has reached the view—as it says it has—that climate change is real, then it is incumbent upon Governments like those I mentioned and the previous Labour-led Government to actually do something to reduce emissions. That is the only way to deal with climate change. We have to reduce emissions so that they do not get worse.

In New Zealand’s case, half of our emissions come from agriculture and are quite hard to reduce. There are some emission-reduction technologies that are already economic, like nitrification inhibitors and the various ways in which we can be more prudent in the use of nitrogenous fertiliser. There are various other things that those in dairying can do to reduce emissions, like using stand-off pads in winter, etc. But, by and large, it is true that ruminants will still produce some greenhouse gas emissions, so it is difficult for New Zealand to control and reduce its agricultural emissions compared with how easy it is to do in some other sectors.

As we have said, the way to reduce emissions resulting from transport is a combination of improved efficiency of vehicle fleets, a modal shift into more efficient modes of transport so that, again, the fuel used goes further—for example, putting freight on to rail, using bigger trucks, or having more passenger transport, etc.—and then there is fuel substitution, be it electricity or biofuels, both of which will be important. Biofuels, of course, have been set back by the legislation the House has just unwisely pushed through on the votes of National and ACT

Outside transport, the other area that is the main source of energy-related emissions is electricity production. As the Hon Gerry Brownlee rightly said, about one-third of our emissions come from thermal electricity, and, as the Hon Nick Smith will no doubt say when he stands, until recently thermal electricity emissions have been going up in New Zealand. That has been a problem. That problem needs to be reversed by stopping those emissions from growing and getting them going in a different direction.

We heard Gerry Brownlee talk about the existing provision in the legislation. It does not ban new thermal power stations; it restricts them. I will come back to that in a second. That was, again, his exaggeration. One would think that there were no exemptions for security of supply, but there are. One would think from listening to him that one could not retire the Huntly power station and replace it with more carbon-efficient gas-fired power plants. That can be done under the existing legislation. What he said, though, was that it was unnecessary because this would be controlled through emissions pricing. This is the Government that has thrown the carbon market into disarray because it has said—

💬 Hon Dr Nick Smith: No, it hasn’t.

Dr Smith says it has not. There has been a loss of $300 million to $400 million of inward investment in the forest industry, as reported widely—

💬 Hon Dr Nick Smith: Dream on! Where’s the proof?

The proof is in the publications that have been put to the member by the investors, who said they were going to invest the money and are now not going to.

In addition to that, the carbon service industry, one of the world’s biggest players, was about to open an office in New Zealand—

💬 Hon Dr Nick Smith: Yeah, right!

It was; people from the industry were here to open it. They had come to New Zealand, then when National came out and said that it would suspend the operation of the emissions trading scheme, they packed their bags, left New Zealand, and did not do it. That too is on the record. The member might like to deny it, but it is true. The carbon market that the Government is saying will control the building of new gas-fired and coal-fired power stations does not yet exist. It is in disarray because of what that Government has already done. The Business Roundtable is out there saying that it wants a carbon tax. The National-led Government has said that it will look at that in the select committee. The Business Roundtable wanted the price of carbon at $5 a tonne—it would not make one iota of difference to that.

Another reason why a price on carbon itself will not cut the mustard is that gas in the ground is not worth anything to people. It has to be burnt to be of value. The price of gas in recent years has more than doubled. The gas companies could prune back the price of gas a little bit—it would not drop the price of electricity, because we know our renewable generators are already competitive with it—but they could undercut the costs of those renewable generators very easily, build a couple of gas-fired power stations, and close out the future of our renewable generation. They would close out the future of renewable generation in New Zealand, the country that has the most cost-competitive renewable electricity choices in the world—in the world!

New Zealand is turning its back on making that a reality. It leaves open the possibility that gas companies will come along—these guys have very big pockets—and decide to build their own gas-fired power station as quickly as we could blink. They can make the decision to do it as quickly as we can blink, because they have the money to do it, if they are allowed to. They could drop the price of gas so that it comes in at just under the cost of new renewable generation, and they would close out those renewable generators. Those renewable generators are already cost competitive.

