02 Feb 2020

Renewable Energy Policy Paper Proposes Crackdown on Coal Use

02 Feb 2020  by NZ Energy and Environment Busine   
The accelerating renewable energy and energy efficiency discussion document explores possible options to address barriers to reducing energy-related emissions and improve energy efficiency.

Much of the discussion paper describes work programmes underway – particularly in energy efficiency – but discusses accelerating them and also some new ideas. Those given serious weight include a ban on new coal burners for low and medium heat and a new levy on coal users.

Others include such as a setting up a new State Owned Enterprise to build renewable energy and encouraging the building massive amounts of offshore wind. However, many of the ideas are shot down by the officials’ arguments almost immediately.

The paper said there are no preferred options and feedback is sought about how options would work and interplay with each other, and whether there are other ideas that may work better.

The fact they are being floated though show ministers are determined to come up with some ideas to meet a 2030 emission reduction target under the Paris Agreement, which Government projections show NZ is on track to overshoot by about 200 Mt CO2-e, and an aspirational goal of 100% renewable electricity by 2035.

The paper says taking advantage of NZ’s highly renewable electricity system has a critical role to play in decarbonising the wider energy system. Electrification of transport and process heat can help reduce energy-related emissions.

“Planning for the future and encouraging early action may require us to consider investments now to reduce the long-term cost of transition.” These could include:

1. Up-front investment in energy efficiency

2. Facilitating new infrastructure such as generation, transmission and distribution lines

3. Government leadership and procurement of clean energy technologies

4. Developing emerging markets for alternative fuels such as hydrogen or biomass

5. Research, development, demonstration and diffusion of new clean energy technologies, and

6. Supporting new business, cooperative and community models for energy supply and use.

Officials believe in the medium term a rising carbon price will unlock a large number of coal-to bioenergy and some coal-to-electricity opportunities and could encourage the early retirement of some coal heat plants at low and medium temperature applications.

However, energy used to produce methanol, urea, refining, aluminium and steel makes up 51% of energy emissions in the industrial sector and abating these will be difficult without new technology.

The paper suggests giving the sector more information about opportunities and requiring large energy users to publish Corporate Energy Transition Plans (including reporting emissions) and conduct energy audits.

Other options include expanding EECA’s grants for technology diffusion and capability-building.

A more interventionist approach recommended includes a ban on new coal-fired boilers for low and medium temperature requirements and requiring existing coal-fired process heat equipment supplying end-use temperature requirements below 100°C to be phased out by 2030.

The paper says such a ban might substitute for a higher carbon price hitting all fossil fuels as carbon prices in excess of $60/t CO2-e, are required to make widespread coal-to-biomass and some coal-to-electricity projects economic.

Synlait and Fonterra, as well as meat processor, Alliance, have announced commitments to build no additional coal-fired boilers and make up a large portion of the market for low and medium temperature heat.

Inclusion of natural gas (and other fossil fuels) in the ban has not been considered because carbon prices in excess of $120/t CO2-e are required to make many gas-to-electricity projects economic. “Such a broad ban would be a blunt instrument and entail very high cost on industry. It could force higher cost abatement in the sector (and the wider economy) compared to more cost-effective options available today. However, to achieve our net zero carbon 2050 target, it is possible that the phase down of gas in industry will also be required in the future.”

To increase government funding for process heat programmes it is proposed to have a new EECA levy on consumers of coal. This would be in addition to the current production levy of $1.50 per tonne on South Island lignite and $2 per tonne on other coal.

The levy faced on coal users would be additional to ETS costs and officials suggest the new EECA levy could look to raise $2m to $4m a year.

Other ideas floated in the renewables document including over electricity generation are covered elsewhere in this week’s Energy and Environment.

First published in Energy and Environment on January 23, 2020.

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