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Monday 10th December 2018

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Relying on electrification of heavy industry and transport to meet the country’s emission-reduction goals would risk “unnecessary” cost and may close out hydrogen export options longer term, Vivid Economics says.

Expanding renewable electricity generation and using that power in light transport and industry, and using large-scale afforestation to offset emissions from more challenging sectors, appears a “sensible strategy”, the London-based consultancy says.

But focusing on electricity when the relative costs of hydrogen, carbon capture and storage and the upper limits of afforestation to cater for hard-to-treat sectors are unknown is risky. Difficult sectors include dry-year power supply, high-temperature industrial heat and long-haul transport.

Meeting the country’s 2050 emissions targets using a diversified mix of afforestation, gas for winter peaking generation and more renewables and biomass for industry could cost $3.8 billion to $4.6 billion, or $800 per person a year, Vivid said in a report commissioned by First Gas and Powerco.

But if hydrogen or electrification is needed for those hard-to-treat applications, the cost rises to between $6.2 billion and $7.2 billion, or $1,250 per person a year.

“If innovation in hydrogen technologies outpaces innovation in electrification technologies, then ruling out this option could reduce the affordability of meeting the net zero target.”

The government is keen on getting New Zealand’s power generation system 100 percent renewable by 2035, despite strong warnings from the industry and the Interim Climate Change Committee that such a strategy would be prohibitively expensive and inefficient in terms of emission reduction.

But the government has also backed biomass projects and hydrogen trials. A string of hydrogen projects are getting underway, with some of them reliant on natural gas – at least initially - and some also relying on carbon capture and storage to manage their emissions.

Ben Gerritsen, commercial and regulatory manager at pipeline operator First Gas, said it’s important the country understand the trade-offs between the cost and environmental outcomes of the choices it faces and that it not narrow its options prematurely.

While the country’s renewable electricity supply is a big advantage, he said there is an overly simplistic belief in the ability of electricity to displace higher-carbon energy. He noted that the electricity system is the smallest energy provider on the North Island, where last month it delivered about half the energy of either the gas network, or the liquid fuel sector.

“We need to be realistic and we need to understand what are the capabilities of that system to meet New Zealand’s demand,” he told officials, executives and journalists at a launch of the report in Wellington.

Gerritsen said failing to be realistic about the costs of decarbonisation risks the type of backlash seen in Australia, where the government of Scott Morrison has had to abandon a raft of policy initiatives aimed at increasing the use of renewable energy.

“We would prefer to see something that is a bit more measured and a bit more step-wise in how we move toward a net zero target, rather than having these rear-guard actions or really strong adverse responses to what will be an increasing cost picture in terms of achieving decarbonisation.”

The three scenarios Vivid developed don’t consider agricultural emissions, or allow for the use of international carbon credits to meet New Zealand’s emissions targets. They have as their starting point the high level of afforestation identified by the Productivity Commission in its study earlier this year.

Gerritsen noted that high afforestation remains a critical uncertainty for climate policy here, even though the prevailing view is that a carbon price of $25 to $50 a tonne will have landowners getting back into forestry “big time.”

The diversified mix scenario assumes there is sufficient afforestation to offset the emissions of the hard-to-treat sectors. The green gas scenario assumes there isn’t and that hydrogen and biogas technologies evolve quickly to become the least cost alternative, with the country’s pipelines repurposed for their use. The all-electric scenario assumes all gas use is phased out.

Vivid says hydrogen could offer additional advantages over electrification if it helps establish an export industry for the fuel. Development of a hydrogen export sector could also help meet the country’s unique dry-year generation problem, which occurs when the small lakes that store water for hydro-electricity generation are low. In dry years, surplus hydrogen exported during normal years could be used domestically instead.

“It is therefore a policy and commercial priority to carry out further investigation into the costs and technical potential of forestry, hydrogen and electrification options in New Zealand,” Vivid says in its 54-page report.

“Greater certainty over the relative potential for hydrogen and electrification to address GHG emissions in hard-to-treat sectors is needed before long-term decisions can be made on the role of gas infrastructure in meeting the net zero emissions target.”

Further research should include a comprehensive study of afforestation, particularly ‘tipping points’ where small additional increases in afforestation might create large impacts on economies, ecosystems and communities.

A technical-economic assessment should be undertaken to assess the potential applications of hydrogen and electricity. Trials under way in the UK and Australia on the blending of hydrogen into the existing gas network should also be considered.

Vivid says a full feasibility assessment of carbon capture and storage is also needed, including the availability of suitable storage sites, operational safety and long-term integrity of CO2 storage.

First Gas chief executive Paul Goodeve says the report highlights the need for policymakers to take a cost-effective approach in the transition to a low-carbon economy if the public are not to be over-burdened.

“What this research shows is that there is no easy answer to achieve a low-carbon economy,” he said. “A key element is affordability. We need to find affordable ways to meet winter electricity peak demand and maintain the competitiveness of large industries that use gas for production.”


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