In terms of the renewable projects that are consented to, again, Mr Brownlee is right. There is a big build going on in renewable generation at the moment. We have more than 5 years’ forward supply already consented to under the Resource Management Act. Geothermal generation capacity is being built. Geothermal is the most reliable source of baseload in New Zealand. It runs at higher reliability factors than gas, coal, or any other source of generation. It is more reliable than hydro because, of course, we do not have the water inflow risk. It is less susceptible to breakdown and there are fewer outages for maintenance than there are with gas and coal-fired power stations. Do not pretend we are doing this for security of supply reasons. We do not need to do it for those reasons. If we did, the legislation already allows us to get an exemption to the restrictions on new geothermal generation, and we can build it anyway.

This is another example of where the National Government is turning its back on doing the right thing. The idea that New Zealand will not have the demand for gas just because it is not burnt for electricity is another nonsense. We know that the biggest consumer of gas in New Zealand is now Methanex. Methanex uses it for producing methanol. It has reopened two of its very large methanol production facilities in New Zealand, and, as a consequence, demand for gas in New Zealand is going up already, because of Methanex. Do not tell me that a growing market for gas somehow will not cause exploration for gas. The market of yesteryear was smaller and gas companies still explored for more gas. The market this year is bigger than it was in those prior years, and I am being told that despite the fact that the market is growing, there will not be any exploration for gas in New Zealand. That is just another nonsensical argument.

The reality is that the world has very serious environmental problems, of which the most serious at the moment is climate change. If a country as wealthy as New Zealand, with our environmental ethic, with our richness in renewable resources, and with our system of democratic government, cannot do the right thing and reduce emissions, then the reality is that the world will not. It is a sad reality, but it is a truth.

If New Zealand, with all of those attributes that I spoke about, does not reduce its energy-related emissions, then the reality is that the world will not. It is a very, very sad thing to conclude, and it is something that the previous Labour-led Government was not willing to accept. We were not willing to accept that future for our children, for our grandchildren, and for the hundreds of millions—and it is literally hundreds of millions—of people in poor developing countries whose lives will be made absolutely miserable through climate change. But this National Government is willing to accept that conclusion. It is willing to abrogate its responsibilities. It is willing to see climate change emissions grow in electricity, because that is what this bill will cause.

The point on which I would agree with the previous speaker is that climate change is the most challenging and important environmental issue for this country and for the world. The real test though is, will the “Thermal Ban Bill”, as it is called, make a constructive difference? I, along with the Minister of Energy and Resources, put to the House that it is Clayton’s legislation that will achieve the opposite to what it is intended to achieve, and that the genesis of the legislation had far more to do with politics than finding a constructive way forward for New Zealand around the challenge of climate change.

I make no apologies for being an engineer and a bit of a pragmatist. The part in this law that is a nonsense is pretending that we can differentiate between a peak-load station and a baseload station. The nonsense of the current law is that we could build another mammoth Huntly power station and say it is a peak-load station. When Huntly was commissioned, it was a peak-load station. Yet under the current law and the exemptions we could build another station of that sort, despite it being the single greatest source of greenhouse gas emissions in New Zealand. You see, a peak-load station today may become a baseload station tomorrow, and that is why this legislation achieves very little.

The second thing I want to say about the Act that was passed by the previous Government is that it was all driven by politics. Let us just recite the previous Government’s record on thermal generation. When Labour came to Government in 1999, 72 percent of New Zealand’s power was produced renewably. It dropped to 66 percent—a drop of 6 percent over its 9 years—and it dropped every single year Labour was in office. I asked the Parliamentary Library to go back and check whether any Government in New Zealand’s history has a worse record, in terms of the drop in renewable energy. I say to my colleague from West Coast - Tasman that even if we go back to the very first lights being turned on in Reefton in the 1870s, no Government has a worse record in terms of decline of renewable generation than the last Labour Government. Those members should hang their heads in shame.

