Low Emissions Report - Executive Summary
New Zealand Productivity Commission. (2018). Low-emissions economy: Final report. Available from https://www.productivity.govt.nz/sites/default/files/Productivity%20Commission_Low-emissions%20economy_Final%20Report_FINAL.pdf
Date of release: 4 September 2018
The Productivity Commission has completed its inquiry into transitioning to a low-emissions economy and presented its final report to the Government.
The Government asked the Commission to identify options for how New Zealand can reduce its domestic greenhouse gas emissions through a transition to a low-emissions economy, while at the same time continuing to grow income and wellbeing. The inquiry investigates the challenges of, and identifies opportunities for, reducing New Zealand’s emissions, in the context of an ambition to achieve net-zero emissions by 2050.
The Commission engaged with a large and diverse group interested in climate change and mitigation policy. It completed over 120 engagement meetings, (including overseas), 34 conferences/events and received 403 submissions. Modelling work was also undertaken by a consortium of Vivid Economics, Concept Consulting and Motu Economic and Public Policy Research of different transition pathways to a low-emissions economy, examining respective impacts and outcomes.
The Productivity Commission’s final report makes 173 findings and 78 recommendations to Government.
The Commission found that early action on key policy reforms is needed if New Zealand is to achieve its emissions‑reduction goals. Amongst the numerous changes that will be required across the economy – some disruptive, some less obvious – three particular shifts must happen for New Zealand to achieve its low-emissions goals:
- we stop burning fossil fuels and switch to using electricity and other low-emission energy sources. This means a rapid and comprehensive switch of the light vehicle fleet to electric vehicles (EVs) and other very low-emissions vehicles, and a switch away from fossil fuels in providing process heat for industry;
- we undertake substantial levels of afforestation to offset New Zealand’s remaining emissions. This will require sustained rates of planting over the next 30 years (mostly on land currently used for sheep and beef farming), potentially approaching the highest annual rate ever recorded in New Zealand; and
- we make changes to the structure and methods of agricultural production. This will include diversification of land use towards more horticulture and cropping, and greater adoption of low-emissions practices on farms.
These needed changes are unlikely to happen at the scale and pace required unless the Government prioritises action to:
- establish a comprehensive and durable climate change policy framework, including separate legislated long-term targets for short- and long-lived gases; a series of successive emissions budgets; and an independent Climate Change Commission;
- reform the New Zealand Emissions Trading Scheme and apply some form of emissions pricing to methane from agriculture and waste; and
- devote significantly more resources to low-emissions innovation and technology, to account for the long timeframes involved in bringing innovative ideas to fruition.
Biomass as an energy source features primarily in chapter 14, which is devoted to options and opportunities to reduce emissions in heat and industrial processes.
CHAPTER 14 OVERVIEW
Industrial emissions (heat and industrial processes) account for around 15% of New Zealand’s gross GHG. Rising emissions prices will be central to driving emissions-reducing investments in industrial heat plant. For many heat users, potential exists to materially reduce emissions through measures to reduce the energy requirements associated with a process, such as energy and process efficiency improvements. More substantive emissions reductions will require conversion to lower-emissions fuel sources. Electricity and biomass appear to be the two options with the widest applicability and potential to reduce emissions, although the technical and commercial viability of low-emissions fuels varies case-by-case depending on factors such as geographic location and the nature of the heat required. The Government should provide leadership through its procurement guidelines to limit the installation of any new fossil fuel-powered plant for low-temperature heat in publicly owned buildings. The mandate of the Energy Efficiency and Conservation Authority (EECA) should also be extended to focus on lowering GHG emissions and promoting low-emissions materials. As part of this, EECA should continue work to address any information and coordination barriers that are hindering the uptake of low-emissions fuels for heat.
FINDINGS PERTINENT TO THE WOOD ENERGY INDUSTRY
For many industrial heat users, opportunities exist to materially reduce emissions through demand reduction measures such as energy and process efficiency improvements. Some of these mitigation options are already economically viable at current emissions prices.
Substantial emissions reductions will be challenging for high-temperature heat users in the short term. Smaller, but material, emissions reductions are likely to be possible through measures such as demand reduction, efficiency improvements and co-firing with lower-emissions fuels.
Reducing the use of coal is particularly important, as it has roughly double the emissions intensity of natural gas. However, in order to reach New Zealand’s emissions targets the use of both fuels will need to decline significantly.
Electrification can be a cost-effective mitigation option for process heat at current prices, provided that it is applied using a technology that has a coefficient of performance (CoP) well above 1. Electricity is currently a relatively high-cost fuel for process heat when is applied using a technology that has a CoP of 1.
Sustainably sourced biomass is a low-carbon fuel source that is widely used to generate process heat in New Zealand. Concerns about reliability of supply, higher (in most circumstances) costs per unit of heat, and sunk costs in incompatible infrastructure are the main barriers to further uptake.
Rising emissions prices will be central to driving emissions-reducing investments in industrial heat processes.
Greater understanding of mitigation opportunities in the area of process heat could be facilitated through a stronger and better-resourced innovation system that makes funding available for research into the optimal application and integration of known technologies.
Barring technological breakthroughs, opportunities to significantly reduce emissions from iron, steel, cement and aluminium production remain limited.
RECOMMENDATIONS PERTINENT TO THE WOOD ENERGY INDUSTRY
The statutory functions of the Energy Efficiency and Conservation Authority should be changed to encourage, promote, and support the use of low-emissions energy sources and materials. Functions relating to energy efficiency and conservation should be retained.
MBIE and EECA should review targets relating to industrial emissions reductions to determine whether a reduction in excess of that already forecast would be more helpful in driving emissions reductions.
EECA and MBIE should review existing initiatives related to information about fuel switching, co-firing, demand reduction and efficiency improvements for process heat, to minimise any information-related barriers to mitigation opportunities.
EECA and MBIE should consider a wider roll-out of policy initiatives to support the supply and use of biomass.
Government should take the lead in phasing out the use of coal and other fossil fuels for heating by limiting any future installation of fossil-fuel-powered heating systems in government buildings.
New legislation should be prepared to regulate carbon capture and storage activities (CCS). Regulation should address issues including the long-term regulatory supervision of CCS, including after an operation’s closure, and procedures and assessment criteria for permits.
Once new CCS legislation is in place, the New Zealand Emissions Trading Scheme should be amended to make CCS a recognised removal activity, no matter the source of emissions being captured and stored.