Hon Trevor Mallard

Minister for Economic Development

Acting Minister of Energy

16 June 2006 Speech Notes

Embargoed until: 9am

Balancing and addressing NZ's energy needs

Speech to Electricity Engineers Conference, Auckland

Thank you for the opportunity to speak to your conference today.

The Labour-led government has made the transformation of New Zealand into a high-value, high wage, export-led economy a major priority over the next ten years.

We recognise that climate change and energy issues will be critical to this process. We need to ensure that we have the right infrastructure in place to meet our future energy needs, and to cope with significant changes in our energy supply over time.

In New Zealand we face some unique challenges in the energy area. We are a small and remote market, in a mountainous country with what is sometimes referred to as a "stringy" geographical infrastructure. This impacts on our electricity system's resilience, and the scope for competition.

We are fortunate to have a system that already places a significant emphasis on renewable energy sources such as wind and hydro, but we need to be aware of the challenges that creates, such as during prolonged dry periods.

In order to help us map out or long-term energy options, and provide direction and leadership for the energy sector, our government has started the process of developing a National Energy Strategy.

The strategy will put us firmly on the path to an energy system that supports economic development whilst also being environmentally responsible.

Security of supply will be a major focus for the strategy. We need to consider what our future energy sources will be in the context of declining reserves from Maui, peak-oil, and the impact of higher international energy prices.

We also need to look carefully at whether or not we have the right focus on forward planning for new investment in electricity generation and transmission. We want to look at whether or not competition functions effectively in retail and wholesale markets, and whether or not there should be a more proactive role for government.

Investment in new generation is occurring, but stakeholder concerns remain regarding pricing and the timing of new generation investments.

A related issue is whether the currently regulated electricity market can deliver an "optimal" transmission system.

There is general consensus that the National Energy Strategy should emphasise improvements in energy efficiency and the supply of renewable energy sources.

Energy is a scarce resource and we must use it carefully. Improving our energy efficiency is plain common sense and will continue to be a major area of focus for our government.

I'd like to acknowledge at this point the positive and constructive role Jeanette Fitzsimons is playing by leading a review of the National Energy Efficiency and Conservation Strategy on behalf of the government.

Improvement to energy efficiency will require widespread buy-in, and I welcome the support and contribution of any party that is willing to take the issue seriously.

In the case of renewable energy, we need to address any undue barriers to renewable energy development, while recognizing that some proposed renewable projects ought not to proceed because of adverse environmental consequences. We also need to decide whether, and how, to support emerging technologies.

The National Energy Strategy will encourage more sustainable transport use and encourage more research and technology development. We also want to foster a greater public awareness of energy challenges and develop a more inclusive and informed decision-making process.

When it comes to managing the transition away from oil dependence, there are short, medium and long-term factors that are relevant for both supply and demand, and the strategy needs to address these.

In the short term, biofuels in the form of biodiesel and ethanol can be produced from by-products such as tallow and whey.

In the medium term, and with further research and development, we may look to second generation biofuels, such as those derived from crops.

In the longer term, there may be a significant potential for hydrogen, coupled with carbon sequestration, if the technological hurdles can be cost-effectively overcome.

Finally, when it comes to the role of gas over the next twenty-or-so years we know that:

- indigenous gas supplies are depleting;
- exploration is increasing, but the outcome is uncertain; and
- existing gas-fired power stations would be partially stranded if a gas shortfall eventuates and a "backstop" source of LNG (or CNG) is not developed.

Work on the National Energy Strategy is still in its early stages. As key players in the industry, your input will be welcome.

Turning now to climate change, internationally the debate has shifted from "is climate change real?" to "how do we address it?"

As a nation we account for only 0.2 percent of the world's carbon dioxide emissions. Yet as a country we are ranked 11th in the world per capita for greenhouse gas emissions.

Beyond the importance of acting responsibly at the international level, the effects of climate change on our primary produce nation make it imperative that we encourage and participate in international action to reduce emissions.

We made a commitment in 2005 to not impose a carbon tax, but right now we are looking at a variety of other ways to reduce our emissions.

In our 2006 Budget, we've committed $100 million towards a contingency fund for climate change policy initiatives.

Following an in-depth climate change policy review at the end of last year, we asked officials to undertake further work to develop climate change policies. Work programmes are now underway to consider policy options in a number of areas including:

- alternatives to the carbon tax, including emissions trading;
- the nature of future Negotiated Greenhouse Gas Agreements with industry; strategies for any future purchase of emission reduction units on the international carbon market;
- incentives for renewable energy and domestic emissions reductions in all sectors;
- the nature of any future cross-sectoral incentives programme, building on the Projects to Reduce Emissions programme;
- review of the National Energy Efficiency and Conservation Strategy;
- upgrading the fuel efficiency of our vehicle fleet; and the potential uptake of biofuels.

Consultation is expected before we make final decisions on setting climate change policies.

Research and innovation will have an increasingly important role to play in finding solutions.

Whether it's developing mitigation practices and technologies, or finding ways that we can adapt to the changes that are coming, there is a lot of room for solid science and practical implementation.

New Zealanders have shown that they can respond effectively to global issues.

Forging a response to an increasingly variable climate in a carbon-constrained world offers a new set of challenges.

Together, we can rise to these challenges, while preserving our quality of life now and in the future.

ENDS

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