I further say how much of a nonsense it was. Do members know what the last Labour Government did? It used taxpayers’ money in 2002 to build a new diesel-fired power station at Whirinaki. Any New Zealander who picks up his or her power bill will find an electricity levy on it. That levy was to fund a new diesel-fired power station. When I hear members opposite pleading about climate change, that they are somehow the great saviours of the planet, why in goodness’ name were they spending compulsorily levied public money on a new diesel-fired power station?

But it got worse. Do members know that the biggest thermal power station that has been built in the last 20 years was not private enterprise? It was the Government that provided a guarantee for the building of the e3p generator next door to Huntly. The Government said that it would not be built without a Government guarantee. The previous Government intervened in the electricity market to build a new thermal gas-fired station one year, and the next year it wants to pass a bill to stop building thermal power stations. If we want confused public policy, that is what we have seen over the last 9 years, and that is why we have seen such an appalling emissions record around electricity.

Again, let us look at the facts of the last Labour Government’s record. We saw a 186 percent increase in greenhouse gas emissions from electricity generation. Let me just say that again. The biggest increase in greenhouse gas emissions during the last 9 years has been in the electricity sector and every piece of it was owned by the Government. Every single element was State-owned enterprises, building things at the direction of Cabinet. Let us just look at the actual emissions figures.

💬 Hon Annette King: Of course that’s rubbish.

Annette King, the deputy leader of the Labour Party, says that is not correct. She should explain.

💬 Hon Annette King: Happened at the direction of Cabinet.

That is right. I ask the deputy leader of the Labour Party whether she was in the toilet when Cabinet agreed to provide a Government guarantee for the e3p generator. Where was Annette King when Cabinet decided to build a new diesel-fired power station at Whirinaki? Where was she? The Cabinet minute is very, very clear in that regard. I say to the Minister—

💬 Hon Annette King: I think you are the Minister now.

I apologise to the deputy leader and former Minister. Why is it that the biggest growth in emissions occurred in the electricity sector during the last 9 years? You see, what members say on this side of the House—

💬 Hon David Parker: So your answer is to build still more thermal?

Well, I want to talk to them about that. The member opposite asks me about the policy. I think that it is very interesting to look at the record. There is only one year—only one year—in which there was a reduction in thermal greenhouse gas emissions.

💬 Hon David Parker: You told us there were no years.

No, no—overall, and every year—

💬 Hon Members: Ha, ha!

Oh, Mr Parker wants to get cute. It is true that every single year when Labour was the Government, greenhouse gas emissions grew. But in terms of thermal emissions it is true that if we can substitute gas for coal, that is a good thing.

💬 Hon David Parker: I agree, and the current Act allows you to do it.

Well, well! The member opposite, Mr Parker, the man who was part of the Government with the worst record ever in respect of increased greenhouse gas emissions, notes that if we can substitute coal for gas, that makes good sense. That is why we call these silly regularity methods.

Do members know the genesis of this bill? The genesis of this bill occurred when Labour went into the last election campaign with its trousers around its ankles, absolutely naked on the issue of climate change, because it had had 9 years of huge growth in emissions. So it dreamt up this idea of a Clayton’s ban to try to hide that nakedness. I challenge members opposite: which other countries in the world have a thermal ban of this sort—which ones?

💬 Hon David Parker: Which other country has our renewable resource?

Ah! Let us compare the record—let us actually compare the record of increased emissions. New Zealand’s emissions have grown by 12 percent over the course of the last Government, Australia’s by 8 percent, and the United States’ by 4 percent. The United Kingdom’s have gone down by 2 percent. None of those countries, which have a better record than New Zealand, has instituted this sort of silly regulatory intervention. That is why it is the view on this side of the House that the right approach is to provide a market instrument. That is the agenda that this Government will be advancing, so that there is an ongoing price advantage for renewable over thermal generation.

I commend the Minister of Energy and Resources for bringing this bill to the House, and for getting rid of the silly political gesture that was made earlier. Labour’s legislation was not designed to reduce emissions, it was designed purely for politics. We need an energy policy that will provide for security of supply and that will provide the right incentives for improved sustainability. The Act passed by the Labour Government was a failure, and it needs to be taken off the law books.

Debate interrupted.